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How a Gang of Hedge Funders Strip-Mined Kentucky’s Public Pensions

132 points by simonpure 8y ago

pliny 8y ago
Desktop version: https://theintercept.com/2018/10/21/kentucky-pensions-crisis-hedge-funds/ https://theintercept.com/2018/10/21/kentucky-pensions-crisis...
tareqak 8y ago
This article was a sad, and infuriating read. The knee-jerk-response part of me would want these pension funds to be set up as an allocation of 'dumb'/passive index funds based on an individual's retirement date to not have to deal with greed on the part of human decision-makers, but there might be catastrophic issues with that too. Edit/Follow-up: I guess there are two more sane alternatives: 1) Let public-sector workers manage their retirements privately e.g. 401k-style . 2) Let state and municipal public-sector workers opt-in to the federal pension system for federal public sector workers.
- bradleyjg 8y ago
  The difficulty with moving to a defined contribution scheme, which makes a tremendous amount of sense, is that the employer-governments actually have to pay the costs of their promises instead of kicking the can down the road. Taxpayers don’t like that because they’d rather pretend to believe that investment returns will fix everything while really just saddling the next generations. Government employees don’t like that because they’d rather have the extravagant promises they can extract, figuring that future governments will find a way to pay them. If both employees and taxpayers prefer to keep pretending that the Emperor is wearing clothes how many politicians are going to fall on the sword of good government?
  - tareqak 8y ago
    From my reading of the article, the pension contributions were already being made in this case (it wasn't clear to me if it was directly made by the teachers or the state). Your concern is a valid one, but I didn't see the state repurposing the pension contributions for something else in this case.
    - bradleyjg 8y ago
      They make contributions but not nearly large enough contributions as would be required if they used accounting best practices, as for example those that the insurance industry is required to use when calculating reserves for annuities.
    - bluGill 8y ago
      Pension contributions have been made. In the best case they are large enough to cover everything. However in all the likely cases they won't have enough money to pay out their promises. If more money went in there would be enough returns with reasonable investments. Or you can chase risky investments and hope that better than average returns pay you back.
  - snikeris 8y ago
    Seems like there is a conflict of interest. Governments are dependent on investment returns or the whole house of cards falls down. Yet they are given the responsibility of regulating the investment markets and controlling the money supply. Quantitative easing led to a massive bull market. What's the downside of a government dependent on increasing asset prices?
- lotsofpulp 8y ago
  There’s no reason government employees should get taxpayer guaranteed annuities. If the government employee unions want annuities upon retirement, they should be purchased from insurance companies. That way taxpayers can be certain there were no shenanigans in underfunding or mispricing or malinvesting. It would also create more transparency in how much people should be paid in government vs non government jobs. It would also make government budgets a lot easier to understand and harder to fool taxpayers.
  - mschuster91 8y ago
    > There’s no reason government employees should get taxpayer guaranteed annuities There is. In Germany, the Prussians back in the 18th century formed the "Berufsbeamtentum", basically civil servants. The idea is that the state guarantees that the Beamten be permanently employed by the state (basically, short of committing serious crimes > 12mo jail time, there is no way for the state to fire one), have their (first class) healthcare taken care of and that they will have decent pensions. For this, the Beamten bind their work life to the state. The downside, of course, is that there are several limits for Beamte: most notably they must be absolutely loyal to the state, restrict themselves/their speech in the public (e.g. memberships in "extremist" parties are a no-go), they are forbidden from strikes, and their pay schedules are fixed (so, no individual contract agreements, everyone on the same step of the career ladder gets the same salary). Also (mostly valid for police officers and judges) the state may decide to reassign you to a different post... which may even be at the other end of the country, for those who are with the federal government.
