What I Learned This Week

From muni bonds to pensions, state and local finances are poised for a crisis that will punish both retail and institutional investors.

According to a Moody’s estimate last week, state and local pension funds had lost $1 trillion due to the market sell-off. As we highlighted in WILTW November 21, 2019, state and local pensions were already dangerously fragile prior to the COVID-19 outbreak. Only eight states had funding ratios greater than 90%. Five had funding ratios less than 50%. And as their funding ratios have plummeted, they have become more aggressive in their quest for yield. As of 2018, state pension funds had invested 74% of their money in “risky assets” (stocks, private companies, hedge funds, commodities, etc.). In 2001, they had only 61% invested in risky assets. Now, pensions are paying the price. And eventual…

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