Looking for a way to revolutionize the slack returns on its pension plan investments, Pennsylvania's Public School Employees Retirement System is putting $250 million into a new high-risk fund, according to the Pocono Record.
The investment has been made in "catastrophe bonds," a series of insurance-related securities which back insurers in parts of the world prone to natural disasters.
Nephilia Capital, a Bermuda-based company, says its bonds will generate between 8 percent and 10 percent on an average year, but a major environmental disaster such as Hurricane Katrina also resulted in a 14 percent loss back in 2005.
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"Over the past few years, PSERS has focused on reducing the overall risk profile of the portfolio by looking for uncorrelated return streams," Evelyn Tatkovski, PSERS spokesperson, told the newspaper. "The reinsurance market is one new area where we have found the risk and return profile to be attractive."
PSERS has total investment holdings of $51 billion but is running an unfunded liability of at least $27 billion. The organization states that the new investments will only comprise less than half of 1 percent of the pension fund's holdings.
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