Illinois’ Pension Fund Death Spiral Revisited: “10 Years Of Money Left”


month ago, we discussed the death spiral that the Illinois Teachers Retirement Fund has now entered by openly commencing to sell its securities. We stated: “At this point it is too late: for TRS, and likely for many, many other comparable pension funds, which had hoped that the Fed would by now inflate the economy, and fix their massively incorrect investment exposure, the jig may be up. As liquidations have already commenced, the fund is beyond the point where it can “extend and pretend”, and absent the market staging a dramatic rally, government bonds plunging, and risk spreads on CDS collapsing, the fund is likely doomed to a slow at first, then ever faster death.”

This speculation immediately prompted a response by Dave Urbanek who replied to Leo Kolivakis (we have yet to hear from Mr. Urbanek directly), who said: “Please remove your post of Tyler Durden’s inaccurate analysis of the Illinois Teachers’ Retirement System. It is not excellent. It is wrong. TRS is not in a death spiral. We’ll still be operating and paying pensions for years to come.” Yup – about 10 years to be precise, and then it’s over. Today, Bloomberg’s Jon Erlichman settles the debate, by focusing on the Illinois State Board of Investment in a special video report, where he confirms that absent state funding “the $9.6 billion fund, in less than 10 years, could have no money left. If they get no state funding and they just have to rely on employee contributions, there you go, you could go from $10 billion to zero in less than ten years.” There you go indeed. Our condolences to Illinois pensioners – you now have about 10 years of natural asset coverage, absent your pension funds becoming the latest government-sponsored ponzi scheme.

Mr. Urbanek, we look forward to seeing what your projections are like now that the TRS is also selling securities to fund its ongoing distributions, and how long before your own fund hits zero.
More from Erlichman:
This fund is already selling, this year, about $80 million of assets a month. Here’s the problem – if you have to sell faster than you thought you have to sell, because you are not getting that state funding, then you sell the liquid stuff – stocks, bonds, and then you are left with private equity, real estate, infrastructure…all of a sudden your portfolio has changed, people are asking questions, it is a major issue.
There is no news yet whether the ISBI has performed the same ludicrous selling of CDS and other risk insurance that we discussed previously to obtain immediate cash injections, although with borderline criminal lack of fiduciary responsibility now manifest by virtually all pension funds, nothing would surprise us, as more and more funds put their fate openly in the hands of the Fed’s reflation experiment. 

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