Public Pension Funds Are Adding Risk to Raise Returns

This reminds me of the Kahneman and Tversky quote “a person who has not made peace with his losses is likely to accept gambles that would be unacceptable otherwise.”

States and companies have started investing very differently when it comes to the billions of dollars they are safeguarding for workers’ retirement.

Companies are quietly and gradually moving their pension funds out of stocks. They want to reduce their investment risk and are buying more long-term bonds, Mary Williams Walsh writes in The New York Times.

But states and other bodies of government are seeking higher returns for their pension funds, to make up for ground lost in the last couple of years and to pay all the benefits promised to present and future retirees.

“In effect, they’re going to Las Vegas,” said Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, which oversees public plans in that state. “Double up to catch up.”

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