Pension360

The trial over Rhode Island’s 2011 pension overhaul is set to begin on April 20.

But state Gov. Gina Raimondo has been adamant about trying to reach a settlement deal before the trial begins.

On Tuesday, the state and unions indicated to various media outlets that they were close to a settlement that reportedly looks similar to the terms of a proposed settlement that eventually fell apart in Spring of 2014.

More on the terms of the new settlement, from WPRI:

A version of the state’s final offer circulating among state employees showed the new settlement would largely mirror the one that was rejected last year, except for small changes to the official retirement age and tweaks to the calculation of cost-of-living adjustments (COLAs).

Senate President M. Teresa Paiva Weed, emerging after a meeting with Raimondo, confirmed as much. “The majority of the proposal was part of the settlement last spring,” Paiva Weed said, adding that she thinks “it’s in the best interest of the state and the employees to reach a final settlement of this matter.”

Even if the governor, unions, retirees and the judge agree to the settlement to end the pension lawsuit, state lawmakers would still need to give it final approval in order for it to take effect.

Robert Myers, who represents SEIU Local 580 union members in the R.I. Department of Business Regulation, told them in an email that the sides agreed to a possible settlement last Friday, and all parties need to finish voting on the deal by March 27.

“I can tell you it is basically what was offered last year with a couple of slight changes to retirement age and COLA (retirees),” Myers wrote in the email. He added: “Each group will make their own decision on the agreement and all members are eligible to vote – unlike last year.”

The board of AFSCME Council 94, the largest state employee union, voted unanimously Tuesday to endorse the proposed settlement and send it on to the full membership for a vote.

You can read the full terms of the settlement, obtained by WPRI, by clicking here.

 

Photo by By Jim Jones (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

For the past few months, Japan’s Government Pension Investment Fund (GPIF) has been carrying out its portfolio overhaul in full swing.

The fund is in the process of doubling its domestic and foreign stock holdings while significantly reducing its bond holdings.

That effort led to record Japanese bond sales in the fourth quarter of 2014, according to Bloomberg.

More from Bloomberg:

The $1.1 trillion Government Pension Investment Fund and its smaller peers almost doubled net sales of Japanese government bonds to 5.56 trillion yen ($46 billion) in the fourth quarter, the most in Bank of Japan figures dating back to 1998. They bought an unprecedented 2.39 trillion yen of foreign stocks and bonds. Selling of JGBs and buying of overseas securities has continued for six straight quarters.

[…]

Japan’s public pension funds raised domestic stock holdings for a fifth quarter, adding a net 1.73 trillion yen, the most since 2009. They held 5.6 percent of a record 1.023 quadrillion yen of outstanding JGBs at the end of December. The biggest holder, the BOJ, owned 25 percent of the total as of then, it said Wednesday in Tokyo.

Last month, Pension360 covered the early returns of the portfolio overhaul: the fourth quarter of 2014 was the best quarter ever for GPIF, with investments returning 5.2 percent.

The GPIF manages $1.1 trillion in pension assets and is the largest pension fund in the world.

 

Photo by Ville Miettinen via Flickr CC License

Earlier this month, Pennsylvania Gov. Tom Wolf outlined his plan to improve the state’s pension funding and ease pension costs for school districts.

On Monday, Wolf’s office offered more details, including some dollar figures.

The three main elements of the plan are:

– Issuing $3 billion in pension bond

– Cutting pension investment expenses by $200 million

– The state making its full actuarially-required pension contribution in fiscal year 2016-17

More from Philly.com:

Under the plan, Wolf wants to borrow $3 billion by way of a bond issue and persuade Pennsylvania’s two big public employee retirement systems to cut investment management fees by $200 million a year.

“We have tried to put together a comprehensive pension funding plan,” Wolf’s budget secretary, Randy Albright, told the Senate Appropriations Committee.

Under the administration’s plan, the state would make the full required contribution in 2016-17. That could mean paying more than $2 billion alone to the larger of the two pension systems, the Pennsylvania School Employees’ Retirement System.

Gains from investing the bond proceeds, along with savings from cutting investment fees would reduce annual payments to PSERS by nearly $1.3 billion over five years and $10 billion over 24 years, the administration says. That would ease the steep increases on the current pension obligation payment schedule required by a 2010 law to correct years of underfunding by the state, administration officials say.

Of the three proposals, the bond plan is the least likely to happen. That’s because it would need to be approved by state lawmakers – many of whom support a plan to switch new hires into a new, hybrid pension system.

