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CalSTRS Sells Stake In Texas Skyscrapers

CalSTRS has sold its stake in two buildings in Austin, Texas.

The first, One Congress Plaza, is the 8^th tallest building in Austin and a city landmark. The second, San Jacinto Center, is a 21-story office building also located in downtown Austin.

From IPE Real Estate:

Parkway Properties said it has unwound its joint venture with CalSTRS in Austin, Texas, taking the latter’s 60% interest in San Jacinto Center and One Congress Plaza.

The deal gives Parkway full control of the two properties.

Parkway also said it has transferred its 40% interest in Frost Bank Tower, 300 West 6th Street and One American Center to CalSTRS.

Overall, the deals resulted in net proceeds of around $43.6m (€34.7m).

CalSTRS could invest up to $2bn in global real estate over the next 12 months, as reported earlier this year.

The US investor is planning to deploy between $1bn and $2bn in core and value-added strategies in the US, Latin America, Western Europe and Asia.

During the same period – the 2014-15 fiscal year – CalSTRS will reduce its exposure to opportunistic real estate investments.

CalSTRS manages $22 billion in real estate assets.

Photo by Stephen Curtin

Watchdog Report: Bruce Rauner Adviser Is Triple-Dipping “Prince of Pensions”

Bruce Rauner won the Illinois governorship, in part, by campaigning as a reformer and a political outsider who would “shake up Springfield.”

Rauner targeted the state’s underfunded pension systems as a prime candidate for reform in at least one campaign ad, when he noted that Illinois carries “$8,000 of pension debt for every man, woman and child.”

The governor-elect recently appointed Glenn Poshard to his transition team, which spurred an investigation by the Better Government Association and CBS 2 News.

The investigation found that Poshard “triple dips” – or, pulls in pensions from three separate retirement systems, netting him nearly $200,000 annually in pension benefits. Poshard is breaking no laws, but the situation demonstrates the “loopholes” in the Illinois pension system that can sometimes lead to ballooned benefits.

Andy Shaw, CEO of the Better Government Association, told CBS: “Governor-elect Rauner could probably learn a lot about how to reform the pension system by looking at the ways in which Glenn Poshard used loopholes to enrich his own pension.”

More from the Better Government Association:

Poshard collects $189,979 a year in state pensions from three separate public-sector retirement systems, more than the $177,412 salary currently paid to Gov. Pat Quinn, the BGA found. Among former governors, only Jim Edgar gets more in retirement: $205,425, having recently picked up a second pension from his days teaching at the University of Illinois. Former Gov. Jim Thompson gets $143,181 in state pension benefits, records show.

In addition to his state-government pensions, Poshard collects a $15,000-a-year federal pension for his 10 years in the U.S. Congress representing a southeastern Illinois district, bringing his total retirement package to slightly more than $200,000 annually, according to records and interviews.

To date, he’s collected more than $1.4 million in state pension benefits, and if he lives until he’s 80, that $200,000 he’s now getting could increase to an estimated $280,000 a year.

[…]

The cornerstone of Poshard’s generous state pension is the five years he served as a state senator. Of all state pension systems, the General Assembly Retirement System, or GARS, has the most deluxe features, designed and passed by members of the General Assembly.

Chief among those features is a formula that allowed him to collect a pension starting at 85 percent of his final state-government salaries – which averaged $165,000 as an SIU administrator during his first of two stints at the state government-run college.

Poshard also was allowed to increase his years of state service and thus boost his state pensions by counting unused sick time, un-served state Senate time, and credits purchased for past jobs in the military and while working his way through college, the BGA found. Overall, Poshard’s state pensions are based on 30 years of service and credit.

Poshard commented on his pension benefits to CBS:

“I am very appreciative for the retirement benefits I now receive which were determined by the laws in place at both the state and federal levels. If some of those laws need to be changed in order to more fully fund the pension system, as I myself have advocated before the legislature, then I am more than happy to see a reduction in my own retirement benefits.”

He also gave a phone interview to the Better Government Association:

In a telephone interview, Poshard said he has done nothing unethical and “never tried to game the system.”

“I can tell you, I worked hard my whole life,” said Poshard, 69. “I never shortchanged the state.”

