Dale Rosenthal, a former strategist for Long Term Capital Management, the hedge fund known for its epic collapse in 1998, and a proprietary trader for Morgan Stanley, has seen his share of financial complexities.

But when shown a seven-page list of derivatives positions held by the Illinois Teachers Retirement System as of March 31, obtained by Medill News Service through a Freedom of Information Act request, the University of Illinois-Chicago assistant professor of finance expressed disbelief.

“If you were to have faxed me this balance sheet and asked me to guess who it belonged to, I would have guessed, Citadel, Magnetar or even a proprietary trading desk at a bank,” Rosenthal said.

The fact that the sheet doesn’t belong to one of those high-flying hedge funds, but to the $33.72 billion pension fund that serves more than 355,000 full-time, part-time and substitute public school teachers and administrators working outside the city of Chicago, is perplexing to those interviewed for this story.

How bad is it? After losing $4.4 billion on investments in fiscal year 2009, and 5 percent on investments in fiscal 2008, the teachers’ pension is now underfunded by $44.5 billion, or 60.9 percent, according to the Commission on Government Forecasting and Accountability’s March 2010 report. By comparison, only 20.3 percent of the Chicago Teachers’ Pension Fund is unfunded.

For the quarter ended March 31, according to derivatives experts who studied TRS’ financial documents, the fund lost some $515 million on its derivatives portfolio. Since then, the fund’s derivatives positions have likely soured further, the experts said, due to worsening financial conditions in Europe.

Read more at Medill Reports