The Boston Globe reported Monday that the Pension Benefit Guaranty Corp. switched much of its $64 billion insurance fund into speculative investments, including real estate, private equity funds and stocks in emerging foreign markets.
The PBGC would not describe the extent to which its new investment strategy has been implemented or how the fund has performed since the financial downturn, the newspaper said.
However, the agency said its fund was down 6.5 percent -- and stock-related investments were down 23 percent -- as of Sept. 30, 2008, the end of its fiscal year. The Globe noted much of the current stock market decline has occurred since that date and the new investment strategy was scheduled to begin after Sept. 30.
Zvi Bodie, a finance professor at Boston University who has advised PBGC to rely almost exclusively on bonds, told the newspaper the implications of the investment switch "could be huge." The fund is intended to cover pension plans for companies that go into bankruptcy, and Bodie said if automakers "go under, they have huge unfunded liabilities" in pension plan obligations that the PBGC would be expected to pick up.
An Obama administration spokesman told the Globe that White House Budget Director Peter Orszag has "serious concerns" about the agency. Orszag expressed some concern last year when he served as director of the Congressional Budget Office and noted that the agency was "investing a greater share of its assets in risky securities."
Charles E.F. Millard, who ran the agency under the administration of former President George W. Bush, told the Globe the new investment strategy "is not riskier than the old one."
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