Tuesday, February 16, 2010
"Public pension funds needing to boost their returns but frustrated with hedge funds and private-equity investments are turning to one of the oldest investment strategies--using borrowed money to boost performance. The strategy calls for leveraging pension funds' safest asset--government or other high-grade bonds--while reducing exposure to stocks. ... Low interest rates make it impossible to meet those targets with simple bond investments. ... That public pensuion funds would contemplate the use of borrowed money so soon after a credit crisis stoked by financial leverage is setting off alarms for some in the industry. ... In previous years, consultants pitched a strategy called portable alpha, an aggresive bet involving leverage and hedge funds that magnified returns when the stock market was surging but aggravated losses when the market turned down", Craig Kramin at the WSJ, 27 January 2010, link:
Depending on the rates the pension funds issue debt, this may turn out better for them than the skeptics think. That pension funds, like Wisconsin's, resort to this shows many pension funds are insolvent in substance. Do you still want to buy muni bonds?