Pension360

Pennsylvania Gov. Tom Wolf indicated on Thursday morning that he will veto a measure, recently passed by GOP lawmakers, that would overhaul the state’s pension system and shift new hires into a “hybrid” system with 401(k) features.

Wolf’s decision comes as no surprise – since his election, he has vocally disapproved of any pension reform plan that includes a shift to a hybrid, 401(k)-style plan.

From ABC 6:

Gov. Tom Wolf is saying he will veto a Republican bill to overhaul Pennsylvania’s public pensions.

The Democratic governor made his comments Thursday morning in a live telephone interview with KQV Newsradio in Pittsburgh.

Although he vetoed a Republican state budget plan and a GOP proposal to privatize state-controlled liquor and wine sales, Wolf has inexplicably held onto the pension legislation for more than a week. He has until Friday to sign the bill or allow it to become law without his signature.

Wolf says the bill on his desk is an improvement over previous pension overhaul proposals, but that it is not good for future state and school employees.

It’s unclear why Wolf held onto the bill for a week before his veto, because it’s unlikely Wolf ever seriously considered approving the measure.

 

Photo by Governor Tom Wolf via Flickr CC License

On Thursday, the city of Chicago will begin defending its recent pension changes in front of a judge.

The city is tasked with convincing the judge that the reforms are constitutional – even though they are likely to result in benefit reductions.

More from Reuters:

Cook County Circuit Court Judge Rita Novak will hold a hearing on motions by city unions and retirees to overturn a law for Chicago’s municipal and laborers’ systems that took effect Jan. 1.

That law requires Chicago and affected workers to increase their pension contributions and replaces an automatic 3 percent annual cost-of-living increase for retirees to one tied to inflation.

Opponents of the law base their argument on the high court’s May decision that found the state constitution gives public sector workers iron-clad protection against pension benefit cuts.

Chicago contends in court filings that the law “takes two pension funds on a path toward inevitable insolvency and ensures that they will ultimately be fully funded primarily through a massive influx of new city funding.”

The city is defending the law by saying that, in absence of the changes, the two pension funds in question would run out of money in a decade.

 

Photo by bitsorf via Flickr CC License

Ed Mendel is a reporter who covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com.

Private equity firms have produced big profits for CalPERS, not to mention a pay-to-play scandal, while keeping a big share for themselves as an incentive — traditionally 20 percent of profits plus annual management fees of up to 2 percent.

With its size as the nation’s largest public pension fund providing leverage in negotiations, and a new emphasis in recent years on cutting management fees, CalPERS seems likely to have negotiated favorable deals with private equity firms.

But after the board was told last April that CalPERS could not track the incentive payments, known as “carried interest,” a wave of media criticism grew with stories in the New York Times late last month and Fortune magazine last week.

A pension fraud investigator, Edward Siedle of Benchmark Financial Services, launched an Internet fund-raising campaign on Kickstarter to raise $750,000 for a “forensic investigation” of the California Public Employees Retirement System.

Last week, CalPERS announced that a new reporting system under development since 2012 will enable the reporting of “the total carried interest” paid to its private equity firms during fiscal 2014-15, probably this fall.

The report may be incomplete. CalPERS sent a new e-mail request last week to the 6 percent of its private equity firms that have declined so far to provide the information on carried interest.

The CalPERS board member who raised the tracking issue, J.J. Jelincic, estimated last April that the carried interest could be $600 million to $900 million a year, adding to the $1.6 million in total external management fees reported last fiscal year.

Jelincic said last week that, contrary to his earlier skepticism, staff has convinced him they indeed do not know the carried interest amounts. At a past conference, he said, a staff member estimated that the average carried interest is roughly 10 percent of profit.

Private equity firms with a strong record of returns desired by investors apparently can charge 20 percent or more, Jelincic said. In a kind of market pricing, other less proven private equity firms may agree to a much lower carried interest rate.

Part of the media criticism is that in 2011 CalPERS dropped a consultant, LP Capital Advisors, that had been monitoring its private equity portfolio, which has about 350 managers with 700 funds and a net value last year of $31 billion.

Brad Pacheco, a CalPERS spokesman, said the consultant’s reports were incomplete, inconsistent and covered the total private equity fund, not the CalPERS share of carried interest.

The report this fall from the new CalPERS system, called the Private Equity Accounting and Reporting Solution or PEARS, will use the industry standards issued in 2012 by the International Limited Partners Association.