[…]

“I’m grateful for what I got. I’m happy with it. I can’t pass judgment on whether the overall pension was too generous,” said Poshard.

A spokesman for Bruce Rauner said the Poshard’s role on the transition team will not be focused on pension issues.

The entire BGA investigation can be read here.

The corresponding CBS investigation can be read here.

Robert Grady Steps Down From New Jersey Pension Investment Board

Robert Grady has resigned from his position as chairman of the New Jersey State Investment Council. He announced his decision during the council’s meeting on Wednesday.

The Council formulates investment polices that govern New Jersey’s Division of Investment, which manages the state’s pension assets.

The rest of the board members collectively commented on Grady’s tenure with the Council, according to ai-cio.com:

“The members of the council acknowledge and appreciate Chairman Grady’s unique blend of outstanding investment and communication skills, which will be deeply missed,” the resolution stated. “We are grateful for his leadership, will miss his warmth and wisdom and good humor, and thank him for his selfless and exemplary service.”

Grady’s tenure was marked by the outperformance of benchmarks – but also controversy. From Chief Investment Officer:

For the four years ending May 30, 2014, the fund has outperformed its policy benchmark by an annualized rate of 1%, generating an additional $3 billion in alpha. New Jersey’s pension returned 17% in the 2014 fiscal year—in line with the median large public plan, according to Wilshire Associates—while taking less risk than 85% of its peers.

[…]

Earlier this year, Grady was the target of criticism from a major New Jersey union, which accused the fund of pay-to-play violations during his and prior chairman’s tenures. The state ethics commission has taken no action on the union’s allegations, which it addressed to the department.

More on the controversy surrounding Grady, from the International Business Times:

In recent months, campaign finance documents revealed that under Grady’s leadership, the state has awarded lucrative pension management contracts to hedge fund, private equity, venture capital and other so-called “alternative investment” firms whose executives made campaign contributions to Christie’s campaign, his state party, the Christie-led Republican Governors Association and the Republican National Committee. The donations included a $10,000 contribution from Massachusetts Republican Gov.-elect Charlie Baker to the New Jersey Republican State Committee just months before Baker’s firm was given a New Jersey pension investment.

The donations were made despite New Jersey and federal rules aiming to restrict contributions to state officials like Christie who oversee pension investment decisions. Documents uncovered by International Business Times showed that Grady, a former Carlyle Group executive, was in regular communication with Christie’s campaign officials at the time the campaign was raising money and he was overseeing the state’s pension investments. Grady pushed New Jersey to move pension money into an investment in which his private financial firm was also investing, documents revealed. New Jersey also invested in Carlyle Group funds during Grady’s tenure, though he recused himself from final votes on those investments.

Grady has categorically denied the pay-to-play allegations, saying that his position doesn’t give him the power to give pension money to investment firms.

It’s likely that Grady will become a bigger part of Chris Christie’s potential campaign for the presidency.

Photo by Opine Needles Blog via Wikimedia Commons

Paul Singer: CalPERS’ Hedge Fund Exit Was “Off-Base”

Paul Singer, a hedge fund manager, activist investor and billionaire, wrote in a recent letter to clients that CalPERS’ exit from hedge funds was “off-base”.

CalPERS said at the time that its decision to exit hedge funds was based on their “complexity, cost and the lack of ability to scale at CalPERS’ size”.

Singer responded to those criticisms, according to CNBC:

“We are certainly not in a position to be opining on the ‘asset class’ of hedge funds, or on any of the specific funds that were held or rejected by CalPERS, but we think the decision to abandon hedge funds altogether is off-base,” Singer wrote in a recent letter to clients of his $25.4 billion Elliott Management Corp.

[…]

On complexity, Singer wrote that it should be a positive.

“It is precisely complexity that provides the opportunity for certain managers to generate different patterns of returns than those available from securities, markets and styles that are accessible to anyone and everyone,” the letter said.

Singer also took issue with claims that drawbacks of hedge funds include opaqueness and high fees. From CNBC:

“We also never understood the discussions framed around full transparency. While nobody wants to invest in a black box, Elliott (and other funds) trade positions that could be harmed by public knowledge of their size, short-term direction or even their identity.”

