Massachusetts pension funds’ net asset is the highest ever after increasing by $7.9 billion in 2013, according to an announcement by Massachusetts Pension Reserves Investment Management Tuesday.
“PRIM’s outstanding performance in 2013 will enable us to reduce our unfunded pension liability and is likely to increase the attractiveness of the Commonwealth’s bonds to investors,” said Mass. Treasurer Steven Grossman, who chairs the PRIM Board, in a Tuesday release. “Our commitment to maximizing returns while successfully managing risk demonstrates sound fiscal leadership that will serve the interests of the Commonwealth’s taxpayers.”
Pension fund managers often invest their clients’ money in the stock market to make the investment grow. In 2013, those investments returned 15.2 percent, and now the state’s pension fund is at $57.9 billion. This beat the management board’s benchmark goal by $1.4 billion.
“I’m very pleased with the performance of our investment team in 2013 and what it means for our investing clients,” said Michael G. Trotsky, PRIM’s executive director and chief investment officer, in the Tuesday release.
Trotsky said there is risk involved with investing their clients’ money in order to gain money, but emphasized that the company makes investment decisions carefully. PRIM also began a program this year, Project Strategic Analysis for Value Enhancement or SAVE, which aims to pinpoint $100 million in value enhancements over the next two years.
“PRIM has successfully modified its risk exposure to equities while still capturing very strong returns from the global equity markets,” he said. “Additionally, the decisions we’ve made on how we invest in hedge funds and alternatives have allowed us to improve performance while reducing risk and also dramatically reducing management fees.”
Laurence Kotlikoff, professor of economics at Boston University, said he disagrees with how pension funds are often handled and thinks PRIM may be falsely advertising just how well they did in the past year.
“All of the municipal and state pension funds have been lying for decades about their funding status by making their liabilities seem a lot smaller than they are by using really high discount rates,” he said.
Kotlikoff also said managers of these funds are immoral in how they are handling their clients’ money.
“It turned out this year that they did well in the market, but next year they could lose 50 percent of their investment,” he said. “We’ve seen that happen many times in the past. They’re gambling [and] this is financial malfeasance. This kind of thing happened in Detroit, California…there are a lot of pension systems that are probably worse off than Massachuestts but they’re risking gambling with the investments.”
Some residents said they felt the risk in having your money invested in the stock markets is not worth the possible benefits.
“It really depends on when you invest … you might feel good about your investment because the stock market is in an uproar, but you never know when it’s going to crash,” said George Antonopoulos, 54, of Back Bay. “You could lose all your money. I think it’s a lot safer to just put away money as you work. It also depends on who is managing your money. You can never be sure, but you have to be able to trust his decisions.”
Stephen Winn, 44, of Boston, said pension funds are risky but and investment will be worth it in 20 years.
“It is really scary because the stock market could crash at any time, and depending on how much you invested, you could literally lose all your money,” he said. “But I don’t want to be retired, having worked my whole life, and having nothing to show for it. After working for so many years, I want to be able to live a comfortable life, and pension funds can do that for you.”