Letters to the Editor

Unfortunately, a couple of points in your Feb. 9 editorial "Unfunded politics" are based on a lack of information.

You state that the New York State pension fund would lose money if payments from some local governments are deferred for six weeks, as proposed by New York State Comptroller Alan G. Hevesi. In fact, the pension fund will collect interest at 8% for those six weeks. This information was not included in the press reports, so it is understandable that you missed it.

You state that the fund will also lose money from a proposal to defer contributions until 2005. This relates to a small technical correction in last year's pension legislation that allows the state and local governments to borrow from the fund a portion of their contribution in 2004. If they choose to borrow from the fund, they also pay 8% per year to the fund.

Comptroller Hevesi is a fiduciary with the responsibility to protect and strengthen the State Common Retirement Fund. He takes that responsibility very seriously and will never agree to proposals that would weaken the fund. He has agreed to proposals that either strengthen the fund or have no impact and also help local governments adjust to the fact that pension costs, which were unusually low in the 1990s, are returning to more normal rates.

Pension contributions to the NYS fund in the 1970s and 1980s averaged 17% of payroll for regular employees, much higher for police and fire. They were much lower in the 1990s, thanks to the stock market boom. We are now telling employers to expect to contribute about 12% a year, which is still relatively low by historical standards.

David Neustadt

communications director, New York State Comptroller's Office

Albany

Thank you for your fine article in the Jan. 26 Pensions & Investments (page 2) on the fund performance research project I have been involved in using the Cost Effectiveness Measurement Inc. database.

The article is factually correct, with one exception. It states, as summed up in a headline, that "actively managing asset allocation pays off."

In fact, the study results suggest the opposite, with asset mix shift-related actions costing funds an average 21 basis points per annum over the 10-year period (1993-2002). When digging deeper into the causes of this finding, the main culprit seems to have been carrying excess cash during an extended period of generally strong stock and bond returns.

Keith Ambachtsheer

president, K.P.A. Advisors Services Ltd.

Toronto

Frank Sortino's Feb. 9 Other Views commentary cites a pension fund whose CFO sold all the stocks and invested solely in bonds. Mr. Sortino then goes on to make the most extraordinary comment about my work: "Peter Bernstein supports his idea, saying pension sponsors should ‘figure out a mix with the highest probability of being able to pay for the groceries.' "

The word "mix," according to my dictionary, means "to combine or blend," which implies that more than one object is involved. You cannot have a "mix" with just one component. So the quotation he employs clearly fails to support the notion of 100% of anything.

More to the point, Mr. Sortino is disingenuous in accusing me of supporting the idea that investors should hold one asset class instead of diversifying. He inaccurately reproduces my words. The quotation to which Mr. Sortino refers appeared in the Aug. 15, 2003, issue of the publication Economics & Portfolio Strategy: "The investor's problem is to fund a stream of liabilities. In that context, a policy portfolio is essential. But the ‘policy' is not to accommodate expected market behavior. Rather, the policy is to provide the investor with the highest probability of being able to pay for the groceries when the time comes."

How can anyone reading those words interpret them as mandating 100% in any one asset? Indeed, anyone who has ever read any of my life's work knows full well that it is infused with a passion for diversification, as an explicit expression of our inescapable ignorance of what the future holds. As Mr. Sortino invokes Harry Markowitz and Bill Sharpe in his argument, I suggest he consult them about my views on diversification.

Peter L. Bernstein

president, Peter L. Bernstein Inc.

New York