If that's the deal, and you are completely selfish, why not gamble more? So the city's public employee pension funds seem to have concluded. They want to put more money into hedge funds, which generally don't hedge (accept lower but more assured returns) at all. They leverage — producing huge returns in some years, and 100 percent investment wipeouts at other times, all while charging massively higher fees to their massively overcompenstated managers.
What this is about is coming up with a rationalization to claim the pension fund investment returns will be higher in the future than they will actually be. So more pension enrichments can be awarded but not paid for, until the costs explode and devastate the future of younger generations.
The hedge funds bet against each other, and they can't all be right. Perhaps an individual could pick the right manager, and strike it big the way those who invested with Warren Buffett 40 years ago did. Then again, they could also pick wrong, and end up like those whose retirement savings were fully invested with Bernie Madoff.
But massive investors such as $100 billion pension funds aren't going to invest with just one hedge fund. They are going to invest with many hedge funds, who will bet against each other with some winning and some losing. In the end, what is the difference between that and ordinary investments? Higher fees, with perhaps higher campaign contributions in return. And the possiblity of the loss of $billions if they hedge funds bet wrong in a herd, which is entirely possible.
This is an intersection of the groups that have have been profiteering at the expense of the less powerful and the future — the rich executives who sit on each other's boards and award themselves ever more private sector wealth, and today's seniors — particularly retired public employees — who have promised themselves decades of being well off without working, to be paid for by someone else in the future.
These are the people who get their money off the top, before whatever is left is divided among the unimportant majority. So they have decided to gamble whatever is left. If it works, they can take some more and make everyone else no worse off that they are going to be anyway. If it doesn't, well, that isn't their problems, because they'll get paid regardless.
These groups claim to oppose each other, but actually work together, with politicians managing the deal.
It’s time to face up to the fact that an 8.0% rate of return from the peak of a financial bubble is not realistic in a low inflation environment. The investment “losses” of recent years have not been losses at all, because financial assets were never really worth that much to begin with. Instead of losing even more money on even riskier investments in an effort to hide the cost of the deals that have been done over the past 15 years.