State pension plans that manage their own U.S. equity investments tilt their portfolios to stocks located within their state. Amazingly enough, the in-state stocks tend to outperform the overall stock holdings “by a wide margin,” conclude the authors of “The In-State Equity Bias of State Pension Plans,” published by the National Bureau of Economic Research. The reason, they suggest, is that investing in companies close to home confers an informational advantage.
The Virginia Retirement System is one of the 27 pension plans included in the study. The paper did not break out the VRS’s performance, so there is no way for readers to know if the pension system hewed to the general rule or was an exception from it.
Not so surprising: The authors found evidence of political influence in the stock-selection process. But get this — “these politically motivated within-state holdings yield excess returns for the pension fund.” The authors concluded that their results are “broadly consistent with the importance of networking in fund management.”
My naive faith in the corruption of the system is shaken.Whatever happened to good old-fashioned cronyism, payola and screwing the public?
— JABThere are currently no comments highlighted.