Public pension systems once invested nearly all their all funds in stocks and bonds. Then, the Great Recession hit in late 2007. Stock prices walked off a cliff, bond yields plummeted, and public pension funds across the country lost hundreds of billions of dollars.
For the first time, many pension systems began looking beyond stocks and bonds — the bread and butter of most retirement accounts — and started to make high-cost, actively managed “alternative investments” a part of their portfolios. These investments, such as private equity, promised alluring returns.
A few years before the downturn, the Maryland State Retirement and Pension System had dipped its toe into private equity funds, which buy, overhaul and sell companies. Under pressure to bolster the flagging pension fund at the time, the system took the plunge, putting more and more money into private equity and other high-cost investments.
The pension system is now at its healthiest funding level in a decade and it has grown most years since the Great Recession. The system’s assets more than doubled from $27 billion 20 years ago to $64 billion now. But what it pays to Wall Street to manage those investments has increased much more rapidly. The system now pays money managers about $1 billion a year in fees and incentives, 25 times the $40 million it paid two decades ago.
Click here to read the rest of the article written by Giacomo Bologna over at The Baltimore Sun
