(2) Pension funds often are LPs, and they're widely refereed to as "dumb money" because they would be the last entity to do anything remotely intelligent.
(3) Private companies often do not even produce the kind of information talked about here, let alone do they give it to their investors, let alone do those investors pass the information along.
If you are "willing to bet" on all those things, then I can see why casinos are so profitable.
>some pension funds investing in stocks and VCs doesn't mean it's a meaningful component, they are one of the smallest pieces of the pie.
In the case of Union Square Ventures, the majority of the money in their 2004 fund came from pension funds. It's all public information.
>Estimates of the percent market investment tied up in pensions is something between 5% and 15%
Your 3 links and the "5 to 15%" math are not relevant to my point. Let my try to put it another way. Let's say you looked at the LPs (investors) of a VC fund that raised $400 million. The list of wouldn't be filled with just the Rockefellers and Vanderbilts. The money sources do not entirely from the concentration of wealth.
Instead, a lot of the money comes from retirement pension funds, charities trying to stretch out their donations, university endowments, etc. And it's not just the public & private pension funds in the USA. Canada and Europe pensions also invest in VC funds.
And yes, pretty much every pension fund[0] invests in a mix of alternative assets including private equity, hedge funds, and venture capital. Pension fund managers can't meet their financial obligations by only parking their billions in T-Bills or only investing in a passive index. They need the higher returns of those alternative investment vehicles.
1. This is more easily accomplished as a federal program.
2. It is already very easy to write software that compares performance to an index.
Regardless, if the purpose of a DB pension fund is to protect people from their own proclivities, then a federal pay as you go system works better (cheaper, less agency risk). If the purpose is to supplement the amounts from the federal system, then a personal account at a brokerage invested in a low cost index works better.
I am not even sure why Canada invests its pension funds in the private markets. Canada can always issue new Canadian dollars anytime it needs to pay the benefits it has promised if tax receipts are insufficient. If anything, this leads to another perverse incentive of Canada’s government wanting to bail out businesses it has invested in.
Pension funds are some the biggest investors in underperforming asset classes like VC, and have been epically fleeced in recent years by professional asset managers (pension bond debacles). Pension funds are desperate and easily manipulated because many of the big ones, especially public ones, are basically insolvent. Governments overpromised and under saved and now pension funds are counting on 8% returns that they’re not going to get.
Pensions are ok as long as they're (a) fully funded and (b) managed well. Politics makes both hard.
(a) because it's much easier to promise benefits without fully contributing the present value of future liabilities. Ask the average taxpayer how much a pension costs, they'd have no idea how to even start thinking about all the complex financial math this requires (life expectancy, discount rates, return expectations, etc) so it's too easy to play games. Especially when game playing=lower taxes and more benefits.
(b) because pensions are huge pots of money and it's just too hard not to touch that. Though CalPERS seems to have resisted this temptation to some extent, which I find impressive.
Believe me, I wish I was wrong, but we're talking about basic human nature here, which I don't think is something you can really change.
Right and here's the problem. Pension funds are notoriously underfunded and filled with people that don't give one iota of a rip about where it's invested. Pension managers will not leave those yields on the table or they'll fave a revolt.
If I understand correctly, this is because (at least often) the pension funds are underfunded, and have to take risks because they have to have higher rates of return, because with realistic rates of return the contributions aren't enough to reach the specified level of benefits.
1. Teachers and mail carriers are by large incapable of adequately understanding what their pensions are invested in and each risk associated with each investment.
2. Individual teachers and mail carriers have literally no control over how their pensions are invested in most cases, so why should they be liable for those decisions?
Agree with your point, but as far as I understood that “gambling” done by the pension funds mainly happened because there’s no other way for them to pay what they’re due, i.e. the pensions themselves. In other words the pensions system slowly reveals itself as the Ponzi scheme it was from the very beginning.
There are very few well funded state and local government pension plans, all due to the same reason (unrealistically high investment return assumptions, underfunding, and miscalculation on how long people will live).
This would indicate there is a problem with the design of taxpayer funded pensions.
Pension funds is shorthand for pension funds and other bulk investments for other people vehicles like BlackRock and Vanguard. A common complaint from people is that there's under ten entities that owns almost all of the major public firms. Matt Levine has very funny and informed takes on this sort of thing, ZeroHedge et al have conspiratorial ones, but it's a real thing.
1. I wouldn't object. But employers would have to kick in money too, and some may not want to because that could potentially effect the bottom line. With (US) 401(k) (CA: RRSP), it's up to the employee to contribute and many don't so that saves companies money.
2. The listed pension funds are not for working specifically for the government, but are for more publicly focused aspects (health care, education). But there are other options, like folks who work in (e.g.) the food industry (supermarkets):
It's not the full picture only because a handful of pension funds do their job properly, they come up with a sensible diversification and put it into passive instruments.
Everything beyond that is a scam. High fees for what should be a simple task, or taking reckless risks or allocating to active managers, is where the scam part comes in, and most of the industry is guilty of that.
Can/do pension funds invest in private companies? Seriously asking.
Edit: I don't understand why this would get downvoted, and I am endlessly amazed by how weird or sensitive people are on HN. Just to downvote without even answering a simple fucking question in earnest.
(2) Pension funds often are LPs, and they're widely refereed to as "dumb money" because they would be the last entity to do anything remotely intelligent.
(3) Private companies often do not even produce the kind of information talked about here, let alone do they give it to their investors, let alone do those investors pass the information along.
If you are "willing to bet" on all those things, then I can see why casinos are so profitable.
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