Tuesday, 21 October 2008

Pension funds holding toxic assets

The FT delivered more bad news about pensions. According to some research undertaken by a consultancy called Create Research, around 8 percent of global pension fund assets are taken up by toxic assets such as CDOs, CLOs, ABS and SIBs. Around "$700bn" of these assets "could be toxic."

"There is about $400bn to $700bn of this toxic waste sitting on the balance sheets of pension funds, especially in Denmark, Germany, France, Sweden, Japan and the US."

It just gets worse....


Anonymous said...

Hands up anyone who actually thinks they are going to get a pension?

Jim in San Marcos said...

Don't you have to raise both hands when you are being robbed?

Mark Wadsworth said...

Rule 1) Do not trust these people with a single penny of your money.

As I have 'blogged before:

They whine too much.

They miss the blidingly obvious.

They swallow the entire value of the tax reliefs (around £50 bn per annum) in fees, commissions and underperformance.

They do not represent their customers' interests.

And, as your post points out, they invest in crap.

'nuff said?

Anonymous said...

Simple solution... euthenasia.

Anonymous said...

well anyone involved in the markets knows when pension funds pile in then it is the top of the market.

CDOs are perfect for them having transformed credit risk into interest rate risk. So they can take a huge punt for 250bips spread.

aSteve said...

What's surprising, Alice, is that you don't mention the UK.

As I understand it, as people approach retirement age, it is common practice to move out of equities and into "bonds" (i.e. fixed income investments) as they are perceived to be safer. Given our population's age demographic and the well known fact that the over 50s have a disproportionate slice of wealth... I imagine that plenty of British pension funds have mountains of bonds...

Someone I met in a pub about 18 months ago (posh area) was talking about managing his company's pension fund. (The pension fund for a whole company on behalf of its employees - I think.) He talked (proudly) about being "almost entirely in bonds" - to which I replied (and he seemed shocked that someone without grey hair had an opinion) "I trust those aren't the toxic ones like the Americans have been selling?" He became quite agitated and terminated the conversation.

I think it would be _very_ interesting to investigate the holdings of big pension companies... I think it remarkably unlikely that they've escaped with small losses.

Mark Wadsworth said...

asteve, sure, but the losses on these bonds will be considerably less than 20%*, as opposed to the 90% losses that they made on bank shares in the past couple of years.

* Probably closer to nil, now that idiot gummints around the world have decided to guarantee them.

Markbaldy said...

Pension plan... borrow up to the max, credit cards, car loans, store cards, sell your house and rent a flat... then party till you drop dead...spend the bl00dylot !
If you don't drop dead, then the state will keep you in and old folks home and you will be living alongside "sensible" people that saved all their lives and are paying for their own care !
Who needs a financial adviser... simple eh !

dearieme said...

When my pension fund started talking about "alternative investments" I knew it meant "we're going to invest in something dodgy, far too late in the day".