PhillyDeals: Pa.'s pension funds show a $28 billion drop

Pennsylvania's state pension plans outsmarted themselves last year.

It wasn't just the credit crisis that cost us more than $28 billion in investment losses.

The Pennsylvania State Employees' Retirement System, chaired by Philadelphia attorney-lobbyist-ward leader Nicholas Maiale, lost at least $10 billion from its hedge-fund, private-equity, stock, bond and real estate portfolios, leaving $24 billion to fund future pensions.

The Public School Employees' Retirement System, chaired by Poconos schoolteacher Melva Vogler, lost at least $18 billion, leaving $45 billion.

And that's not counting losses from private equity and real estate after Sept. 30. They haven't reported those yet.

This means they'll be needing more public money - way more than the $2.4 billion in taxpayer-funded "employer" and worker payroll "contributions" that helped fund pension checks last year - to pay pensions totaling more than $7 billion a year to 280,000-plus state and school pensioners.

The yearly budget reports that each system filed with the General Assembly yesterday in advance of their yearly budget hearings is the source of this information.

Each fund lost around 30 percent. Some expensive investments designed to diversify the funds ended up dragging them down. SERS hedge and swap strategies helped boost losses from the system's stock portfolio to more than 50 percent. The system also lost 31 percent on what it called "inflation protection" investments, which were actually commodities bets. PSERS lost even more on its commodity portfolio.

Pennsylvania paid handsomely for these lousy returns. And I don't mean the relatively piddling PSERS bonuses that bent some legislators out of shape last year.

PSERS paid $387 million to hundreds of private equity, stock, bond and "alternative" asset managers. SERS paid $304 million, much of it to hedge funds that made SERS's returns worse, not better.

That means SERS paid a little more than $1 for every $100 it invested; PSERS, a little less than $1.

They'd have done better if they could have put it all with, for example, Vanguard Group's old Wellington stock-and-bond fund.

Wellington charges retail investors just 27 cents per $100, according to Morningstar. Plus, institutional investors like Pennsylvania get big discounts.

And Wellington, unlike SERS or PSERS, only fell 22 percent last year.

Comcast Corp. reports 2008 earnings today. Independent credit rating agency

Egan-Jones

, of Haverford, cut the Philadelphia cable giant's credit ratings yesterday to BBB from BBB+ (senior debt). EJ thinks the company's weak share price will boost pressure for share buybacks or a dividend boost.

That set company president Sean Jones - not for the first time - squarely against Moody's Investor Service, which said last week that it may boost Comcast ratings, pending a review, given the company's strong recent cash flow.

"We don't think Comcast's business is recession-proof," Egan told me. He expects hard-pressed consumers to stop paying for cable and Internet extras.

"The definition of what is lavish and what is not has shifted," reports

Hannah Glover

at

Financial Times'

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investment-industry Web site.

"Such concerns may have been behind Goldman Sachs's announcement last week that it decided to switch the venue for next week's (Feb. 25-27) Technology and Internet Conference from the Mandalay Bay in Las Vegas to the San Francisco Marriott."

Goldman received $10 billion in federal bank bailout money, and CEO Lloyd Blankfein, tired of getting scolded by congressmen, says he wants to pay the government back as fast as possible.

The Vegas switch, writes Glover, "is the second example of a Goldman Sachs site switcheroo. Two weeks ago, it announced that a March meeting for hedge-fund clients will be held in New York, instead of Miami, as previously planned."

Taxpayers, do we feel better? New York and San Francisco are still costly places to meet. And Las Vegas and Miami are bailout-candidate, high-foreclosure cities that could use a bit of expense-account spending.