For example, while a number of public funds evidently held structured credit products such as collateralized debt obligations, the overall level of exposure to those products appears to have been relatively small. Nonetheless, the recent experience does point up some serious considerations as pension funds address the challenges in meeting their obligations in coming years.
One is that public pension systems – like all investors – need to be diligent about understanding and managing the risks on their balance sheets. Too many investors seem to have placed too much faith in credit rating agencies, and too few seem to have developed their own views of the risks embedded in their holdings.