In October, I wrote about the problems caused by signficant investment losses in CalPERS, the California Public Employees Retirement System. At that point CalPERS had lost 20% of its value in 4 months and was going to state and local tax-payers to demand that they make up the hole in their investments.
Well, they screwed up, and they are back asking for more money. Not only did they lose invested money, but they were actually leveraged up, so they did particularly badly. From the WSJ:
Calpers in recent weeks said it expects to report paper losses of 103% on its housing investments in the fiscal year ended June 30. That’s because Calpers invested not only its own money, but billions of dollars of borrowed money that must be repaid even if the investment fails. In some deals, as much as 80% of the money invested by Calpers was borrowed.
Now, obviously, it is terrible thwhen at any investor loses their shirts. But it seems that this is just blatant risk mismanagement, shifting assets to higher-risk investment vehicles:
But Calpers has targeted less money in bonds, and about double the allocation to private-equity investments and real-estate deals, than the average public pension fund, according to Calpers documents and an industry survey. …
Since the average rate applies to Calpers’s entire housing portfolio, some individual deals used as much as 80% borrowed money, Mr. McCook recalls. That level is more aggressive than many pension funds or land developers would use, industry consultants and developers say.
So how do they fill the gap? The tax-payer:
Calpers is now warning California’s cities, towns and schools that they may have to cough up more money to cover the retirement and other benefits the fund provides for 1.6 million state workers. Some towns are already cutting municipal services, and at least one is partly blaming the Calpers fees.
Let’s get this straight. The pension managers mismanage their money by engaging in more risky investments, the investments go under, and now the people of California have to foot the bill so that public employees don’t have to suffer?
What about the rest of us? Why do public employees deserve to get bailed out, but not the rest of the pension holders?
Stopping this has got to be a political winner. If I were a California activist, I would be pushing a ballot measure that would require a referendum to approve any additional taxes to fill gaps in CalPERS.