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Texas Teachers $109 Billion Pension Fund Needs A Whopping 21% Return In Current Year To Preserve Adequate Funding Ratio
While the University of Texas made headlines over the weekend for disclosing it had taken delivery of $1 billion in gold (albeit in a Comex warehouse in New York), another Texas fund is making waves today however for all the wrong reasons. As Bloomberg announces, "The Teacher Retirement System of Texas needs an annual return of 21 percent in the year ending Aug. 31 to maintain an 80 percent funded ratio, the level actuaries consider adequate to cover liabilities, said its deputy director." Needless to say, as Brian Guthrie, the fund's executive director admitted, “We’d have to have remarkable investment returns for the rest of the year to reach 80 percent.” Considering that the fund’s investment return was 14.7% in 2010, the best among large public pension funds, it is more than obvious that a major portion of the fund's 109 billion in assets as of April 1 is already in stocks. Which is why should the market swoon following the end of QE1, the best performing fund of 2010 may well be the worst performing fund of 2011. And even if by some miracle stocks surge enough to fill the performance void for the rest of the year, it is still not guaranteed that the fund will make up for the performance shortfall, even as pensioners' capital is likely tied in with such bloated, overvalued garbage as 4x+ beta, triple digit forward earning multiple stocks (full list of key equity holdings below).
From Bloomberg:
Even with the gains, the pension’s funded ratio -- the portion of promised benefits covered by current assets -- dropped to 81.3 percent as of Feb. 28 from 82.9 percent on Aug. 31, 2010, because of trading losses in 2008 and 2009 included through a process called smoothing, Executive Director Ronnie Jung said April 7.
Public pensions nationwide are grappling with about $3.6 trillion in unfunded liabilities, according to a 2010 study by Joshua Rauh of Northwestern University and Robert Novy-Marx of the University of Rochester.
Texas Teachers’ annualized return for the decade ended Dec. 31 was 4.8 percent, below the fund’s assumption of an 8 percent annual return.
Texas legislators are considering reducing the state’s contribution to the fund, which is now 6.64 percent of employees’ salaries. The Texas House earlier this month passed a budget that would cut general revenue spending by $4.6 billion, or 5.2 percent, during the 2012-2013 biennium.
The pdf below shows the top 500 positions in the latest publicly disclosed stock holdings of Texas Teachers per Thompson One.
h/t Mike
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So they are shooting the moon against the FED's gamble of QE and currency devalution?
It seems like the same bet, but at some point the FED has to crush Precious Metals to push capital into Treasuries and Equities if rates go up and they crash (respectively).
Boy, if the J.P. Morgue and the other TBTF banks decide to ask the FED to crush Precious Metals...watch out.
How so?
1. Raise interest rates?
2. Halt QE?
3. Have ALL the banks repurchase their crap MBS paper(s)?
Check your premises! :>D
I'm not sure, but I do know that the tricks up the sleeve and collusion are there; and if it served their purposes they would do it and we would be the last to know.
''Texas Sized Failure, Teachers Union Pension Fund Goes Bust''
...headline for a paper their students obviously would not be able to comprehend, if they were taught to read.
...and all the students at the tuition hike protest sing http://www.youtube.com/watch?v=RRNTQvXSsfA
Pension funds are all going to suffer BIG TIME, WTSHTF, but quite frankly, what else can they all do? There is simply too much paper money sloshing around in them, to invest in anything other than T bills, 'safe' shares of large corporations and real estate, in any quantity.
With $10K you can invest in virtually anything and your wedge of cash isn't going to affect the market or have any danger of not finding someone to cover the other side.
With $109 Billion, even a 1% investment in anything is going to be a market mover, IF you can find someone to take the opposite side of the deal and make the market.
The larger, Pension Funds, Sovereign Wealth Funds, Hedge Funds etc became, the more derivatives were required to enable them to make a return. Their size sowed the seeds of their mutually assured destruction, didn't it?
Put it another way. How much (paper) profit per year do all these funds have to take out of the financial system, compared to world GDP? That profit has to come from somewhere... or maybe it hasn't, really. Someone should have realised a long time ago that once the funds' totals exceeded world GDP, the spiral could only head in one direction.
The next few years are going to be very ugly and I still can't convince my wife to take whatever pension she can have now and invest it in PMs. Grrrr.
So the other players at this table are Sovereign Wealth Funds, Hedge Funds, and Wallstreet. What's the saying? "If you're at the poker table and you don't know who the patsy is, you're the patsy"
Silver For The People
http://www.youtube.com/user/BrotherJohnF?feature=mhum
The smoking baby says "well said my friend".(and then "puff, puff pass!")
They're in silver, right bitchez?
I just don't get how the hell anyone can manage that many positions. Jesus Christ! I have between 4-10 at any one time and I do just fine. I bet some of these pension fund managers can't even count to 500.
Calpers and Texas Teachers were huge CDO buyers... Not judgmental but these guys were pensions for groups that were salaries 20-30 % highter than private firms. The systemic risk instilled by this in FICO fraud for steady pressure in non peformance wage increase. Now TARP was instilled to protect these pensions as much as bailing out banks. These two pension funds were dupped by these economic terrorist. It seems strange to me that the teachers don't start teaching the leverage of the housing bubble was more the bankers and usury and not as much the home buyers.. With education sinking to hight teens in the world. IMO we can not fix a problem we don't address.
TRS is a ponzi that reports 5% returns year after year to its inwestors.
If they are admitting this shortfall now imagine what the true numbers are.
The Texas Teachers pension is probably also continue to play with the banks' securities lending system. Securities Lending has not reached public or media awareness yet, but these schemes have the potential to blow a few major holes in pension and state investment pools.
Basically, the pensions and investment pools borrow cash using assets on their balance sheets as collateral. The cash is then invested by the banks running these schemes in the hopes of generating an income stream. Most of the resulting income goes to the banks and hedge funds who provide the cash, with a pittance (as low as 7% of income, or pennies on the dollar of earning) going to the pension funds/investment pools.
While the funds/investment pools might eek out a few cents, they bear 100% of the risk that the investments bought with borrowed cash go bust.
So, the banks that run these schemes get all sorts of advantages, including places to park their off balance sheet paper crud (which are purchased with the borrowed cash), most of the income from the borrowed cash investments, plus the ability to use assets borrowed from the pension funds in shorting operations for themselves and their hedge fund clients, while the sucker pensions/investment pools, bear all the risk in exchange for a few pennies of extra income.