Here’s a great example of how public pension funds, in a desperate grab at realizing the high returns their financial strategies require for them to remain solvent, are undertaking increasingly risky
NEW YORK — Wall Street investors aren’t the only ones feeling the sting of Facebook Inc.’s falling stock: So are some of the country’s troubled government pension funds.
Public employee retirement funds from around the country took part in the Menlo Park, Calif., social networking juggernaut’s May 18 initial public offering and plowed millions of dollars into Facebook stock before its value plunged.
Facebook shares continued their decline Friday, falling $1.03, or 5.4%, to a record low of $18.06, or less than half their $38 offering price.
Although public pension funds staked only tiny portions of their multibillion-dollar portfolios on Facebook’s fortunes, the stock’s poor performance has added to the funds’ woes. Chronic underfunding and poor returns could lead pension funds to pursue riskier investments such as hedge funds, private equity, commodities and real estate, or even cut benefits for retirees.
Three pension funds have joined a class-action lawsuit against Facebook and its underwriters. The suit, filed in U.S. District Court in Manhattan, N.Y., alleges that lead underwriters led by Morgan Stanley gave only some select investors a heads-up that Facebook’s revenue forecast had soured.
Sometimes you eat the bear, sometimes the bear eats you.
CalPERS, the California public employees’ pension fund, owns more than a million shares of Facebook stock. Doesn’t putting that many eggs in a basket that has never made a profit and might not even have a plan to do so sound sort of risky to you? I mean for CalPERS not for Mark Zuckerberg. I’m sure he’s doing fine. That Facebook employees sold so much of their own stock as soon as the window had re-opened should show you which way the wind is blowing.
It should be noted that this is one of the great problems with defined benefit programs. Unless they are fully funded and managed extremely conservatively, the earnings they realize just may not be enough to pay what they’re required to pay.