CalSTRS Looks to Partner Up For Direct Infrastructure Investments

The CalSTRS Building
The CalSTRS Building

CalSTRS is looking to team up with other institutional investors to bid directly on private infrastructure, according to the Wall Street Journal.

The fund’s investment staff is meeting today [Feb. 6] to amend its investment policy to allow such ventures.

More from the Wall Street Journal:

The nation’s second-largest public pension fund, California State Teachers’ Retirement System, is in talks with other institutional investors about joining forces to get stronger collective rights in infrastructure deals, said people involved in the discussions.

Members of Calstrs’s investment committee will meet Feb. 6 to discuss including new language to its investment policy that states the pension fund may “invest alongside with other like-minded investors” through “consortium investment opportunities.” The approach would be similar in investing through alliances or joint ventures.

The roughly $188.8 billion Calstrs, which established its infrastructure portfolio in 2010, has invested in that sector primarily through funds, said a spokesman. It hasn’t bid on private infrastructure investments with a club of direct investors.

The pension fund, which had a roughly $800 million infrastructure portfolio as of Sept. 30, is planning to build out its private infrastructure footprint to roughly $3 billion in the long term, senior officials said.

CalSTRS manages approximately $189 billion in pension assets.

 

Photo by Stephen Curtin via Flickr CC License

Chicago Could See Credit Downgrade If Pension Changes Are Suspended Pending Lawsuit

chicago

Unions and retirees are currently challenging Chicago’s 2014 pension changes, and they are asking a judge to stop the implementation of the changes – which took effect Jan. 1 – until the lawsuit is resolved.

But a Chicago official said on Thursday that such an injunction could spur a credit rating downgrade from all three major rating agencies.

From Reuters:

Chief Financial Officer Lois Scott testified in Cook County Circuit Court that all three major credit ratings agencies have negative outlooks on Chicago’s ratings, largely due to a big unfunded pension liability that a 2014 Illinois law aims to ease for the city’s municipal and laborers’ funds.

Labor unions and retirees who are challenging the law, which took effect Jan. 1, have asked Associate Judge Rita Novak to temporarily stop it.

“I think that anything that arrests progress significantly increases our risk of downgrades,” Scott testified.

Scott said Chicago’s ratings are already lower than most big U.S. cities and that further downgrades would pump up interest rates on new fixed-rate bonds and thin the ranks of potential bond buyers and credit providers. She added the termination of interest-rate hedges and letters of credit on existing variable-rate bonds could be triggered, costing Chicago hundreds of millions of dollars.

The 2014 pension changes require city employees to contribute more to the system. The city’s contribution rate was increased, as well. Lastly, the calculation of COLAs is now linked to inflation; previously, the COLA was set at 3 percent annually.

 

Photo by bitsorf via Flickr CC LIcense

Judge in Stockton Bankruptcy Calls CalPERS a “Bully”

gavel

The federal judge overseeing Stockton’s bankruptcy, Judge Christopher Klein, this week called CalPERS a “bully” with a “glass jaw”.

The comments came as Klein put his Stockton ruling in writing for the first time.

More from Reuters:

The judge overseeing the city of Stockton’s bankruptcy case in California described the country’s largest pension fund as a “bully” yielding an “iron fist,” in a written ruling that reiterated his oral confirmation of the city’s plan to exit Chapter 9.

U.S. Federal Bankruptcy Judge Christopher Klein’s ruling again staked out ground for bankrupt municipalities to alter their workers’ pensions, a contract that the California Public Employees’ Retirement System had ferociously argued could not be touched. Stockton, however, elected to leave its pensions intact.

“CalPERS has bullied its way about in this case with an iron fist insisting that it and the municipal pensions it services are inviolable. The bully may have an iron fist, but it also turns out to have a glass jaw,” wrote Klein, who orally confirmed the city’s plan to exit Chapter 9 protections in October.

[…]

Calpers did not immediately respond to a request for comment.

Stockton filed for bankruptcy in 2012. The city could have altered pensions as part of its bankruptcy plan, but opted against it.

 

Photo by Joe Gratz via Flickr CC License

Texas Pension Official Calls For Better Funding, Offers Options to Lawmakers

Texas

The executive director of Texas’ Employee Retirement System testified in front of the state Senate Finance Committee.

Executive Director Ann Bishop used the opportunity to call for measures to improve the system’s funding, and warn that credit downgrades could be coming sooner than later if lawmakers stand pat.

Bishop offered lawmakers some options for improving the funding of the system, including a higher contribution from the state.

