Their efforts didn’t help the US Stock Exchange much, during the first week of resumed trading after the September 11 terrorist attack. But US pension funds did their best to try to stabilise the financial market at such a difficult moment.
On September 14, for example, a group of US public employee and teacher pension funds holding a combined $2.1trn (E2.3trn) in assets pledged “to continue to provide stability in US financial markets and remain patient, long-term provider of capital”. Also the group “urged investors to remain calm when markets reopen”. The group included members of the National Association of State Retirement Administrators and of the National Council on Teacher Retirement.
It was not an easy choice for pension funds, because the terrorists struck their blow at an economy already very weak and with the stock market near two-year lows (or three, depending on the index you use). But public retirement systems have always been known for being able and willing to make ‘political’ decisions.
CalPers – the California Public Employees’ Retirement System, the nation’s largest public pension fund, with assets totalling approximately $155bn – was leading the attempt to reassure investors. Within 48 hours of the attack, CalPers released a strong message: “Recognising that the catastrophic events of this week could cause an unsettling of the US markets when they reopen,” said William Crist, president of the CalPers board of administration, “We express publicly our full support and confidence in the US markets and its financial systems”.
Among the points made by Crist are that CalPers has “unqualified confidence in US financial systems and money markets” and continues to have confidence in the underlying strength of the US economy”. But this does not mean that CalPers’ investment staff made unusually large stock purchases when the markets reopened on September 17. “Our plan is to allow the market to settle a bit, but if we see buying opportunities we’re poised to make them,” CalPers’ spokeswoman Pat Macht declared. “Our specific plans as to when or where won’t be disclosed.” Macht also emphasised that CalPers will, as in past downturns, continue to execute its pre-existing investment strategy despite any market gyrations. And despite the massive selling of stocks on September 17 and the following days, CalPers’ spokeswoman stressed they were encouraged by the new Federal Reserve’s cut of interest rates, by the $40bn relief package decided by Congress and by the move by many corporations to buy back their own stocks.
A more bullish position was undertaken by the teachers’ retirement systems of two states, New York and California. John Cardillo, spokesperson for the $81bn New York State Teachers’ Retirement System, explained: “Our current strategy is to buy. We’ve been buying already, we’re long-term investors”. And Christopher Ailman, chief investment officer of the $100bn California State pension fund for teachers, declared on September 17: “We talked to advisers and consultants and decided today is a day to put more money to work in US markets. Long term we’re bullish on US stocks, because according to many Wall Street analysts, stocks are trading at a discount to their fair market value.” The manager of New York State pension funds, comptroller Carl McCall, announced a more specific strategy. On September 17 he put about $250m of state retirement money into the stock market, but he was planning to buy eventually $1bn worth of stocks in the following weeks. He stressed he had confidence in the markets and in the US economy.
Would state retirement systems’ members agree with their investment strategy, if they could have a say in the matter? Nobody knows at the moment. But if participants in 401(k) retirement plans are a good proxy, you can imagine they are not too at ease with risking their own money in this uncertain situation. 401(k) investors make their own decisions, allocating their pension contributions to the kind of mutual funds they prefer and switching assets from one fund to another, even on a daily basis if they want. When the New York Stock Exchange reopened on September 17, 401(k) participants transferred a record amount of money from equity to fixed-income funds, according to the Hevitt 401(k) Index, that since August 1997 has been tracking the daily transfers of nearly 1.5m participants in large-company410(k) plans with $71bn of assets. The transfers were more than twice the amount recorded when the Russian debt crisis spread panic into financial markets.