Wall street and Corporate America is on Opium (OPM – other people’s money) as bonuses and executive compensation return to excessive levels after one of the most severe economic downturns in decades.
Many public pension funds have been averaging a return of a little more than 3 percent a year for the last decade, so they have fallen behind where their planning models say they should be.
The big California pension fund, known as CalPERS, is already under fire for losing billions of dollars on private equities in the last few years. It announced in February that it had started looking into whether it should lower its expected rate of investment return, now at 7.75 percent a year.
A growing number of experts say that governments need to lower the assumptions they make about rates of return, to reflect today’s market conditions. But plan officials cannot lower their assumptions, as it would cause their liabilities to explode, creating billions in dollars in shortfall. At some point, taxpayers will be asked to make up these shortfalls if circumstances don’t improve.
Public and private pension fund managers must do more to protect America’s retirement savings. Fund managers must demand that companies within their investment portfolio disclose information about the business practices of the company and its management team via an independent third party.
Improved internal transparency from an independent third party is perhaps the only safeguard Investors have against corruption, fraud and poor management.
Improved transparency from an independent third party would at least make it possible to 1) demonstrate the quality of the business and strength of the management team; 2) determine when the company is disclosing incomplete or inaccurate information;
Fund managers must exercise their right to demand that company management disclose information about the quality of their business and strength of their management team directly to an independent third party such as zEthics. In turn, these fund managers will be able to access this information directly from zEthics to safeguard their investments.
Corporate governance reforms will remain illusive as long as the interests of management are misaligned with those of the investor; i.e., investors have something to lose.
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