Do You Really Still Think You have a Pension? Think Again, Hedge Funds are Out to Kill You!

June 3, 2007(LPAC)--"Everyone is doing it." CalPERS (the California public employees' retirement system) has invested $140 million in them; the Texas teachers pension fund has invested $73 million; the New Mexico State Investment Council has bought $222.5 million, and is planning to invest another $300 million. They are snapping up unrated, bottom of the barrel collateralized debt obligation (CDO), investments known as "equity tranches," but nicknamed "toxic waste." "Toxic waste," because they are a bundle of the riskiest portion of the CDOs, made up largely of subprime loans and other risky debt. These investments are unrated, practically untrackable, and not only that,-- the mix in the bundle can be even changed after it's sold, so you never even know just what you have!

Edward Altman, director of the Fixed Income and Credit Markets program at New York University's Salomon Center for the Study of Financial Institutions, commented to Bloomberg.com (June 1): "That's obviously a very risky play...if there's a meltdown, which I expect, it will hit those tranches first."

Chriss Street, treasurer of Orange County, California, was more blunt: "It's grossly inappropriate to take this level of risk. Fund managers wanted the high yield, so Wall Street sold it to them. The beauty of Wall Street is they put lipstick on a pig." Street mentioned the similarity between the investments which led to Orange County's 1994 bankruptcy, and the investments being made by the large pension funds today. "Very few pension plans could meet their fiduciary duty by buying portfolios of subprime loans," he said. "They spiked up the yield, but that yield means nothing when the defaults start to mount, as we know they will. The funds will take big losses."

With the dramatic rise in foreclosures centered in the subprime mortgage sector, the day of reckoning is close at hand. It's one minute to midnight,-- do you know where your pension is?