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Fmr. Economic Advisor to Governor Schwarzenegger David Crane on pensions returning to hedge funds.
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To pension funds that they are leaping back it turns out.
In to hedge funds according to today's Wall Street Journal so too much risk if you're retiree out there may be a smart investment plan.
Spring David Crane in his former economic -- you -- Governor Arnold Schwarzenegger so the story money investing section of journal says the pension funds here.
-- leaping back into hedge funds.
What do you make of that I guess they need to make up -- some losses over the past few years is is the way to do it.
Well yeah they do have to earn their investment return assumption which is very high -- recorders to 8% per annum so they have to invest in things that will come close to generating that.
Hedge funds and of themselves are not necessarily more or riskier than other investments if -- if they're properly hedged and structure.
Well that's the thing I'd because longtime GU you have this knee jerk reaction all -- -- my money they're throwing it away into a hedge fund.
And I was looking at the California numbers and and even calpers has come back and made a nice.
-- was eighteen and a half percent over the first three quarters of its fiscal year so it's been a nice comeback I don't know how much of that.
Is because of hedge funds but maybe these pension -- to get back on track the -- to investor money.
Well -- let me make some comments first fall.
It's not that the retirees have to worry about the investment it's the taxpayers does this taxpayers underwrite the retirement benefits so.
The people that should be wondering about pension funds and how the investor money or our taxpayers.
Secondly.
Yeah it it all pension funds have done better over the last few years.
But they'll need to earn roughly 20% brand and just for the next five years roughly the same rate that they're earning at just to get back even.
-- -- calpers for example lost the total of 29%.
In their fiscal years no way to know nine so it is that it's at a we've been talking all week long about entitlement programs and what have you -- for people planning for retirement.
The idea that these these pensions are going to be there are not is that a serious question we should be looking at.
And you know if you were thinking about -- -- 1015 years down the line would you be confident that the money will be there.
The and if you're talking about people who don't have defined benefit plans then it's a different question for those that have defined benefit plans if you're an employee of the state of California.
Your retirement money will be there are no matter what -- because this state is obligated to make that payment no matter how well or how poorly the pension funds have done.
So those those employees can feel secure.
People without those sorts of plans.
Of course feel less secure.
Right but what about the states who are funding those plants.
State governments and the pressure that they're under what's being done do you think it to tackle that problem more -- -- -- Taking the proper steps right now even if the problem is still there broadly speaking.
Not yet.
Not yet there there are some leaders who are really looking to take the right steps you may have seen the report from the treasurer Rhode Island recently where she dug down.
And really exposed how you -- address this problem.
The problem is caused by not funding the promises when -- made India and -- pension funds get away with doing that because they assume these.
Super high -- return assumptions and therefore put away too little money so the way to solve it.
Is to make sure you fund -- promise when it's made at the right level.
And these pension funds have been assuming rates of returns that are like 30% higher than investment markets historically returned.
How -- -- -- way to address it now.
In Califano gonna say how are they doing out there California which have been kind of the poster child for.
If it can't go wrong and we'll go wrong after over the last however many years how they doing now out there in California under.
You know new leadership Jerry Brown.
Well they're still not looking to address the pension problem the way it really needs to be addressed any California is not as bad off as -- as a number of other states who are in much worse pension.
Positions in California is.
And the state legislature and the governor sort of still dancing around this problem I think they have -- -- from people like.
The treasurer Rhode Island -- rest mapped out.
A serious plan for how to address this problem while maintaining retirement security for government employees.
I mean you have to remember current and future government employees are also victims of this underfunding.
If they wanna see their own compensation rise in the future or jobs be there -- As well as citizens getting the services they did -- -- they need yeah and have their taxes go to their current services they have to reform these pension -- right way.
For example that -- suggest they have the ultimate senate when you think about it David it's it's always good to have you on the show David Crane from out in California thanks offer coming up.