Singer also slammed CalPERs for its complaint about the relative high cost of hedge funds.

“We at Elliott do not understand manager selection criteria based on the level of fees rather than on the result that investors could reasonably expect after fees and expenses are taken into account,” he wrote.

The broader point Singer makes is on the enduring value of hedge funds to diversify a portfolio.

“Current bond prices seem to create a modest performance comparator for some well-managed hedge funds. Moreover, stocks are priced to be consistent with bond prices, and we have a hard time envisioning double-digit annual stock index gains in the next few years,” the letter said.

“Many hedge funds may have as much trouble in the next few years as institutional investors, but investors should be looking for the prospective survivors of the next rounds of real market turmoil.”

Hedge funds have returned 2.92 percent this year, according to Preqin. Singer’s hedge fund, Elliott Associates LP, has 13.9 percent annually since 1977.

Photo by World Economic Forum via Wikimedia Commons

Naked Capitalism Publishes Ten More Private Equity Limited Partnership Agreements

The Naked Capitalism blog has been given ten private equity limited partnership agreements from “a source authorized to receive them who is not bound by a confidentiality agreement.”

Pension funds sign limited partnership agreements when they do business with private equity firms. Observers are typically very interested in seeing the documents because they are usually kept under lock-and-key, as PE firms claim the documents contain “trade secrets” that would harm business if made public.

The agreements received by Naked Capitalism can be read here.

Here’s an excerpt of the Naked Capitalism post accompanying the release of the documents:

__________________

By Yves Smith

There is a vital public interest in having this information in the open. Public pension funds, which are government bodies, are the biggest single group of investors in private equity, representing roughly 25% of total industry assets. Yet private equity limited partnership agreements are the only contracts at the state and local government level that are systematically shielded from public scrutiny, through state legislation or favorable state attorney opinions.

Yet in countries less captured by rampant free market ideology and private equity political donations, a revolt is underway against this secrecy regime. As the Financial Times reported:

Anger has erupted over the practice of asset managers coercing pension funds into signing non-disclosure agreements. Pension schemes argue it is uncompetitive and prevents them from securing the best deals for their members.

The imposition of confidentiality agreements means pension funds are not able to compare how much they are being charged by fund managers, potentially exposing them and their scheme members to unnecessarily high fees.

The practice is of particular concern with respect to public sector pension plans, which are effectively funded by the taxpayer.

David Blake, director of the Pensions Institute at Cass Business School in London, said: “Local authorities are not allowed to compare fee deals, and that is an outrage. It should be made illegal that fund managers demand an investment mandate is confidential.”

How do private equity kingpins justify their extreme demands for confidentiality, their assertion that limited partnership agreements in their entirety are trade secrets? Consider this “we’ll fight them on the beaches” argument from this Monday’s Private Fund Management, that if general partners, meaning the private equity funds, are forced to divulge fees, they’ll eventually have to expose more of the limited partnership agreement. And of course they claim that would do them competitive harm:

It’s impossible to have a debate about public pension plans disclosing their fee payments without first acknowledging why GPs want them kept private in the first place…

In this context, GPs are being portrayed as secretive and heavy-handed. But so far, what hasn’t been addressed properly is why GPs are apparently so keen to prevent fee receipts from entering the public domain in the first place.

Speaking to pfm off the record, no manager has ever told us that they consider management fees a vital trade secret. No one has defended the idea that disclosing them can make or break a firm.

What we are hearing instead is that GPs perceive the fee debate as a proxy battle for disclosing other data that really are sensitive to the firm’s ability to do business, such as the finer points of their investment strategies, key man clauses and the like. All these things are documented in the LPA, and if the LPA can no longer be subjected to non-disclosure, then sooner or later demands will be made to publish other types of fund-specific information also.

_________________________

The full post can be read here.

Kentucky Teachers’ Pension Asks Lawmakers For Funding Help; Will Present Bond Proposal

The Kentucky Teachers’ Retirement System is seeking help from the state legislature in easing its pension obligations. The plan involves the state issuing bonds.

Details on the proposal are sparse, but KTRS officials will present their plan to lawmakers on Wednesday.

From the Courier Journal:

The Kentucky Teachers’ Retirement System is proposing that the state issue a new bond to help shore up underfunded teacher pensions.

