Checking back in on the city's police pension fund
The stock market rallied, helping recover much of the prior month's losses
Hey city money nerds,
As we’re continuing our journey into pretty crazy economic times, I’m gonna do my best to keep an eye on the police pension fund. As the previous post noted, the police pension provides a greater level of transparency, when compared to the other city employee pension systems. While it is impossible to know exactly what is happening at all of them, all the time, the police pension fund performance serves as a reasonable proxy for how the other systems are doing. There are certainly differences between the assets that each fund holds, but I’m not aware that we’ve seen recent periods with significant divergences in fund performances. I could be wrong, but I don’t remember any time when say one of the pension’s bad bets got it into significant trouble, while the others were all hunky dory. Even if they have different mixes of assets, they seem to have similar risk profiles. So, what’s the most recent news from the police pension?
Stock market rally rebuilds position
After a valuation decrease of $28M in the previous month, the pension fund recouped almost $21M. As with many readers’ retirement accounts, the police retirement fund saw widespread gains across investments in funds that are focused on the stock market. In the time that’s passed, since this latest Market Valuation Report was filed, stock have been mainly holding steady. We will if the city’s pension fund further benefits from a “Santa Claus” rally at the end of the year. As is, it is difficult to tell where things are going. A significant portion of financial and banking industry leaders are indicating that they believe a recession is likely. On the extreme pessimistic end of things, Roubini’s prediction of multiple concurrent crashes is one that would probably cause the pension fund to become insolvent. We can all hope he is less right about this crash, compared to the last financial crisis and the Great Recession that it triggered.
One investment is really underperforming
I have no idea what the fund holds, the pension’s investment in the Crescent Fixed Income fund really seems to be taking a beating. While many of the pensions investments regained lost value, the Crescent investment continued to decline in value. While the rate of losses decreased, that line item continues a downward trend. In the past two months time, it has lost close to 20% of its value, even while other investments have largely regained losses from the October stock market dip. Also, it doesn’t appear that the money is simply being moved to other investments. While it is possible that the money is simply moving, it really does appear that this particular investment is facing real losses that don’t simply bounce back with the next market rally.
Holding steady, but down for the year
The recovery of much of the value lost to October’s market downturn shows that the pension’s health is really, really dependent on the performance of the S&P and DJIA. Even after the recovery to $786M, it is still very far below the level of the $932M that the last annual report showed. The past month recouped much of the previous month’s losses, but we are still on pace to end the year significantly below last year’s valuation. As I mentioned in the previous post on the pensions, this means that we are likely to see an increase in the city’s general fund obligations to the police pension. The city’s pension fund has continued to be funded just above where it would be considered in trouble. That means we don’t have a lot of room to lose value. If the oft-anticipated recession hits, we’ll be going in at a far weaker position, compared to when the city entered the Great Recession. At the same time, recent years have seen the city begin rebuilding a larger reserve fund. Said reserve rebuilding was one of the Krewson administration’s priorities and was sound policy. Here’s hoping that increased savings rates have been enough to help the city weather a potential recession’s impact on pension solvency and revenues. If things do take a downturn and the city’s general fund is asked to kick in significantly more money, we could see a situation where the city is forced to use pandemic stimulus money to plug budget holes. The county is already doing that. Here’s hoping that we don’t end up in their boat. Some related good news is that the city has been running a surplus, so we have some extra cushion and can lose a decent bit of revenue, prior to being forced to dip into reserves.
Next up in city financial news
In January, the pension system will release the next “city contribution requirement letter”. At that time we’ll know if losses to pension investments lead to a significant increase in general fund contribution.
The city’s Annual Comprehensive Financial Review (ACFR) will likely be the next major fiscal document to be released. I’ll keep an eye out for it. It usually comes out right at Christmas. Once I see it post, I’ll probably have something out around the beginning of next year.
That’s all I’ve got. Hope you’re having a great week!