    - lotsofpulp 8y ago
      I don’t see what the benefit of that system is as opposed to paying someone market price for their labor. If anything, it just allows an avenue for taxpayers (mostly in the future) to be stolen from.
      - mschuster91 8y ago
        > I don’t see what the benefit of that system is as opposed to paying someone market price for their labor. The benefit is that Beamte are locked in to the state. It's rare that the private sector snatches Beamte away from the state. This means that, unlike in the private sector, the state does not have to worry that its most competent employees suddenly vanish.
- MrMorden 8y ago
  There are two equitable solutions: either allow everyone to opt-out of Social Security, or allow no one to. The second is closer to the system we have now; the first would require major changes (subsidizing retirement for low-income workers from income tax instead of SS tax). It's also possible that the 10th Amendment may prevent the federal government from mandating state/municipal employee participation. The US federal government previously had a system similar to state pensions (CSRS), but employees hired after 1983 are required to be enrolled in the new system (FERS) which includes Social Security. There's also another difference: the federal government has far better internal controls than most of its states.
- ConcernedCoder 8y ago
  what's wrong with 1) Let public-sector workers manage their retirements privately e.g. 401k-style .
IshKebab 8y ago
TL;DR: dodgy hedge funds bribe politicians to invest public pension pots with them. I don't know why they don't just switch to private pensions. In theory public pensions should be less risky because the investment risk is spread between lots of people, but in practice it seems that the risk of management looting the fund is a much bigger concern, and one that you don't have with private pensions.
- sbarre 8y ago
  How insane is it that "management looting the fund" is a legit concern?
- kasey_junk 8y ago
  Colloquially in the US pension fund == defined benefit plan managed by your employer. A public pension would be managed by the government for governmental employees & a private pension would be managed by a private company for its employees. Defined benefit pensions largely only exist in the public sector in the US because they are phenomenally expensive. The reason public employees don’t want to switch is that these are huge perks.
  - IshKebab 8y ago
    By private pension I mean a self-invested one. Essentially a trading account that you control. In the UK they're called Self Invested Private Pensions.
    - kasey_junk 8y ago
      401k, IRA, 403b etc in the states
Mvandenbergh 8y ago
So there's a lot going wrong here, pay-to-play, investment in hedge funds that no-one had ever heard of, investment in funds that ended up performing poorly, etc. However that isn't the real problem here - the real issue is decades of under-contribution to these funds by the state government.
- tareqak 8y ago
  I think think there are two separable sets of problems that both important, but can fixed independently of the other: 1) The lack of responsible stewardship in overseeing the pensions and how they were invested. 2) Under-contribution to these funds. Follow-up: I think the best way to deal with 1) is to do something like the Ontario Teachers' Pension Plan, which is "jointly sponsored by the Government of Ontario and the Ontario Teachers' Federation" [0] . You can still have greed ruining things, but at least the administration of the plan is totally dominated by a sometimes adversarial entity i.e. the state government. [0] https://en.wikipedia.org/wiki/Ontario_Teachers%27_Pension_Plan https://en.wikipedia.org/wiki/Ontario_Teachers%27_Pension_Pl...
- matthewdgreen 8y ago
  This article isn't really about under-contribution. It's about corruption. If your response to an article about corruption is to change the subject, then it's unlikely that we'll see improvements.
  - Mvandenbergh 8y ago
    The corruption is appalling but also easy to fix. The threat to people's retirement is not happening because of the corruption though - if this was a fully funded scheme and the board was taking kick-backs to steer business from one fund to another one it would still be appalling but it wouldn't risk tens of thousands of people spending their old age in dire poverty.
kylnew 8y ago
When it comes to pension funds, investing in anything volatile like hedge funds is an incredibly irresponsible thing to do. I’m kind of flabbergasted it’s even allowed in the first place. Pension funds should have steady, modest gains year over year and minimize risk of dips as much as possible.
