As nearly every American will tell you, retirement starts with a living wage and a stable pension. Eighty-two percent of Americans say a pension in general is worth having, according to the National Institute on Retirement Security. Pensions, along with Social Security, are the keys to a healthy, safe and productive retirement.
The American Federation of Teachers, through the AFT Trustee Council, works with trustees of public teacher retirement systems who oversee $630 billion in assets. By providing transparent information for pension trustees, ranking asset managers in our powerful “Ranking Asset Managers” report, and gauging hedge fund performance in our “All That Glitters Is Not Gold” report, we’re holding hedge funds accountable for their performance, helping pension trustees fulfill their fiduciary duty and ensuring retirement security.
We take the obligation to protect pensions seriously, and that includes stopping bad actors who, without safeguards, would extract billions in fees, leaving taxpayers and workers on the hook. We counsel trustees to carefully define what they want from hedge funds, and evaluate whether other asset classes provide a more cost-effective and transparent means of achieving risk-adjusted returns. If trustees choose to invest in hedge funds, they must find an effective means to control costs and measure performance.
Last year, the AFT found that 11 public pension funds would have been $8 billion better off if they never invested with hedge funds. The average pension fund we examined paid 57 cents in fees to hedge fund managers for every dollar of net gain. And in June, a report released by CEM Benchmarking Inc., which provides benchmarking services to asset owners, showed hedge funds provided lower average net annual returns to U.S. pension funds than any asset class besides cash.
Big public pension funds like the New York City Employees’ Retirement System are pulling out of hedge funds because they generate huge financial gains for their principals but a poor return for pension funds.
Accountability is one thing. But a comprehensive pension strategy is about more than just saying no. By investing our members’ deferred wages in prudent and responsible ways, we can stoke America’s economic engine by creating good jobs and sustainable returns for investors — a virtuous circle of growth.
Our investment work stretches right across the economy to crucial pension fund and divestment decisions, to hedge fund regulations, and to infrastructure projects like rebuilding New York’s LaGuardia Airport. Since 2011, in partnership with the Clinton Global Initiative, the AFL-CIO, North America’s Building Trades Unions and others, $16 billion of teacher pension assets have been allocated for fiducially sound investments in infrastructure.
The National Institute on Retirement Security has found that every dollar paid out in public employee benefits generates $2.36 in economic activity; any additional investments in local communities, like rebuilding bridges and repairing the energy grid, helps boost that margin. These investments in the real economy create long-term value.
And as part of Take On Wall Street, a campaign launched by 20 national organizations, including the AFT, we’re working to reform financial markets by, among other things, closing the carried interest loophole that means some Wall Street moguls pay a lower tax rate than firefighters, nurses and teachers. We’ve been demonized and scapegoated for our efforts.
At the AFT, we’re showing what can happen when innovative thinking is applied to America’s most pressing economic challenges. We’re guided by the core belief that we must take practical steps to reinvest in the promise of America: If you work hard and play by the rules, you should be able to build a secure life for yourself and your family; if you can’t, the rules should be rewritten.
We’re expecting more pushback from hedge funds. But our work to ensure a fair economy will continue, and we’ll see more success as it does. We’ll continue to use every method at our disposal — from the street to the C-suite — to make sure Wall Street works for all Americans, not just hedge fund managers and the wealthy few.