From Your Houston News:

Bishop said that the problem is not imminent, but every year the Legislature does not fund ERS to actuarial soundness, that is, the ability to meet its obligations over the next 31 years, the annual debt for that fund increases by half a billion dollars.

“If this is not addressed one way or another, the debt is going to keep growing,” she said. “The bond houses do consider this a debt.”

Her agency is asking for an increase in the state contribution rate to employee retirement from the current 7.5 percent to nearly 12 percent. This would allow the agency to begin paying down the debt accrued in the retirement fund.

Bishop offered some other ways to reach actuarial soundness aside from only increasing state funding. One way is to grandfather fewer people when making benefits and contribution changes.

Another is to increase employee contribution rates, for example by increasing the state contribution half a percent to an eight percent and increasing the member contribution rate from 6.6 percent to eight percent, the fund would just meet actuarial soundness criteria over 29 years.

Legally, the state’s pension contribution rate is capped at 10 percent; Bishop’s proposal of almost 12 percent would exceed that cap.

Pennsylvania Lawmakers Propose Shale Tax to Pay Down Pension Debt

Pennsylvania

Pennsylvania lawmakers this week released two dueling shale tax proposals. One of those proposals calls for an 8 percent extraction tax, with a significant portion of the revenue going towards the state-level pension systems.

More from NewsWorks:

Setting the bar on the high end, Democratic state Sens. Art Haywood, Vincent Hughes and Larry Farnese focused on putting money back in the state’s education coffers with their plan for an 8 percent shale tax. Texas – the only state to produce more shale gas than Pennsylvania – has an extraction tax of 7.5 percent.

At a press conference held at Philadelphia School District headquarters, Haywood called 8 percent “affordable.”

“Some people are going to say that it’s extreme,” said Haywood. “Eight percent is not as extreme as zero, which is what we have now.”

With that plan, the state would raise more than a billion dollars in revenue in the first year, Haywood said. Off the top, $100 million would go to environmental concerns, with the rest of that revenue split 60 percent for education and 40 percent to defray pension costs.

If the lawmaker’s projections are to be trusted, the tax would net over $360 million for the pension systems in its first year.

Pennsylvania’s state-level pension debt amounts to around $47 billion, according to the state’s budget office.

 

Photo credit: “Flag-map of Pennsylvania” by Niagara – Own work from File:Flag of Pennsylvania.svg and File:USA Pennsylvania location map.svgThis vector image was created with Inkscape. Licensed under CC BY-SA 3.0 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Flag-map_of_Pennsylvania.svg#mediaviewer/File:Flag-map_of_Pennsylvania.svg

Philadelphia Pension System to Pay $62 Million Bonus to Retirees in 2015

one dollar bill

Philadelphia’s pension system is only 47 percent funded. But that won’t stop retirees from getting a collective bonus of $62.4 million in 2015.

That’s because the system pays out a bonus when it exceeds a set investment return target.

The target in 2014 was 8.85 percent. The fund returned over 11 percent.

So, retirees will receive a bonus for the first time since 2008.

Philadelphia’s isn’t the only pension system in the United States that pegs bonuses to investment return. But the practice is rare.

More from Bloomberg:

Philadelphia’s is the only system in Pennsylvania that ties payment of the extra cash to investment returns, said James McAneny, executive director of the state’s Public Employee Retirement Commission, which monitors local plans.

About two-thirds of plans around the country provide stipends pegged to inflation or predetermined rates, rather than investment performance, according to a survey by the National Association of State Retirement Administrators.

[…]

As soon as April, beneficiaries in the system for a decade may see a bonus, said Francis Bielli, executive director of the board of pensions and retirement. Officials haven’t determined how many people are eligible and may spread payments over two checks, he said. The payouts amount to half the extra investment earnings.

The city last paid the bonus in 2008, distributing $40.5 million, Bielli said. He declined to comment on the effect of the stipends or the oversight board’s recommendations.

As noted above, the bonus checks could come as soon as April.

 

Photo by c_ambler via Flickr CC License

New Legislation Seeks to Roll Back Pension Contributions For Federal Workers

dome

A federal lawmaker, Rep. Donna Edwards, re-introduced a bill on Thursday that would lower the amount that federal workers must pay towards their pension each paycheck.

In 2014, newly hired federal workers saw their pension contribution rates jump percent higher than their predecessors.

Federal employees hired after January 1, 2014 must contribute 4.4 percent of their paychecks to the Federal Employees Retirement System (FERS).

Workers hired in 2013 only pay 3.1 percent, while workers hired before 2013 only pay 0.8 percent.

The bill would roll back contribution rates for those hired in 2013 or later.

