Friday, October 28, 2016

Cross your fingers: Nashville's risky pension portfolio

In the past, when Nashville's pension fund earned more than required to fund the pensions, the politicians spent the surplus; but when it came up short, they did not fund the difference.  This lead to systematic underfunding.  Then the State passed a law to force Nashville and Memphis to fund their pensions.

Now, we learn that Nashville is investing in risky assets to reach its targeted 7.5% return:

Since the 2008 financial crisis, Nashville’s pension managers have been shifting taxpayer money into junk bonds, hedge funds, troubled mortgages, private equity funds and other alternatives to conservative stocks and bonds. If successful, these “alternative investments” can earn greater profits, but they also demand high fees and carry the risk of heavy losses.

So how is it doing?

Nashville's investments have shown mixed results. After taking out fees, the city’s fund grew by 4.7 percent a year since 2008, on average, while the Standard & Poors 500 gained 6.6 percent.

Keep your fingers crossed!

HT:  Preston

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