Many investment managers overseeing the savings of retired workers from big corporations and state and city governments are facing a tough decision – unloading investments on the cheap or turning to borrowing. What was once a promising partnership between private-equity and pension funds is now causing headaches for those responsible for managing retirement savings.
Originally, companies and states were drawn to private-equity investments for the promise of high returns over time. However, the expected payouts have now dried up, leaving managers in a difficult position. A recent Coller Capital survey revealed that nearly half of private-equity investors are stuck in “zombie funds,” unable to meet payment expectations and leaving investors in limbo.
To maintain steady benefits for retirees, investment managers are resorting to selling investments at a discount or taking on costly loans. California’s worker pension fund, for example, is spending more on its private-equity portfolio than it brings in for eight consecutive years. The case of Cummins, where the U.K. pension fund shrank due to selling private assets at a loss, further illustrates the challenges faced by these funds.
This cash crunch highlights the risks associated with hard-to-sell investments and serves as a cautionary tale for those considering similar strategies. As Wall Street looks to offload these investments to wealthy households, the stress is palpable among investment managers like Allen Waldrop of Alaska Permanent Fund Corp.
For a deeper dive into the complexities of private-equity and pension fund management, The Wall Street Journal offers valuable insights. And for a personalized financial check-up, consider scheduling a Second Opinion Service meeting with Creative Capital Wealth Management Group.