A chart in an “investment office cost effectiveness” report to the board last April shows the private equity base management fees, excluding the profit share, dropping from about 2 percent of assets in 2010 to 1.5 percent in 2014.

Several large private equity firms agreed to lower their CalPERS management fees after a pay-to-play scandal surfaced in 2009, prompting a number of reforms by CalPERS and the Legislature.

The April report showed an investment management cost for all CalPERS funds of 0.41 percent, below the 0.48 percent benchmark for similar pension funds. In the last four years one-time savings were $429 million and ongoing savings grew to $293 million a year.

“The kinds of savings that are indicated here — you need to be applauded for the work in that area,” Henry Jones, the investment committee chairman told the staff after hearing the report. “I think we need to let the public and world know about these savings as we go forward.”

Private equity investments, mainly available only to pension funds and other large institutional investors, are expected to yield higher returns than stocks traded on the public market.

One example of their importance: After huge investment losses in the 2008 stock market crash and economic recession, both CalPERS and the California State Teachers Retirement System increased their private equity allocations.

The CalPERS target for private equity jumped from 10 to 14 percent of the investment portfolio, CalSTRS from 9 to 12 percent. The CalPERS target has since returned to 10 percent of a portfolio valued last week at $308.7 billion.

By far the most lucrative and controversial type of private equity is the “leveraged buyout,” now about 60 percent of CalPERS private equity assets. Often a company is purchased with loans that use the targeted company’s own assets as collateral.

Advocates say the companies purchased in leveraged buyouts typically are modernized by outside experts, made more cost-efficient and competitive in various ways and returned to the market after several years in a kind of “creative destruction” that is good for the overall economy.

Critics say too often companies are “ripped, stripped and flipped,” jobs outsourced, borrowing increased simply to pay the purchaser dividends, bankruptcies declared, and a new class of billionaires created as public pensions help gut the economy.

In what some call private equity’s “golden years” before the market crash in 2008, a former CalPERS board member, Alfred Villalobos, collected more than $50 million in “placement agent” fees from firms seeking CalPERS investments.

A former board member who became the CalPERS chief executive, Fred Buenrostro, pleaded guilty to bribery-related charges for aiding Villalobos and awaits sentencing. Villalobos died last January while awaiting trial, an apparent suicide.

Last week Jelincic said tracking private equity profit shares should help CalPERS monitor how investments are used. He also suggested that CalPERS consider doing its own private equity investments, even if the needed “skill sets” require higher pay.

“We ought to take a serious look at whether we need to bring it in-house,” said Jelincic. “But if you don’t know what you are paying, you don’t know which way to go.”

A long-time CalPERS investment office employee, Jelincic has been on leave since his election to the board in 2010. During his campaign, the former president of the largest state worker union advocated more internal investment management.

The cost report last April said managing a larger percentage of its investments internally, particularly compared to other U.S. public pension funds, is one of the reasons CalPERS costs are lower than the international benchmark for its peers. (See chart below)

As if to show how both CalPERS and the times have changed, pressing firms to reveal their profit share and suggesting a switch to internal management is a stark reversal of the old attitude toward private equity.

In 2006 Los Angeles Times reporters made a Public Records Act request to CalPERS for letters, e-mails and memos from Villalobos and former state Sen. Richard Polanco about investment opportunities.

Rejecting the request, a letter from a CalPERS attorney to the Times said “the release of the (sic) some of the requested information may harm CalPERS’ ability to continue to invest with top-tier equity funds.”

Some private equity firms warned that “CalPERS’ current status as an ‘investor of choice’ will be damaged,” said the letter, and others “recently expressly refused to allow CalPERS to invest with them” due to concerns about disclosure.

Photo by  rocor via Flickr CC License

Greece’s economic crisis is affecting many parties, both inside and outside the Euro zone. But the country’s standoff is having a particularly interesting effect on the state of Kansas and its plan to issue $1 billion in pension bonds.

Kansas can’t issue the bonds if the interest rate exceeds 5 percent. That’s where Greece comes in.

Bloomberg explains:

Kansas officials have reason to hope Greece doesn’t sort out its debt impasse right away.

The state plans to sell $1 billion of taxable bonds by mid-August to shore up its main pension fund, said Jim MacMurray, senior vice president of the Kansas Development Finance Authority, which is handling the sale. Kansas can’t sell the 30-year debt for yields above 5 percent, according to state law. It may be running out of room: Similar bonds that Kansas sold in 2004 with insurance have traded less than a half-percentage point below that level.

