Pension360 | The Complete View of Public Pensions

Japan Pension Isn’t Hedging Against Stronger Yen; Investment Committee Member Calls Strategy “Unbelievable”

A member of the investment committee of the world’s largest pension fund expressed shock this week upon learning that the fund wasn’t hedging against a stronger yen.

Japan’s Government Pension Investment Fund (GPIF) overhauled its investment strategy in 2014, but hedging against the yen isn’t part of its plans.

From ai-cio.com:

Japan’s $1.1 trillion pension fund is refusing to hedge against a stronger yen despite the risks this poses to its growing pool of overseas assets.

The Government Pension Investment Fund (GPIF)—the world’s biggest pension fund—overhauled its strategy last year, buying into Prime Minister Shinzo Abe’s economic plan to boost inflation and weaken the yen. A weaker domestic currency would aid foreign holdings as well as some Japanese equities, asset classes to which the GPIF is increasing exposure.

However, Junko Shimizu, a professor at Gakushuin University and a member of the GPIF’s investment committee, told Bloomberg it was “unbelievable” that the pension had not moved to hedge the risk of the yen strengthening relative to other currencies. “My personal opinion is that they should look to hedge,” she added.

Shinichirou Mori, director of the planning department at the GPIF, said the pension did not make decisions “based on currency forecasts. We wouldn’t hedge based on a forecast.”

The GPIF manages $1.1 trillion in assets.

Photo by Ville Miettinen via FLickr CC License

Fitch: Pension Fund “Depletion Dates” Raise Red Flags

Under new GASB accounting standards, public pension funds are required to calculate their “depletion date” – or, the date where benefit payouts become larger than assets.

The dates help give context to the funding situations at the pension funds, says Fitch Ratings. For some of the country’s most underfunded plans, the depletion dates are startlingly close.

From Reuters:

New accounting rules for public pensions are exposing the damage done by U.S. states, including New Jersey, that have failed to adequately fund their retirement systems, according to a report to be released by Fitch Ratings on Friday.

With the first wave of pensions beginning to issue financial statements under the new rules, the impact of underfunding becomes clearer, the Fitch report shows.

[…]

Some retirement systems already known for their fiscal struggles reported depletion dates.

Six of New Jersey’s seven funds, for example, disclosed depletion dates as of their June 30, 2014 valuations. The two largest – covering retired state employees and teachers – said their tipping points would come in 2024 and 2027, respectively.

Under the previous actuarial methods, those plans were funded at 49.1 percent and 51.5 percent, a distressed level far off the minimum 80 percent generally considered healthy. Under the new calculations, which included a lower blended rate of return, those levels look even worse, at 27.9 percent and 28.5 percent.

Even Illinois, with among the worst-funded state retirement systems in the U.S., doesn’t have depletion dates until 2065 for two of its three biggest funds and is able to use higher blended rates. It has no depletion date for the third fund, Fitch Senior Director Douglas Offerman told Reuters in an email.

The nation’s most underfunded plan –the Kentucky Employee Retirement System – did not report a depletion date because recent reforms complicated the calculation.

Photo by Paul Becker via Flickr CC License

New GASB Rules a Boon for Pension Asset Values — For Now

Public pensions are reporting higher asset values under new GASB accounting standards, according to Fitch.

That’s because the new rules require pensions to report the market value of their assets, as opposed to the “smoothed” value.

Video: Lawmaker Behind Illinois Pension Reform on Why the Law is Constitutional

Here’s an interview with Illinois State Rep. Elaine Nekritz, one of the lawmakers who designed the state’s controversial pension reform law, known as SB 1.

Unions and state employees are suing Illinois over the implementation of the law, arguing that the law is unconstitutional for its paring back of benefits.

In this interview, Rep. Nekritz makes her argument for why the law should be considered constitutional.

Feature photo by Mr.TinDC via Flickr CC License

CalPERS Invests $211 Million in U.S. Apartments

CalPERS has committed an additional $211 million to a partnership that invests in apartments in the Western half of the United States.

More details from IP Real Estate:

California Public Employees Retirement System (CalPERS) has made a new $211m (€186.7m) allocation to the Pacific Multifamily Investors partnership.

[…]

Pacific will buy apartment properties at least 11 years old west of the Mississippi. Core assets are typically thought to be less than 10 years old, putting the strategy outide what most funds consider core.

Pacific Urban believes that the properties it will buy still have core attributes and be able to achieve durability of income. A mixture of teachers, firemen, police officers and nurses, are typical tenants of the assets it invests in.

No more than 25% leverage will be used in the portfolio.

Acquisitions to date have been on the West Coast, from Southern California up to Seattle. The partnership can also consider Texas, Salt Lake City and Las Vegas.

The partnership now includes seven properties totaling more than 2,000 units.

CalPERS manages $296 billion in assets as of October 31, 2014.

Military Pension Cuts a Tough Sell in Congress

Last month, the Military Compensation and Retirement Modernization Commission produced a report that recommended a series of changes to the military’s retirement benefit system.

Among the proposals: shrinking retirement pay by about 20 percent, and phasing out the military’s current defined-benefit plan, in favor of a hybrid plan that features characteristics of a 401(k).

Another proposal however, would make benefits richer for long-time military members.

But Congress remained skeptical on Wednesday. From the Military Times:

Some lawmakers questioned the piece of the new retirement system that would offer troops a lump-sum “continuation pay” at 12 years of service. The commission’s data claiming that career troops would accrue more total benefits under the proposed system assumes that individual troops invest that money into their personnel retirement account and not touch it until age 59 and a half.

Rep. Susan Davis, D-Calif., doubted that all troops will make that decision.

“What if that assumption doesn’t bear out?” she said. “Is the whole program impacted if they don’t do that? Does it rest on that assumption?”

[…]

Rep. Joe Heck, R-Nev., chairman of the personnel panel of the House Armed Services committee, who is also a trained physician, raised concerns about the commission’s claim that Tricare is reimbursing doctors at rates lower than government-run Medicare and fair-market value.

“As a health-care provider for over 30 years, I question that assumption,” Heck said.

Military compensation is a controversial area for cuts, so it’s unclear if the political will exists to move forward with any of the commission’s proposals.

However, John McCain said last month he was open to reforming the military’s retirement system. From Military.com:

Sen. John McCain, chairman of the Senate Armed Services Committee, took the opposite position, saying he was open to possible changes in pay and benefits.
“I can probably support a number of changes that need to be made,” McCain said without giving specifics. He singled out the military health care system, which he said “has to be reformed.”

San Francisco Pension Approves 5 Percent Allocation to Hedge Funds

After months of discussion and delays, the San Francisco Employees Retirement System on Wednesday voted to invest up to 5 percent of its assets in hedge funds.

The pension fund has not previously invested in hedge funds. Its investment staff had previously recommended a 10 and a 15 percent allocation, but the board voted 6-1 for a 5 percent investment.

CalPERS Members Affected by Anthem Hack

Last week’s hack of health insurance provider Anthem Blue Cross exposed millions of Americans to the threat of identity theft – including thousands of members of the California Public Employees Retirement System (CalPERS).

The hackers allegedly stole personal data such as social security numbers, addresses, names, email addresses and birthdays.

According to CalWatchdog, the affected CalPERS members received the following email:

“As many of you have heard in the news, our health plan partner Anthem Blue Cross disclosed late last night that hackers breached its computer systems and the personal information of its members. Like you, we are very concerned and frustrated about this unacceptable breach. We have been in touch with Anthem this morning to ensure they are doing everything possible to protect our members and their families who are enrolled in the plan.”

It’s recommended that those who’ve been affected by the Anthem hack reset their passwords. Additionally, watch out for fake emails and phone calls claiming to be from Anthem – the firm has said it will only be contacting people by mail.

San Bernardino, Bondholders Trade Jabs in Court

A few of San Bernardino’s biggest creditors admitted in court on Wednesday that they are doing everything they can to prevent the city from going through with its current bankruptcy plan – which involves paying CalPERS in full, but shorting other bondholders.

The creditors argued that all creditors – including CalPERS – should be treated with more equality.

From Reuters:

Lawyers for bankrupt San Bernardino, California, and the city’s creditors clashed in federal bankruptcy court on Wednesday, with a major bondholder accusing the city of stoking “Main Street versus Wall Street fires.”

[…]

A major bondholder claimed it should be treated on equal terms to that of the city’s biggest creditor, Calpers, California’s public pension fund.

The growing tension between the city and some of its biggest creditors come after the Luxembourg-based bank Europäische Pfandbrief-und Kommunalkreditbank AG (EEPK), which holds $50 million in pension obligation bonds, filed a lawsuit against San Bernardino in January.

Also suing the city in the same lawsuit are Ambac Assurance Corp., which insures a portion of those bonds, and Wells Fargo Bank, the bond trustee and flagship bank of Wells Fargo & Co.

Paul Glassman, an attorney representing San Bernardino, on Wednesday told the judge overseeing the case that EEPK is concerned that it will not be paid in full and is trying “to block confirmation of the city’s plan any way they can.”

Glassman said EEPK is trying to “cause chaos.”

Meanwhile, Vincent J. Marriott, an attorney for EEPK, said the city had misinterpreted the bank’s lawsuit, accusing it of trying to “stoke Main Street versus Wall Street fires.”

San Bernardino struck a deal last year with Calpers, agreeing to pay the pension fund in full in its bankruptcy exit plan, which it must produce by May 30.

Since then city officials have confirmed to Reuters that San Bernardino intends to pay significantly less than the full amount it owes to EEPK, Ambac and Wells Fargo, and that it views bondholder obligations as less important than its obligations to Calpers.

San Bernardino declared bankruptcy in 2012. It could have impaired pensions as part of its bankruptcy exit plan, but it chose to pay CalPERS in full. Many of the city’s other creditors, however, will not be paid in full.

Photo by Joe Gratz via Flickr CC License

New Jersey Pension to Invest $300 Million in U.S. Apartments

The New Jersey Division of Investment, the entity that invests the state’s pension assets, has committed $300 million to be invested in the U.S. apartment sector.

The New Jersey Division of Investment has formed a $303m (€267.8m) separate account relationship with TGM Associates to invest in US apartments.

The pension fund allocated $300m for its 99% ownership of the account, in which TGM will hold $3m (1%).

The account, the pension fund’s first with TGM, will pursue a non-core strategy.

New Jersey is currently under-allocated to the apartment sector, with 16% of its portfolio invested in the property type.

Average multifamily exposure across the NCREIF-ODCE Fund Index is around 25%.

TGM’s investments in apartments for previous separate account relationships was a decisive factor for New Jersey.

A separate account for a large public fund delivered a 10.5% net IRR and a 1.9x multiple of invested capital since inception.

The Division of Investment managed $81.22 billion in pension assets as of July 2014.

Deprecated: Function get_magic_quotes_gpc() is deprecated in /home/mhuddelson/public_html/pension360.org/wp-includes/formatting.php on line 3712