 

Photo by Governor Tom Wolf via Flickr CC License

Pension360 has covered the efforts of several large pension funds that have been trying to use their clout as major shareholders to gain more authority over corporate board nominations.

[Read about New York City Comptroller Scott Stringer’s Boardroom Accountability Project here.]

Now, several large companies appear to have gotten the message and are willing to give proxy access to major shareholders.

From the Wall Street Journal:

At least 14 companies, including Yum Brands Inc., Citigroup Inc. and General Electric Co., have agreed in recent weeks to support giving shareholders the ability to nominate their own directors for corporate ballots.

A powerful bloc of investors is pressing more than 100 other large companies—including many that have fought such efforts in the past—to take similar steps and adopt a form of “proxy access.” This would require companies to include the names of all board nominees, even those not backed by the company, directly on corporate ballots distributed before shareholder annual meetings.

The shift could give pension funds, unions and other investors greater influence over the strategic and financial choices of U.S. companies by enabling individual or groups of shareholders to install their own directors.

For most of the companies mentioned above, the three and three rule will apply: the right to nominate a board member is given to any shareholder who has held at least three percent of the company’s stock for at least three years.

Chicago Mayor Rahm Emanuel and his opponent, Jesus “Chuy” Garcia, sat down side-by-side on Monday to discuss how they would each tackle the city’s pension problems.

Emanuel used the opportunity to double down on his own plan, which includes benefit cuts for some workers.

Garcia, while light on specifics, also hinted at an “innovative” reform plan waiting in the wings.

Watch the video above for the full discussion.

 

Credit: NBC Chicago

Photo by Pete Souza

A private equity manager who stole millions from his investors, including the Kentucky Retirement Systems, (KRS) pled guilty to grand larceny charges on Monday.

Lawrence Penn III was the founder and managing director of the Camelot Group.

But Penn, along with a partner, spent years siphoning off nearly $10 million of investor money to buy jewelry and other luxury items.

Among the affected investors was the Kentucky Retirement Systems, who invested $24 million with the firm, according to the Lexington Herald-Leader.

More on Penn’s guilty plea, from the New York Post:

West Point grad Lawrence Penn III copped to grand larceny and falsifying business records in exchange for 2 to 6 years in prison. He must also make restitution of $8.3 million and relinquish his company’s interest in the fund.

Justice Laura Ward offered the deal over the objections of prosecutors. Assistant District Attorney Chevon Walker recommended 4 to 12 years in prison. He’s already served more than a year of his sentence.

Penn allegedly siphoned cash from Camelot Acquisitions to a shell company set up by his pal Michael Ewers – who also pleaded guilty for his role in the scheme that ran from 2010 to 2013.

The diverted cash was made to look like payments for Ewer’s services but actually served as a front, prosecutors said.

Penn, 45, allegedly used the stolen loot for credit card payments, cash withdrawals, luxurious office space, rent for two apartments, jewelry and even a fancy car.

The whole situation has been used as an argument against the use of placement agents as intermediaries between pension funds and investment firms. From the Lexington Herald-Leader:

State audits revealed that The Camelot Group paid $780,000 in fees to placement agent Glen Sergeon of New York to get the KRS commitment in 2009, [former KRS Trustee Chris] Tobe said.

“They were getting $26 million of our money to do whatever they wanted with for four years, so it was a good deal for them, if not for us,” Tobe said. “For us, basically we were convinced to seed a start-up firm with no track record, and now it’s falling apart.”

The SEC originally brought charges against Camelot in early 2014.

In Memphis, more than 250 public safety workers have walked away from their jobs after the City Council made sweeping changes to the city’s pension system in December, according to a Wall Street Journal report.

In late 2014, the Memphis City Council voted to shift many employees into a hybrid pension system that has characteristics of a 401(k). The change applied to all new hires and all employees with less than 7.5 years on the job.

The changes have caused many of the city’s public safety workers to look for jobs elsewhere.

From the Wall Street Journal:

More than 250 police and firefighters have quit and new recruits are proving difficult to attract, after Memphis opted to end its traditional defined-benefit pension and cycle a portion of retirement benefits for many current employees next year into a 401(k)-style account.

[…]

Roughly 3% of the 1,500-person fire department quit their positions and dozens more retired last year amid mounting concerns about how the pension changes would affect them, according to the firefighters’ union. Both the fire and police departments are 10% below their desired staffing levels, according to union leaders, and recruiting efforts to replenish those ranks have failed to meet targets.

