On the front page of today's (August 14) Wall Street Journal is a story titled, "Facing a Pension Shortfall, San Diego Dials Up the Risk."
The article tells how the county's pension fund, only 79 percent funded, is using debt-laden derivatives, allegedly to protect the portfolio against big losses. The county's fund is buying futures contracts tied to the performance of stocks, bonds, and commodities. "San Diego County's embrace of leverage comes as many pensions across the U.S. wrestle with how much risk to take as they look to fulfill mounting obligations to retirees," says the Journal. Other funds are cutting back on risk and simplifying investment approaches. The county fund manages $10 billion for more than 39,000 employees.
Although plans have not been finalized, rumors are that the gamble could be as much as 95 percent of the fund's assets — possibly, "market exposure of $20 billion despite only managing half that amount," says the Journal.
The publication gives credit where it is due: on Sunday, Union-Tribune columnist Dan McSwain brought the pension fund's "casino attitude" to the attention of the community.