Saturday, November 29, 2014
Inquirer Daily News

Pension bailout fund bet big on stocks just before crash

The federal pension bailout agency dumped bonds and invested billions on stocks and real estate last year, just before the market crashed, says the Boston Globe.

Pension bailout fund bet big on stocks just before crash

If we've heard it once, we've heard it an awful lot from old John Bogle and other conservative Philadelphia investors: It's tough to time markets because you have to be right twice -- when you buy, and when you sell.

The Boston Globe's Michael Kranish writes that the Pension Benefit Guaranty Corp., the federal taxpayer-subsidized body that bails out broke pension funds, which will shortly be called on to rescue millions more pensioners' retirement payments, went and ignored that advice, dumping bonds and buying stocks and real estate last year just before the markets collapsed. Story here. Excerpt:

"Charles E.F. Millard, the former agency director who implemented the strategy until the Bush administration departed on Jan. 20 [and] a former managing director of Lehman Brothers, said flatly that 'the new investment policy is not riskier than the old one.'

"He said the previous strategy of relying mostly on bonds would never garner enough money to eliminate the agency's deficit. 'The prior policy virtually guaranteed that some day a multibillion-dollar bailout would be required from Congress,' Millard said.

"He said he believed the new policy - which includes such potentially higher-growth investments as foreign stocks and private real estate - would lessen, but not eliminate, the possibility that a bailout is needed.

"Asked whether the strategy was a mistake, given the subsequent declines in stocks and real estate, Millard said, 'Ask me in 20 years. The question is whether policymakers will have the fortitude to stick with it.'" Judge me in 20 years! 

Maybe it's not as bad as all that. The Globe doesn't know exactly where the money is. But there's no reason for PBGC to be so secretive. It can collect performance data every day, every second. Why not post a current fund balance? Or at least a monthly peformance report, like New Jersey's retirement fund does?

About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano