Hedge Crunch Financial

Peter Bernstein, president of Peter L. Bernstein Inc., a consulting firm to corporations and institutional investors, died last Friday, June 5, 2009. Bernstein was the author of several books, including “Capital Ideas: The Improbable Origins of Modern Wall Street” and “Against the Gods: The Remarkable Story of Risk.” He was also the author of many articles and other books about investment management, risk, and the markets.

He was an economic consultant who strove to bring the ideas of modern investment down from the ivory tower of academia and into the hands of the practitioner.

Harry M. Markowitz, the 1990 Nobel laureate in economics and adjunct professor of finance in the Rady School of Management at the University of San Diego mourned Bernstein’s passing. “I’m slightly in a state of shock. Peter was a good friend. He had this fantastic way to explain mathematical concepts to non-mathematicians. I was surprised to learn he was a non-mathematician.”

Peter L. Bernstein graduated from Harvard University magna cum laude with a degree in economics.

Bruce I. Jacobs, principal of Jacobs Levy Equity Management said about Bernstein, “Whether it was Harry Markowitz’s theories of portfolio optimization, or Bill Sharpe’s capital asset pricing model, or the option-pricing theory of Fischer Black, Myron Scholes and Robert Merton, Peter seemed able to translate the most abstract, arcane ideas into language that was accessible to those of us not necessarily trained in physics and higher mathematics. And he was able to do so in a lively, informal style while keeping all the main points intact.”

As our financial crisis continues to become more complex and difficult to fathom, many different types of funds are being discussed in the news. One type of fund that is frequently discussed is the Taft-Hartley Pension Fund. These funds came into existence as a result of an act of congress in 1947 as part of an amendment to the famous Wagner act of 1935, the comprehensive and history making legislation giving workers many rights, especially to form unions and other benefits, also known as the National Labor Relations Act.

Today over 6% of all pension fund assets are of the Taft-Hartley variety, representing 420 billion dollars worth of investment capital. Since this is certainly a significant amount of money, it is worthwhile to learn a bit about what these funds are.

Taft-Hartley pension funds are the way companies provide benefits to their employees at retirement. The funds are composed of contributions which the employer makes on behalf of their employees, contractually negotiated by the union that the worker is a member of; and the gains or losses that the fund is subject to while it is invested by the fund’s trustees.

Trustees are appointed in equal number by both the union and the employer, and are responsible for overseeing the investment and deciding what benefits the plan can afford upon retirement.

Usually investment firms are given the responsibility of overseeing the fund’s investment strategy as the trustee. There are many firms which oversee Taft-Hartley pension funds, including EnTrust Capital Inc., Gregg Hymowitz, managing partner; McMorgan & Company, John F. Santaguida managing director, and consulting firms, such as Milliman, which advise trustees on how to focus on targeting the investment returns assumed by the plan.