Eliminating The Middlemen

A recent article indicates that big institutional investors are empowering themselves to make their own markets instead of continuing to depend on Wall Street. But the members of the Institutional Investors Roundtable don't appear to include CalPERS. However, in 2011 CalPERS joined with other institutions and they have been making some progress toward the larger and very challenging goal of sustainable investing. But I hope they also liberate themselves from Wall Street, and invest in Main Street where most retirees live.

CalPERS Check-Up

CalPERS vital signs may be showing some improvement lately. For starters, the Board raised the rates for employers, that is, the multitude of state and local agencies which depend on it for pension investments. As ably explained by Ed Mendel, the pain needed to ensure adequate funding will be phased in over several years. Hopefully agency budgets will withstand these extractions.

And of course, this still optimistically assumes a 7.5% average return for the foreseeable future. JJ says no prob, all the big institutional investors are equally optimistic. Maybe so, but i hope it's not for the same bad reasons - that lower and more rational forecasts would cause too much pain.

Moreover, CalPERS may be getting a least a bit serious about sustainable investments. I recently got wind of a Symposium, co-sponsored by CalPERS and UCD Graduate School of Management, to be held in early June. It sounded interesting enough that I submitted a paper, but since they picked only 7 out of almost 100, I can't feel that disappointed at being rejected.

Still, after reading the titles of the selected papers, I felt relieved at being left out. The titles themselves are already pretty foggy, and the less obscure titles led to abstracts that left me almost completely in the dark. I have a hard time believing that the Board will be able to really understand them without translation, and I can only hope that CalPERS executive staff will be able to a) understand them, and b) explain their meaning to the Board. Maybe they could even explain it to me.

Personally, reading the titles made me feel like I was watching someone move the Titanic's deck chairs into esoteric arrangements designed to help the authors get tenure. While these papers are probably not wrong, I just can't convince myself they're really on the right track for the post-fossil-fuel future that would be our best investment.

And if CalPERS does actually decide to disinvest in fossil fuels, as some advocate, they will need a whole lot of sustainable investments to replace current fossil fuel investments, given the latter's huge role in our economy.

Are my ideas for post-fossil-fuel investments any better than the fancy academic ones? Maybe - you can judge for yourself. But I am sure that they are more understandable, even for PhD.s in economics.

UC Regents & CalPERS Drank the Same Kool-Aid

Just got around to reading last week's News & Review about funny business by UC Regents. I guess the Haas School of Business was asleep at the wheel.

It seems that key regents got carried away just like some CalPERS board members and financial advisors. Why do rich people think they are smarter than the rest of us?

Maybe because it's because most people aren't paying attention. Or maybe it's because most people have drunk the exact same kool-aid, and think that men in expensive suits must be better at making money.

But doing what everybody else is doing is guaranteed to be a lame investment, although doing the opposite of everyone else is not a guarantee either. There's no substitute for rationality.

And there's no substitute for thorough inspection of the reality behind the money, even if widespread lack of transparency makes it practically impossible.

Sustainable Return on Investment?

I read in the paper this morning that CalPERS' consultant thinks the fund's ROI will average 7.84% during the next decade. But a model is only as good as its assumptions.

I fear that Wilshire's model, like virtually every economic model in use, conceives of money as the independent variable, when in fact it must always be the dependent one.

Big Business vs. Small Governments

Republicans like to pretend that government is all bad. But business is certainly not all good.

State Street Bank and CalPERS Assets

I read in the paper that CalPERS isn't going to fire State Street Bank, a corporation with at least 25,000 people in 9 sub-corporations, not every department of which may be 100% honest and transparent. Reportedly, State Street provides CalPERS with several types of services, ranging from custodial and administrative to investment management. It appears that State Street has gobbled up much of its competition during its relationship with CalPERS, which goes back to at least 1999.

