August 29, 2012

Pensions

The Risk of Investment Promises May Be Unhedgeable

Justin Katz

Early in the summer, Rhode Island General Treasurer Gina Raimondo announced that the state had invested $900 million of its pension assets in hedge funds.  The decision was actually made in the middle of last year, in response to an asset liability study, treasury spokeswoman Joy Fox tells the Current.  At that point, the treasurer began accumulating resources in cash to transition it into the new strategy.

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I am not sure that I understand the problem, other than the desired rate of return may be very optomistic. "Hedge Fund" has become a dirty word, although the theory is sound. Managing a portfolio with minimal market risk and providing a bond-like return. Bonds aren't paying all that much these days. Hedge funds are typically small operations, so fees should be manageble. Of course, if they are part of a larger operation, they may be bled to support other arms of the operation.

Posted by: Warrington Faust at August 29, 2012 5:02 PM
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