I don't quite understand the story today with the latest quarterly information on the assets of the Pittsburgh Pension Fund. Should be a boring straightforward story as these things go, but it confused me more than it clarifies anything. It seems to say they just don't know how the investments did last quarter. How can that be? Certainly someone knows exactly what the quarterly statement from the investment advisor says for assets on hand, even if there is this odd question of how to value the promise of future tax revenues.. that does not mean it should confuse the reporting.
It seems to say, and again it does not quite add up to me so I will presume I have it wrong, that after the cash infusion of $45 million, the funds assets are $325 million. Up from $290 million in the previous quarter. A good thing.... But net of the $45 million that would have been $280 million which means the funds assets would have gone down. Not sure anyone noticed, but the stock market in the 4th quarter last year had a pretty solid gain.. maybe +7% in the Dow. 7% over a quarter is what... 28% at an annualized rate which would make it an outstanding year as these thigns go. Those returns do not translate directly to what you would expect of a balanced public portfolio, but if you don't gain ground in good quarters like that, what will happen in bad quarters? There will be bad quarters.
So the story seems to be left with the City Controller guestimating what the pension is worth and he says even with the parking promise you get $525-550 million. Thing is, as of January 1, 2009, the pension liability was already up to $989 million. That was over 2 years ago and history is awfully clear the total liability is climbing steadily. I would say it is a decent bet that the current liability is higher and certainly over a billion and close to $1.05 billion wold be my guess. That would imply $525 million may fall short of providing the 50% funding level already.
So to add to all the paper accounting machinations of last year.. we are now going to be left with this metaphysicial question as to what the state of the pension fund is as of the very last moment of December 31, 2010 vs. the very first moment of January 1, 2011. As of December 31st everyone can play ostrich and pretend the 2 year old actuary numbers are still valid; as of January 1 there should be new actuary numbers used. The difference will be whether the state takes over the pension system or not. So it all comes down to a debate as to whether the instant of midnight on New Years is 2400 on December 31, or 0000 on January 1. This is getting silly.
But I have a real metaphysical question.. This promise of future parking revenues and all.. does it exist in any document. Is there a counterparty? If it is a pension asset, does the Pension Board have some piece of paper it could use to say sue the city if the money is not delivered as promised? Can the pension board sue the city, or is the Pension board itself part of the city? The state's argument was that the promise of parking revenues could be considered akin to say investment in a REIT. OK, but even equity in a REIT would be managed by some form of investment manager. I just and wondering what 'asset' or notional paperwork representing the asset, has been turned over to Mercer. Could that be causing some of the issues at the moment?