Greece’s standoff with creditors over austerity measures such as pension cuts is helping keep Kansas’s bond plan alive. The euro-area tension is holding down interest rates by stoking demand for Treasuries even as bets build that the Federal Reserve is getting closer to raising borrowing costs.

“We have interest-rate risk until we can get to market,” MacMurray said in an interview. “It’s certainly possible we could get hit by higher rates.”

The proceeds from the bonds would be invested in the portfolio of the Kansas Public Employees Retirement System, which is currently about 60 percent funded.

Officials estimate that the pension bonds – if they work as intended – could improve the funding ratio by 6 percentage points. Opponents of the bond plan say that funding levels could just as easily swing the other way if markets don’t cooperate.

 

Photo credit: “Seal of Kansas” by [[User:Sagredo| – http://www.governor.ks.gov/Facts/kansasseal.htm. Licensed under Public Domain via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Seal_of_Kansas.svg#mediaviewer/File:Seal_of_Kansas.svg

Leo Kolivakis is a blogger, trader and independent senior pension and investment analyst. This post was originally published at Pension Pulse.

Last week, Bloomberg reported, China Plans to Allow Pension Fund to Invest in Stock Market:

China will allow its basic endowment pension fund to invest in stock markets, according to draft regulations posted on the Ministry of Finance’s website.

The fund also will be allowed to invest in domestic bonds, stock funds, private equities, stock-index futures and treasury futures, according to the draft. The proportion of investment in stocks, funds and stock-related pension products will be capped at 30 percent of the pension fund’s net value, according to the proposed rules posted Monday.

Chinese stocks entered a bear market Monday, as the exodus of over-leveraged investors overshadowed central bank efforts to revive confidence with an interest-rate cut over the weekend. Chinese regulators are expected to take additional steps to steady the market, including possibly suspending initial public offerings.

“The access of the pension fund as a long-term investor will remarkably increase liquidity supply and will benefit the sustainable, healthy development of the stock market,” Wen Bin, a researcher at China Minsheng Banking Corp. in Beijing, said by text message. “The Chinese market will be stabilized by the policy.”

Feedback on the draft rules can be given until July 13, according to the statement. The basic pension fund’s outstanding value was 3.59 trillion yuan ($578 billion) at the end of last year, the official Securities Times reported in May.

Shanghai Tumble

Short positions held by the basic endowment fund in stock-index futures and treasury-bond futures shouldn’t exceed the book value of the targeted stock indexes or treasury bonds, according to the draft rule. Money can also be used in equity investments for restructuring companies or in public listings of major state-owned companies, it said. The money can only be invested domestically.

The Shanghai Composite Index dropped 3.3 percent Monday to close at 4,053.03, taking the decline from its June 12 peak to more than 20 percent, entering bear-market territory. The gauge swung between a loss of 7.6 percent and a gain of 2.5 percent on Monday, its biggest intraday point move since 1992.

The recent selloff brings to an end China’s longest bull market, a rally that lured record numbers of individual investors and convinced traders to bet an unprecedented amount of borrowed money on further gains.

Saturday’s interest-rate cut, along with assurances from the securities regulator that risks from margin trading are controllable, failed to ease concerns that speculators are unwinding their positions.

Today, Ian Allison of the International Business Times reports, China’s government says ‘don’t panic’ amid $3tn bursting equities bubble:

With all eyes on Greece, people probably don’t want to know about a Chinese equity market rout to the tune of $3tn (£1.9tn, €2.7tn), prompting the communist government to throw in “everything but the kitchen sink” in response to this bursting bubble.

Chinese equities have shed 30% of their value since around the middle of June as an army of 90 million individual investors, which dominate the Chinese stock market, have sold shares as prices have fallen.

To combat this the Chinese government has been shovelling cash into blue chip stocks and telling people not to panic.

Meanwhile, since Monday 6 July volatility has been taken to new levels: the Shanghai Composite lost 5.1% before finishing 1.3% down and the Shenzhen was down 5.59%, taking it nearly 14% off early Monday’s high, while the Shanghai Comp is 8% off these highs.

Maybe the Chinese government still finds it difficult to accept the fact that financial markets cannot be driven by policies and stock returns cannot be dictated by an authority.

Some 760 companies have suspended trading in their shares, equivalent to a freeze of $1.4tn, or something like one fifth of China’s stock market value.

Economic consensus states China needs a thorough transformation of its economy away from a growth model that’s based on exports and investments and in many cases over-investment that creates bad debt, to one that’s driven by the consumer economy.

But pumping up the economy is unsustainable and could have the opposite effect of offloading losses onto household sector.

