Later On

A blog written for those whose interests more or less match mine.

The story behind the pension fund’s new strategy

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Jake Bernstein reporting for ProPublica:

Before there was a much-maligned investment strategy [1] for the agency charged with safeguarding the pensions of 44 million American workers, there was a consultant who devised that strategy. New information obtained by ProPublica reveals how the consultant, Rocaton Investment Advisors [2], reached conclusions that have now been criticized by two federal agencies and one inspector general.

Back in September 2007, the Pension Benefit Guaranty Corporation [3] paid Connecticut-based Rocaton $395,000 to study the agency’s finances and suggest how best to allocate its money, according to its contract [4] (PDF). What the PBGC ultimately approved — reducing its investment in bonds to increase the money it holds in stocks — differed little from the recommendation made by Rocaton.

Fortunately, the PBGC never took its planned plunge into the stock market, avoiding catastrophic losses from buying stocks when they were near an all-time high. The agency announced [5] last Thursday that while it had engaged Wall Street firms in November 2008, it had not made any investments based on the new strategy. Given the congressional investigation [6] into former PBGC Director Charles Millard’s handling of the investment contracting, it appears likely that the new policy will be severely modified, if not scrapped.

Nonetheless, Rocaton’s work for the PBGC holds interest. Just as Millard shaped who would receive the contracts to implement the new strategy, he also served as the senior PBGC official on a three-member evaluation panel that selected Rocaton, according to a report by the PBGC inspector general [7] (PDF). The speed and zeal with which Millard, a former Lehman Brothers executive, proceeded from hiring a consultant to signing contracts with investment banks created the appearance that he was not surprised by the findings of his handpicked consultant. One question that senators on the U.S. Senate Special Committee on Aging [8] might want to ask when Millard testifies under subpoena this Wednesday: Did he give any instructions to Rocaton beyond the bland "statement of work" in the contract?

Millard and Rocaton did not return calls seeking comment.

Prior to February 2008, the PBGC had about 75 percent of its investment portfolio in bonds, with the rest in equities, according to the Congressional Budget Office. The new strategy would have reduced the allocation in fixed-income assets to 45 percent, raised the amount dedicated to equities to 45 percent, and devoted 10 percent to alternative asset classes like real estate…

Continue reading.

Written by LeisureGuy

19 May 2009 at 2:54 pm

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