Mortgage meltdown won't directly cost state pension funds

State-run pension funds for hundreds of thousands of retired government workers have largely avoided being burned by the meltdown in the mortgage market, officials were assured Wednesday.

"We have looked over our portfolios. We do not have, at least as far as we can see so far, any direct exposure," said Howard Bicker, executive director of the Minnesota State Board of Investment.

Bicker responded to a question from Gov. Tim Pawlenty, who sits on the board, about whether Minnesota state-run pension funds have been hurt by the fallout from bad subprime mortgages, a problem that is surfacing in some other states.

While telling the board that Minnesota's state-run pensions aren't invested directly in troubled subprime lending instruments, Bicker acknowledged that the state pension funds were exposed to the subprime housing crisis by investing in bank stocks and index funds.

"We have indirect exposure," he said. "We are watching it very closely."

Asked after the meeting if he was confident that state investments weren't exposed to the subprime problems, Pawlenty referred to Bicker's explanation and added, "I would have to rely on his statement."

Recently, state-run funds in Florida and elsewhere have encountered financial trouble because of investments they made in structured investment vehicles, which issued debt supported by risky subprime mortgage loans.

He also told the board that state-run retirement funds increased in value in the third quarter of 2007, though at a slower pace than they had in the past. He said investment returns rose by 2.6 percent in the last quarter.

In other action, the Board of Investment asked Bicker to write a private equity firm in which it invests -- Kohlberg Kravis Roberts -- to encourage it to be vigilant in removing lead-based toys from Toys "R" Us and Dollar General, stores it has a stake in.