City of Miami aims to loosen investment rules for pension fund that's missing goals
By Risa Polansky
Miami faces $892 million unfunded pension liabilities, city commissioners are considering allowing more investment flexibility for its general and sanitation employees' retirement trust — but with some hesitation.
Investment advisers would be allowed to invest up to 15% of the market value of the trust fund in international securities — up from 10% — under legislation commissioners initially approved last week after deferring the item for almost two years.
If passed, the amendments would also allow investments in fixed-income securities to include euro and foreign credits up to 3% of the total portfolio.
And, investment in any one security would be allowed to go up to 7% of the total portfolio in that security at market value. Current policy limits to 5% at book value.
The state allows up to 25% foreign investment for municipal pension plans, Wally Wilson of Southeastern Advisory Services, which consults for the trust, told commissioners.
Here, advisers are asking to go up only to 15% — and probably not all at once — and believe that for the next decade, international equities "are really going to be the place to be," he said, touting a decrease in risk by way of further diversifying the portfolio.
Commissioner Francis Suarez, a lawyer who holds a bachelor's in finance, questioned the logic.
Claiming higher-yield investments are less risky "violates a very simple principle of finance," he said.
Mr. Wilson insisted, though, that diversification means less risk overall.
Attorney Ron Silver, who represents the trust, assured the commission that "what we're trying to do here is reduce the city's contribution to the pension fund, and we are relying on our professional advisers that suggest that this is the way to do this."
Mr. Suarez also questioned allowing for more flexibility when, in the end, the city's all but tapped-out general fund would have to cover any losses. The unions manage the funds under city guidelines. The general and sanitation employees' fund saw a negative 1% yield last year, though representatives at the meeting implored commissioners to put that in perspective considering the tumultuous markets.
"We're going to now give them more discretion… and yet if it doesn't provide a higher yield, then we the City of Miami taxpayers have to fund from our general fund that loss," Mr. Suarez said.
But "the reverse is true," Mr. Silver countered. "If we're right, you have less of a contribution to make."
Mr. Suarez voted no on first reading. The final vote is set for April 8.
Commission Chair Marc Sarnoff had a different concern: supporting foreign markets over domestic.
If every municipality across the country decided to increase its investment in foreign markets, he asked, "What result would that be in the capital markets in the United States?"
City Manager Carlos Migoya, who for most of his career was a high-ranking bank executive, pointed out that most funds are diversifying these days, and that foreign markets are performing well.
And closest to his heart, Mr. Migoya said, is "the deficit of the City of Miami."
The new investment policy should help performance some, he said, and "right now we need all the help we can get."
Commissioner and investment banker Willy Gort pointed out that "it's a two-way street" — other countries invest here, too. He said he had no problem diversifying 5%.
Commissioners learned last month that the general and sanitation employees' retirement trust has an unfunded liability of $323 million, and the fire and police retirement trust $569 million.
Investment returns must surpass 12% for the city to get excess to reduce unfunded liabilities, Mr. Migoya said at the time.