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Calpers Hoping Riskier Bets Pay Off

July 25, 2009

From the NYT Calpers Hopes Riskier Best Will Restore Its Health

First, keep in mind Calpers lost approximately $60 Billion last year.  Sixty Billion.  You can’t really blame the current investment chief, Joe Dear, he just started at Calpers this year.  However, let’s see what he wants to do…

Mr. Dear wants to embrace some potentially high-risk investments in hopes of higher returns. He aims to pour billions more into beaten-down private equity and hedge funds. Junk bonds and California real estate also ride high on his list.

Now, this might work.  Might.  It is what Washington state did under his leadership.

Most recently, Mr. Dear headed the Washington State public pension fund, which gained a reputation as a daring investor under his oversight. It risked more of its portfolio — 25 percent — on private equity than any other public fund. The bet pushed the Washington State Investment Board, which now has $67 billion in assets, into the top 1 percent of its peer group in performance during the boom years, according to Wilshire Associates. But in the fiscal year that ended last month, the fund lost 27 percent of its value, or $18 billion.

Emphasis is mine.  Let’s review this.  The Washington fund bet on risky investments during an inflationary asset bubble and in doing so they were in the top 1 percent of their “peer group”.  Go figure!  Wow, simply amazing.

So what happens when things head south?  You lose $18 Billion, with a B.  Any bets that the conservatively managed funds had lower losses when things started contracting?

But who could blame Joe Dear?  What are his options?  What does he risk?  If his strategy doesn’t work, will he personally lose any money?  No, he won’t. Joe Dear is just like the Banksters on Wall Street playing with other people’s money.  If he bets correctly, he wins.  If he bets incorrectly, other people lose.

America, the land of speculation.

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