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San Diego County Pension Trustee Decries Investment Strategy, CIO in Newspaper

Samantha Begovich, a trustee for the San Diego County Employees Retirement Association (SDCERA), has penned a column in an area newspaper decrying the fund’s outsourced CIO, Salient Partners, and its investment strategy.

The fund voted last year to move on from Salient Partners and hire an in-house CIO after critics called Salient’s investment strategy too risky. But the process has been slow, and Salient could retain asset management duties until November 2015.

The public nature of Begovich’s complaints is unprecedented for a trustee of a fund that, until late last year, didn’t allow its board members to talk to the media at all.

From the column, published in the San Diego Union-Tribune:

I have repeatedly asked that Salient be sent a 30-day termination letter. CalPERS and CalSTRS posted 19 percent returns for 2014. SDCERA? 9 percent. The fund will be short $700 million of its Salient moonshot this fiscal year. How did this happen?

[…]

Critics allege one-sided staging in support of Salient. In August, realists took the mic. Expert after expert said our fund was at-risk. They said it is conflicted and imprudent having one subcontractor direct all $10 billion. They erupted at the irrationality of this adviser investing 50 percent of our money in his product line. If speech bubbles were above the experts, they would’ve said, “Say what?”

Imagine dealing with someone both clergy and salesperson to you. A word picture: Your rabbi/priest/cleric says, “It would be wise and virtuous for you to invest $2 billion in Advanced Manufacturing in the CaliBaja Mega Region. I have no track record, but you should invest in my CaliBaja Advanced Manufacturing firm.” See the tension? Asked why we weren’t in rival funds with stellar track records, Salient’s Lee Partridge said: “I don’t want to talk about my competition.”

Kudos to University of California Chief Investment Officer Jagdeep Singh Baccher, manager of $91 billion, for not laughing when I asked: What do you think of our investment strategy wherein 25 percent of our portfolio puts total value at risk of loss? He paused in disbelief and sagely said: “Well, I think you have your answer, don’t you?”

The fund’s board voted 8-1 last November to move CIO duties in-house and thus cut ties with Salient Partners.

Photo by Gene Han via Flickr CC License

Massachusetts Treasurer Pushes For Lower Pension Fund Return Assumption

Massachusetts Treasurer Deborah Goldberg told board members of the state’s pension system this week that they should consider lowering the fund’s assumed rate of return on investments.

The assumed rate currently sits at 8 percent. Goldberg suggested 7.75 as a starting point for changing the rate.

From WWLP:

With some instability in the global economy, Treasurer Deborah Goldberg suggested the fund might lower its expectation.

“People are trying to work their way down to 7.5, and I felt we should start looking at 7 and 3 quarters,” Goldberg told members of the Pension Reserves Investment Management (PRIM) board’s investment committee on Tuesday.

[…]

A majority of the Pension Reserves Investment Trust (PRIT) fund is invested in equity, or ownership interests such as stocks that carry significant risks compared to other investments, such as fixed income.

As of the end of November, PRIT had 43 percent of its assets allocated in global equity and another 11 percent in private equity, tying the fund to economic growth.

[…]

In calendar year 2014 PRIT had an 8.2 percent return and in fiscal year 2014 the fund had a 17.6 percent return, both of which beat investing benchmarks, according to PRIM.

PRIM last lowered its assumed ROR two years ago. At that time, it stood at 8.25 percent.

Photo by www.SeniorLiving.Org

Video: Understanding the Illinois Pension Problem [Part 1]

Here’s attorney Matthew Benson, offering a concise explanation of how Illinois’ pension system got to where it is today, the severity of its underfunding, and whether workers could be affected by reforms.

Rauner’s State of State Address Short on Pension Talk

On Wednesday, new Illinois Gov. Bruce Rauner gave his State of the State address.

The speech wasn’t short on policy ideas – but in one area, Rauner was conspicuously mum: Pensions.

Rauner didn’t so much as say the words “pension” or “retirement” in his speech. Observers say he could be saving that talk for his budget address later this month.

More from the Chicago Tribune, including reaction from credit rating agencies:

For rating agency analysts, who routinely check the state’s pulse for signs of improving health, the assessment was simple: “Show me.”

[…]

On Wednesday, Rauner provided little detail about how he’d tackle Illinois’ largest financial troubles.

The past is littered with proposals to “right the ship, but they didn’t get there,” said Karen Krop, an analyst for Fitch. “We’re looking for an effective balanced budget and a pension solution.”

She said she will be watching closely for the governor’s coming budget proposal — a document that will provide more detail than the agenda Rauner outlined this week. The key, Krop said, would be permanent solutions to the state’s financial problems.

The state’s rating, its financial grade, has been “downgraded multiple times over the last five years because of its inability to find permanent solutions,” Krop said. There’s a “mismatch between spending and revenue,” and while temporary tax increases helped since 2011, they aren’t lasting.

“A lot has to do with the pension liability,” Moody’s analyst Ted Hampton said. “The state is still a long way off from coming to terms with its pension liabilities.”

A potential pension solution remains tied up in courts and is a major reason why rating agencies such as Moody’s have graded Illinois as the most unhealthy of states financially.

[…]

“Illinois’ long-term liabilities, particularly pension liabilities, are very high for a U.S. state and are expected to remain so even with improvement in pension funding from pension reform,” Krop said.

