The slight jump in the Retirement Fund’s overseas investments seen in May could be followed by some losses in July due to the economic fallout of the nation’s subprime mortgage meltdown.
The Fund’s investment portfolio rose by just less than 2 percent in May, according to a financial report, to almost $450 million after declines in the stock market and increased withdrawals earlier this year drove it below the $490 million peak it saw in October 2007.
However, Retirement Fund administrator Mark Aguon is bracing for possible losses in July amid fears that adjustments to the interest paid on scores of mortgages nationwide will have a ripple effect through the economy that might prompt a drop in the fund’s value Fidelity Investment .
America has long suffered economically because of a downturn in the housing market connected to subprime lending-home loans given low-income borrowers. In July, Aguon said, interest rates on roughly 10 percent of those loans will go up, a shift that could diminish stock values.
“The effect of that is unknown, but if half of those homeowners decide to just turn in their keys, that means a collapse in the housing market,” Aguon said. “Indirectly, the entire U.S. market is going to take a hit. Our investments are generally more conservative than average-they have to be because we’re a pension fund. However, since everybody is going to take a hit across the board, whatever hit the stock market takes, we will feel it.”
However, Fidelity Investment the Fund is prepared for the short term impact of the housing crunch, Aguon said, noting that much of its money is in securities and other investments that should remain safe from fluctuations in the market.
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