Letters to the Editor

I read with great interest Daniel McGinn's article, "The pension insurance flaw of ERISA" (Other Views, Dec. 13).

I couldn't agree more with Mr. McGinn's statement, "many of the surviving defined benefit plans owe their continued existence to union leadership that stalwartly fought to maintain and improve their plans. Had it not been for them, defined benefit plans, as we have known them, might have become nearly extinct."

No better example of this is the recent PBGC financial statement for fiscal year 2004. The program coverage deficit for single-employer defined benefit plans increased to $23.3 billion. The separate program coverage for multiemployer (union) defined benefit plans posted a net gain of $25 million, for a fiscal year-end deficit of $236 million, compared to a $261 million deficit one year earlier. Yet when the recent congressional session ended, single-employer plans were granted funding relief that would allow more time to fund investment losses, while multiemployer plans were not. Why? Pure and simple: Politics.

Even though it is proven that multiemployer plans are better managed and better funded, Congress only considered the political issue — "we don't want to help union funds." There is nothing more sacred than an individual's health insurance and retirement benefits, and Congress should never allow partisan politics to interfere with assisting multiemployer plans to secure their participants' pension benefits in the same way they have assisted single-employer plans. Ask the employees of Enron if anything is more important than secure retirement benefits.

Barry McAnarney

executive director

Central Laborers' Pension Fund

Jacksonville, Ill.

Re: "Firms take different approaches to answer hedge fund questions," Pensions & Investments, Nov. 29, page 30:

Christine Williamson has done a service for the reader by identifying the need for improvement in the evaluation of hedge fund performance, but some of the solutions she presents leave me cold. We are a fund-of-hedge-funds manager committed to rigorous due diligence and diversification. It has been our observation that hedge fund peer groups are more misleading than helpful in evaluating performance, and that attempts to make these peer groups work are like the drunk under the lamppost looking for his lost quarter: the quarter was lost up the street, but the light is better under the lamppost.

Two of the three approaches presented in Ms. Williamson's article, namely, those of Lyster Watson & Co. and Taylor Cos., fall into this hopeless category. Peer groups simply don't work for hedge fund performance evaluation, mainly because each individual hedge fund is unique with respect to numerous factors including style bias, market capitalizations, directional exposure and leverage.

This fact is nicely documented by Henry Kat's "10 Things That Investors Should Know About Hedge Funds" in the Spring 2003 issue of the Journal of Wealth Management. Mr. Kat shows there is low correlation among hedge funds in the same peer group. Also, the approaches used by both Lyster and Taylor are proprietary to them, so from a selfish perspective they're of little use to me.

In my opinion, the real undiscovered treasure lies in the methodology developed by Ron Surz of PPCA Inc. The problems with peer groups are solved by a modern-day application of classical statistics, namely, hypothesis testing. We at RCG test the hypothesis that performance is good by using PPCA's approach. Importantly, we can use it because it is publicly available (although Ron is a partner in our firm). From a competitive viewpoint I hesitate to write this letter, but feel compelled to advance the profession with this new and powerful tool. We owe it to our clients.

Kenneth S. Phillips

managing principal

RCG Capital Partners LLC

New York