Hedge Funds Have Cost Workers Billions. This is How They’re Fighting Back.

BY Spencer McAvoy

The number of complex investment tools has exploded over the last several decades. Hedge funds, which have skyrocketed since the 1990s, are one such tool. They’re called hedge funds—in the sense of hedging your bets—because, unlike more traditional investment options, they can bet against the market and, in theory, make profits even if stock prices are dropping across the board.

This promise of a safeguard against the whims of the market is especially attractive to large, institutional investors, like public pension funds and university endowments—groups that want a steady rate of return. Not only has this promise proved false during bad times, but hedge funds have proved a mediocre investment during good times too. Poor returns combined with exorbitant fees have cost universities and public employees billions of dollars.

The total value of public employee pension funds in the United States is $4.7 trillion. That’s money that supposedly belongs to workers, but labor often has little-to-no say in how employee pensions are invested. In fact, most of this money is funding the same corporations and financial institutions that have been aggressively attacking the interests of working people for decades.

A growing movement to take pension money out of hedge funds, then, isn’t just about high fees and bad returns. It’s part of a larger effort to wrest control of the economy away from the financiers who’ve created a system that works only for the super-rich.

In a recent example, union representatives of New Jersey state employees on the New Jersey State Investment Council (NJSIC) successfully pushed through an initiative last month to cut the state employees’ pension fund’s investments in hedge funds in half, a reduction of $4.5 billion.

Prior to the vote, a report done by Hedge Clippers, an anti-hedge fund organization launched in 2015 by the American Federation of Teachers (AFT), found that hedge funds have cost New Jersey public employees $2.7 billion since 2007, including $1.1 billion in below-average returns. The other $1.6 billion was profit collected by the hedge funds in fees.

Numbers like these are common when it comes to public pension investments in hedge funds. It’s no wonder, then, that union representatives for public employees are pushing to get their pensions taken out of these underperforming, expensive funds, even if that just means putting the money back into other, more traditional investments.

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[Source]: InTheseTimes.com