County pension CEO Brian White said that the investment in Amaranth represented 3 percent of the county’s investment portfolio.

He said that the sudden losses from Amaranth’s demise would be balanced out by the gains the fund has so far made in other areas. And, even if they do lose more, he said, the county won’t have to begin counting the loss until next year when it begins “smoothing it in.” The county has a five-year smoothing system – meaning if it loses $500 million, for example, one year, it only docks its fund $100 million every year for five straight years.

But I don’t think the point of today’s news is the impact on the fund necessarily, it’s that the fund had gotten itself into a position where it was betting on a commodity to such an extent that it could lose so much so fast. This is a government pension plan, you’d think it would be, I don’t know, conservative with its risks.

But the county, of course, is facing a $1.4 billion shortfall in its pension system. That shortfall would even be greater – and the strain on taxpayers more troubling – if it weren’t for the fact that the county assumes it will earn 8.25 percent from its investments every year.

That’s quite high and it requires a hell of a performance from money managers over time. We ran an editorial on this point not too long ago. The county shouldn’t assume it can make this much from its investments. The cost of not making that much is much more troubling than the cost of performing better than expected.

Even though advisors have also recommended for two years straight that county pension officials lower this assumption, they resist. They say that they have this investment strategy that allows them to perform so much better than everyone else with their investments.

Now we have a taste of what the risks of that game are like.

SCOTT LEWIS

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