WASHINGTON -- Continuing his scrutiny of derivatives, House Banking Committee Chariman Henry B. Gonzalez expressed concern last week that pension funds could be hurt by investments in the financial instruments.
In a letter to Labor Secretary Robert Reich released last Thursday, the Texas Democrat sought assurances that pension funds are protected from the risks posed by financial derivatives.
"I will take every step to make sure that the government isn't using American taxpayers' nest eggs for chips in this gambling game," Rep. Gonzalez said.
"The committee has learned that soured derivatives investments can devastate people's lives, and I want to ensure that the nation's pensioners are protected against similar problems," he added.
The Department of Labor oversees pension funds.
Because pension funds often divide their assets among a number of different managers, the investment pools often contain risky investments that are not obvious to the corporations that own them, according to Heinz Binggeli, a risk management consultant.
"It becomes a real problem when you farm out to 12 or 15 managers," said Mr. Binggeli, a managing director at Emcor Risk Management Consulting in Irvington, N.Y. "A pension fund trustee often has no way to know what the risk is." Mr. Binggeli said, "Many pension funds do invest in derivatives."
"We have not heard a lot yet about derivatives in pension funds, but we will," he warned.
The sheer size of the market could camouflage the amount of risky instruments held by pension funds, said David Certner, senior coordinator for economic issues at the American Association of Retired Persons.
"Pension funds are in the $4 trillion range in total public and private assets," said Mr. Certner. "Being that big, they are likely to be involved in these instruments, and if you're holding a mere 1% of total assets in derivatives, you're talking about $40 billion dollars."