- zimablue 8y ago
  That's cool, so US bonds only then?
  - dopamean 8y ago
    Don't BR ridiculous. There are lots of mutual funds that don't experience the swings that many hedge funds do.
    - iflint 8y ago
      There are many hedge funds with much lower volatility than the average mutual fund. Hedge funds are not inherently more or less risky than mutual funds, they are just actively managed instead of passively managed.
      - wbl 8y ago
        Mutual funds can be actively managed also. Hedge funds are a riskier investment: they are more opaque, can do more exotic things. But pension funds are sophisticated investors and should be able to make intelligent decisions about using them as part of a portfolio.
      - pnutjam 8y ago
        You mispelled "full of fee's that suck out the value."
      - w1nst0nsm1th 8y ago
        It reminds me a story in rare no-nonsense books on stock trading about 90% people losing money or doing less than stock index because of trading fees while activelly managing it. The ability to make good money in stock markets is a rare talent and hedge funds only make hedge fund managers rich, most of the time.
bedhead 8y ago
Kentucky's pension is screwed for all of the same reasons many other public pensions are (in order of importance): - Overpromising of benefits - Underfunding mechanisms that allow deferral of contributions - General mismanagement (I can assure you the best and brightest investors and fiduciaries don't work at public pensions) - Corruption (ie related party deals) The idea that "evil hedge funds" are responsible is silly. This might make for more clicks but the investment committee made the decisions to invest, so blame them. This isn't about hedge funds. I've long argued that public pensions should be illegal. There are too many areas of interest misalignment. Things that can be abused, will, and public pensions are perfectly designed to facilitate these kinds of shenanigans. Anyone looking for what the next great crisis will be, this is it.
- ciamac 8y ago
  Well the direct mechanism in this case is hedge funds paying "placement agents" which fund the corruption, so they do have responsibility, even if they are not solely responsible.
  - bedhead 8y ago
    The placement agent would be powerless if not for the pension board's incompetence and corruption, otherwise it wouldn't matter if the pension was being pitched by the marketer or the fund manager itself. Don't get me wrong, it's a game that hedge funds are playing and I despise it, but the disease is what goes on in the board room of the pension. All of this is a sideshow to the egregious overpromising of benefits and underfunding mechanisms.
    - ip26 8y ago
      This sounds like the same debate we have about security. But sir, said the fox. I am innocent! For the hen coop was left unlocked!
- matthewdgreen 8y ago
  Except that the article isn't about any of those things. It's about a very specific set of abuses related to hedge funds.
leetrout 8y ago
My mom is retired and part of the Kentucky Retirement System. Fun fact most people don't know about some of these- you forfeit your social security benefits when you participate. Because of this my mom cannot draw my dead fathers benefits. https://www.courier-journal.com/story/news/education/2018/03/20/kentucky-teachers-pension-reform-social-security/438031002/ https://www.courier-journal.com/story/news/education/2018/03...
- tareqak 8y ago
  I want to say something beyond, “this is wrong”, but I haven’t the words. Does Kentucky not want teachers? There are shortages in some states.
  - alistairSH 8y ago
    No, they don't. To most of Kentucky's ruling class, public schools are evil. They'd love to see them all fail, so they can shift school funds to vouchers for Christian schools.[1][2] 1 - https://www.courier-journal.com/story/news/local/joseph-gerth/2018/06/07/hal-heiner-matt-bevin-state-school-board-vouchers-charter-schools/680338002/ https://www.courier-journal.com/story/news/local/joseph-gert... 2 - https://www.mattbevin.com/issues https://www.mattbevin.com/issues
    - w1nst0nsm1th 8y ago
      Belgium here. That story is one more issue that makes me literally think : "America is so broken". And most of the time republicans seem to have a big stake in it.
      - leereeves 8y ago
        I thought Belgium had the equivalent of school vouchers: public funding that can be used for any school of the parent's choice. That's what Republicans want here. Instead, in America, public school students are told which school they will attend. Usually, but not always, the closest. The Democrats are responsible for that.
