I didn't plan on posting this morning, but I came across this and had to get the word out.
The pensions money managed by CalPRES has lost 25% of its value since July 1, 2008.
According to the Wall St Journal, CalPERS bought lots of residential real estate and raw land at the top of the bubble. Even worse, they levered up to by the land (20% down and 80% borrowed). CalPERS is now admitting to losing 103% on at least one of these investments.
http://www.calpers.ca.gov/eip-docs/about/facts/investme.pdf
Do you have a pension? Do any family members? Yikes! Clients who worked for General Motors have seen their benefits decline the last few years. I hope that the same does not happened to potential CalPERS pensioners. CalPERS covers 1.6 million people. I hope that CalSTRS did not do similar things with the money they oversee.
In 2006 and 2007, everybody was trying to mirror the investment strategies of the endowments run by Harvard and Stanford. They both had enormous holdings in "Private Equity". They owned a lot of individual investments and Hedge Funds. These investments worked great on the way up, but have proven to be illiquid (you can't sell them) on the way down.
The moral to this story is that YOU are responsible for financing your own lifestyle. Pensions may be there and Social Security may be there, but you need to know that a certain amount of money WILL be there - no matter what. That means avoid Limited Partnerships, Fund of Funds, Managed Futures and "Alternate Asset Classes". Only own holdings where you can put in a "Stop Order" to protect yourself if you are wrong and the market turns against you.
CalPERS is by no means a Ponzi Scheme like the one run by Mr Madoff. CalPERS has a big pile of money. But CalPERS may now be "under funded" - meaning they will have to go to the entities that employ the current workers who are paying into CalPERS each money (Municipalities) and force them to pony up some additional money to make up for the investment losses. Municipalities are in no shape to fork over a couple Billion Dollars to CalPERS right now.
Compare these two links and see which one you believe.
CalPERS is Resilient in Market Downturns
State public worker pension fund takes big hit
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