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.