candiodari 8y ago
TLDR: politically appointed trustees of a pension fund systematically invest in somewhat-fraudulent investment schemes, which shock horror had some questionable financial returns (they were in fact quite large, but with a minus in front). This is, obviously, the fault of all bankers on Wall Street, not of the appointed trustees or of the politicians appointing them.
apo 8y ago
Pensions are Ponzi schemes, plain and simple, with government playing the role of Ponzi. Buried deep inside the idea of a government pension is the idea that individuals are incapable of saving for their own retirement. That government needs to care for its people in old age because they won't take the necessary steps themselves. Questionable assumptions aside, this article and many, many more like it demonstrate that government is incapable of caring for people in their old age, making many of the same mistakes with "investing" that individuals will. From the federal government down, officials have shown no reluctance to raid pensions to fund pet project, resulting in chronic underfunding. Inflation supplies the energy to keep this toxic cauldron bubbling along. It's not enough to simply "put money aside for retirement." Instead, you need "investments" that will at least keep up with inflation. Savings accounts are out. Enter investment "advisors," all too willing to tell an individual (or government) what to do - for a fee. Edit: the downvotes are amusing, but a comment explaining why would be more interesting.
- cr1895 8y ago
  Maybe you should read up on, for example, the Dutch pension system.
- siberianbear 8y ago
  Well, you're not wrong. You're just pointing some inconvenient truths. 1. Most people are incapable of saving for their own retirement, because they either lack the discipline or the skill set to do so. 2. Because of (1), people want the government to take care of it. But government does a mediocre job of most things. 3. Elected politicians have an incentive to get in bed with unions of government employees and screw taxpayers by cleverly mis-evaluating the present cost of future retirement payout streams. 4. Bad actors in the world pray on everyone involved: the employees, the pension funds, the government, individuals, etc, to get management fees from the corpus of retirement programs.
NTDF9 8y ago
Why do American politicians allow their people to be conned into thinking that there will be some "automatic" growth somewhere in their state/country that will automatically yield benefits in their pensions? That lie, that something in the US will ALWAYS lead to gdp growth is the root of all yield chasing fiascos of American pension underfunding. There is no way that gdp will increase without a rise in working age population (especially with no immigrants) or a dramatic increase in automation which can be taxed. FYI for any youngsters who don't realize what a con job this is: The recent tax cuts have created massive deficits which will collapse debt availability and thus economic growth and thus tax revenues and thus social security payments when you get unemployed (or old).
ChrisBland 8y ago
If any private company wanted to sell a financial product akin to public sector pensions they would be arrested and charged with fraud. Come to IL -- plenty of pension games to play here
- Shivetya 8y ago
  the big story in Illinois is that even with proper management the Chicago pension system will be broke in about two years. however we cannot just vilify Illinois as many public employee pension systems have been built upon promises that are not sustainable and will leave millions with no real retirement as each fund implodes
  - notfromhere 8y ago
    the big story in illinois is that the state, across both parties and multiple governors, underfunded the pension to a tragic degree and now its at crisis proportions.
yosefzeev 8y ago
As a resident of Kentucky, I can state that it has many issues. Of course, nationally, there are also many issues. Most of these issues boil down to "How do we put money in our pockets" at the expense of someone else. Until that stops, the issues won't stop.
mruts 8y ago
The problem isn't with hedge funds, it's with dumb money (or corrupt money). I'm not sure why people are laying the blame on the funds, I'm sure they wanted to produce good returns as much as anyone else. The blame solely lies on the incompetent pension fund managers. There are plenty good choices for alternatives in the market that are accepting new money (AQR or 2 Sigma or Bridgewater come to mind). It's 100% on the pension fund managers that they squandered the money on some no-name fund with no track record.

