[quote=SK in CV][quote=CA renter]Yes, I’m referring to the stock market bubble in the late 90s. As you know, that bubble made the pension funds look over-funded, which is why they were able to pass the pension benefit enhancements “without any additional costs to taxpayers.”
The pension funds have NOT been doing well over the past 15 years. They were UNDER-funded after the stock market bubble burst, so the funds started investing more and more of their money in real estate, mortgages (and related derivatives), and other “alternative” investments, like hedge funds. It was this confluence of events (all of which can be blamed directly or indirectly on the Fed) that caused the pension “crisis.”[/quote]
Pension funds have been investing in RE and mortgages for decades, maybe longer. You might remember the San Diego connection to the organized crime syndicate in Las Vegas in the mid 70’s when the Teamsters pension fund lent San Diegan Alan Glick millions to become the 2nd largest hotelier in Vegas behind Howard Hughes. That’s where they put their money. That was the conservative investment.
During the 15 years through 2007 (prior to the crash), CalPers average rate of return was almost 11%. Average. That included the dot com bubble burst. It was fully funded through 2007. They had two years in the ’90’s where their return was over 20%. They couldn’t have made that kind of return in low risk investments. The assertion that they only started making higher risk investments after interest rates fell is unsupportable by the evidence.[/quote]
CalPERS was UNDER-funded after the bursting of the internet/stock market crash. It was NOT fully funded for the past 15 years. I’m trying to find the financial statements to show this, but am having a difficult time trying to find the 2002-2004 data, but know that they were not fully funded.
As for the additional risks taken by the pension funds after the stock market crash (causing the under-funded status) and the need to “catch up” with riskier investments at a time when the Fed was holding rates at artificial lows:
“Years of bad bets catch up
Most of Calpers investment losses came from its largely passive investments in baskets of equities, which still account for about half of the system’s assets. But the retirement system also got into trouble by adding leverage, reducing oversight and by chasing other hot markets.
After maintaining a low-risk real estate strategy for decades, studies commissioned by Calpers show that it switched gears in 2002, embracing higher levels of risk even as the real estate market began to top out in 2005. By mid-2009, Calpers had a one-year loss of 48.8% in its real estate portfolio and was reporting among the lowest returns of any large pension funds in the country.
In early 2006, it said it would invest $6 billion in commodities, particularly through index futures, news that caused Grants’ Interest Rate Observer to respond: “On the timing of this demarche, we hand Calpers the gold medal for Being Late.”
Calpers showed even worse timing in the mortgage market. Just before the market tanked, it invested approximately $140 million in unrated collateralized debt obligations (CDOs) and $1.3 billion in complex buckets of loans and debts called structured investment vehicles (SIV). A Calpers lawsuit puts the SIV losses at “perhaps more than $1 billion.”‘
