Pensions are losing money (this doesn’t happen in a healthy economy)

Sharing is Caring!

by TyreeThaGod

The next time some financial expert from the New York Times tells you how terrible it is that you have a 401(k) that you control instead a pension, remember this.

Pensions piled into private equity, now they can’t get out

Private-equity and pension funds seemed like a match made in heaven. U.S. companies and states handed over control of some worker retirement savings. In exchange, they got a promise of high returns after a decade and often received healthy cash payouts in the years before that.

Now the honeymoon is over. The payouts have dried up, creating an expensive problem for investment managers overseeing the savings of workers retired from big corporations and state and city governments.

See also  With 5 Million fewer workers in Germany in just few years who is supposed to pay for pensions and healthcare for all the new retirees?

To keep benefit checks coming on time, those managers are unloading investments on the cheap or turning to borrowing, costly measures that eat into returns. California’s worker pension, the nation’s largest, will be paying more money into its private-equity portfolio than it receives from those investments for eight years in a row. The engine maker Cummins took a 4.4% loss in its U.K. pension last year, in large part because it sold private assets at a discount.

It is the latest cash crunch to befall retirement funds that have piled into hard-to-sell investments in search of high returns, and spotlights the risks as Wall Street is trying to sell those investments to wealthy households.

See also  Current Administration: We will spend more money to solve this problem that was created by spending too much money!

Unable to sell without denting returns, private-equity managers are keeping workers’ retirement savings locked up for longer, sometimes past the promised maturity date. Nearly half of private-equity investors surveyed by the investment firm Coller Capital earlier this year said they had money tied up in so-called zombie funds – private-equity funds that didn’t pay out on the expected timetable, leaving investors in limbo.


Views: 227

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.