bill stirs talk on retiree risk
By Beth Potter, Staff Writer
Monday, July 31, 2006
Some retirees in Colorado think hedge funds are too risky a
place to invest their pension assets, no matter what
Congress decides on a pending pension bill.
A provision in the bill moving through Congress would let
hedge funds -- the scantly regulated managed investment
funds that are gaining in popularity nationally -- to take
on more pension fund money with less government scrutiny.
Hedge-fund managers contend the bill would provide greater
flexibility and the chance for pension funds to select
low-risk hedging strategies to offer safeguards against a
At stake in Colorado is more than $44 billion tied up in
managed retirement funds of groups like the Public
Employees' Retirement Association -- all Colorado state and
school workers -- and the Association of US West Retirees.
"I think it's too chancy," Nelson Phelps, executive director
of the Association of US West Retirees, said of the new
provision being debated. "What (irritates) me about
Congress, is, they're supposed to strengthen plans for
retirees, and instead they're trying to sneak in this
Local hedge-fund managers, however, say the risk of their
investing varies from fund to fund.
"It's a case-by-case situation of how risky the funds are,"
said Jerry Paul, a hedge-fund manager at Greenwood
Village-based Quixote Capital Management. "It's incredibly
arrogant of those critics to say hedge funds are too
During the past five years, Paul said, pension funds,
foundations and university endowments have increasingly
turned to hedge funds as alternatives to traditional
investments such as stocks and bonds. He noted that some
pension funds now have as much as 30 percent to 40 percent
of their assets in various types of hedge funds.
"It gives pension funds increased flexibility, and I can't
see what's wrong with that," said Paul, referring to the
Hedge fund managers favoring the provision say they should
not be bound by a government requirement to become
fiduciaries, which gives them specific legal obligations
toward workers and retirees under federal law.
Right now, hedge funds are required to become fiduciaries if
pension-fund money makes up more than 25 percent of their
Hedge funds should be allowed to police themselves, said
Jack Gaine, president of the Managed Funds Association, an
industry trade group that has been pushing for the change.
"Becoming a fiduciary entails a lot of complications and
difficulties, which makes it very unsatisfactory. It's very
time-consuming and prohibitive," Gaine said.
Hedge funds have surged in popularity in recent years as
investors use complex trading strategies to go after large
The hedge-fund industry already manages billions of dollars
for companies and government-sponsored plans with assets of
about $1.2 trillion.
While Colorado-PERA invests 8 percent of the $35 billion it
controls in an alternative investment class, hedge funds are
still seen as too high-risk, said Katie Kaufmanis, a PERA
Kaufmanis pointed to PERA's 9.8 percent return on its
investment in 2005, above the 8.5 percent planned rate of
return, as proof that its conservative investment strategy
Staff writer Beth Potter
can be reached at 303-820-1503 or