December 31, 2016
Gretchen Morgenson had an interesting piece on the New York Teamsters pension fund, which appears likely to impose a substantial benefit cut on current and future retirees as a result of a large funding shortfall. While there are many causes for the shortfall, most importantly a declining number of active workers contributing to the fund, the situation has been made worse by the high fees paid to private equity companies.
It appears that the fund invested heavily in private equity in recent years in the hope of raising its returns. The investments have not generally paid off, with private equity funds doing no better than comparable market indexes. However, the pensions had to pay much more in fees to the private equity fund managers than they would have paid had they invested in a stock index. It is probably worth mentioning that many of the most highly paid people in the country are private equity fund managers.
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