Columbus Dispatch: Public pension funds taking a hit

From John Curry, October 16, 2008
Subject: Ohio STRS pension fund loss - aided by a "passive" computer program that bought stocks automatically!

...and, yes, the STRS investment staff still get their bonuses! John

"The teachers' pension fund is 67 percent invested in domestic and foreign stocks, and part of its decline was attributed to a "passive" computer program that bought stocks automatically, Leone said. The program purchased 92,000 shares of Fannie Mae at $20 a share in late June; the stock lost half its value two weeks later and closed yesterday at $1 a share, a 95 percent wipeout, he said.

"I'm a little nervous about the enormity of the losses that we've sustained in the past month -- well, actually in the last 12 months," Leone said."

Public pension funds taking a hit

Market's volatility latest setback in a bad year
Thursday, October 16, 2008 3:19 AM
By Bill Bush
THE COLUMBUS DISPATCH

With the collapse of Fannie Mae, Freddie Mac, American International Group and Lehman Brothers, the third quarter was tough on Ohio's major public pension funds.

But this quarter has kicked off to a bloodbath.

The S&P 500 is down 22 percent since its close on Sept. 30, the end of last quarter's reporting period for the state's stock-heavy pension funds.

In less than a year, the Ohio Police & Fire Pension Fund lost almost of third of its value as of the close of markets Friday, one of the worst weeks in stock market history. The fund peaked at $13.2 billion on Oct. 31, 2007, and was worth $8.9 billion on Friday.

"Obviously, '08 is not going to be -- at this point -- a positive year in the market for any investor," said agency spokesman David Graham.

Other funds, including the massive State Teachers Retirement Fund and the Ohio Public Employees Retirement System, said they don't know what they've lost in the most recent downturn. But the two funds -- ranked in the top 18 public and private pension funds nationally by total assets -- are expected to have added to already huge losses sustained in the past year.

The teachers' investment portfolio was off 21 percent at the end of last month from its peak of $80.1 billion in October 2007, "before the real crazy stuff here in the last four or five days," said board member Dennis Leone, citing an investment report from last month.

The teachers' pension fund is 67 percent invested in domestic and foreign stocks, and part of its decline was attributed to a "passive" computer program that bought stocks automatically, Leone said. The program purchased 92,000 shares of Fannie Mae at $20 a share in late June; the stock lost half its value two weeks later and closed yesterday at $1 a share, a 95 percent wipeout, he said.

"I'm a little nervous about the enormity of the losses that we've sustained in the past month -- well, actually in the last 12 months," Leone said.

The Ohio Public Employees Retirement System, the largest pension fund in Ohio, was down more than 16 percent in the first nine months of this year, a loss of $13.6 billion. Officials won't know the damage from the October plunge until January, said spokeswoman Julie Graham-Price.

The School Employees Retirement System of Ohio has lost about 17 percent on its investments since June 2007. The fund is 65 percent in stocks, and in June this year, for the first time, it sank $258 million into hedge funds, which are lightly regulated and often secretive investment firms. But after only three months, the pension fund's board suspended all further hedge-fund investing, said spokeswoman Laurel Johnson. The move was because a consultation warned of "market volatility," she said.

"Obviously this is unprecedented," said Aristotle Hutras, director of the Ohio Retirement Study Council, which advises state lawmakers on pension issues. But it won't necessarily mean anything to the tens of thousands of public-employee pension holders over the long term, he said.

If the downturn were to persist for years, it might mean that lawmakers would force pension systems to lower benefits or raise member contributions, but nothing like that is being contemplated, Hutras said.

"Times will be good again," he said.

bbush@dispatch.com