The Chinese growth story has been driven by margin lending, a means by which investors borrow money to invest using shares or managed funds as security. In times of high growth this technique can boost returns, but it can also magnify your losses.

Another risky factor in this equation is the country’s large shadow banking system of non-bank financial intermediaries, using all manner of securitised vehicles and asset-backed means of market making.

Meantime, the nations’ media has again tried to lend its support to calm nerves with the Securities Journal suggesting that the Chinese economy has the basis of a long-term bull market.

People’s Daily reported: “Confidence is more precious than gold. That’s what Chinese investors need at this moment; confidence, not panic.”

Analysts at Rabobank said: “Basically, China had hoped an equity bubble would rescue its property bubble while not worsening the debt picture: those hopes look forlorn, with serious consequences for all of us.

“Most worrying is that there isn’t really much China can do at this point: if a retailer’s share price means it needs double-digit retail sales growth for 20 years ahead to get the Price-to-Book value back to a reasonable range, what difference will 25bp, 50bp, 75bp, or even larger reductions in benchmark interest rates, or equivalent cuts in reserve ratios, make? (Though that is unlikely to stop China’s journey towards ZIRP and QE, as the US, Japan, and Europe have shown.)”

Creating a sovereign fund to mitigate the non-fundamental shocks is generally a good idea for emerging markets, but to assign a political task to these funds that they need to support the market index to a certain level simply won’t work.

Pumping investment into stocks of large state-owned enterprises which are large cap stocks means the index is supported to an extent, but most of the other stocks still fall harshly, many of them more than 10%.

Assistant professor of finance Lei Mao, of Warwick Business School, said: “I am surprised at the actions of the government; these actions are like casting political pressures to modify the trading behaviour of investors or to blatantly dictate how investors should trade, just to meet the political goals the government wants to achieve from the stock market.

“If the government aims to sustain a healthy market as a venue for financing, the rise of state-owned enterprise stocks are only aesthetically meaningful, since these enterprises never need any financing and they are not good investments anyway.

“When you create a sovereign fund and the purpose is to achieve political value from a rising market, then the allocation of funds will inevitably be distorted.”

Professor Lei pointed out that the Chinese government has restricted public funds from selling certain stocks – particularly, the pension funds are not allowed to sell any stock. This kind of direct ban destroys portfolio reallocation in the current market conditions, and the market is again distorted.

“These distortions, in today’s market, create a significant flow of funds to large state-owned companies – a ‘flight to state’. Plus they might create the reasons for another free-fall in the near future.

“Even an optimistic investor should not participate in the market for now. The government should learn, if not from the long histories of other markets, from their own mistakes,” he said.

Lesson from Japan

A look back at Japan’s dramatic economic slowdown in the 1990s suggests several lessons for China. Forecasters were extremely slow to recognise how much Japan’s growth potential had dropped and the collapse of asset prices had profound and long-lasting effects.

Global growth was not very badly affected in the following decade, with advanced economies performing quite well, but there were negative regional spillovers that contributed to the Asian crisis in 1997-98.

Trade exposures of the major advanced economies to China today are mostly quite moderate and similar to exposures to Japan in 1990, with the exception of Germany.

Analysts from Oxford Economics said: “Asian countries have intense trade links with China, greater than they had with Japan 25 years ago. The direct impact of a sharp Chinese slowdown would be centred in Asia, as was the case following Japan’s crash in the 1990s.”

I’ve repeatedly warned you, forget Greece, it’s the China bubble you should be worried about. Bloomberg reports that China is suspending initial public offerings, creating a market stabilization fund and telling investors not to panic in an effort to shore up its stock market, which has had the largest three-week drop since 1992.

So China’s policymakers are very worried and as Vanessa Desloires of the Sydney Morning Herald reports, their ‘kitchen sink’ approach to slow sharemarket plunge is not working:

In three weeks, the Shanghai Composite Index has wiped off more than $3 trillion, or a quarter of its value, ending a spectacular bull run which saw the benchmark index rise as much as 150 per cent in the 12 months to June.

So what exactly being done to try and prop up the country’s see-sawing sharemarket, are the measures working? Are there any proverbial rabbits left in the hat to pull out?

Here are the measures, dubbed by market commentators as the “kitchen sink” approach, Chinese authorities have lobbed at China’s crashing market over the past fortnight:

The first stage saw China’s central bank using methods more akin to the quantitive easing we’ve seen from western jurisdictions this could be called…

The Backroom Phase

June 25

The People’s Bank of China (PBoC) lowers its 7-day reverse repurchasing agreements lending rate, an indicator of interbank funding ability, by 3.35 per cent to 2.7 per cent. This makes it easier for banks to get their hands on capital to lend.

