Pension360

A UK consortium that includes a half-dozen pension funds has won a bid to revamp London’s crumbling sewer infrastructure – a roughly $3.8 billion project.

The consortium includes several asset management firms along with the Pensions Infrastructure Platform (PIP), which is a group consisting of nearly a dozen pension funds.

More from IPE Real Estate:

An asset manager partnered with the UK’s Pensions Infrastructure Platform (PIP) has helped form a winning consortium on a large-scale London infrastructure project.

Dalmore Capital, the first asset manager to invest PIP money via a series of public/private partnership (PPP) equity investments, is part of the Bazalgette Consortium that will finance the £4.2bn (€5.9bn) Thames Tideway Tunnel (TTT) – an upgrade of London’s ageing sewer network.

IPE understands the PIP accounts for the majority of the UK investment.

The PIP, set up by the UK National Association of Pension Funds (NAPF) to channel investment into UK infrastructure, declined to comment.

In addition to Dalmore, the consortium included Allianz Capital Partners, Amber Infrastructure Group, DIF and Swiss Life Asset Managers.

The PIP’s involvement in Dalmore’s TTT fund represents its first foray into UK development infrastructure after focusing on PPP equity and solar investments since the first investment in 2014.

Seven founding pension fund investors, including the Pension Protection Fund (PPF), the Railways Pension Scheme and the Strathclyde and West Midlands local government funds, originally backed the platform in 2012.

Read more about the Pensions Infrastructure Platform (PIP) here.

 

Photo by  @Doug88888 via Flickr CC License

More and more companies are opting to de-risk their pension plans by transferring the financial risk of pension liabilities to a willing insurer.

But the International Monetary Fund (IMF) warned in a report this month that the practice could threaten the stability of the U.S. financial system.

From ai-cio.com:

In a report on the state of the US financial system, the IMF detailed the results of its latest stress tests of banks and insurers. It expressed concern regarding the lack of data available from some firms, meaning the longer-term effects of increasingly large pension-risk transfers on insurers were unknown.

“The transfer of pension risk to the insurance industry, through ‘longevity swaps’ and other insurance products, increases the interconnectedness of the system,” the IMF’s report said.

The IMF cited the Financial Stability Oversight Council’s (FSOC) annual report, published in May, which noted the growing number of counterparties arising from pension-risk transfers “as well as changes in the type and amount of financial counterparty risk”.

“In the case of buyouts, the beneficiaries have their credit exposure shifted from the pension plan to the life insurer,” FSOC said. “Accordingly, the backstop for pension plans switches from the Pension Benefit Guaranty Corporation to the state insurance guaranty funds. In the case of longevity swaps, the counterparty risk is like that of other derivatives and resides with the dealer or insurer.”

The IMF also highlighted underfunded private sector pensions as a potential source of “systemic risk”.

Read the full report here.

Photo  jjMustang_79 via Flickr CC License

A group of judges are suing Arizona over a 2011 law that cut pension benefits for long-serving workers in the state judicial system.

The challenge was finding a group of impartial judges to hear the case. But this week, the Arizona Supreme Court selected five unbiased judges to sit the bench.

From the Arizona Republic:

The five judges who will hear the nearly 4-year-old civil case are newer to their positions and are not a part of the old judicial retirement system. They therefore are not affected by the outcome of the lawsuit. In it, several judges challenged a hike in the cost of their retirement benefits by the Elected Officials’ Retirement Plan.

[…]

A 2011 pension-reform law increased the amount judges must contribute to their retirement, raising it in steps from 7 percent of their salary to 13 percent. The law was designed to save taxpayer money and shore up the financially ailing Elected Officials’ Retirement Plan and other state retirement systems.

Arizona Court of Appeals Judges Philip Hall and Jon W. Thompson filed suit to roll back the increase, arguing that their pension contributions were locked in by contract at a lower rate. They sued on behalf of themselves and others who were on the bench before July 20, 2011, when the pension-reform law went into effect. Hall has since retired.

Should they prevail, they could have their contribution rates for pensions restored to 7 percent of their salary. That would eventually require government employers to put more taxpayer funds into the retirement system, according to the Elected Officials’ Retirement Plan’s most recent annual report.

The names of the five judges: Karl Eppich of Pinal County, Randall Howe and Kent Cattani of the Court of Appeals, Patricia Trebesch of Yavapai County and Michael Butler of Pima County.

 

Photo by Joe Gratz via Flickr CC License

Illinois Gov. Bruce Rauner unveiled his pension reform proposal last week.

We’ve already gone over what it would mean for state workers. But the overhaul would be significant for the city of Chicago, as well.

For one, Rauner supports Emanuel’s plan to build a casino and use the revenues to pay down pension debt. Rauner’s plan would also give the city an extra 15 years to bring its public safety pension funding up to snuff.

From the Associated Press:

Rauner’s plan would give Chicago and other local governments until 2055 — rather than 2040 — to get their police and fire pension systems to 90 percent funding, thereby reducing the annual payment. It also states that revenue from a future Chicago casino, which the Legislature would still need to approve, would go to the police and fire pensions.

The governor also is proposing the state pick up the employer costs for Chicago Public Schools’ teacher pensions. Currently those costs are covered by Chicago taxpayers, even though the state makes the payments for other Illinois school districts.

[…]

Rauner wants to give local governments the ability to file Chapter 9 bankruptcy — an idea he’s pitched as a possible solution to Chicago Public Schools’ financial mess.

Democrats and unions are staunchly opposed to the legislation, largely for the way it handles collective bargaining and cuts benefits.

 

By Steven Vance [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

California state treasurer John Chiang said he is paying close attention to the ongoing saga surrounding CalPERS and its recent efforts to disclose how much it pays in “carried interest” fees.

