5 ms·

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

by 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.
  - zimablue 8y ago
    https://www.macrotrends.net/2324/sp-500-historical-chart-data https://www.macrotrends.net/2324/sp-500-historical-chart-dat... Maybe not over (specific) very short periods, but it depends on the mutual and it depends on the hedge fund. If you're saying pension funds should be locked in then you can't invest in anything that has exposure to equities, see: 2008, 1974, 1930. I was just trying to nudge the post I was replying to into realisation that you either accept burning significant money to avoid risk or accept the chance of burning more money. This kind of "pensions should invest in the good guys who don't take risks..." well that's only govt bonds, and one day those will pop also.
- pc86 8y ago
  I mean a large percentage of the fund should probably be in bonds, shouldn't it? Depending on how many are drawing out vs. paying in.
- coughupalung 8y ago
  Don't forget mortgage-backed securities.. oh wait. In all seriousness though, large pension plans have very diverse portfolios. Ontario teachers used to own 80% of the Toronto Maple Leafs. Ontario Municipal Employees Retirement System owns Oxford Properties, which owns and manages the office building I work in (and many others). Edit: Added "Employees" to OMERS.
  - noer 8y ago
    Major League Sports teams are generally pretty solid investments. Also, the Ontario Teachers didn't just own the Leafs, they owned MLSE which includes the Leafs, Raptors, Argos, Toronto FC, the Marlies plus the arenas at which those teams play. It's not a bad investment to own all but one (they don't own the Jays) pro sports team in a city.
    - coughupalung 8y ago
      Ah right! Thank you for the correction.
deleted 8y ago
[deleted]
1001101 8y ago
Pensions needed to reach for yield with the fed funds rate scraping zero for the better part of a decade. > Pension funds should have steady, modest gains year over year and minimize risk of dips as much as possible. This is what hedge funds were built for - hedging.
- DSingularity 8y ago
  What? No. Hedge funds are named for making highly risky investments. The short term risk of doing this is offset by hedging across markets and by using specific investment products. Works great until events like the housing market cause a market wide collapse and kill your hedgefund. Whoever concentrated the money in such funds was likely corrupt, otherwise grossly incompetent.
  - mruts 8y ago
    Do you work in finance? That's just not true at all. Hedge funds are a very diverse group (see my above comment about how they are defined by compensation schemes nowadays and not strategies). The original idea of hedge funds was to provide low volatility (like bonds) and high returns (like equities).
- seanhunter 8y ago
  I believe they are actually so named because the instruments they originally invested in (primarily derivatives) had previously been for hedging positions in cash markets (ie markets on the underlyers) and "hedge funds" were the first funds that just used these "hedge instruments". They always used them primarily for speculation though, not primarily hedging.
kamaal 8y ago
>>When it comes to pension funds, investing in anything volatile like hedge funds is an incredibly irresponsible thing to do. Ideally. But then you have things like: https://www.mercurynews.com/2016/11/01/bart-janitor-grossed-270k-in-pay-and-benefits-last-year/ https://www.mercurynews.com/2016/11/01/bart-janitor-grossed-... and look at stories here: https://hn.algolia.com/?query=pensions&sort=byPopularity&prefix&page=0&dateRange=all&type=story https://hn.algolia.com/?query=pensions&sort=byPopularity&pre... Mostly unions graciously award over time work, and other benefits to people about to retire in the last years. Since the pension benefits are based on the benefits and pay in the last years, You now have retirees drawing millions in benefits and pay. I guess in California a lot of tax dollars already go to pay pensions then help build schools and roads. You can't exactly pay all that big money pensions by just investing in bonds alone.
- rtkwe 8y ago
  The thing the galls me the most about that article is it doesn't once stop to try to say or find out how much the guy is working to bring in that much, spoiler it's going to be a lot of hours given it's overtime and his base compensation is only 50k. Pensions are a fine tool but they have to be funded responsibly, states liked to use them as an incentive but then refused to properly fund them banking instead on large returns. Companies did the same thing for a long time but they've been allowed to cut benefits to retirees when they run dry and have since moved on to 401ks if they offer any thing at all.
  - SilasX 8y ago
    >The thing the galls me the most about that article is it doesn't once stop to try to say or find out how much the guy is working to bring in that much, spoiler it's going to be a lot of hours given it's overtime and his base compensation is only 50k. You're right, it deceptively leaves out such vital information. It also leaves out: - how productive he actually was for each of those 80 hours - how many workers "only" at 1.5x time were willing to take those shifts but denied because of seniority - how much of the compensation came from the non-standard practice of letting him redeem PTO for 2x its value by applying it to week where he already worked overtime - whether those long, hard hours actually translated into clean BART stations, or were just roundabout compensation for being physically present but ineffective Once you have that full picture, I'm pretty sure the typical person's initial reaction will be closer to right than wrong.
mruts 8y ago
The promise of hedge funds (the original one at least) is that they provide bond-like volatility with equity-like returns. Of course, hedge funds nowadays are just defined by a compensation scheme (2 and 20, though today more like 1.5 and 15). Hedge funds are exactly the kind of investments that pension funds should have.

