\u201cPERS Investments Lose Billions in Bear Market. Unfunded\nLiability Explodes.\u201d<\/p>\n\n\n\n
A newspaper headline in a dystopian novel? Maybe. But it\u2019s becoming increasingly likely we will soon see something like this in a newspaper near you.<\/p>\n\n\n\n
There was a time when PERS investments posted handsome\nreturns. But the 2008 financial crisis changed everything, and to this day,\nthey are posting mediocre returns at best. For the eleven years spanning\n2008-2018, PERS investments returned just 5.49 percent annualized. (Don\u2019t try\nto find this number on the Investment Council\u2019s website. They have quietly\nremoved all history prior to 2009.)<\/p>\n\n\n\n
But what is most troubling about PERS investments is that\neven though we are near the top of the current economic cycle, PERS still finds\nitself in a very precarious position, with a high unfunded liability and the\nlikelihood of big losses when the economy falls into recession.<\/p>\n\n\n\n
For a clue as to how much PERS could lose if the stock\nmarket posts a significant drop, we need only look back to last year, when PERS\ninvestment returns were barely above zero. Most troubling was the performance\nof its public equity portfolio, the largest single asset class in the\nportfolio, at about $26 billion.<\/p>\n\n\n\n
In 2018, the PERS public equity portfolio lost over 10\npercent, over twice as much as the S&P 500. If we extrapolate a loss like\nthis to a recessionary stock market when the S&P could easily drop 20\npercent or more, PERS will face disaster: losses in its public equities could\nerase close to $10 billion from the value of PERS investments, making today\u2019s\nunfunded liability look like the good old days and likely triggering a major\ncrisis for the state of Oregon.<\/p>\n\n\n\n
How are the legislature and the PERS Board responding to\n2018\u2019s warning? By placing a priority on keeping contributions to PERS low.\nHuh? If there was ever a time when more money than ever should be going to\nPERS, it is now, before the real crisis hits. But public employee unions and\nother special interests have prevailed in their campaigns to spend more on\nstate services, like education, and less on PERS.<\/p>\n\n\n\n
Recently, the PERS Board examined its assumed rate of return\nfor PERS investments, a crucial number that affects how much public agencies\nwill pay into PERS. If the rate is lowered, PERS contributions will be higher.<\/p>\n\n\n\n
I testified at both their May 31 and July 26 meetings and\npointed out their current rate of 7.2 percent is still way above actual PERS\nreturns. I urged them to reduce their rate further to better fund PERS.\nInstead, they declined to reduce their rate at all, despite lowering it three\ntimes in recent years.<\/p>\n\n\n\n
So, we should all be very worried.<\/p>\n\n\n\n
With the assumed rate of return now set for the next two\nyears, there is only one substantial action left that could possibly mitigate\nthe worst of the coming disaster.<\/p>\n\n\n\n
The Oregon Investment Council should immediately act to\ncorrect the dangerous asset allocation in its public equity portfolio that led\nto the big 2018 decline. With more than half the portfolio is invested in\nforeign stocks, it is perfectly positioned to get clobbered in the next\ndownturn (as we saw in 2018), as most foreign countries, including the largest\neconomies in Europe, are in a far weaker position than the United States.<\/p>\n\n\n\n
Months ago, I wrote a letter to the Investment Council expressing\nthese concerns and predicting significant losses in a market downturn. The ever-unaccountable\nand ever-opaque Investment Council never acknowledged my letter, despite the\ntroubling results of 2018.<\/p>\n\n\n\n
We Oregonians can do a lot better in dealing the PERS\ncrisis. But it will take something that is in short supply among the agencies\nwho manage PERS: courage, and a resistance to special interests who place their\nown agendas above the best interests of PERS and the rest of us Oregonians.<\/p>\n","protected":false},"excerpt":{"rendered":"
\u201cPERS Investments Lose Billions in Bear Market. Unfunded Liability Explodes.\u201d […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-113","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/oregoncommentary.com\/index.php\/wp-json\/wp\/v2\/posts\/113","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/oregoncommentary.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/oregoncommentary.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/oregoncommentary.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/oregoncommentary.com\/index.php\/wp-json\/wp\/v2\/comments?post=113"}],"version-history":[{"count":0,"href":"https:\/\/oregoncommentary.com\/index.php\/wp-json\/wp\/v2\/posts\/113\/revisions"}],"wp:attachment":[{"href":"https:\/\/oregoncommentary.com\/index.php\/wp-json\/wp\/v2\/media?parent=113"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/oregoncommentary.com\/index.php\/wp-json\/wp\/v2\/categories?post=113"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/oregoncommentary.com\/index.php\/wp-json\/wp\/v2\/tags?post=113"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}