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Atsalis: Dems slam hedge funds – but they’re key to boosting pensions

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My 14 years as a state representative showed me how many senior citizens live paycheck to paycheck once they’ve retired. Some of my most common constituent service requests were from retirees struggling to pay their heating bills, property taxes or even buy groceries. The recent increase in inflation will make this problem worse, as savings simply do not go as far as people expected. Fortunately, pensions, both in the public and private sectors, help with everyday needs and financial burdens — they provide a safety net that both secures retirement goals and valuable peace of mind.

It is crucial that pensions and retirement systems invest effectively to grow their portfolios and pass on higher returns to millions of beneficiaries. These beneficiaries — such as first responders, teachers and retired workers reliant on pension checks — absolutely need their pension funds to achieve above-market returns. In turn, that requires seeking the high annual returns offered by hedge funds across a range of investment strategies. These high returns will be even more necessary as pensions try to keep up with cost of living adjustments driven by inflation.

While progressive activists enjoy criticizing hedge funds, they are delivering the returns that result from talented financial management. These funds offer a range of strategies, including sophisticated, tailored approaches that can be designed to specifically boost the returns of a pension fund.

Unfortunately, anti-hedge fund proposals coming out of Washington will tie pension funds’ hands behind their back, depriving them of an important investment tool. When far-left Democrats like Sen. Bernie Sanders, Rep. Alexandria Ocasio-Cortez and Rep. Ilhan Omar act like hedge funds and other investment vehicles are predatory, they ignore their role in protecting retirement security for millions of pensioners.

Nowhere is this more evident than right here in Massachusetts. The commonwealth’s biggest public-sector pension fund, the Massachusetts Pension Reserves Investment Management Board (PRIM), invests almost $8 billion on behalf of hundreds of thousands of plan participants. These participants are public-sector employees who have dedicated their career to public service. Considering all they’ve done for us, especially over the last two years as essential workers during the COVID-19 pandemic, they deserve financial security after retirement.

If we take away PRIM’s ability to invest in hedge funds, we are simply harming public school teachers, police officers, firefighters and other essential workers for the sake of political grandstanding against Wall Street. Without hedge fund investments, it is less likely PRIM can achieve the returns required to support its retirees and, in fact, would likely require an increase in the risk in the portfolio to meet the required returns.

Other public pensions in Massachusetts have taken after PRIM’s lead. The Massachusetts State Retirement and Teacher’s Retirement Boards both invest billions in hedge funds, supporting hundreds of thousands of teachers and other frontline public sector workers. Many of these professions pay less than the average private sector salary for a similarly educated employee. There’s an implicit bargain that below market salaries will be offset by more security in retirement through a guaranteed pension, so the least we can do is make sure we are protecting public employees’ financial future.

In the current economy, with record cost of living increases, our pensions need to be able to invest in hedge funds that offer more aggressive returns and better risk management relative to traditional fund offerings. Pensions have both the investment expertise and portfolio scale to be able to access the same hedge funds as the largest university endowments and wealthiest Americans — they should not be denied that advantage so politicians can score political points.

Elected officials and regulators are responsible for protecting working-class Americans who depend on monthly pension checks. Going after hedge funds will have the opposite effect, leaving retirees out in the cold at the worst possible time.

Demetrius Atsalis is a former Massachusetts state representative, who represented Barnstable and Yarmouth for 14 years.