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Japan Pension Begins Search For New Money Managers

The end of 2014 was a busy period for Japan’s Government Pension Investment Fund (GPIF). The fund overhauled its asset allocation and will be putting 50 percent of its assets in equities while cutting its bond holdings.

In a related move, the fund will be looking for a new crop of money managers to handle investment duties, and the GPIF is willing to shell out more money for better talent.

Businessweek reports that the GPIF could begin recruiting managers officially next month. From Businessweek:

Japan’s Government Pension Investment Fund may use a private seminar next month to inform potential job applicants as part of its efforts to recruit professional money managers to the world’s largest investor of retirement savings.

Yasuhiro Yonezawa, chairman of the investment committee at the $1.1 trillion fund, is expected to discuss GPIF’s reforms and the qualifications it wants from future staff, said Nobukiyo Akiyama, an executive at Kotora Co., a Japanese executive search firm that’s organizing the Feb. 13 event.

GPIF is seeking to hire experienced investors as it shifts to riskier assets from bonds in anticipation of faster inflation under Prime Minister Shinzo Abe. Hiromichi Mizuno, a former partner of London-based private-equity firm Coller Capital Ltd., became its first chief investment officer this month.

“The fund will have to obtain professionals that have know-how and skills for private equity, venture capital and real-estate investments following the reform, besides back-office staff,” Akiyama, manager of the chief executive officer’s office at the Tokyo-based executive search firm, said in an interview yesterday. “That’s a very specialized area.”

Kotora, which has 20,000 job seekers registered with the firm, plans to invite 80 individual and corporate clients from the asset-management industry to the seminar, which will be held in Tokyo, Akiyama said.

[…]

The pension fund won flexibility last year to pay higher salaries to attract investment staff instead of government officials.

The GPIF plans to hire about 40 new managers, according to Businessweek.

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

Photo by Ville Miettinen via Flickr CC License

An Oil Executive’s Take on Fossil Fuel Divestment

Pension360 has extensively covered the controversy around fossil fuel divestment – even organizations committed to sustainable investing are split on whether pension funds should divest from fossil fuel assets.

But it’s interesting to hear the take of a oil executive. The Financial Times asked Nigel Costeloe of North Country Energy for his opinion on fossil fuel divestment:

“I understand the sentiment and emotion of wanting to be good to mother earth and only use renewables. However, it cannot happen overnight or in our lifetime. There is no replacement for petrol as a transportation fuel at this time and the third world is developing rapidly and with that goes their demand for energy.

“[Given] the size in a financial sense of the coal industry (not to mention the political sense; many US coal states are Democrat and President Obama and his successors are unlikely to beat them up too badly), if they see their market share significantly decrease, they have billions of dollars to invest in clean technology.

“Oil and gas companies are not stupid either; they are making investments in other technologies. BP is no longer British Petroleum, as one of their stated ambitions is to move beyond petroleum, so they are major players in technology.

“Even if we could get enough renewables to supply us, the electrical grid is nowhere near capable of handling all the cars and trucks plugged in to charge batteries, [and there are] environmental issues around battery making and disposal.

“Lastly, even environmentalists agree that natural gas is a decent transition from coal and oil to something more renewable.”

Pennsylvania PSERS Offloads Nearly $2 Billion of Funds-of-Funds As Part of Plan to Decrease PE Exposure

The Pennsylvania Public School Employees’ Retirement System (PSERS) has sold its stake in 17 buyout funds-of-funds. The stakes were collectively worth $1.75 billion, and the sale was part of a plan to reduce the system’s private equity portfolio from 16 percent of assets to 15 percent.

From Chief Investment Officer:

The Pennsylvania Public School Employees’ Retirement System (PSERS) has sold a $1.75 billion package of private equity investments to secondaries player Ardian.

The deal—one of the largest in 2014—included 17 limited partner stakes in private equity buyout funds-of-funds. Most of these investments focused on US large cap and middle market spaces, according to the public relations firm representing Ardian.

The $53 billion pension fund and Paris-based secondaries firm closed their transaction last month.

“PSERS is endeavoring to reduce its exposure to private equity to 15% of the fund’s size,” said the pension’s CIO James Grossman. “The depth of the secondary market makes possible a large asset sale that will bring us closer to our long-term target.”

Private equity accounted for 16.3% of the fund’s total portfolio as of September 30, 2014, according to PSERS’ documents. The pension began shedding exposure to the asset class last summer, reducing its total portfolio value by $415 million between June and September.

Last month’s deal with Ardian would bring PSERS’ private equity allocation down to roughly 12.7%.

Pennsylvania PSERS manages $53 billion in assets.

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Lawmakers Weigh In On Cincinnati Reform Deal

Cincinnati and its public worker unions last week approved a series of pension reforms that will see the city contribute millions more to the pension system annually. In exchange, workers and retirees will see cuts in their COLAs, and some workers will be held to a less generous benefit formula.

