SEC Pursues Illinois for Its Critically Underfunded Pension

Illinois now joins other states targeted by the SEC as the regulator demands greater financial disclosure and transparency from pension funds around the country.

(January 25, 2011) — The US Securities and Exchange Commission (SEC) has launched an investigation into public statement by Illinois officials regarding the state’s massively underfunded pension fund — known as the worst-funded pension system among US states.

According to the Wall Street Journal, the inquiry has focused its attention on “public statements concerning an overhaul measure passed in 2010 meant to help shore up the retirement system.” The governor’s spokeswoman, Kelly Kraft, told the WSJ: “We are fully cooperating” with the inquiry. We feel our disclosure was always accurate and complete.”

“Illinois is much like other states not keeping up with its annual payments to their fund,” Pew Center spokesman Stephen Fehr told aiCIO in November, after a report by the Pew Center on the States showed that, while more states are taking action to reduce pension liabilities, states continue to be in a severe fiscal crunch because they’ve been promising more in retirement benefits than they’re able to pay, resulting in an alarming $452 billion total deficit for state and local governments in fiscal 2008. “They’ve been increasing benefits to public employees without thinking how they are going to pay for them in the future,” he said. “It’s not just the recession that caused this problem — Illinois didn’t manage their pension bill in good times and bad, and its not a problem that will get better anytime soon,” he said, noting that the pension deficit around the nation has led to severe underfunding in other state programs to make up for mismanagement.

“It took years for states to get into their current pension predicament, and it will take years for reforms and fiscal discipline to get them out,” the Pew brief indicated. Pew added that winners in state legislatures and governors’ mansions following this month’s elections “will take office having promised to improve how their states will handle these bills coming due.”

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The inquiry into Illinois’ pension reflects the heightened effort by the SEC, which even announced a special unit for investigating state pension disclosures last year, to seek greater financial disclosure from funds nationwide. In August 2010, for example, the SEC initiated its first action against a state, accusing New Jersey of securities fraud and claiming that when New Jersey issued $26 billion in bonds between 2001 and 2007, it fraudulently and erroneously portrayed its pension funds as adequately funded.

In October of last year, four former San Diego officials agreed to pay financial penalties to settle SEC charges accusing them of misleading municipal bond investors about the city’s fiscal problems. The suit accused the city’s officials of failing to disclose the size of the San Diego City Employees’ Retirement System’s (SDCERS) unfunded pension liability when the city sold bonds.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Venture Cap Investment Deals on the Rise

A new report shows the amount of money invested by venture capital firms was up 19% from 2009, with the number of deals 12% higher than 2008.

(January 24, 2011) — According to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association (NVCA), venture capital firms invested $21.8 billion in 3,277 deals in 2010, representing an increase of 19% from 2009.

“The venture capital community found itself in a better position at the end of 2010,” said Mark Heesen, president of the NVCA, in a release. “We were clearly in recovery mode with investment levels reflecting the economic reality of our business,” he said, adding that additional investment across sectors highlighted those areas where the greatest opportunities lie, particularly within the Internet, software and clean technology industries. “The year’s increase in first time deals and early stage investment is encouraging as this trend suggests that the venture community is doing more with less. We hope this continues in 2011.”

The rise in venture investments in 2010 represented the first time the annual investment level has increased since 2007, according to the report.

The findings contrast slightly with an earlier report from last year by Cambridge Associates and the NVCA that showed venture capital 10-year returns — considered the most important measurement of the industry — were negative 3.7% for the period ending March 31, 2010. The report showed that despite slight improvement in initial public offerings and mergers and acquisitions, the venture capital industry is still shaky, which could cause difficulties for venture firms seeking to raise more capital in 2011 or 2012.

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Peter Mooradian of Cambridge Associates, however, had said he believes the 10-year returns may have bottomed out, indicating his faith in bright news ahead.

“We continue to see a decline in the 10-year return number but believe it will bottom-out in the mid-negative single digits over the next two quarters,” Mooradian said in a release. “Sustained improvement in the exit markets should result in the figure returning to break-even or modestly positive territory in the second half of 2011.”



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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