Sunday, January 15, 2012

Public Worker #Pensions Suffer Because of Unfair Hedge Fund Practices #wiunion #union

A post and an article linked below some of my thoughts on this subject explain how hedge fund managers have been hurting Pension Funds (including those for public workers) and other investors.  I try to explain why the news media ignores this "inconvenient truth".

Much has been made of the almighty Hedge Funds possibly because of all the money their managers seem to magically make.

After the Dot com melt down of the late 90s and early new millennial years youngish hedge fund managers kept popping that could truthfully say they made 1-2 million and even much more in their first years in the business.   Mainstream news was on these folks like sap on a split stem.  Business sections, especially love multimillion dollar success stories.  And in reporting on these new "winners" in the economy our news sources tend to promote their message.  This would happen even if mainstream writers weren't at least a bit biased towards the wealth created by such people.

You can see that mainstream media is prejudiced towards the rich and their wealth creation stories by how many sources have special "business and finance" parts.  Newspapers, magazines, and online publications have sections or even whole separate works aimed at people interested in making a lot of money as quickly as possible.  On air or cable stations have special programs or even entire channels aimed at the subject.

How many sections do you find in an newspaper or special regular programs or cable stations dealing with cleaning your house or apartment.  The second subject might be more useful and in fact necessary to prevent residents from falling ill, but there is almost no money in the profession.  You aren't going to see or read interviews with Delores, the house cleaner, who just may the only one be keeping a family from getting Typhus or Ptomaine poisoning, and that's a shame. Personally I'd like to pick the brains of quality professional cleaners to enhance my own cleaning skills.  And think of the clean you'd see if people got into house cleaning contests across the nation.  But don't hold your breath waiting for the Fox Cleaning Channel .

There seems to be a reason or two for the adversion to low earning jobs as icons and promotion of high earnings ones.  First, most people and media love get rich stories (Media which is usually supported by advertising especially love millionaires.  Dolores can't buy the expensive ads they need to sell).

In fact, some publications are still promoting the idea that Day Traders can get rich fast.  If 2008 didn't kill that old wives tale (which wouldn't earlier die after a few DSers killed people over their losses in the previous decade), then I don't know what will.  There are people though still making a lot of money "advising" day traders, and other businesses offering tools the poor frazzled smucks can use.  That may be the reason the lie continues.

And hedge fund managers were seen as big winners; millionaires and billionaires that could tell us what to do to make millions ourselves.  What they told us was to invest with them.

Unfortunately, it wasn't just Mom and Pop who may have gone this way and lost even compared with government bond yields.  Hedge funds attracted a lot of pension fund managers looking to make up for losses from earlier bad investments (like investments or the oil price bubble of late 2007- Spring 2008).

I'd like you to read an Economist Article and/or a piece by Tim O'Reilly linked at bottom of this post. O'Reilly is a dot com guy, but of course, because he's made a lot of money he needs to protect, and he's brilliant, so he's on this like ants on a rotting banana.

Apparently hedge fund managers have been setting their fees so high that yields after fees are subtracted, are lower than with "Treasury Bills" or government bonds according to a Financial Times article quoted by Mr. O'Reilly .

In fact, the FT author that O'Reilly quotes and to which he links suggests that over-all investors in hedge funds may have gained nothing over the last decade, and the managers extracted everything.

And believe me, I know how boring this is to read, except that it's talking about what may be your pension fund to which you give up to half your income and hope there will be an increase so you won't be cast into poverty when you can no longer work long hours.

First, let me give you an example of what happened to the California pension funds around 2008.  From what I read the managers were convinced to jump on the oil stocks  as prices skyrocketed in late Spring of 2008.  By this time, the price of  oil was already so elevated that the pension bought high.  But we were all supposed to see prices even higher.  $200 a barrel was supposed to be the price by fall.

Instead by  late June oil prices started plummeting because of a world wide recession that was developing partially because of the high cost of fuel. Instead of the $5 a gallon gas we were supposed to be seeing in the fall we saw gas nearing $2 a gallon by November,  if I remember correctly.  So the pension funds managers here took funds (selling low) out of that  fiasco and put it in ventures that also suffered greatly in 2008.

It must be very difficult to care for so much money, but the CalPers managers overseeing the fund that year were replaced, so it's possible they were seen as especially incompetent.

Then again if pension fund managers are still investing in what look like get rich quick schemes and not even realizing when they are losing the shirts of the public workers, maybe there is something wrong with the whole culture.

If I were working at a public job or maybe any job with a pension fund, I'd be very concerned.  It's bad enough that Republicans want to cut benefits, wages etc. for jobs done by public employees, but having hedge fund managers use the money to enrich themselves instead of doing the job they claim they are doing, enhancing the bottom line of all concerned, is especially egregious.

The above are mostly my own thoughts.  Please read one or both links below for high quality analysis by people who know a lot more than I do re: financial investment:

Tim O'Reilly's post at Google + on what appears to be legal but almost a scam perpetrated by  Hedge Fund managerss  (easy to get the main points) Besides offering his excellent piece O'Reilly links to the Financial Times which offers you 8 FT articles a month if you register with them and where you can apparently then read their original report.  (I did not go ahead and register and read that one.)

The Economist article on same recently published book   "Rich managers, poor clients A devastating analysis of hedge-fund returns" which I think adds some dimensions and makes it's own guess why Pension Fund managers have been so blind to the actual results of investing in Hedge Funds.