The Cincinnati Enquirer asked for opinions on the reforms from three city council members. Here’s what they said:

David Mann

“Everyone is taking a haircut, including the city. I don’t know that there was any other choice. The only issue I have is where the $38 million will come from. But in terms of the overall problem, that is relatively minor. This is really good news.”

Christopher Smitherman

“This is the biggest issue the city faces. It’s not one of the issues on the public’s radar, but it is a huge deal for taxpayers. This deal brings certainty to the problem. The mayor’s experience with the Collaborative Agreement allowed him to have the vision to apply that experience to the pension.”

Yvette Simpson

“I’m happy there is a resolution, but there are lots of questions. Why do we have to infuse $38 million when don’t know where that money is coming from? Why are we borrowing money to put into the pension system?”

Cincinnati Mayor John Cranley also gave his comments:

“It was important to do this now,” Cranley said. “”We can’t have the city’s credit — which is also the city reputation — continually at risk by not tackling this problem. State Auditor David Yost basically said he was going to look at putting the city on fiscal watch if we did not get this resolved by the end of the year. He has been in contact with judge and me all year. That would have been a catastrophic blow to our reputation nationally.”

Under the reforms, the pension system is projected to be 100 percent funded within 30 years.

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Jacksonville Pension Board Sends Reform Measure Back to City Council With Changes in Mind

The board of Jacksonville’s Police and Fire Pension fund was set to vote on the city’s pension reform measure on Monday. But instead of an up-or-down vote, the board has requested several changes to the measure and sent it back to the city council for approval.

Both entities need to approve the measure before it is passed into law.

The changes the board is requesting, according to News4Jax.com:

John Keane, executive director of the fund, said the board has several concerns that it will express to the city:

– Calls on city council to guarantee a funding source for its $40 million annual contribution required by the agreement.

– Not willing to accept reduced cost-of-living increase from the agreed 3 percent annual to a variable rate between 0 and 6 percent for active and retired police and firefighters. The board is requesting it be increased to 0 to 6 percent.

– City council approved a 0-10 percent rate for deferred retirement (DROP) each year. Pension board wants higher rate: 2-14.4 percent.

– The original deal with the mayor allowed the terms of the plan to be renegotiated after 10 years. City council changed that to three years, which is not acceptable to the pension board.

The board said a primary concern is making sure current employees are confident that the revised pension plan will give them a secure future.

Members feel the funding deficit was created by the city, so the changes should be made strictly on the backs of the employees.

“We’ve gotten to this point today simply by fact that city has not saved for a rainy day,” said Richard Tuten, a member of the pension fund’s board.

The board and the council have a self-set deadline of January 15 to come up with a final proposal.

Photo by pshab via Flickr CC License

Ontario Pension Invests $200 Million in European Infrastructure

The Ontario Pension Board has invested $200 million with AMP Capital’s Global Infrastructure Fund.

The fund invests in European utilities, communication and transport infrastructure.

More details from SuperReview:

The Ontario Pension Board (OPB), the administrator of the 80,000 member defined benefit Public Service Pension Plan with $22 billion in assets, invested the sum which will make up 10 per cent of the strategy’s target size of US$2 billion.

AMP Capital Global Head of Infrastructure Equity Boe Pahari said the investment was an endorsement of the strength of the strategy which accesses diversified European infrastructure equity in sectors such as transport, communication and utilities.

OPB Private Markets’ managing director Glenn Hubert said the pension fund board was impressed with the longevity, scope and success of AMP Capital’s infrastructure investments as well as it growing market presence in North America which includes an infrastructure equity investment team based in New York.

AMP Capital Head of Americas, Infrastructure Equity Dylan Foo said the group would continue to grow in that region by focusing on mid-market opportunities where it could see relative value versus larger transactions.

The move by the OPB follows reports that Canadian pension funds were also being drawn to invest in Australian infrastructure projects and developments resulting from the Federal Government’s efforts to boost spending in that sector.

The Ontario Pension Board manages $22 billion in assets.

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Newspaper: Rhode Island Should Settle Pension Suit With Retirees, But Keep Savings Intact

Rhode Island Governor-elect Gina Raimondo said last week that one of her top priorities was reaching a settlement with workers in the long-running lawsuit against the state’s 2011 pension reforms.

The Providence Journal opines that a settlement would be ideal for everyone – if the law’s savings are kept intact. From the Providence Journal:

State leaders — led by Governor-elect Gina Raimondo — are again eyeing a possible settlement with the unions that are challenging the 2011 overhaul in court. The state’s goal, presumably, is to retain the bulk of the savings created by the overhaul and avoid the risk of losing — an outcome that could cost taxpayers hundreds of millions of dollars that they cannot afford.

That goal is a good one, as long as the bulk of the overhaul savings is retained. Even with those savings, the state’s public pension costs are high, and those tax dollars pay for retirement plans that are often far more generous than those in the private sector.

There is also the issue of uncertainty. The projection that the taxpayer contribution rate will slowly nudge downward assumes that the state’s $8 billion pension portfolio will meet its annual investment goal of 7.5 percent. If that goal is reached or exceeded, all well and good. But if the investment returns fall short, the cost to taxpayers could rise.

