By John Lawrence
According to the Wall Street Journal, San Diego County’s pension fund manager is using an extreme amount of risky leverage to make up for a shortfall in funding.
This is equivalent to the gambler who makes riskier bets to make up for the bad bets he’s made in the past. Wall Street Journal reporter Dan Fitzpatrick called San Diego County’s investment methods “one of the most extreme examples yet of a public pension using leverage – including instruments such as derivatives – to boost performance.”
We have seen this kind of risky behavior before. Some jurisdictions like Orange County, CA and Jefferson County, Alabama along with the cities of Detroit, San Bernardino and Stockton, CA have gone bankrupt. The strategy being used by San Diego County Employees Retirement Association(“SDCERA”) is drawing a lot of criticism. The pension fund manages about $10 billion on behalf of more than 39,000 active or former public employees.