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Last Friday, Cullen Browder reported on the level of fees now being paid by the NC Pension Fund.   In the process, he interviewed yours truly.   The video is here: http://www.wral.com/fees-grow-faster-than-nest-egg-in-nc-employees-pension-fund/15963461/ A big thank you goes to Ron Elmer who blogged about the fees on his investorcookbooks blog. Ron compared the fund today vs. what it would have looked like had the asset allocation in 2000 been maintained using Vanguard index funds.  His analysis is here . The results are shocking.   Fees as a percentage of the assets have increased by a factor 7 from 0.1% to 0.7% and the fund has gone from being overfunded to underfunded. But it's not just fees - Ron also takes a look at the lost performance of the fund.    Again, the results are shocking.  The fund has underperformed by 1.8% per year over the past 10 years. But it gets worse.  If you look at the annual report for 2014 - 2015 - here: https://www.n...

This is a bit of a repost - but is relevant as we talk about fees. Back in February I wrote a white paper that was a back of the envelope analysis of the fees paid buy the pension fund, including some hidden fees such as trading costs.   You can read the paper here .    It was referenced in this article on Forbes  that talks about indexing pension funds.

A must watch discussion between Richard Thaler and Gene Fama - both from the University of Chicago. http://review.chicagobooth.edu/economics/2016/video/are-markets-efficient#

Two states, Hawaii and South Carolina are using Cash Secured Puts to boost the yield of their pension funds. http://www.wsj.com/articles/pensions-play-with-puts-for-protection-1471777202 So what exactly is a cash secured put?   A put is a bet that the underlying stock will fall in price. Buying a put results in a payoff when the stock price falls below the strike.    Conversely, selling a put results in a loss when the stock price is below the strike.    The benefit to writing (selling) a put is that you earn a premium when the stock is trading above the strike.   But when the stock price falls, the writer incurs a loss.  The payoff from this strategy is basically the same as a covered call. A cash secured put involves keeping cash on hand to cover this loss.   In the case of a pension fund, this cash is probably in the form of Treasuries.   Holding this cash doesn't make the loss go away, it just means that you have the money to cover it. ...

Ron Elmer crunches the numbers on the recent performance of the NC Pension Fund and yet again finds that the fund has underperformed a simple basket of Vanguard funds . This isn't just bad luck.   It is exceptionally bad decision making.   Here's to hoping that the next Treasurer will do a better job.