Meridian Star

Columns

April 8, 2013

PERS allowed to take higher risks

MERIDIAN —

While you were sleeping the Governor and Legislature gave PERS authority to make higher risk investments with retirement funds.

    House Bill 990, introduced by the vice chairman of the House Appropriations Committee, Mac Huddleston of Pontotoc, and co-sponsored by committee chairman Herb Frierson of Poplarville, passed the House 82 to 3 and the Senate 52 to 0 and was signed into law by Governor Phil Bryant on March 21st.

    The PERS Board requested this bill “to reflect the current investment environment.”

    What this means is that the lay board will rely more heavily on its “professional investment advisors” to manage risk as they chase higher investment returns.

    What changed?

    PERS may now invest in “non-agency” residential and mortgage-backed securities and collateralized mortgage obligations that are not guaranteed or backed by any government agency; asset-backed securities such as car loans, credit card receivables, etc.; and bank loans, usually packages of commercial loans. Previously, PERS was limited to fully guaranteed or highly rated securities. Now, there is no reference to guarantees, ratings, or any indication of credit risk for these newly authorized investments.

    PERS may now utilize “foreign currency as an investment vehicle” to effectuate or hedge transactions for foreign stocks. The old language for hedging foreign transactions was more restrictive.

    PERS may now purchase revenue bonds or notes issued by any state or any size city or county in the U.S. Previously, PERS was limited to general obligation bonds and notes that had the full faith and credit of the issuing entity behind them. Also, any city or county issuer had to have a population 25,000 or more and have not defaulted on interest or principal payments for at least 10 years. These limitations were removed.

    The bill also removed requirements that U.S. corporate bonds and taxable municipal bonds and foreign corporate bonds and government securities have credit ratings. Ratings reveal the credit risk associated with the investment, e.g., lowly rated bonds are called junk bonds.

    The bill eliminated provisions that PERS protect its bank deposits by requiring banks to post securities covering the deposited amounts.  Every city, county, and other public entity is required to so collateralize their deposits that exceed federal insurance limits.

    The bill even removed deposit collateralization requirements for foreign bank deposits.

    Given PERS’ challenges, it’s not too surprising that the Legislature and Governor authorized new investment opportunities. What is surprising is their willingness to eliminate risk safeguards from the statute. With the exception of short-term corporate obligations, the only investment risk safeguard remaining in the statute is language telling PERS to act as “a prudent investor.”

    This is the same PERS, now, that opposed legislation to add board members with private sector financial experience.

    Sure looks like an all-in bet to me.

 

    Bill Crawford (crawfolk@gmail.com) is a syndicated columnist from Meridian.

1
Text Only
Columns
Biz Marquee
New Today
Poll

Do you think the city of Meridian gave residents adequate notice before beginning to drain Long Creek Reservoir?

Yes
No
     View Results
Facebook
Facebook
Twitter Updates
Follow us on twitter
AP Video
13 Struck by Lightning on Calif. Beach Baseball Hall of Famers Inducted Israel, Hamas Trade Fire Despite Truce in Gaza Italy's Nibali Set to Win First Tour De France Raw: Shipwrecked Concordia Completes Last Voyage Raw: Sea Turtle Hatchlings Emerge From Nest Raw: Massive Dust Storm Covers Phoenix 12-hour Cease-fire in Gaza Fighting Begins Raw: Bolivian Dancers Attempt to Break Record Raw: Israel, Palestine Supporters Rally in US Raw: Air Algerie Flight 5017 Wreckage Virginia Governor Tours Tornado Aftermath Judge Faces Heat Over Offer to Help Migrant Kids Kangaroo Goes Missing in Oklahoma More M17 Bodies Return, Sanctions on Russia Grow Raw: Deadly Tornado Hits Virginia Campground Ohio State Marching Band Chief Fired After Probe Raw: Big Rig Stuck in Illinois Swamp
Hyperlocal Search
Premier Guide
Find a business

Walking Fingers
Maps, Menus, Store hours, Coupons, and more...
Premier Guide