Money managers at the Pension Benefit Guaranty Corp. (PBGC) poured money into stock in 2008, yanked money out as prices were plunging, and ran up high transition costs.

The U.S. Government Accountability Office (GAO) looked at PBGC investment transaction costs for a review of PBGC asset management practices conducted at the request of Democrats on the House Ways and Means Committee.

The PBGC insures the defined benefit pensions of about 44 million U.S. residents and now manages $80 billion in assets obtained from failed plans.

The PBGC has changed its investment objectives and stated asset allocation targets frequently over the last 8 years, alternating between more conservative and more aggressive approaches to investing, Barbara Bovbjerg, a GAO managing director, writes a report summarizing the GAO’s findings.

In February 2008, for example – shortly before the current economic slump began – the PBGC decided to increase equity holdings, high-yield debt and emerging market debt to 45% of assets, up from targets of 15% to 25% set in 2006.

The PBGC transitioned $13 billion in assets as a result of that decision, and the net transaction costs that

were tracked amounted to about $75 million, the GAO found.

The PBGC failed to track transaction costs for about $3.7 billion in transactions, dropped the shift toward higher-risk investments in mid-2008, and shifted assets back into bonds in 2009, Bovbjerg writes.

Bovbjerg says the PBGC has failed to give its asset managers the kinds of written, detailed policy statements recommended by investment groups.

The PBGC does have written risk management policy statements, but “almost all lacked sufficient detail to provide adequate guidance,” Bovbjerg says. “For example, the cost management provision of PBGC’s statements generally identified the types of investment expenses involved and offered a low-cost policy for investing, but did not provide guidance on how to monitor these costs.”

Written PBGC policy statements also lack much discussion of the concept of portfolio rebalancing, Bovbjerg says.

The GAO is recommending that the PBGC and its board develop and maintain comprehensive investment policy statements and develop a complete set of operating procedures and guidelines for investment activities.

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