Wednesday, January 18, 2012

Example of dis-saving in process

Recently the Oregonian of Portland, OR USA reported that 2011 was a Banner year for Oregon Public Employee Retirement System retirements.

"Last year was a banner year for the Oregon Public Employee Retirement System in at least one respect: retirements.

PERS officials say 8,279 members signed up during 2011 to start receiving benefits. Final numbers could go down a bit as some members opt to continue working. But that's a 44 percent increase from the average number of retirees over the previous four years. It's also the highest number since 12,500 retired in 2003, when major legislative reforms to the system prompted a spike in retirements."

In response, the system's managers are

"focused on "managing down" the private equity portfolio. That means dialing down their annual commitments to new partnerships, and waiting until market conditions allow existing funds to liquidate older investments and return the proceeds to investors."

A key issue is how easily the system will be able to cash out of its investments in order to pay pension benefits. The report indicates that

"Oregon has one of the most illiquid pension fund investment portfolios in the country... because so much of its money is tied up in long-term private equity partnership...and a slow stock market means fund managers aren't having an easy time selling the companies they've bought".
In a period of global overcapacity in multiple sectors and widespread writedowns to come on financial assets, this pension system like many others may find it difficult to meet its payout obligations. Regardless, the system will see a major increase in the proportion of members in retirement status, meaning that a greater share of payments will have to come from investment liquidation as opposed to contributions from workers. The same situation is occurring in numerous developed countries.