Fools Rush In: Pension Funds Investments in Hedge Funds

Now that the whole private equity scam is hitting the wall, guess who is rushing in to invest in hedge funds. You are. At least you are if you have a public pension.

You see, those responsible for funding pensions can save money be investing in highly profitable ventures. Don’t worry, if those ventures do not turn out to be profitable, the pension system can decrease benefits.

Tse, Tomoeh Murakami. 2007. “Public Pension Systems Betting on Hedge Funds.” Washington Post (24 July): p. D 1.

“Determined to keep its promise to the state’s public employees, teachers, police officers and firefighters, the Montana pension system may venture into a high-stakes corner of the investment world: hedge funds. The idea was proposed in two recent studies commissioned by the $8 billion retirement system, which also recommended opening up to other nontraditional investments to keep generating the annual returns necessary to meet its obligation to retirees.”

“The California Public Employees’ Retirement System, the largest pension fund in the country, recently decided to increase its allocation to hedge funds to as much as $12 billion. It made its first foray into the hedge fund world five years ago, with an initial investment of $50 million. The New Jersey retirement system is in the process of allocating up to an additional $3.8 billion to hedge funds. That would be nearly a sixfold increase from the original $800 million investment in 2006. The Virginia pension fund, which covers more than a half-million teachers, state and local government employees, began putting money in hedge funds in 2003 and now has about $2.6 billion invested.”

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