June 27

PBoC cuts interest rates for the fourth time this year. Borrowing and deposit rates cut by 25 basis points to 4.85 per cent and 2 per cent respectively. Banks have their reserve requirement ratio – the amount of capital they have to hold to sustain their loans – cut by 50 basis points. This is the first time since 2008 both rates have been cut simultaneously.

June 29

Chinese government allows its state-owned pension funds to invest in the share market for the first time, injecting up to 1 trillion yuan into the market.

June 30

Lowers its 7-day reverse repo rate again, from 2.7 per cent to 2.5 per cent. This injects 50 billion yuan ($A10 billion) into financial system through reverse repos.

However these measures failed to arrest the slide, prompting policy makers to turn their attentions to trying to cheer up investors, particularly retail investors, this could be seen as….

The Charm Offensive

July 1

No retail investor likes fees and to kick off July, the Shanghai and Shenzhen exchanges announce plans to lower transaction fees for share trading by 30 per cent by August.

July 2

The very next day, the China Securities Regulatory Commission (CSRC) loosens rules on margin financing, changing its strict stance on the practice of trading shares on borrowed money. Margin lending, again to retail investors, is widely believed to be behind the market’s bull run earlier up to June.

July 3

The CSRC said it was investigating irregularities between securities and futures trading across multiple markets. Reuters reports a source saying the Chinese Financial Futures Exchange has banned 19 accounts from short-selling for one month.

But the charm didn’t swing the market prompting remarkable direction intervention from the government perhaps describable as the…

Do As You’re Told Phase

July 4

Some 28 companies which had upcoming initial public offerings are made to postpone their floats, and the China Securities Regulatory Commission said there would be no IPOs in the near term. There have been more than 200 IPOs this year alone and were heavily oversubscribed. The 21 top Chinese brokerages also agree to plough 120 billion yuan in blue-chip exchange traded funds, billed as a sharemarket rescue fund. They will hold the stocks as long as the SCI remained below 4500 (in Tuesday morning trade the index was at 3745).

July 5

State-owned investment firm Central Huijin had bought exchange-traded funds and promised to buy more.

The regulator CSRC said the PBoC will inject 250 billion yuan into 11 financial institions to increase liquidity in a bid to stabilise the sharemarket which has tumbled into bear territory. The State Council announces the establishment of a 100 billion yuan national insurance investment fund.

Local media reports Chinese state pension fund, the National Social Security Fund ordered its managers “not to sell a single share”.

Communist party newspaper The People’s Daily warns people “not to lose their minds” and “bury themselves in horror and anxiety” as the measures will take time to produce positive results.

July 6

The China Financial Futures Exchange imposes a daily trading limit of CSI 500 index futures effective to 1200 lots for rise and fall, effective from Tuesday, state media outlet Xinhua reported.

July 7

Trading halted in 25 per cent of listed shares representing 700 mostly smaller stocks.

The market fell again on Tuesday morning, down 4 per cent at noon AEST.

So perhaps we can say the market has not obeyed the government’s edicts.

So what happens now?

While Xinhua reported that the weekend’s measures were responsible for Monday’s 2.41 per cent rise, ANZ senior economist Jo Masters said they were “short term fixes”.

“A modest lift in the Shanghai Composite… may be soothing some nerves, but at what cost?” Ms Masters wrote.

“There is still a deleveraging process to go through, which risks tightening market liquidity conditions,” she said.

“Fundamentally, the Chinese economy has found firmer footing over the past two months due to policy easings,” Raymond Ma, portfolio manager of Chinese equities said.

“Although investment demand and exports remained weak, green shoots are emerging in key areas such as property sales and consumption.

“As fundamentals are improving, I am seeing more value in oversold sectors such as Chinese insurance companies, brokers and selected information technology plays, which have declined for 20 per cent to 30 per cent over the past month or so,” he said.

IG markets strategist Evan Lucas said however the central bank and government’s attempts to stem the bleeding “appears to be futile”.

“The next steps would be increasing liquidity funds even further, with the PBoC backstopping and increasing pension funds exposure as well, some state-owned pension funds are already doing this by banning their advisors from selling,” Mr Lucas said.

“That would be the scorched earth scenario, it would mean the regulator becoming one of the largest shareholders,” he said.

He added that while he expected the plunge to slow, the ramp up in the preceding 12 months had been “just as biblical”.

