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Now It's Official: Wall Street Is No Good for Pensions


Pension managers have become fond of running to Wall Street looking for help managing their funds. But they don’t seem to be getting their money’s worth. A new study conducted by the Maryland Public Policy Institute and the Maryland Tax Education Foundation examined the performance of a number of public pension systems around the country and found that there was no positive effect to these managed plans. Indeed, the effect may even be negative. Of the plans studied, those who spent the most on Wall Street fees performed nearly a full percentage point worse than those who spent the least. The Wall Street Journal notes the implications for pension funds going forwards:

In recent years, many pensions have been willing to live with the high fees charged by alternative investment managers, such as hedge funds, in hopes that these firms can deliver high returns with less risk than stocks.

The report could add fuel to the growing debate over whether pensions should be moving away from higher-cost, active-investment managers and toward lower-cost, passive investments such as indexes.

As well it should. We’ve seen case after case where Wall Street collects massive fees for services which leave pensioners no better off than they were at the beginning. Rather than chasing the high returns promised by hedge funds and “alternative investments,” pension managers would do well to turn back towards conservative investing. High fees are not always the sign of a quality product, and pension fund boards, often stuffed with union hacks or political appointees, are not the smartest managers in town.

There’s a toxic link between public pensions and Wall Street. Union leaders push for unrealistic pay packages; politicians pander by promising fat pensions—and then don’t fund them adequately for fear of voter backlash. The gap between the amount promised and the amount on hand grows, so clueless pension funds fall into the hands of Wall Street snake oil salesmen peddling dubious strategies. Campaign contributions sometimes lubricate the system; Wall Street companies heavily engaged in the public pension sector focus on keeping politicians sweet. It works wonderfully well—until the music stops.

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  • bpuharic

    The elites rant about the middle class while ignoring their own greed.

    CEO pay is at a record high. Comment from the elites like Greg Mankiw? This proves, he says, the rich are genetically superior.

    No pay increase for the middle class in 30 years? Response from conservatives like Casey Mulligan? The middle class is overpaid so we should reduce the minimum wage.

    Overpaid unions? We have no unions in this country. If we DID, CEO pay would be more moderate and the middle class would be able to buy thinks instead of dreaming about jobs at Wal Mart.

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