Alabama pension fund betting on boutique movie theater investment

Alabama's pension system has directly invested $221 million into a boutique movie theater-restaurant chain with 16 locations nationwide, The Wall Street Journal reported Wednesday.

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The Retirement Systems of Alabama and the 360,000 federal workers and retirees who depend on it are now the sole owners and operators of iPic Entertainment Inc., which filed for bankruptcy in August, WSJ reported.

Pensioners are depending on big sales from the latest "Star Wars" film and big movies like it to create a dent in their investment of the luxury theater. iPic told investors it could build up to 200 locations in the coming years, according to WSJ.

"We have new management in place," Retirement Systems of Alabama Chief Investment Officer Marc Green told WSJ of iPic. "It’s in stabilization mode."

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The pension plan manages more than $40 billion on behalf of the several hundred thousand federal workers and retirees in the state, and it has been increasing its efforts to pursue "alternative investments" in an attempt to earn market returns of 7 percent or more, WSJ reported.

But that hasn't been the outcome for most government pension funds across the country that make such investments, according to a May 2019 study by credit rating agency Fitch Ratings.

The study found that between 2001 and 2017, state and local pension funds' "shift away from lower-risk allocations has not necessarily produced stronger returns. For state and local systems in this survey, median average returns were ... 6.4% for the 17-year horizon between 2001 and 2017."

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While state and local pension plans have about $4.3 trillion in assets, that's $4.2 trillion less than the amount needed to cover the future benefits promised to firefighters, teachers and other public workers, WSJ reported, citing the Federal Reserve.

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"For many pension systems, assets set aside to prefund pensions remain well below the accrued benefits that have been promised to current and future retirees," the Fitch Ratings study explains.

"The ability of plan managers to accumulate and effectively manage assets to cover promised benefits has become a key source of pension risk for governments, particularly as funding challenges continue, plan demographics continue weakening and constrained state and local budgets persist," the study reads.

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