132 points by simonpure 8y ago

Desktop version: https://theintercept.com/2018/10/21/kentucky-pensions-crisis-hedge-funds/ https://theintercept.com/2018/10/21/kentucky-pensions-crisis...

tareqak 8y ago

This article was a sad, and infuriating read. The knee-jerk-response part of me would want these pension funds to be set up as an allocation of 'dumb'/passive index funds based on an individual's retirement date to not have to deal with greed on the part of human decision-makers, but there might be catastrophic issues with that too. Edit/Follow-up: I guess there are two more sane alternatives: 1) Let public-sector workers manage their retirements privately e.g. 401k-style . 2) Let state and municipal public-sector workers opt-in to the federal pension system for federal public sector workers.

bradleyjg 8y ago
The difficulty with moving to a defined contribution scheme, which makes a tremendous amount of sense, is that the employer-governments actually have to pay the costs of their promises instead of kicking the can down the road. Taxpayers don’t like that because they’d rather pretend to believe that investment returns will fix everything while really just saddling the next generations. Government employees don’t like that because they’d rather have the extravagant promises they can extract, figuring that future governments will find a way to pay them. If both employees and taxpayers prefer to keep pretending that the Emperor is wearing clothes how many politicians are going to fall on the sword of good government?
- tareqak 8y ago
  From my reading of the article, the pension contributions were already being made in this case (it wasn't clear to me if it was directly made by the teachers or the state). Your concern is a valid one, but I didn't see the state repurposing the pension contributions for something else in this case.
  - bradleyjg 8y ago
    They make contributions but not nearly large enough contributions as would be required if they used accounting best practices, as for example those that the insurance industry is required to use when calculating reserves for annuities.
  - bluGill 8y ago
    Pension contributions have been made. In the best case they are large enough to cover everything. However in all the likely cases they won't have enough money to pay out their promises. If more money went in there would be enough returns with reasonable investments. Or you can chase risky investments and hope that better than average returns pay you back.
- snikeris 8y ago
  Seems like there is a conflict of interest. Governments are dependent on investment returns or the whole house of cards falls down. Yet they are given the responsibility of regulating the investment markets and controlling the money supply. Quantitative easing led to a massive bull market. What's the downside of a government dependent on increasing asset prices?
lotsofpulp 8y ago
There’s no reason government employees should get taxpayer guaranteed annuities. If the government employee unions want annuities upon retirement, they should be purchased from insurance companies. That way taxpayers can be certain there were no shenanigans in underfunding or mispricing or malinvesting. It would also create more transparency in how much people should be paid in government vs non government jobs. It would also make government budgets a lot easier to understand and harder to fool taxpayers.
- mschuster91 8y ago
  > There’s no reason government employees should get taxpayer guaranteed annuities There is. In Germany, the Prussians back in the 18th century formed the "Berufsbeamtentum", basically civil servants. The idea is that the state guarantees that the Beamten be permanently employed by the state (basically, short of committing serious crimes > 12mo jail time, there is no way for the state to fire one), have their (first class) healthcare taken care of and that they will have decent pensions. For this, the Beamten bind their work life to the state. The downside, of course, is that there are several limits for Beamte: most notably they must be absolutely loyal to the state, restrict themselves/their speech in the public (e.g. memberships in "extremist" parties are a no-go), they are forbidden from strikes, and their pay schedules are fixed (so, no individual contract agreements, everyone on the same step of the career ladder gets the same salary). Also (mostly valid for police officers and judges) the state may decide to reassign you to a different post... which may even be at the other end of the country, for those who are with the federal government.
  - lotsofpulp 8y ago
    I don’t see what the benefit of that system is as opposed to paying someone market price for their labor. If anything, it just allows an avenue for taxpayers (mostly in the future) to be stolen from.
    - mschuster91 8y ago
      > I don’t see what the benefit of that system is as opposed to paying someone market price for their labor. The benefit is that Beamte are locked in to the state. It's rare that the private sector snatches Beamte away from the state. This means that, unlike in the private sector, the state does not have to worry that its most competent employees suddenly vanish.
MrMorden 8y ago
There are two equitable solutions: either allow everyone to opt-out of Social Security, or allow no one to. The second is closer to the system we have now; the first would require major changes (subsidizing retirement for low-income workers from income tax instead of SS tax). It's also possible that the 10th Amendment may prevent the federal government from mandating state/municipal employee participation. The US federal government previously had a system similar to state pensions (CSRS), but employees hired after 1983 are required to be enrolled in the new system (FERS) which includes Social Security. There's also another difference: the federal government has far better internal controls than most of its states.
ConcernedCoder 8y ago
what's wrong with 1) Let public-sector workers manage their retirements privately e.g. 401k-style .

IshKebab 8y ago

TL;DR: dodgy hedge funds bribe politicians to invest public pension pots with them. I don't know why they don't just switch to private pensions. In theory public pensions should be less risky because the investment risk is spread between lots of people, but in practice it seems that the risk of management looting the fund is a much bigger concern, and one that you don't have with private pensions.

sbarre 8y ago
How insane is it that "management looting the fund" is a legit concern?
kasey_junk 8y ago
Colloquially in the US pension fund == defined benefit plan managed by your employer. A public pension would be managed by the government for governmental employees & a private pension would be managed by a private company for its employees. Defined benefit pensions largely only exist in the public sector in the US because they are phenomenally expensive. The reason public employees don’t want to switch is that these are huge perks.
- IshKebab 8y ago
  By private pension I mean a self-invested one. Essentially a trading account that you control. In the UK they're called Self Invested Private Pensions.
  - kasey_junk 8y ago
    401k, IRA, 403b etc in the states

Mvandenbergh 8y ago

So there's a lot going wrong here, pay-to-play, investment in hedge funds that no-one had ever heard of, investment in funds that ended up performing poorly, etc. However that isn't the real problem here - the real issue is decades of under-contribution to these funds by the state government.

