Month: April 2005

Should Massachusetts residents be encouraged to invest directly in the state pension fund?

Treasurer Tim Cahill is promising to look at the idea, floated this week by Joe Kennedy at the Democratic Party’s annual state dinner.

Kennedy noted that the $36 billion fund, run by the Pension Reserves Investment board, has achieved competitive returns.

“Why can’t we set up a mirror image of PRIM…to invest money for any resident of Massachusetts?” the former congressman asked. “Any amount from $100 to Millions could be invested.”

Cahill, who is sometimes tipped as a candidate for the governor’s race next year, gave qualified praise for the Kennedy scion’s remarks.

“I’m getting intrigued by the idea,” he said. “Joe deserves a lot of credit for thinking creatively. We’re going to look at it.”

Kennedy’s argument: The pension fund offers much better returns than a savings bank.

The fund returned 14.4 percent during 2004 and an average of 11.53 percent over the past 10 years.

“Right now, there ain’t no money managers getting returns for working people that are available to the richest people on the planet,” Kennedy thundered. His examples of the richest people: Bill Gates and Warren Buffett.

The remark raised some confusion. Gates and Buffett made all of their money through public companies that anyone can invest in, even a child.

And competitive investment returns are available through hundreds of mutual funds, many run from Boston.

Kennedy told the Herald his real target was alternative asset classes, such as hedge funds, private equity and venture-capital vehicles.

Federal rules largely bar these to ordinary investors. But big pension funds are allowed to invest.

Of course, an alternative plan would allow mutual funds to invest more in such alternative assets themselves.

State Treasurer Timothy P. Cahill says he is considering a proposal to open the state’s $36 billion public employee pension fund to investments by all residents of Massachusetts, after consulting yesterday with the idea’s architect, former US representative Joseph P. Kennedy II.

The proposal is intended to give middle- and low-income families the chance to invest in a fund that is run by top-performing managers and attempts to earn at least 8.25 percent annually. The plan would boost the size of the pension fund, giving the state more buying clout while potentially lowering costs, Cahill said.

“What Joe sees, and what I see, as the real driver here is you could offer top-line investment advice to average workers, which they can’t get on their own,” Cahill said. “That’s the beauty of it. And the diversification [of the pension fund] protects them. Regular people can’t get access to private equity.”

Kennedy said the goal of his plan in simple: Give blue-collar workers and others with moderate wages a chance to make a relatively low-risk investment that would offer the prospect of far higher returns than standard savings or money-market fund accounts.

He contrasted the idea with President Bush’s proposal to create private Social Security investment accounts, which Democrats say could endanger future retirees’ Social Security checks.

Kennedy, who has said he is not planning to run for governor in 2006, unveiled the idea at this state Democratic Party dinner on Monday night and followed up with Cahill yesterday.

If implemented, the Kennedy plan would make Massachusetts the first state pension fund in the nation to open itself up to private investment said Fred Nesbitt, executive director of the National Conference on Public Employee Retirement Systems.

But that’s a big if, he and other pension analysts said.

Fro starters, major investment banks would likely put up a massive fight to such a plan because the Kennedy proposal would essentially make the state pension a mutual fund, said Ed Hennessee, Tennessee’s director of retirement and an officer with the National Association of State Retirement Administrators.

In addition, federal laws may have to be changed to allow such a plan to go into effect, he said. “You can only have in your pension fund public money contributed by employees and employers.”