Saturday, June 30, 2007

Public pension funds take a risky gamble

Bear Stearns is hawking the riskiest portions of collateralized debt obligations to public pension funds. At a sales presentation of the bank's CDOs to 50 public pension fund managers in Las Vegas, Jean Fleischhacker, Bear Stearns senior managing director, tells fund managers they can get a 20% annual return from the bottom [i.e., riskiest] level of a CDO. Many pension funds, facing growing numbers of retirees, are still reeling from investments that went sour after technology stocks peaked in March 2000. Fund managers buy equity tranches, which are also called first loss portions, even though those investments are never given a credit rating by Fitch, Moody's or Standard & Poor's.

Seven percent of all the equity tranches sold in the U.S. in the past decade were purchased by pension funds. Public pension funds have bought more than $500 million in CDO equity tranches in the past five years, The California Public Employees' Retirement System, the nation's largest public pension fund, has invested $140 million in such unrated CDO portions. Citigroup sold the tranches to Calpers. The New Mexico State Investment Council, which funds education and government services for children, has $222.5 million invested in equity tranches. The council decided in April to buy an additional $300 million of them. The General Retirement System of Detroit holds three equity tranches it bought for $38.8 million. The Teachers Retirement System of Texas owns $62.8 million of them. The Missouri State Employees' Retirement System owns a $25 million equity tranche.

Tuesday, June 19, 2007

More Leadership Changes at Hewitt

Hewitt Associates announced four key leadership appointments in its Consulting business:
• Monica Burmeister to global chief of Consulting Operations
• Richele Soja to North American Consulting leader
• Andrew Bell to global leader of Hewitt’s Talent & Organization Consulting business
• Joanne Dahm to North American practice leader of TOC

Friday, June 15, 2007

Some Numbers Regarding NJ Pension Early Retirement

Over the last 20 years (most recently in 2002), NJ has granted special early retirement benefits to employees five times. Payrolls had to be trimmed to plug budget gaps. But in every single case, the early retirement plans cost New Jersey more than it saved. In 2002, more than 5500 workers took the package, more than double the number the state had projected. Many of the retirees were in federally financed jobs so the state did not actually recognize any savings in salaries. To make matters even more absurd, nearly all the vacancies were filled quickly. Only 210 remained vacant at the end of fiscal 2003.

A special ten-member panel appointed to examine pension-related bills, didn't review the 2002 bills. In fact, it never met. The bill passed in just 18 days. Legislators now admit they didn't really consider how to pay for the special benefits. It is now estimated, the feel-good 2002 program will cost the state $617 million, not the $278 million projected in 2002.