zerohedge | So what do pension fund managers do when perpetually declining interest rates continue to drive their funded status lower and lower despite one's return profile?
Well, there is little choice: one has to move further and further out
the yield curve in an attempt to match asset duration with that of one's liabilities. That, or
reach for the skies by buying the riskiest assets possible, and pray
for a home run.
Unfortunately, most pension fund managers better known as "dumb
money", are hardly star stockpickers. One such example is the fast
imploding Dallas Police & Fire Pension (DPFP), which covers nearly
10,000 police and firefighters, and whose troubles we first covered back in August,
is on the verge of collapse as its board and the City of Dallas
struggle to pitch benefit cuts to save the plan from complete failure.
According the the National Real Estate Investor, DPFP was once applauded
for it's "diverse investment portfolio" but turns out it may have all
been a fraud as the pension's former real estate investment manager, CDK
Realy Advisors, was raided by the FBI in April 2016 and the fund was
subsequently forced to mark down their entire real estate book by 32%,
thereby exposing just how great the risk truly is when pension funds
swing for the fence... and miss.
Thing only got worse, when news of the fund's woes spread, and as we reported in September,
Dallas police officers caught on to the ponzi and rushed to withdraw
retirement funds as quickly as possible before the whole system goes
bust. As reported by a local ABC affiliate, Dallas police officers are retiring at a record rate and opting for full cash withdrawals of their pension benefits as opposed to equal monthly distributions for life (apparently they don't think the fund will be around long enough to pay them for very long).
Through the first two weeks of September, there have been 21 Dallas police officers who retired. Multiple sources told NBC 5 that commanders are bracing for many more retirements over the next two weeks as well.
The Dallas Police Department did not foresee the volume of retirements this month. In early August, Deputy Chiefs told city council members in a presentation that they projected 14 retirements between Aug. 9 and Oct. 1.
In short, declining returns, a mismatched asset-liability book, and a
surge in redemptions: the three things that no fund managers wants to
hear, let alone at the same time.
Unfortunately, for the Dallas Police & Fire Pension, it is now
too late, as none other than Dallas mayor Mike Rawlings appears to have
discovered. As ABC reports,
Mayor Rawlings told the state's Pension Review Board that recklessness
led to the financial crisis of the Dallas Police and Fire Pension Fund.
"This is much like a Bernie Madoff scheme, if you ask me," he said.
