COUNTY PENSION OBLIGATION BONDS PROCEEDS 2/3 INVESTED

COUNTY PROVIDES SCANT DATA ON $400 MILLION BOND PROCEEDS
$86 MILLION "WITHDRAWAL" -- FOR WHAT?
INVESTMENTS FALL SHORT OF BENCHMARKS IN EVERY CATEGORY
A ONE-TENTH OF ONE PERCENT GAIN

Special to the Readers of Milwaukeeworld

By Michael Horne

And The Milwaukee World Hound Dog Team

Milwaukee County's Pension Obligation Bond [POB] proceeds are now two-thirds invested, according to scant documentation provided to Milwaukeeworld.com by Mark A. Grady [U Iowa '82] of the County Corporation Counsel's Office.
The POB Review as of June 30th, 2009 [See PDF below] shows total receipts to the County from the $400 million bond issue of $397,797,000 after fees and expenses. Of that, $260,000,000 has been invested, with $137,797,000 still to be invested.
The County did not respond to a request asking for the interest rate for the uninvested money, which presumably would have been put to interest pending ultimate investment. But, knowing the County, maybe it's just sitting there earning nothing.
The scant data is confusing in other respects, since the County only provided one page [page 5] of a multi-page report from its adviser, Marquette Associates, Inc.
The report shows withdrawals of $86,241,550 from the account since March. These withdrawals [diversions?] have not been explained, and it was the impression of this writer that capital was not to have been withdrawn. There is no explanation where it went.

The market value of the $260 million funds invested thus far is now $201,963,947, (after the $86 million withdrawal) which according to Marquette's account represents a 6.1% gain since its inception in March, vs. a Benchmark Performance of 8.1%.

The funds are in three accounts.

• Fixed Income, which had an invested sum of $109,200,000 and a current market value of $85,170,832 for a net inception performance of -1.3%, vs. the Benchmark Performance of 2.2%, according to Marquette's figures.
• U.S. Equity, which had an invested sum of $98,800,000 and a current market value of $76,431,295 for a net inception performance of 9.6% vs. the Benchmark Performance of 9.8%, according to Marquette's figures.
• The International Equity, which had an invested sum of $52,000,000 and a current market value of $40,360,820 for a net inception performance of 15.3% vs. the Benchmark Performance of 17.6%
  

But right now, it looks like our projected 8.1% return is only 6.1% -- at a cost of funds of nearly as much.

The bonds, a brainchild of County Executive Scott Walker that had been previously rejected by the County Board, called for borrowing funds at around 6% and investing them at 8% for a net gain of about 2%, which would be used to help pay pension costs for the County. There was nothing said about withdrawing $86 million from the fund in the first three months.

Milwaukeeworld, and others were somewhat skeptical of the plan when approved by the board, partly because of our incredulity that this would be a sensible investment, and also because it was not forthcoming with documents.
The skepticism remains, particularly since the County was at first reluctant to release the information (it took three attempts) and then referred Milwaukeeworld to Marquette Associates for the information (we refused to contact a private firm for public information) and then finally released, this morning, the skimpy data you see analyzed here.

The public and the County Supervisors should get more information -- especially about what Scott Walker did with that $86 million.

A NOTE TO READERS:

Perhaps the publication of this post will reveal that I have made some considerable error in my assessment, and that I am entirely wrong about the $86 million withdrawal. I welcome any corrections, and I especially welcome a full accounting, by the county, available to all. The County has shown no interest in answering my questions, or in providing this data to the public.
So, let's be prepared for County Pension Scandal No. 2, to use Jeramey Jeannene's memorable phrase.


POB%20investment%206_30_09.pdf