Pension Funds Looking To Recoup Money Lost In Recession

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    Pension funds looking to recoup money lost in recession (part 1)

    Read Part 2

    Hedge funds could regain the $2.7 trillion that had been gained prior to economic crash

    Former Prime Minister Harold Wilson had a disparaging term for the Swiss bankers he blamed for his economic policies failing, referring to them as gnomes while John Major felt George Soros, a currency speculator, was at fault for ruining his governmental financial plans. Alan Greenspan became the latest to play the blame game, this time placing Germany at fault for the US sub-prime fiasco and subsequent financial catastrophe though he never actually named Germany as the perpetrator. He actually said to a US inquiry who were investigating the whole mess on its opening day that Europe was to blame for foolishly purchasing US mortgages without checking whether the rather grand promise of a 10% return without risk was in fact nonsense.

    The Germans were the subject of his ire due to the fact that the last 15 years of unbridled export success left them with money burning a hole in their pocket and foreign property was next on their hit list even when it was called a mortgage backed security. They bought huge amounts and are still paying the penalty (as are the four pensioners in Florida who kidnapped their financial advisor after he lost thousands of dollars when investing on their behalf on property in the area).

    Those who questioned Greenspan dismissed his allegations that European investors or anyone else for that matter were to blame. Many on the panel were made up of business people and Congressional representatives placed direct blame on the frail shoulders of the 85 year old for neglecting to supervise lenders and dodgy brokers who sold billions in home loans. His poor regulation of investment banks and their profligate spending also came under the microscope. He was also asked why he ignored warnings about the ludicrous bonuses that were paid on Wall Street and got him to admit that he was incorrect to believe that global capitalism could correct itself which made regulation of worldwide money flows null and void.

    Despite the validity of these points, Greenspan still believed that the meltdown had other underlying causes. Perhaps the investor community with its juggernaut momentum was at fault, even though we would consider pension funds as harmless institutions.

    According to Greenspan, demand for assets was the big issue and admitted that his ability to influence the prices of assets, especially the US housing market via short term interest rates had eroded by the early part of the decade. Mortgage rates were not only determined by long term interest rates, other factors like investors willingly lending funds to US banks via the purchase of mortgage-backed securities were also crucial.

    Yet this security on property has disappeared so what can investors do now? Regardless of whether you ask a pension fund, or an American college endowment fund you will be told that bonds, hedge funds and private equity is the answer. A recent hedge fund report said that they were about to regain $2 trillion in investments by the end of the year while the $2.7 trillion lost before the crash would also soon be recouped.

    Private equity was badly hit in 2008 as investors panicked and moved into cash but is seeing a growth in funds. Likewise, bond funds have also increased. While this is not a return to better days just yet, it is a step in the right direction.

    When these funds combine, they are like a pack of hunters searching for prey. When they see an easy target they strike as the big fish eat the little ones for sustenance.

    Read Part 2