Friday, September 10, 2010

illiquid assets?

So I was just reading the letter from the city's pension actuary that the PG has online detailing some of the implications of a state takeover of the pension fund.  Forget the debate over whether to lease the pension assets, the letter raises more red flags than there are paragraphs.  Take just this one line:
Some of the assets held by the pension plan maybe illiquid and may not realize full value if sold.
Basic rule of economics: things are worth what someone will pay for them.  So this sentence makes no sense whatsoever to an economist. Then there is this little question of what value the pension fund is placing on these 'illiquid' assets right now if there is no known market for them.  And just why do we need to be left guessing in this letter what these assets are and what their nominal value is in the current pension accounting. The city knows what it's own pension fund owns I like to think.  Assumptions... assumptions...

So that was 3 flags from just that one sentence.  Anyone want to read the rest and come up with questions.  You really think anyone has asked what specific "private equity" investments the pension fund has which are worth more than anyone is willing to pay for them. 

3 Comments:

Anonymous MH said...

You really think anyone has asked what specific "private equity" investments the pension fund has which are worth more than anyone is willing to pay for them.

Residential real estate in Florida, Nevada, and California? I think most attempts to evade publicly stating how much something is worth stem from that type of asset or derivatives thereof.

Friday, September 10, 2010 7:53:00 PM  
Anonymous BrianTH said...

That sentence ALMOST makes sense. Make it "sold immediately" and you basically have the definition of an illiquid asset (the market is such that it may take an extended period to find a buyer willing and able to pay the highest price available). Economists do acknowledge the existence of illiquid assets, although many also tend to think there is likely to be some wishful thinking involved when the person holding the asset is the one claiming it is illiquid.

Saturday, September 11, 2010 8:00:00 AM  
Anonymous BrianTH said...

Oh, and I have no idea why bonds issued by foreign governments would be considered illiquid. Highly depressed in value? Sure, but that would be because of legitimate risks (default, unexpectedly high inflation, and so forth).

Private equity, on the other hand, could mean anything, so maybe. But government bonds are highly unlikely to be illiquid.

Saturday, September 11, 2010 8:12:00 AM  

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