Last month, CalPERS acknowledged it did not track how much it paid in “carried interest” fees to private equity firms. Shortly after that admission, the fund launched an effort to gather the data.

More on Chiang’s comments from the Financial Times:

One of California’s most senior elected officials has voiced “great concern” at Calpers’ worrying admission that America’s largest public pension scheme has no idea how much it pays its private equity managers.

John Chiang, state treasurer of California, told FTfm he will demand clear answers from the $302bn pension plan over why it does not know how much has been paid in “carried interest” or investment profits over a period of 25 years to the private equity managers running Calpers’ assets.

The attack comes just weeks after US regulators issued an explicit warning to the private equity industry to expect more fines for overcharging investors….

“This issue is of great concern to me,” said Mr Chiang, who is a known reformer and also sits on Calpers’ administration board. “This will have my close attention until it is solved.”

In an unrelated shift in investment policy, CalPERS has for months been whittling down its private equity managers by 66 percent.

 

Photo by  rocor via Flickr CC License

On Thursday, Chicago Mayor Rahm Emanuel reacted to Bruce Rauner’s pension overhaul proposal.

Emanuel made it clear that he supported parts of the plan (benefit cuts for workers), but not others (allowing municipalities to file for bankruptcy as a way to shed pension liabilities).

From the Sun-Times:

“The governor now is in favor of the police and fire pension [reforms]. That is a good thing. The governor is now in favor, publicly, of a Chicago-based casino to pay a portion of police and fire pensions,” Emanuel said.

“The governor is now in favor of things we have talked about for decades about equity on teachers’ pensions so students and teachers in Downstate and suburbs are not treated better than teachers and students here in Chicago. He’s supportive of some of the things we’ve proposed for Chicago Public Schools … and also the notion that the rest of the state has a role to play in creating fairness and equity across the system where Chicago taxpayers are not responsible for paying for everybody else’s teachers pension and our pensions.”

[…]

But the mayor once again made it clear that he considers bankruptcy a last — not first — resort.

“It’s the wrong thing to do. … I would oppose that. … What is driving the financial strain … is a series of political decisions that have been made over the years. That’s what you need to fix rather than go to a judge to address your bad politics and bad choices,” the mayor said.

Emanuel’s lengthy remarks served a political purpose: he now has Rauner on record as supporting large swaths of the city’s pension reform “wish-list”, including building a casino to pay down police and fire pension debt.

 

Photo by Pete Souza via Flickr CC License

Japan’s Governmental Pension Investment Fund posted a 12.3 percent return in fiscal year 2014-15, a record annual return for the pension fund.

The gains come as GPIF spent the better part of the year aggressively overhauling its portfolio, ramping up allocations to equities and cutting bonds.

From the Financial Times:

The GPIF delivered an investment profit of Y15.3tn ($125.2bn), taking its total assets to a record Y137.5tn — 28 per cent of Japan’s gross domestic product.

Domestic equities produced the best return, up 30.5 per cent, while the GPIF’s holdings of international equities delivered 22.3 per cent. International bonds generated a return of 12.7 per cent.

In his annual report on the year to March 31 2015, GPIF president Takahiro Mitani said the fund’s main risk was the low interest rate on domestic bonds. “Therefore, our newly formulated basic portfolio is more diversified than before,” he wrote.

Prime Minister Shinzo Abe promoted the shift to a new portfolio to get better returns on the national pension assets. The latest report shows the GPIF’s transformation is almost complete.

Domestic bond holdings are supposed to fall from 60 per cent of total assets to 35 per cent, and with the allocation at 39 per cent as of March 31, the GPIF only had another 4 percentage points to go. The GPIF has been one of the big sellers of Japanese government bonds to the Bank of Japan.

The GPIF is boosting its holdings of domestic stocks from 12 per cent to 25 per cent of the portfolio and putting 25 per cent into international stocks. Those holdings had reached 22 per cent and 21 per cent respectively.

GPIF manages approximately $1.1 trillion in assets, and is the world’s largest pension fund.

 

Photo by Ville Miettinen via Flickr CC License

On Wednesday, Superior Court Judge Sarah Taft-Carter formally entered her judgment on the pension settlement reached between Rhode Island and its retirees.

Carter informally approved the settlement in June. Now, parties have 20 days to appeal the judgment; once the 20 days are up, the settlement is officially approved.

From the Providence Journal:

In a 68-page ruling in June, Taft-Carter agreed with lawyers for both the state and suing groups of unions and retirees that the settlement was fair, adequate and reasonable considering the risks both sides faced if the case went to trial. On Wednesday, the judge entered a final judgment, making it official.

A 20-day clock now begins ticking for parties to file notice of appeal, courts spokesman Craig N. Berke said.

Lee D. Grossi, a retired state budget officer, alerted the court Tuesday that he intended to appeal. In May, Grossi objected to the proposed settlement on the grounds that it created an injustice to members of his retirement class.

In signing the state budget bill last week, Governor Raimondo approved the settlement resulting from the 2011 overhaul of the state pension system she orchestrated while serving as general treasurer. It ended most of the legal challenges to the landmark pension overhaul law, which, unlike virtually anywhere else in the country, reached back and cut benefits already promised retirees.

The settlement maintains most of the savings and cuts of the 2011 overhaul. But the settlement does give retirees some relief, with more frequent COLAs and lower retirement ages.

 

Photo credit: “Flag-map of Rhode Island” by Darwinek – self-made using Image:Flag of Rhode Island.svg and Image:USA Rhode Island location map.svg. Licensed under CC BY-SA 3.0 via Wikimedia Commons