Pension Funds Invest in Hedge Funds Because of Demographics

Pension funds talk about investing in hedge funds as a means to diversify, reduce volatility and generate ‘alpha’ in their portfolios. But some scary demographics appear to be behind it as well. At a forum held last year (as reported in this Benefits Canada article), John Cannell, Treasurer for the Toronto Transit Commission Pension Fund Society explains:

“We got into hedge funds because we’re being beset, as most basic defined benefit plans are, by some very difficult situations….Our demographics are deteriorating fast. In effect, in 1985, we had four active members for every pensioner. As of today, we have fewer than two active members per pensioner and within 15 years, we will be down to one."

Comments

[ACEMAN:]

Larry my man it is not only our brothers from the North that are demographically challenged, but the largest two pension plans in the good ole US of A, PERS and STRS of California have already warned on a shortfall of $19.6 bn for retirees in 2020 for just the same reason, fewer bodies creating money for the retired teachers, professors and admin types. Both PERS and STRS hve now upped the ante on Private equity and Hedge Funds to better than 10% of the total portfolios as they chase alternative investments otherwise known as long/short absolute return. What's dishonest is that this information is definitely not broadcast to those very same teachers, profsn and admins. Let's see what they are going to say when they lose $10 to $20 bn due to being on the wrong side of the countet trade.

2008 Apr 18 12:47 AM