Read the full speech here.

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

Kansas Retirees Rally at Capitol Against Gov.’s Plan to Cut State Pension Contributions

Members of the Kansas Public Employee’s Retirement System (KPERS) gathered at the state capitol on Wednesday to rally against Gov. Sam Brownback’s plan to cut state contributions to the pension system.

Kansas is facing a $340 million budget shortfall in fiscal year 2014-15.

To address the shortfall, Brownback plans to slash state pension contributions by $58 million this year.

Additionally, the state would issue $1.5 billion in bonds, with money going to the pension system’s investment fund.

Pension officials have warned that the plan could have long-term consequences.

The Topeka Capital-Journal has more from the rally:

Dennis Phillips, chairman of the Kansas Coalition of Public Retirees, said lawmakers had a responsibility to deliver financial certainty to 280,000 Kansas teachers, judges, firefighters and others participating in the retirement program. Sidestepping state payments to KPERS doesn’t make sense, he said.

“We need your support,” Phillips told retirees. “The governor wants to remove $60 million from KPERS this year. It is real money.”

“How many more of these payments will be deferred?” said Rep. Ed Trimmer, D-Winfield.

House Minority Leader Tom Burroughs, D-Kansas City, said actions undermining integrity of the system betrayed people who dedicated themselves to government service.

“Your pension plan, KPERS, was our commitment to you for standing up and taking these jobs,” he said.

Kansas PERS was 56.4 percent funded as of the end of 2013.

Photo credit: “Seal of Kansas” by [[User:Sagredo|Sagredo]][[User talk: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

CalPERS Taps SIO for Real Assets From Morgan Stanley

CalPERS has hired Paul Mouchakkaa to be its senior investment officer for real assets.

Mouchakkaa has previously been a managing director at Morgan Stanley and Pension Consulting Alliance. He’s also worked at CalPERS as a real estate portfolio manager.

Public Utility Back in Fold of Jacksonville Pension Reform Plan

Jacksonville public utility company JEA is back on board with the city’s pension reform plan.

The company is helping to finance much of the city’s current reform proposal; JEA will make a $120 million lump sum payments to the city’s Police and Fire Pension Fund.

Last week, it was unclear whether JEA would go through with the plan.

European Pensions Have Two Years To Comply With Derivative Trading Rules

The European Commission is giving pension systems a two-year grace period before they have to begin complying with new derivative trading rules, according to Chief Investment Officer.

The new rules set up a central clearing house for derivatives trades. But the rules could be costly for pension funds – hence the two year exemption.

Audit: Oregon Public Employees Not “Spiking” Pensions

The Oregon Secretary of State’s office has released the results of an audit that investigated the possibility that Public Employee Retirement System workers were “spiking” their pensions in the years before retiring.

The audit, which was conducted to determine whether “spiking” played a part in the retirement system’s rising costs, found no evidence that such a tactic is practiced.

[The audit can be found here.]

From the Statesman Journal:

PERS costs may have risen, auditors said, but “spiking” wasn’t the reason.

State auditors examined more than 14,000 PERS records for people who retired between 2010 and 2013. They found the records showed no “systemic pension inflation or salary growth issues.”

“We also found that provisions of individual employment contracts may have an effect on pension payouts. However, the inflation of pensions, either intentional or unintentional, appears infrequent,” the auditors wrote.

“The impact on PERS appears to be negligible.”

[…]

Most retirees use a formula that is based on an average of their final three years of salary and the number of years they have worked as a member of PERS.

That formula can theoretically be manipulated if an employee suddenly receives abnormally large raises at the end of his or her career or some other type of large, abrupt compensation.

It’s called “spiking” — the act of making a salary and the resulting pension suddenly jump into the stratosphere.

However, in nearly every case state auditors found suspicious (and there were very few), the “spike” in salary was explained by a completely normal employment event, auditors said.

The full audit can be read here.

Photo by TaxCredits.net

Florida Supreme Court Hears Jacksonville Pension Records Case

The Florida Supreme Court on Tuesday began hearing a case centered on public records requests and the Jacksonville public safety pension system.

The dispute is between the Jacksonville Police and Fire Pension Fund and a resident who says he was charged exorbitant fees to gain access to public pension records – records which are supposed to be available to the public at reasonable cost.

Background on the case, from the Florida Times-Union:

The case began in 2009 when [Jacksonville resident Curtis] Lee, a frequent critic of the pension fund, was told he would have to pay $326 before he could review documents that were sitting on a table at the pension fund office.

Lee was then told he would have to pay $280 in advance so that a staff member could watch over him while he reviewed records for up to eight hours. Pension fund managers then wanted Lee to pay $27.66 an hour for another employee to make copies of Lee’s public record’s request.

Lee sued, arguing that the pension fund was excessively charging him in an attempt to discourage him from seeing documents that are subject to the state’s Government in the Sunshine Law. Circuit Judge James Daniel agreed that Lee had been overcharged but declined to award him attorney fees, saying that the pension fund didn’t knowingly violate public records laws.

An appeals court then sided with Lee, and ordered the pension fund to reimburse Lee for his legal fees. The fund appealed the case to the state Supreme Court.

Photo credit: “Bluefl”. Licensed under Public Domain via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Bluefl.png#mediaviewer/File:Bluefl.png

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