tareqak 8y ago
I think think there are two separable sets of problems that both important, but can fixed independently of the other: 1) The lack of responsible stewardship in overseeing the pensions and how they were invested. 2) Under-contribution to these funds. Follow-up: I think the best way to deal with 1) is to do something like the Ontario Teachers' Pension Plan, which is "jointly sponsored by the Government of Ontario and the Ontario Teachers' Federation" [0] . You can still have greed ruining things, but at least the administration of the plan is totally dominated by a sometimes adversarial entity i.e. the state government. [0] https://en.wikipedia.org/wiki/Ontario_Teachers%27_Pension_Plan https://en.wikipedia.org/wiki/Ontario_Teachers%27_Pension_Pl...
matthewdgreen 8y ago
This article isn't really about under-contribution. It's about corruption. If your response to an article about corruption is to change the subject, then it's unlikely that we'll see improvements.
- Mvandenbergh 8y ago
  The corruption is appalling but also easy to fix. The threat to people's retirement is not happening because of the corruption though - if this was a fully funded scheme and the board was taking kick-backs to steer business from one fund to another one it would still be appalling but it wouldn't risk tens of thousands of people spending their old age in dire poverty.

kylnew 8y ago

When it comes to pension funds, investing in anything volatile like hedge funds is an incredibly irresponsible thing to do. I’m kind of flabbergasted it’s even allowed in the first place. Pension funds should have steady, modest gains year over year and minimize risk of dips as much as possible.

zimablue 8y ago
That's cool, so US bonds only then?
- dopamean 8y ago
  Don't BR ridiculous. There are lots of mutual funds that don't experience the swings that many hedge funds do.
  - iflint 8y ago
    There are many hedge funds with much lower volatility than the average mutual fund. Hedge funds are not inherently more or less risky than mutual funds, they are just actively managed instead of passively managed.
    - wbl 8y ago
      Mutual funds can be actively managed also. Hedge funds are a riskier investment: they are more opaque, can do more exotic things. But pension funds are sophisticated investors and should be able to make intelligent decisions about using them as part of a portfolio.
    - pnutjam 8y ago
      You mispelled "full of fee's that suck out the value."
    - w1nst0nsm1th 8y ago
      It reminds me a story in rare no-nonsense books on stock trading about 90% people losing money or doing less than stock index because of trading fees while activelly managing it. The ability to make good money in stock markets is a rare talent and hedge funds only make hedge fund managers rich, most of the time.

bedhead 8y ago

Kentucky's pension is screwed for all of the same reasons many other public pensions are (in order of importance): - Overpromising of benefits - Underfunding mechanisms that allow deferral of contributions - General mismanagement (I can assure you the best and brightest investors and fiduciaries don't work at public pensions) - Corruption (ie related party deals) The idea that "evil hedge funds" are responsible is silly. This might make for more clicks but the investment committee made the decisions to invest, so blame them. This isn't about hedge funds. I've long argued that public pensions should be illegal. There are too many areas of interest misalignment. Things that can be abused, will, and public pensions are perfectly designed to facilitate these kinds of shenanigans. Anyone looking for what the next great crisis will be, this is it.

ciamac 8y ago
Well the direct mechanism in this case is hedge funds paying "placement agents" which fund the corruption, so they do have responsibility, even if they are not solely responsible.
- bedhead 8y ago
  The placement agent would be powerless if not for the pension board's incompetence and corruption, otherwise it wouldn't matter if the pension was being pitched by the marketer or the fund manager itself. Don't get me wrong, it's a game that hedge funds are playing and I despise it, but the disease is what goes on in the board room of the pension. All of this is a sideshow to the egregious overpromising of benefits and underfunding mechanisms.
  - ip26 8y ago
    This sounds like the same debate we have about security. But sir, said the fox. I am innocent! For the hen coop was left unlocked!
matthewdgreen 8y ago
Except that the article isn't about any of those things. It's about a very specific set of abuses related to hedge funds.

leetrout 8y ago

My mom is retired and part of the Kentucky Retirement System. Fun fact most people don't know about some of these- you forfeit your social security benefits when you participate. Because of this my mom cannot draw my dead fathers benefits. https://www.courier-journal.com/story/news/education/2018/03/20/kentucky-teachers-pension-reform-social-security/438031002/ https://www.courier-journal.com/story/news/education/2018/03...

