A Return to a More Restrictive Prudent Person Rule

During the bubble, pension plans in the United States became, in effect, venture investors. This was absurd, and it was the U.S. government that allowed it to occur. The government permitted corporate and public employee pension plans to be invested in venture funds, and thereby fueled the bubble and ultimately led so many people to financial slaughter.

Yet to many people the logic of this development seems unassailable. It is that large corporate pension funds are big enough and well-managed enough to benefit from diversification of investments—including the opportunity to reap the supposedly high rewards of venture capital investment.

Responding to such arguments, in the mid-1970s, the Department ...

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