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Other Voices: How do we solve the public pension fund crisis in the US? Are hedge funds to blame?

Tuesday, December 04, 2018

By: Donald A. Steinbrugge, CFA - CEO, Agecroft Partners

An article recently published about the grossly underfunded Kentucky State Retirement System suggests that gambling on high fee hedge funds and private equity funds, and the use of placement agents, were primarily to blame. For many readers, it was likely a persuasive article. Quotes from scared retirees who have dedicated their lives to public service and are now rightly worried about their retirement benefits would pull on anybody's heartstrings. The article was also potentially quite dangerous because it was fraught with inaccuracies and prejudices that, if taken as fact, could have severe negative effects on decisions made by other public pension funds and politicians.

There are 3 major reasons why we should care about the unfunded status of many public pension funds in the US.

  • It affects millions of current and future retirees who have devoted their lives to public service.
  • Current public pension liabilities are approximately $5 trillion and growing
  • At some point, either higher taxes will be needed to pay for these benefits or retirees will see their benefits reduced or eliminated

For more than three decades, I have seen the various organizational structures and decision making processes of public pension funds across the country. My knowledge and experience come from 12 years of service on the investment committee of a public pension and my previous roles as the head of inst......................

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