Comments on economics, mystery fiction, drama, and art.

Wednesday, November 30, 2005

And, Now, Pension Funds Are Diving Into the Hedge Fund Swamp

I expressed some concern awhile back about the university from which I graduated having put 15% or so of its endowment into hedge funds, seeking higher returns at a higher risk. Now, from Andrew Samwick, comes news that coporate defined-benefit pension funds are doing the same. Weyerhouser apparently has 39% of its pension funds in hedge funds. That's insane.

Why would any rational pension fund manager do this? Because these funds are no longer--if they ever were--being managed with the interests of the workers in mind. Throwing money into hedge funds allows the fund manager to claim a higher expected return on those investments. And the higher return allows the company to--surprise, surprise--reduce its annual contribution. So who bears this additional risk? NOT the corporation. The corporation's retirees, and its current workers.

Ain't that sweet?


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