Keep an Eye on Your Pension Manager as They Might Gamble Too Much to Show You Returns

“(MoneyWatch) Pension funds across the country face massive deficits, estimated to be as much as $3 trillion. In an attempt to cover these deficits and keep their promises to retirees, many pension plans have dramatically increased their allocations to alternative investments. According to Wilshire Trust Universe Comparison Service, retirement systems with at least $1 billion in assets had raised their stake in real estate, private equity, and hedge funds from 10.7 percent in 2007 to 18.3 percent by the end of 2011.

The big question is whether such aiming at higher returns is worth the fees. The New York Times reported that the $24.5 billion South Carolina Retirement Systems paid $344 million in fees in 2011 alone, up from just $22 million in 2005. For those staggering fees, the system earned an annualized (and before-fees) return of 3.1 percent for the three years ending June 2011, though the system’s performance over the next six months made its three-year average rise above the national average.”

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