The Parliamentary Contributory Pension Fund (PCPF), the 370 million pension scheme for ex-Members of Parliament, has invested in assets that, according to some MPs, contributed to the banking collapse in the UK.
According to the PCPF Accounts 2007-2008, the Trustees, made up of 10 MPs, made the decision to appoint BlackRock, one of the worlds largest money managers, as hedge fund manager after a beauty parade held in January 2007. In March 2007, the revised benchmark proportion of PCPF assets to be invested in hedge funds rose to 2.5%.
Hedge funds were attacked during the height of the crisis in mid-2008 for short-selling banking stocks. At the time Vince Cable, the Liberal Democrat shadow Treasury spokesman, said: “[The FSA] must outlaw collusion between hedge funds they are now hunting in packs.”
In the first quarter of 2009, the Treasury select committee in the UK House of Commons held hearings into the responsibility of hedge funds in the financial crisis. The London-based managers quizzed by the committee included Chris Hohn of The Childrens Investment Fund, Paul Marshall, of Marshall Wace Asset Management, Stephen Zimmerman of NewSmith Asset Management, and none-other than Doug Shaw, head of hedge funds at BlackRock.
John McFall, the committees chairman, accused hedge fund managers of snubbing the public; not only that, but youre making shedloads of money. The snubbing reference related to the fact that at the time of the meeting, January 2009, only 34 out of 1,000 UK funds had signed up to a set of best practices concerning conduct and transparency, written by the Hedge Fund Standards Board.
One member of the Treasury select committee was Andrew Love MP. Since 2005, Love has also been a Trustee of the PCPF, and would have been involved in the decision to employ BlackRock as hedge fund manager in 2007.
There was also a sizable increase in the market value of derivatives in the PCFP, from 25 million to 72 million year-on-year. The PCFP also held 0.5 million in credit default swaps in 2008.
Once dubbed a time bomb” and “financial weapons of mass destruction” by financial guru Warren Buffett, derivatives have played a prominent role in the recent financial crisis. Credit default swaps blew up spectacularly in 2008, causing AIG, a once venerable American institution, to lose $18 billion.
Giles TurnerNews Editor