The union’s retirement bucket is full of holes and leaks badly – Mish Talk

Despite massive stock market gains over the past decade, union pension managers are running out of retirement money.

The graying of the American worker is an arithmetic problem for Farooqi Majid. His job is to invest his way out.

Majeed is the chief investment for an $18 billion school pension in Ohio that provides retirement benefits to more than 80,000 retired librarians, bus drivers, cafeteria workers, and other former employees. The problem is that this fund pays more in pension checks each year than workers and current employers contribute. This gap helps explain why billions are short of what you need to cover future retirement promises.

“The bucket is leaking,” he said.

The solution for Mr. Majeed – as well as other pension managers across the country – is to take on more investment risk. His fund and many other retirement schemes are charged to illiquid assets such as private equity, private corporate loans and real estate.

So-called “alternative” investments now make up 24% of public pension fund portfolios, according to the latest data from the Boston College Center for Retirement Research. This is up from 8% in 2001. During that time, the amount invested in conventional stocks and bonds has fallen to 71% from 89%. In Mr. Majid’s fund, substitutes made up 32% of his portfolio at the end of July, compared to 13% in fiscal 2001.