My advice to China’s policymakers, stop tampering with the markets, you’re only going to turn a steep correction into a deep depression. Your pension fund can invest in Chinese equities but if they don’t have the right governance and are told when to buy and sell equities, they’re doomed to fail and they will lose a pile of dough which will create an even bigger problem down the road.

I’m far more worried about China now than anything else. If its stock market bubble bursts in a spectacular fashion, it will wreak havoc on China’s real economy and reinforce global deflation pressures.

In fact, China’s central bank has already admitted defeat in war on deflation. At a time of slowing economic growth and massive corporate debts, a deflationary spiral would be China’s worst nightmare. It  could potentially spell doom for developed economies as China’s deflation will reinforce the Euro deflation crisis and potentially create global deflation that eventually hits the United States.

The global reflationists remain unfettered.  They say get ready for global reflation. I think they’re way too optimistic and confusing short-term trends due to currency fluctuations, neglecting to understand that the long-term deflationary headwinds are picking up steam. There is a reason why 30-year U.S. bond yields are plunging and it’s not just Greece. China and global deflation are much more worrisome.

Photo credit: “Asia Globe NASA”. Licensed under Public domain via Wikimedia Commons

Very few New Jersey residents believe Chris Christie has improved the state pension system during his time in office, according to a poll released Tuesday from Monmouth University.

Many more residents say that Christie has done nothing to improve the pension system; but some residents say the Governor can claim a few minor accomplishments.

The poll results, from NJ.com:

Just 11 percent of residents say Christie can continue to take credit for “major accomplishments in fixing the state’s pension system, according to the poll. Another 31 percent said he can claim minor accomplishments, while 47 percent said he’s done nothing to turn the system around.

“The governor can’t expect the public to see pension reform as one of his major accomplishments after he asked the court to overturn a key provision in his own law,” said Patrick Murray, director of the Monmouth University Polling Institute in West Long Branch.

[…]

Twelve percent of New Jerseyans approved of Christie’s decision to underfund the pension system this year, the survey of 504 adults said. Meanwhile, 42 percent of those polled disapproved of the governor’s move and 46 percent, the largest subset, had no opinion.

[…]

Public workers have a lot of support in their corner, as the majority of residents said the state should keep its promise to them. Nearly a third think the state should pay pension benefits “no matter the cost,” and 46 percent said that while benefits may be too high, the state should pay what it owes.

Another 19 percent said the state should cut benefits for current workers, according to the poll.

Read the full survey here.

 

Photo by Elektra Grey Photography via Flickr CC License

The Teachers Retirement System of Texas has committed $250 million to two funds that look to invest in “green” and LEED-certified buildings.

The two funds – both managed by Principal Real Estate Investors – will target apartment, retail and industrial buildings that have been designed and constructed using sustainable practices and materials.

From IPE Real Estate:

The US pension fund committed $100m to Principal’s Green Property Fund II and $150m to the manager’s Green Property Sidecar II fund.

The manager said it would seek existing properties with potential for improvement through value-add plans and opportunities to invest in new projects.

Targeted property types include office, industrial, retail and apartment assets.

The manager is looking to add LEED silver status to assets, as well as use e-commerce-friendly construction materials.

Principal will invest capital for Green Fund II in the top 25 US markets, targeting a 15-20% net IRR.

The Teacher Retirement System of Texas manages approximately $132 billion in assets.

 

Photo by penagate via Flickr CC

Corporate pension assets are at an all-time high, and June brought more good news for the companies with defined benefit plans: corporate pension funding increased by 9 percent last month according to Mercer.

From the Wall Street Journal:

The overall pension deficit among companies in the Standard & Poor’s 1500-stock index, which tracks the broad market, fell by $35 billion, or more than 9%, to $346 billion, Mercer said. That estimated deficit is now $158 billion narrower than where it ended last year.

[…]

Behind the move is an increase in the discount rate, a hypothetical yield on a portfolio of high-grade bonds, by 29 basis points to almost 4.3%, according to Mercer. As discount rates rise, companies can assume a better return on assets over time, which narrows any gap between what pensions expect to return and what covered employees will ultimately be owed.

“We now have the highest discount rates we’ve seen since late 2013,” said Matt McDaniel, a partner with Mercer’s retirement business.

Mercer said the funded status would have been even better if not for the volatility and uncertainty surrounding the Greek debt crisis.

The funding improvement happened despite the S&P 500 falling over 2 percent over the same period.

 

Photo by www.SeniorLiving.Org via Flickr CC License