Pension Fund Can’t Start Bond Insurer
The Massachusetts state pension fund cannot and should not start a bond insurer, executive director Michael Travaglini said on Monday.
Travaglini, who oversees the $52 billion Pension Reserves Investment Management Board, Business Property Insurance said pension funds should not be in the business of insuring securities as California Treasurer Bill Lockyer has proposed.
Lockyer last month said he was exploring the possibility of having state pension funds create a new bond insurer after many established guarantors lost their top ratings due to risky subprime mortgage exposure.
“I am very glad that in Massachusetts we are prohibited by our enabling statutes (from creating a bond insurer),” Travaglini told the Reuters Hedge Funds and Private Equity Summit.
“I’m in the investment business, not the lending business in any way, shape or form. It’s certainly not the primary mission of the fund as I see it Business Property Insurance.”
In a diversified economy, there are companies that can play that role much better than pension funds, he added.
Lockyer’s idea to set up a bond insurer, which could rival a guarantor started recently by Warren Buffett’s Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research), Business Property Insurance is still in initial stages.
Business Property Insurance Travaglini also said that pension obligation bonds that some states have sold to plug in the unfunded liability in their retirement plans is a “bad idea.”
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