tareqak 8y ago
I want to say something beyond, “this is wrong”, but I haven’t the words. Does Kentucky not want teachers? There are shortages in some states.
- alistairSH 8y ago
  No, they don't. To most of Kentucky's ruling class, public schools are evil. They'd love to see them all fail, so they can shift school funds to vouchers for Christian schools.[1][2] 1 - https://www.courier-journal.com/story/news/local/joseph-gerth/2018/06/07/hal-heiner-matt-bevin-state-school-board-vouchers-charter-schools/680338002/ https://www.courier-journal.com/story/news/local/joseph-gert... 2 - https://www.mattbevin.com/issues https://www.mattbevin.com/issues
  - w1nst0nsm1th 8y ago
    Belgium here. That story is one more issue that makes me literally think : "America is so broken". And most of the time republicans seem to have a big stake in it.
    - leereeves 8y ago
      I thought Belgium had the equivalent of school vouchers: public funding that can be used for any school of the parent's choice. That's what Republicans want here. Instead, in America, public school students are told which school they will attend. Usually, but not always, the closest. The Democrats are responsible for that.

candiodari 8y ago

TLDR: politically appointed trustees of a pension fund systematically invest in somewhat-fraudulent investment schemes, which shock horror had some questionable financial returns (they were in fact quite large, but with a minus in front). This is, obviously, the fault of all bankers on Wall Street, not of the appointed trustees or of the politicians appointing them.

apo 8y ago

Pensions are Ponzi schemes, plain and simple, with government playing the role of Ponzi. Buried deep inside the idea of a government pension is the idea that individuals are incapable of saving for their own retirement. That government needs to care for its people in old age because they won't take the necessary steps themselves. Questionable assumptions aside, this article and many, many more like it demonstrate that government is incapable of caring for people in their old age, making many of the same mistakes with "investing" that individuals will. From the federal government down, officials have shown no reluctance to raid pensions to fund pet project, resulting in chronic underfunding. Inflation supplies the energy to keep this toxic cauldron bubbling along. It's not enough to simply "put money aside for retirement." Instead, you need "investments" that will at least keep up with inflation. Savings accounts are out. Enter investment "advisors," all too willing to tell an individual (or government) what to do - for a fee. Edit: the downvotes are amusing, but a comment explaining why would be more interesting.

cr1895 8y ago
Maybe you should read up on, for example, the Dutch pension system.
siberianbear 8y ago
Well, you're not wrong. You're just pointing some inconvenient truths. 1. Most people are incapable of saving for their own retirement, because they either lack the discipline or the skill set to do so. 2. Because of (1), people want the government to take care of it. But government does a mediocre job of most things. 3. Elected politicians have an incentive to get in bed with unions of government employees and screw taxpayers by cleverly mis-evaluating the present cost of future retirement payout streams. 4. Bad actors in the world pray on everyone involved: the employees, the pension funds, the government, individuals, etc, to get management fees from the corpus of retirement programs.

NTDF9 8y ago

Why do American politicians allow their people to be conned into thinking that there will be some "automatic" growth somewhere in their state/country that will automatically yield benefits in their pensions? That lie, that something in the US will ALWAYS lead to gdp growth is the root of all yield chasing fiascos of American pension underfunding. There is no way that gdp will increase without a rise in working age population (especially with no immigrants) or a dramatic increase in automation which can be taxed. FYI for any youngsters who don't realize what a con job this is: The recent tax cuts have created massive deficits which will collapse debt availability and thus economic growth and thus tax revenues and thus social security payments when you get unemployed (or old).

ChrisBland 8y ago

If any private company wanted to sell a financial product akin to public sector pensions they would be arrested and charged with fraud. Come to IL -- plenty of pension games to play here

Shivetya 8y ago
the big story in Illinois is that even with proper management the Chicago pension system will be broke in about two years. however we cannot just vilify Illinois as many public employee pension systems have been built upon promises that are not sustainable and will leave millions with no real retirement as each fund implodes
- notfromhere 8y ago
  the big story in illinois is that the state, across both parties and multiple governors, underfunded the pension to a tragic degree and now its at crisis proportions.

yosefzeev 8y ago

As a resident of Kentucky, I can state that it has many issues. Of course, nationally, there are also many issues. Most of these issues boil down to "How do we put money in our pockets" at the expense of someone else. Until that stops, the issues won't stop.

mruts 8y ago

The problem isn't with hedge funds, it's with dumb money (or corrupt money). I'm not sure why people are laying the blame on the funds, I'm sure they wanted to produce good returns as much as anyone else. The blame solely lies on the incompetent pension fund managers. There are plenty good choices for alternatives in the market that are accepting new money (AQR or 2 Sigma or Bridgewater come to mind). It's 100% on the pension fund managers that they squandered the money on some no-name fund with no track record.