The idea of reaching a settlement also raises logistical concerns. There are more than two dozen communities enrolled in the state-run Municipal Employees Retirement System, which will be impacted by the outcome of the pension lawsuit. Naturally, most if not all of these municipalities will want to have a say in any negotiated settlement.

If a settlement is reached, it could look a lot like the one that was almost accepted in 2014. In that deal, 95 percent of the state’s savings were retained. In exchange, pension increases were given to retirees and some employees.

But that deal fell through when one retiree group rejected it.

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

Maine PERS Commits $185 Million to Infrastructure, Real Estate

The Maine Public Employees Retirement System has made $185 million in commitments to several funds that will invest in real estate and infrastructure in Europe and the U.S.

Details from IPE Real Estate:

A $50m commitment was made to Westbrook Partners’ Real Estate Fund X, an opportunistic fund with an anticipated $2.5bn capital raise.

The fund is targeting major markets in Europe and the US, including London, Paris, Munich, Berlin and Frankfurt.

In the US, the fund is targeting New York, Boston, Washington DC, San Francisco and Los Angeles.

Fund X, which is aiming for 15% gross and 12% net IRRs, is using a “conservative” amount of leverage.

Since 2009, Westbrook has an average of 25% loan-to-value on all of its investments.

The fund will invest in the office, retail, industrial and apartment sectors, targeting assets with distressed capital structures and in need of repositioning.

Maine PERS also approved a $75m commitment to the IFM Global Infrastructure Fund.

The fund has an ex-Australian investment mandate to avoid IFM Investors competing on deals it pursues for a fund it runs that only invests in Australian infrastructure.

The fund will invest in the UK and Poland as part of a focus on Europe and the US.

IFM, which will buy assets that produce a 10% net investment return, will be looking at utilities, transportation systems and telecommunication operations.

Main PERS also approved a commitment of $60m to KKR’s Special Situations Fund II.

The fund will invest in a various levels of the capital stack, including distressed debt in the US, Europe and Asia.

Maine PERS manages approximately $12 billion in assets.

Photo credit: “Flag-map of Maine” by Darwinek – self-made using Image:Flag of Maine.svg and Image:Map of Maine highlighting Penobscot County.svg. Licensed under CC BY-SA 3.0 via Wikimedia Commons

Energy Company Defaults on Canada Pension Debt; May Shut Doors If Deal Can’t Be Struck

Oil Sands producer Laricina Energy Ltd. has defaulted on debt issued by the Canada Pension Plan Investment Board (CPPIB), and says it may have to shut its doors if a plan can’t be worked out with the CPPIB.

From the Wall Street Journal:

Junior oil sands producer Laricina Energy Ltd. said it may no longer be able to fund its operations after defaulting on financing extended by Canada’s largest pension fund, the CPP Investment Board.

The privately-held company’s chief executive said Monday that Laricina is in talks with the fund and expressed confidence an agreement would be reached to allow the company to stay in business after it breached a debt pact covenant.

“We would have every expectation that we would come to a conclusion with CPP in our discussions,” CEO Glen Schmidt said in an interview. “CPP has been a strong supporter of the company,” he said.

A representative for the CPP Investment Board declined to comment.

On Friday, Laricina said its average production in the quarter ended last month was 18% below a target of 1,255 barrels a day, which violated the terms of 150 million Canadian dollars ($127.6 million) in debt extended earlier in the year by the CPP.

[…]

The notes issued to the CPP, which yield 11.5%, were secured against the assets of the company, which Laricina said totaled C$178 million as of Dec. 31. That is down from C$218.5 million as recently as June 30, 2014.

[…]

In addition to debt financing, the CPP said in its latest annual report that it has made C$350 million in equity investments in Laricina. Other key investors include Lime Rock Partners, Kayne Anderson Capital Advisors and Mount Kellett Capital Management, according to a Laricina presentation dated Sept. 11, 2014.

The CPPIB manages approximately $234 billion in assets.

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Ohio School Pension Makes $350 Million in Real Estate Commitments; Hires REIT Portfolio Manager

The Ohio School Employees Retirement System has committed $350 million to three real estate funds, as well as hired BlackRock to manage a $100 million REIT portfolio.

Reported by Pensions & Investments:

[Ohio SERS] committed $200 million to CBRE U.S. Core Partners fund, a core real estate fund managed by CBRE Global Investors; and $75 million each to Almanac Realty Securities VII, a value-added real estate fund managed by Almanac Realty Investors, and Mesa West Core Lending Fund, an open-end, direct lending real estate fund managed by Mesa West Capital.

The BlackRock hire and the three commitments fall within the pension fund’s 15% global real assets target, which was created in June 2013 to reflect greater investment flexibility than the previous 10% target to real estate.

As of Sept. 30, the actual allocation to global real assets was 10.6%.

The Ohio School Employees Retirement System manages $12.6 billion in assets.

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