An article in Sunday's Star provided a surprising revelation about the City of Tucson Pension fund...too bad the reporter never made the connection.
Tucson's dilemma: Is making a political statement by not investing its pension assets in Iran worth the potential $2.8 million hit taxpayers would take to finance it? That's the question the City Council will face this fall as it considers divesting itself of any fund that has any connection to Iran's energy industry.
First, the premise of the story is essentially meaningless. Tucson invests it's pension in a fund that has a tiny stake in a French company that has some investments in Iran. That's garage fire journalism.
Second, the story is fundamentally flawed because the reporter makes the obvious mistake of assuming that the funds will earn the same amount this year as they did last year. His argument is essentially "the fund that invests in Iran made 19% last year and the other fund made 12% last year, so if we move $54 million from one fund to the other, it will cost $2.8 million." Anyone with a basic understanding of investments will know that past performance is no guarantee of future returns. After all, if the first fund is so good, why not put all the money in it.
So the entire point of the article is based on a rather silly mistake. But more importantly, the reporter missed the real story.
Why is the city of Tucson placing substantial portions of its pension investments into high risk international equity funds? The article points out that the city has $108 million split between Julius Baer International Equity Fund and Causeway Capital Management fund.
The Reporter is concerned that the city will lose $2.8 million if it switches out of the Julius Baer fund, but a little research would have shown that the city's investment in that fund lost over $6 million over the LAST MONTH!
Tucson has also invested in corporate bonds and has $47 million in real estate exposure. How safe are those investments?