Thursday, February 18, 2010

One of these things is not like the other...

One of these things is just not the same - Sesame Street circa 1971

Pension fund asset allocation



Sometimes the stories write themselves. NPR was good enough to put together a chart highlighting the huge concentration of US pensions in stocks. While most people consider their pensions to be "safe" they are only as safe as the stocks they are invested in. While France, Mexico and S. Korea seem exceedingly cautious, for US pensions to still have over 60% of their assets in risky assets (stocks) tells me two things:

Future obligations require US pensions to chase yield and if the stock market ever takes another leg down US pensions are going to be in a world of hurt.

On the flip side when the market rallies, the exceedingly high allocation to stocks means that pensions can outperform their expectations. See today's news that the NYS Pension was up over 22% in the first 9 months of their year....

"New York state’s pension fund is on the rebound with a double-digit rate of return through the third quarter, Comptroller Thomas DiNapoli said Thursday.

The pension fund — officially the New York State Common Retirement Fund — has posted an estimated 22.3 percent rate of return through Dec. 31, 2009. That rate has increased the value of its holdings to approximately $129.4 billion."

Considering that the stock market was up substantially during this period it seems reasonable that pensions should at least return double digits.

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