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Private and Public pension funds - One of the causes of the mess?

  • 29-06-2009 1:46pm
    #1
    kippy
    Registered Users, Registered Users 2 Posts: 18,984 ✭✭✭✭


    Hi all,
    This is not that much of a scientific post, just something I have been thinking about for a while and would like others opinions on it.

    I've worked for many different organistations state,private,banks, pensions providers, large multinational IT companies etc. I suppose I've seen a fair bit about how they work and how they are set up.
    Anyway, with the american multinationals, every quarter the aim was to get higher profits than the last. The could have made 1bn profit the first quarter but it HAD to go up the next quarter. The same could be said for banks. The profits HAD to go up in order for share price/dividends and bonus' for staff to keep going up.
    The main shareholders in MANY of these organisations, appear in one way or another to be some sort of vehicle for a pension fund. It is in the interests of the funds that companies they are shareholders in continues to increase its dividend and share price. While shares are only meant to be one aspect of investment for a pension fund it appears that many funds were almost wholy invested into shares (as the recent tumble in pension fund values would suggest.)

    Would it not be more advantageous for pension funds to ALL be left with the government of that state and invested in infrastructural projects, such as roads,airports,electricty/telecommunications networks,buildings (hospitals, schools), oil/gas exploration and R and D?
    I realise that the NPRF has started putting public sector pensions towards SOME of these items already however most private sector pensions are not invested this way.
    Surely if the pensions were investing into these type projects the returns would be far more stable over the longer term, there wouldnt be a huge demand on share price rises and hence profits every quarter, and a better result for ALL at the end of the day?
    Is my thinking way to simplistic?

    I've basically come to the conclusion that massive short term profit making is one of the main issues leading to the current climate. Bankers making profit on sales or mortgages and other products (without taking into account long term issues) shareholders doing the same, every one of us, looking to do the same thing in one way or another.
    I just see pension funds as an extremely important aspect in all of this and believe the money from them could and should have been used to a far better extent.


Comments

  • #2
    Économiste Monétaire
    Closed Accounts Posts: 2,208 ✭✭✭Économiste Monétaire


    You want pension funds to invest solely in government projects?


  • #3
    Senna
    Registered Users, Registered Users 2 Posts: 8,800 ✭✭✭Senna


    kippy wrote: »
    I've basically come to the conclusion that massive short term profit making is one of the main issues leading to the current climate. Bankers making profit on sales or mortgages and other products (without taking into account long term issues) shareholders doing the same, every one of us, looking to do the same thing in one way or another.


    Thats capitalism, its only natural that investors want a bigger and bigger return, during the boom there were safe bets, pension funds/investors/anyone could have just invested in a low yield guaranteed returns, but if someone did take the safe bet in say 2005, by 2006 they realised had they put their money in AIB, anglo etc they would have made a lot more, so there were less and less safe bets and more gambling, the biggest problem was people didn't realise they were gambling, they though it was all a get-rich-quick one-way bet. But that's capitalism.


  • #4
    jimmycrackcorm
    Registered Users, Registered Users 2 Posts: 14,378 ✭✭✭✭jimmycrackcorm


    How does pension fund invested in roads actually generate a return? It's a bit wooly - is it not?


  • #5
    kippy
    Registered Users, Registered Users 2 Posts: 18,984 ✭✭✭✭kippy


    Économiste Monétaire wrote: »
    You want pension funds to invest solely in government projects?
    Not solely.....but "sustainable" projects, which may improve the country as well as ensure pensioners are given some form of nest egg.
    How does pension fund invested in roads actually generate a return? It's a bit wooly - is it not?
    I wouldnt be advocating investment in ALL roads, just the ones that can be tolled. I dont know the current and projected income from the M50, Eastlink, N1, N6 etc tolls at the moment but I assume its pretty static and guaranteed.
    Thats capitalism, its only natural that investors want a bigger and bigger return, during the boom there were safe bets, pension funds/investors/anyone could have just invested in a low yield guaranteed returns, but if someone did take the safe bet in say 2005, by 2006 they realised had they put their money in AIB, anglo etc they would have made a lot more, so there were less and less safe bets and more gambling, the biggest problem was people didn't realise they were gambling, they though it was all a get-rich-quick one-way bet. But that's capitalism.
    Do you think that is a good thing though? Does the ever increasing wish for MORE and MORE profits ultimately lead to some form of disaster down the line? Be it through increased lies to shareholders, increased risk taking and increased pain when it all gets too much?


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