The Teachers’ Retirement System made big investment gains last year. Critics say that doesn’t mean it’s a good thing. TRS made 23.6 percent interest in Fiscal Year 2011. Dale Rosenthal, a finance professor at the University of Illinois, says gains like that could be the result of high-risk, high-reward investments. He says TRS could be taking chances to make up for the $43.6 billion in unfunded liabilities. He says he sees those gambles at Chicago Cubs games.
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“In the ninth inning you see the Cubs are down by seven,” Rosenthal says. “And then you go ‘Just swing for the fence!’ I mean the odds are pretty good we’re going to lose so the only way we’re going to win is if you just shoot for the moon.” TRS nearly doubled its unfunded liabilities after the 2008 stock market crash. Rosenthal says a report found TRS has the fourth-riskiest public pension portfolio in the country and he wouldn’t be surprised if the $10.7 billion lost in investment revenues were the result of risky practices. But TRS spokesman Dave Urbanek doesn’t agree. “We don’t make up losses in one year with investments in the next year,” Urbanek says. “We don’t feel that pressure, because that would just be a stupid thing for us to do. We’re in business to stay and we have to make our investment decisions based on the long term.”
Urbanek says he’s more proud of the 9.3 annual investment return average than this year’s gains. Rosenthal says TRS invests in the same complex financial instruments, such as credit default swaps and over-the-counter derivatives, which brought down several Wall Street firms during the economic collapse. He says the TRS management’s lack of Wall Street experience could end badly for the pension system if they don’t understand what they’re getting into. “There’s sort of a saying on Wall Street that if you don’t know who the fool in the scheme is, you’re the fool,” Rosenthal says. “You know to sort of say we don’t need to know how these things work is very troubling.”