Market Rout Sends State and City Pension Funds to Worst Year Since 2009

Link: https://www.wsj.com/articles/market-rout-sends-state-and-city-pension-funds-to-worst-year-since-2009-11660009928?st=sooa4lma1xq9ff4&reflink=desktopwebshare_permalink&fbclid=IwAR0CC7k-F2J_IblLDjSODS1iDZuRxzuGk1-4Bgwtc_AQ0d4AajP00toEQH8

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Public pension plans lost a median 7.9% in the year ended June 30, according to Wilshire Trust Universe Comparison Service data released Tuesday, their worst annual performance since 2009 and a fresh sign of the chronic financial stress facing governments and retirement savers. 

Much of the damage occurred in April, May and June, when global markets came under intense pressure driven by concerns about inflationhigh stock valuations and a broad retreat from speculative investments including cryptocurrencies. Funds that manage the retirement savings of teachers, firefighters and police officers returned a median minus 8.9% for that three-month period, their worst quarterly performance since the early months of the global pandemic.

Author(s): Heather Gillers

Publication Date: 9 Aug 2022

Publication Site: WSJ

Pension Funds Plunge Into Riskier Bets—Just as Markets Are Struggling

Link: https://www.wsj.com/articles/pension-funds-plunge-into-riskier-betsjust-as-markets-are-struggling-11656274270

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More than 100 state, city, county and other governments borrowed for their pension funds last year, twice the highest number that did so in any prior year, according to a Municipal Market Analytics analysis of Bloomberg data. Nearly $13 billion of these pension obligation bonds were sold last year, which is more than in the prior five years combined.

The Teacher Retirement System of Texas, the U.S.’s fifth-largest public pension fund, began leveraging its investment portfolio in 2019. Next month, the largest U.S. public-worker fund, the roughly $440 billion California Public Employees’ Retirement System, known as Calpers, will add leverage for the first time in its 90-year history.

While most pension funds still avoid investing borrowed money, the use of leverage is spreading faster than ever. Just four years ago, none of the five largest pension funds used leverage.

Investing with borrowed money can juice returns when markets are rising, but make losses more severe in a down market. This year’s steep slump in financial markets will test the funds’ strategy.

It’s too soon to tell how the magnified bets are playing out in the current market, as funds won’t report second-quarter returns until later in the summer. In the first quarter, public pension funds as a whole returned a median minus 4%, according to data from the Wilshire Trust Universe Comparison Service released last month. A portfolio of 60% stocks and 40% bonds—not what funds use—returned minus 5.55% in the quarter, Wilshire said.

Author(s): Dion Rabouin, Heather Gillers

Publication Date: 26 Jun 2022

Publication Site: WSJ