It's not entirely clear whether or not State Street is managing members' deferred compensation accounts, although that does seem to be a service they offer. DPA says Nationwide Retirement Solutions manages it via their service center site, although at the bottom it says "Retirement Specialists are Registered Representatives of Nationwide Investment Services Corporation," a member of FINRA, and in turn a part of Nationwide Financial Services, Inc., (look, the logo matches!) which apparently is now privately held by Nationwide Mutual Insurance Company. I may have gotten lost and started going in circles here, but nonetheless I have to say Savings Plus has done all right by me. They offer me funds that perform consistently with their descriptions - bonds, stocks, risk levels - and I choose what works.

Unfortunately, it appears that both Nationwide's and State Street's awareness of sustainable investment is very superficial. While they say they are committed to reducing the environmental footprint of their own operations, they seem unconscious of any impact of climate change on the economics of pension investment.

Such myopia on the part of anyone whose livelihood depends on achieving numerical monetary targets like an average 7.75% return is not surprising. Their 'economic' vision reads just like that of the editors of The Economist - it's all about monetary growth and never mind all the refugees. But even on that front, mortgage-related challenges still lurk, not to mention ancillary market distortions.

But future monetary returns depend on a real economy that is healthy. Economies with millions of homeless refugees displaced by capitalist numerical ideologies are not healthy economies. I know there are at least one or two other paradigms available.

When will the CalPERS Board talk about paradigms outside of the monetary-growth box?

Is College A Good Investment?

Apparently the politicians in the legislature think prisons are a better investment than California's public universities, since the portion of the general fund that has been taken away from the CSU and UC systems in the last 25 years is somewhat more than the additional portion that CDCR has received.

I'm glad that the "Blue and Gold Opportunity Plan" covers fees for students from families making less than $70,000, but is there an implication that this is the floor for the middle-class? And what is the ceiling for middle-class? I sincerely hope it is lower than the inflated salaries enjoyed by Mr. Yudof and other big cheeses. If Yudof truly believes that UC is "in imminent danger of losing our quality and competitive edge," why hasn't he lowered his salary to just take what he really needs?

But from a larger economic perspective, I have to ask myself what kind of college educations society really needs. I have noticed a substantial amount of 'degree inflation' in the past generation or two. The excellence and expertise of my engineering professors at San Jose State was not strongly related to their paper diplomas; some of the best had only a BS while some weak ones had PhD's. And nowadays many youth think that you can never get a good job without the college ticket.

However, few jobs really require a bachelor's degree, let alone a master's or doctorate. Maybe we should stop worrying about our competitive edge, and start paying attention to cooperating with each other, because no economy can function without lots of cooperation. In fact, you can't have a legal transaction if coercion or force are required.

Yet coercion is implied in our usual attitude toward our jobs. But why? Why not do jobs we like instead of ones we don't? As the originator of Open Space Technology points out, "After all, if we did only what we cared to do, not much would get done. Or would it? Isn't it true that jobs done by people who don't care are not worth much? Is it not also true that people who care greatly accomplish incredible things? And fortunately, there are a lot of different people who care about a lot of different things, which means there is a high likelihood that the majority of things needing to be taken care of will be taken care of--by someone who cares."

What if our economy was based on taking care of things rather than making money? Which kind of economy would be better for old pensioners?

What if our economy was based on healthy human nature? Maslow's hierarchy offers guidelines, suggesting that most people do best when their life is a balanced blend of physical and mental activity. Bureaucrats in offices will benefit from exercise such as gardening that is more useful than jogging, and construction workers will benefit from exercise such as math and literature classes. Artists needn't worry about making money with their art because everyone makes art, along with taking care of the various things that each one of us care about.

The first thing we care about is physical survival, which means water, food, and sleep. Then comes our future water, food, and sleep, and next our community. Getting to this economic level means sustainability and security. The other things people care about are all the fun--creativity, play, spirituality, and life-long learning. Sure, some people are better artists than others, but few artists will be happier doing only art than as a jack-of-all-trades.

And even with universal health care, nobody lasts forever. But nothing can ever take away the happiness of living one's own best life. And not some celebrity's life.