Memphis pension board considers higher-risk, higher-reward investment strategy
|By Daniel Connolly, The Commercial Appeal, Memphis, Tenn.|
|McClatchy-Tribune Information Services|
The strategy, recommended by investment advisory firm Segal Rogerscasey, was introduced to the pension board last week by pension investment manager
It increases loss risk but could lead to bigger rewards.
Collins said the board's investment committee had been reviewing the changes for two years and that investments in international securities would help the fund achieve its target 7.5 percent return. "So much of the high single-digit and double-digit growth is outside our borders," Collins said.
The pension board decided Thursday to delay a vote on the investment strategy until at least its next meeting, scheduled for
The investment strategy could impact the stability of the
The pressure to increase contributions to the fund has influenced recent decisions in city government, including the
Contributions from the city and from workers allow the pension fund to buy stocks, bonds and real estate. When those investments do well, the fund needs less taxpayer money.
Low interest rates on bonds have made it difficult for public pension managers to achieve their target rates of investment return, said
The strategy might work, Fuerst said, but there's a risk. "If they don't accomplish those returns, it would mean the need for sharply higher contributions, or possibly the type of situation you've seen in
Fuerst also pointed to another drawback of private equity and hedge funds: They typically charge much larger fees than other types of investments.
Collins defended the use of these investments during the pension board meeting. He said private equity investments can actually decrease risk for a portfolio as big as the city's. Under the plan he presented, the pension fund would invest 4.4 percent of its portfolio in private equity companies, which often specialize in buying troubled companies, turning them around and reselling them for a profit.
And the pension would invest 4.2 percent of its holdings in hedge funds, private investment groups run by money managers who pursue a wide range of strategies.
The city would sell some U.S. stocks and bonds, reducing their combined percentage of the portfolio from 73 percent to 49.7 percent. The market value of the pension fund stood at
The pension fund would increase its holdings of foreign stocks from 22 percent of the portfolio to 31.7 percent. The fund would also invest 13.4 percent of the portfolio in bonds issued outside the U.S.
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