[quote=livinincali][quote=CA renter]
Mind you, CalPERS used to manage almost everything in-house and had tight restrictions WRT what they could invest in — almost exclusively Treasuries with some smaller allocations to very highly-rated municipal and corporate debt. Wall Street lobbied hard both to change their allocations to riskier investments (those lovely “innovations” created by Wall Street, included), and then lobbied to have outside managers and consultants at the public pension funds. If not for those changes — the PRIVATIZATION movement at work — the “pension crisis” would be much less significant than it is today, if it were to exist at all.
So…how’s that “privatization” thing working for you?[/quote]
Well it would be really tough to assume a 7.5% rate of return if you had to put most of you assets into treasuries and highly rated debt. Most of that is paying somewhere between 2 and 4% now and has been for awhile. If you have to assume 3-5% rates of return you’re screwed anyways.[/quote]
Because of their long-term horizon, they’re able to get into long-term bonds. They have the flexibility to buy longer-term bonds when rates are higher, and shorter-term bonds when rates are lower. Only fools would be buying long-term bonds right now, IMHO.
Of course, this is also where the Fed manipulation comes into play. If not for the Fed keeping interest rates well below where they would be without the interference, returns would be much higher and asset prices would be less volatile, IMHO. Less volatile booms and busts are far more preferable for institutions like pension funds (and people who prefer investing based on fundamentals instead of trying to time the next bubble).
FWIW, if the pension funds had been in bonds all along, they wouldn’t have passed some of the pension enhancements (nor enacted the ridiculous pension contribution “holidays” when employers paid little to NOTHING in pension contributions) in the late 90s/early 2000s, which would have kept pension contributions at much more stable and sustainable levels.
