Pension Funds Going George Soros

Watch your pension, the NYT actually does a good bit of reporting on this story:

Pension Funds Hedging

The Times reports that money from pension funds are flooding into "hedge funds":

Faced with growing numbers of retirees, pension plans are pouring billions into hedge funds, the secretive and lightly regulated investment partnerships that once managed money only for wealthy investors...................

Pension officials who have been shaken by market downturns and persistent deficits are attracted by hedge funds' promise of richer, or more consistent, returns. But the trend has caused some consultants and academics to voice cautions. They question whether hedge funds, with risks that are hard to measure, are appropriate for pension funds, whose sole purpose, by law, is to pay out predetermined benefits to retired workers................

Hedge funds are a bet against market trends as an upside if the core investment strategy fails. The worst reason ever for playing a higher risk with your investment when you are down is "attracted by promises of richer or more consistent returns". When return demands are huge like they are now on pension funds to make up the lag that can not be made up, this is scary to me. It's a higher liability vs. ability to pay scenario not an investment return scenario. The risk is huge and I agree with the Post that pensions should not be playing in the hedge fund landscape:

"It's very inappropriate when the company is offering a pension plan that is guaranteed by the federal government," said Zvi Bodie, a professor of finance and economics at Boston University who writes and lectures on sophisticated investment techniques and is enthusiastic about hedge funds in other contexts.

Hedge funds make large, sophisticated investments based on the premise that by swimming outside the currents of the markets, often betting against conventional wisdom, they can outperform other investments. Hedge funds became famous in the 1990's, when managers like Michael Steinhardt and George Soros made huge swashbuckling bets that sometimes produced returns of 30 percent or more.....................

Retirement funds and pension funds should be in blue chip stocks and bonds and positioned for a "sound" but reasonable return, not taking a chance on a flyer. If things are so bad in the pension world that managers a willing to leverage in hedge funds, people should be "really" concerned..................

Hedge Funds are for billionaire rapist whores like Soros, not pension funds that have to see retirees through their golden years...............................