The California Public Employees' Retirement System building in Sacramento, California July 21, 2009. CalPERS, the state's public employees retirement fund, reported a loss of 23.4%, its largest annual loss.
Over at Calpensions, the journalist Ed Mendel has a story about efforts by the boards of the two big pension funds, CalPERS and CalSTRS, to involve themselves in a labor dispute between workers at the Hilton Hotels and the private equity firm that owns the hotels.
The funds own stakes in the private equity firm, and the boards are dominated by labor unions. And as someone who watched a highly leveraged private equity deal destroy a company I worked for (Tribune, owner of the LA Times), I tend to agree with labor union officials who dislike such firms.
But these pension funds are supposed to focus on investment returns. Each has had significant problems with those basic goals in recent years. So intervening in contract disputes may not be wise.
Mendel points out that applying political pressure on labor might not be in the best interests of the funds.
"The big pension funds have a built-in conflict. Private equity is expected to produce higher-than-average returns needed to meet investment targets. Labor unions say the leveraged buyouts often used by private equity firms can harm workers.
"Both pension funds, responding to a dimmer economic outlook, are considering lowering their investment earnings forecasts, creating a need for higher employer contributions to replace the revenue.
"The higher returns expected from private equity may become even more important. Last year CalPERS increased its private equity allocation from 10 to 14 percent of total investments, while CalSTRS went from 9 to 12 percent."