“Morale is probably the lowest it’s ever been,” said Michael Williams, the Memphis Police Association president who recently announced his plans to run for mayor. “People are turning down overtime.”

Despite fewer employees, a city spokeswoman said service levels at the fire and police departments are largely unaffected.

The outflow is so apparent that other police and fire departments are trying to court Memphis employees, holding recruiting events at downtown Memphis hotels, according to union leaders and workers.

One Kentucky fire department even placed an advertisement in the local newspaper, said Joe Norman, vice president of the Memphis Fire Fighters Association, the labor union.

The city’s pension fund was 78.7 percent funded in FY 2014.

The City Council’s pension changes apply to nearly 40 percent of Memphis’ employees.

The Indiana Public Retirement System (INPRS) invests almost 7 percent of its portfolio in commodities – a significant stake that trumps most other pension funds’ allocation to the asset class.

So INPRS was hit especially hard by 2014’s drop in oil prices: the value of the fund’s stake in commodities has fallen significantly this fiscal year and is dragging the entire portfolio into negative returns, according to INPRS.

More from the Indiana Business Journal:

The Indiana Public Retirement System has 6.8 percent of its $24 billion defined-benefit portfolio invested in commodities, a stake that fell 33 percent in the fiscal year to date, INPRS reported to its board of trustees this month.

Commodities helped drag the entire fund into negative territory, dropping 1.22 percent for the period of July 1 through Jan. 31.

[…]

While commodities are one of INPRS’ smallest asset classes, the allocation is heavier than in most pension funds.

“Not that many public pension funds have a material amount of assets committed to commodities,” said Keith Brainard, NASRA’s research director.

The pension system, which oversees multiple public-employee and teachers’ funds, changed its investing strategy in 2012 and began allocating money to various asset classes that are supposed to do well under different economic scenarios.

The idea, called “risk parity,” is to eliminate wide swings in performance, even if it means forgoing the benefits of a bull market.

The result is a portfolio that’s heavy on bonds, representing about 32 percent, and includes private equity, real estate and hedge funds along with commodities.

INPRS’ outside investment adviser, Seattle-based Wurts & Associates, thinks the commodities portfolio will do well in the case of a growing economy, or rising inflation.

INPRS has a “reasonable” amount of commodities in the portfolio, and the impact on the fund “is not that egregious,” Chief Investment Officer David Cooper said during the March 6 board meeting.

The portfolio is closely aligned with a blend of the two major commodity indexes, of which oil is a major component.

INPRS asset allocation breaks down as follows: 32 percent stocks, 22 percent bonds, 13 percent private equity, 10 percent risk parity, 8 percent hedge funds, 8 percent real estate, 7 percent commodities.

 

Photo by ezioman via Flickr CC License

The Canadian pension fund OPTrust is looking to invest up to $780 million in Australian private equity and infrastructure assets, according to a report from the Sydney Morning Herald.

The pension fund, which has an office in Australia, is looking to make private equity and infrastructure a larger part of its portfolio. It will be investing directly in both asset classes.

From the Sydney Morning Herald:

OPTrust has one team of 20 professionals working in the private markets group across the globe managing both PE and infrastructure portfolios. Under OPTrust’s long-term strategy, each of these portfolios will eventually account for 15 per cent of the plan’s assets.

The fund invests directly in infrastructure projects, typically taking a quarter or half of a business, and works alongside partners. When investing in private equity, half the program is fund investing and the other half is direct investing.

“We always look to partner so we can cover more asset classes and this helps us broaden our reach,” [OPTrust managing director Stan] Kolenc said. “Also, when you have good partnerships, you make much better investment decisions, you can make better decisions, running the business and when you exit the business.”

Mr Kolenc backs the privatisation of government assets, and says often assets are managed more effectively in private hands.

“We think as a private investor we can still deliver as good or even better quality of service than people had received, often at no more cost,” he said. “The pension fund buys an infrastructure business to hold it on our balance sheet for 20 or 30 or 40 years. We take that long-term view, we know that every dollar we invest in that business we will be around to earn a return on over a long period.”

[…]

“We are also looking at resource infrastructure. You take the risk that commodity volumes continue to flow, and you can get comfortable that certain commodities like ore and gas will continue to flow out of Australia, although its hard to say what the price will be. We focus on assets that operate effectively in today’s volumes and we focus on commodities that are at the lower end of the cost curve … which is how we try to mitigate the risks.”

OPTrust manages $16.3 billion for 85,000 Ontario workers.