by kylnew 8y ago

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.
- zimablue 8y ago
  https://www.macrotrends.net/2324/sp-500-historical-chart-data https://www.macrotrends.net/2324/sp-500-historical-chart-dat... Maybe not over (specific) very short periods, but it depends on the mutual and it depends on the hedge fund. If you're saying pension funds should be locked in then you can't invest in anything that has exposure to equities, see: 2008, 1974, 1930. I was just trying to nudge the post I was replying to into realisation that you either accept burning significant money to avoid risk or accept the chance of burning more money. This kind of "pensions should invest in the good guys who don't take risks..." well that's only govt bonds, and one day those will pop also.
pc86 8y ago
I mean a large percentage of the fund should probably be in bonds, shouldn't it? Depending on how many are drawing out vs. paying in.
coughupalung 8y ago
Don't forget mortgage-backed securities.. oh wait. In all seriousness though, large pension plans have very diverse portfolios. Ontario teachers used to own 80% of the Toronto Maple Leafs. Ontario Municipal Employees Retirement System owns Oxford Properties, which owns and manages the office building I work in (and many others). Edit: Added "Employees" to OMERS.
- noer 8y ago
  Major League Sports teams are generally pretty solid investments. Also, the Ontario Teachers didn't just own the Leafs, they owned MLSE which includes the Leafs, Raptors, Argos, Toronto FC, the Marlies plus the arenas at which those teams play. It's not a bad investment to own all but one (they don't own the Jays) pro sports team in a city.
  - coughupalung 8y ago
    Ah right! Thank you for the correction.

deleted 8y ago

[deleted]

1001101 8y ago

Pensions needed to reach for yield with the fed funds rate scraping zero for the better part of a decade. > Pension funds should have steady, modest gains year over year and minimize risk of dips as much as possible. This is what hedge funds were built for - hedging.

DSingularity 8y ago
What? No. Hedge funds are named for making highly risky investments. The short term risk of doing this is offset by hedging across markets and by using specific investment products. Works great until events like the housing market cause a market wide collapse and kill your hedgefund. Whoever concentrated the money in such funds was likely corrupt, otherwise grossly incompetent.
- mruts 8y ago
  Do you work in finance? That's just not true at all. Hedge funds are a very diverse group (see my above comment about how they are defined by compensation schemes nowadays and not strategies). The original idea of hedge funds was to provide low volatility (like bonds) and high returns (like equities).
seanhunter 8y ago
I believe they are actually so named because the instruments they originally invested in (primarily derivatives) had previously been for hedging positions in cash markets (ie markets on the underlyers) and "hedge funds" were the first funds that just used these "hedge instruments". They always used them primarily for speculation though, not primarily hedging.

kamaal 8y ago

>>When it comes to pension funds, investing in anything volatile like hedge funds is an incredibly irresponsible thing to do. Ideally. But then you have things like: https://www.mercurynews.com/2016/11/01/bart-janitor-grossed-270k-in-pay-and-benefits-last-year/ https://www.mercurynews.com/2016/11/01/bart-janitor-grossed-... and look at stories here: https://hn.algolia.com/?query=pensions&sort=byPopularity&prefix&page=0&dateRange=all&type=story https://hn.algolia.com/?query=pensions&sort=byPopularity&pre... Mostly unions graciously award over time work, and other benefits to people about to retire in the last years. Since the pension benefits are based on the benefits and pay in the last years, You now have retirees drawing millions in benefits and pay. I guess in California a lot of tax dollars already go to pay pensions then help build schools and roads. You can't exactly pay all that big money pensions by just investing in bonds alone.

rtkwe 8y ago
The thing the galls me the most about that article is it doesn't once stop to try to say or find out how much the guy is working to bring in that much, spoiler it's going to be a lot of hours given it's overtime and his base compensation is only 50k. Pensions are a fine tool but they have to be funded responsibly, states liked to use them as an incentive but then refused to properly fund them banking instead on large returns. Companies did the same thing for a long time but they've been allowed to cut benefits to retirees when they run dry and have since moved on to 401ks if they offer any thing at all.
- SilasX 8y ago
  >The thing the galls me the most about that article is it doesn't once stop to try to say or find out how much the guy is working to bring in that much, spoiler it's going to be a lot of hours given it's overtime and his base compensation is only 50k. You're right, it deceptively leaves out such vital information. It also leaves out: - how productive he actually was for each of those 80 hours - how many workers "only" at 1.5x time were willing to take those shifts but denied because of seniority - how much of the compensation came from the non-standard practice of letting him redeem PTO for 2x its value by applying it to week where he already worked overtime - whether those long, hard hours actually translated into clean BART stations, or were just roundabout compensation for being physically present but ineffective Once you have that full picture, I'm pretty sure the typical person's initial reaction will be closer to right than wrong.

mruts 8y ago

The promise of hedge funds (the original one at least) is that they provide bond-like volatility with equity-like returns. Of course, hedge funds nowadays are just defined by a compensation scheme (2 and 20, though today more like 1.5 and 15). Hedge funds are exactly the kind of investments that pension funds should have.