The bill is supported and sponsored by a cohort of lawmakers: Reps. Matt Cartwright, D-PA; Gerald E. Connolly, D-VA; Elijah E. Cummings, D-MD; Keith Ellison, D-MN; Marcy Kaptur, D-OH; Stephen F. Lynch, D-MA; Betty McCollum, D-MN; Grace F. Napolitano, D-CA; Eleanor Holmes Norton, D-DC; and Charles Rangel, D-NY.

Worker advocacy groups have called for a roll-back, saying the higher rates put too much strain on workers. From the Federal Times:

For example, A Border Patrol agent hired today at a starting salary of about $48,000 a year will pay $1,700 more for his or her pension each year than someone in the exact same job and location hired in 2012 or before, according to the American Federation of Government Employees.

“While these higher retirement contributions were sold as a way to fund temporary increases in unemployment insurance and to pay for the stimulus that got the nation out of the great recession, Congress made them permanent,” Cox said, AFGE president J. David Cox said in a statement. “These higher retirement contributions make it more challenging for agencies to recruit and retain new employees,” he added.

Federal employees have already contributed $120 billion toward deficit reduction efforts and the bill would help roll back the trend of cutting federal worker salaries and benefits, said Richard Thissen, the president of the National Active and Retired Federal Employees association.

Overall the pension contribution increases will amount to a $21 billion loss in take-home pay for federal employees over a 10-year-period, Beaudoin said.

Read the text of the original bill here. A full text of the re-introduced bill is not yet available online.

 

Photo by  Bob Jagendorf via FLickr CC License

Video: Africa Pension Executive Talks Investment Strategy, Funding

Here’s an interview with John Oliphant, principle executive of the Government Employees Pension Fund.

The GEPF is the largest institutional investor in Africa; it manages $114 billion in pension assets for over a million workers.

Oliphant talks about the fund’s investment strategy, performance and funding progress.

Japan Pension Hires Four Managers to Oversee Equities in Wake of Portfolio Overhaul

Japan

Japan’s Government Pension Investment Fund in 2014 decided to make major changes to its portfolio, including a doubling of its equity allocation from 25 to 50 percent.

The pension fund this week hired four external managers to oversee portions of the fund’s equity portfolio.

From Bloomberg:

The $1.1 trillion Government Pension Investment Fund picked Schroder Investment Management Ltd., Daiwa SB Investments Ltd. and Nomura Asset Management Co. to oversee Japanese traditional active investments, and UBS Global Asset Management for foreign active holdings, it said today. GPIF didn’t say how much money the funds would manage.

[…]

“Passive stock holdings had become extremely high, so it looks like they’re trying to adjust this,” said Kenji Shiomura, a Tokyo-based senior strategist at Daiwa Securities Group Inc. “Also, there are limits to how much some of their existing managers, like their engagement fund, can oversee. As they increase stocks, they’re trying to avoid a situation where their share of passive investments increases further.”

GPIF had 14 active Japanese equity funds managing a total 2.6 trillion yen as of March 31, compared with 10 passive funds with 18.3 trillion yen. For foreign stocks, 15 funds managed 2.1 trillion yen in active investments, compared with six funds overseeing 17.6 trillion yen in passive strategies.

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

 

Photo by Ville Miettinen via FLickr CC License

Pensions Criticize KKR Over Fee Refund Spurred by SEC Exam

SEC-Building

Some pension funds are criticizing KKR’s communication with investors regarding “erroneously” charged fees; the firm refunded those fees last year, but waited a year tell investors that the refund was the result of an SEC exam.

From the Wall Street Journal:

KKR & Co. is getting unusually pointed criticism from some of its public-pension fund investors, after they discovered that KKR didn’t tell them for almost a year that its decision to refund some money was prompted by a regulatory exam.

The contretemps, rare in the tightly-controlled world of private equity, stems from a Securities and Exchange Commission exam of the industry giant in late 2013. Regulators found that the firm had erroneously charged some expenses and didn’t fully disclose it was collecting certain fees, according to a document obtained from one of KKR’s largest investors, the Washington State Investment Board.

As a result of the SEC findings, the private-equity giant in early 2014 refunded money to investors in some of its buyout funds.

As a result of the SEC findings, the private-equity giant in early 2014 refunded money to investors in some of its buyout funds.

Several KKR investors said they were informed of a fee credit but didn’t learn the reason until after The Wall Street Journal last month broke the news about the SEC exam findings and the refunds.

Read the full Journal article here.

 

Photo by Securities and Exchange Commission via Flickr CC License


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