STUMP » Articles » Pension Watch: Followup on Univ. of California Pension Borrowing » 26 July 2014, 15:45

This is a followup on my last post: Public Pensions Watch: UC System Borrows Money Long-Term to Cover Operational Expenses.

Okay, I’ve done some more digging, and have sent emails around. I will quote one specific email below.

I found info on the Short-Term Investment Pool (STIP) that is being used to fund the pension contributions.

It’s intended as a fairly liquid source of money, that should yield a bit better than cash.

Who owns the assets?

STIP allows fund participants to maximize the returns on their short-term cash balances by taking advantage of the economies of scale of investing in a larger pool. STIP consists primarily of current funds slated for payroll and operating/construction expenses for all UC campuses and medical centers.

In addition, funds awaiting permanent investment in one of the long-term pools are invested in STIP to earn maximum daily interest until transferred.

Now there’s nothing wrong in investing short-term money for short-term investments that are fairly secure with operational funds.

There is something wrong with speculating with operational money. For examples of betting with operational funds, check out my Actuarial Outpost thread Harvard Bet the Milk Money.

I looked at the Fact Sheet on STIP and read descriptions of the investments made by the fund.

At the very beginning it indicates none of the investments have maturity more than 5.5 years. Pension Obligation Bonds (which are to fund the unfunded liability, and to “make contributions” to pensions) tend to be much longer-term than that.

I am very interested in the terms the UC pension fund got.

So I sent an email to the “CIO of the UC Regents:“http://ucop.edu/investment-office/index.html

Hello, I am someone who has been writing about public pension issues for many years, and the following article by Ed Mendel caught my attention:

http://calpensions.com/2014/07/21/uc-borrows-2-7-billion-to-fund-pension-debt/

Ed reports on some financing of the unfunded liability for UC pensions using something called the Short-Term Investment Pool, and I had some questions about the details of this financing:

I see information about the Short-Term Investment Pool here:
http://ucop.edu/investment-office/investment-funds/stip/index.html

And I see from this fact sheet:
http://ucop.edu/investment-office/_files/STIP_2012-2013.pdf

that the maximum maturity of assets held by STIP is 5.5 years.

What are the terms that the money to finance UC pension payments is being borrowed under? I don’t mean the interest amounts only – I mean the term, pattern of payments (amortizing? balloon?). Are these under 5.5 years?

The reason I’m asking these questions is that when public pension funds try to finance their unfunded liability with debt, they tend to issue Pension Obligation Bonds for long periods, like 30 years. I was trying to figure out how a short-term fund fits in with that sort of financing strategy.

Thanks for your time,
Mary Pat Campbell

I sent that a few days ago, and it is summer time, so I will let you know if I ever get a response.

NOTE: My next several blog posts will be similar to this one – mainly copy & paste from links (and from stuff I’ve written elsewhere/before). An explanation for this is here.