Officials from KTRS will present the proposal to lawmakers on the Interim Joint Committee on State Government on Wednesday afternoon. An official said last week that the plan will center on using existing revenue streams that will soon become available once the state retires debt service on older bonds.

According to the 2013 valuation, KTRS faces more than $13.8 billion in unfunded liabilities and has only 52 percent of the money it needs to pay out pension benefits in coming decades.

The system has asked the state to provide around $400 million in additional funding each year to keep the system solvent.

The plan could well be for the state to issue “pension obligation bonds”. Governing magazine explains the concept of POB’s:

Pension Obligation Bonds (commonly referred to as POBs), allow governments to issue taxable bonds for the purposes of putting money toward or fully paying off the unfunded portion of a pension liability. The proceeds from the bond issue go in the pension fund. The theory is that the rate of return on the investment will be greater than the interest rate the government pays to bond investors so that the transaction is favorable to the government; it makes money off the deal.

KTRS manages $17.5 billion in assets. The system is about 51 percent funded.

Arizona Taxpayers To Foot Legal Bills For 4 Ex-Pension Employees

Four ex-employees of the Arizona Public Safety Personnel Retirement System are being sued by a real estate investment firm for “defaming” the firm by raising questions about how it values assets.

The lawsuit is private, but the legal costs incurred defending the ex-employees will be paid with public money, according to the Arizona Republic:

The state Department of Administration has agreed to pay the private legal tabs of four former high-ranking employees of the Public Safety Personnel Retirement System who are being sued by Scottsdale-based Desert Troon, a real estate partner with the trust that manages some pension fund assets.

The four ex-employees have raised questions about the valuation of the real-estate assets managed by Troon. Troon has in turn accused the four former PSPRS employees in a lawsuit of engaging in a post-employment conspiracy to defame and falsely disparage senior management at the company and the pension system.

Jeff Grant, ADOA deputy director, said the state agreed to pay for the legal defenses of the men in response to a request from their attorneys. The four are Andrew Carriker, former PSPRS in-house counsel; and ex-investment managers Anton Orlich, Mark Selfridge and Paul Corens.

Grant said the state is obligated to provide a legal defense for current or former employees when sued for “acts within the course and scope of employment.” He added that state law does not set a financial limit for a legal defense.

Grant said the state can withdraw defense funding if “facts reveal later that it is not obligated” to cover the cost.

[…]

The PSPRS employees targeted in the Desert Troon lawsuit quit last year in protest over how PSPRS was reporting the values of trust real-estate assets managed by Desert Troon. The ex-employees raised questions about whether real-estate investment values were inflated to trigger staff bonuses. Desert Troon and PSPRS have denied any wrongdoing.

The claims of inflated asset values triggered an FBI investigation, but no charges have been filed.

It isn’t the first time the pension fund’s legal costs have come under fire. Pension360 has previously covered how the fund spent nearly $2 million on outside legal advice last year despite having in-house counsel.

Chicago Lawmakers Request SEC Investigation Into Donations to Emanuel From Investment Firms With City Pension Contracts

Chicago aldermen announced yesterday they were requesting an SEC investigation into donations received by city Mayor Rahm Emanuel from investment firms that manage the city’s pension money.

From the International Business Times:

The aldermen scheduled a City Hall news conference Tuesday to announce the action.

In a letter to Andrew Ceresney, who directs the SEC’s division of enforcement, Aldermen Bob Fioretti, Scott Waguespack and John Arena write the donations constitute “pay-to-play actions” that “have violated the public trust and are a breach of the fiduciary duty” by the Emanuel administration officials who oversee the city pension systems. They say “Chicago has a deep history of pay-to-play” and that their “goal is to end these tactics and protect the citizens of Chicago and employees’ investments.”

In a speech last week, Ceresney vowed increased enforcement of the SEC’s pay-to-play rule, which was passed in 2011 after an influence-peddling scandal at the New York State pension system.

The SEC and Emanuel’s office did not respond to IBTimes’ request for comment. In a statement about the donations emailed to Bloomberg News, Emanuel’s campaign manager asserted the donations comply with “the higher standards the mayor voluntarily imposes on himself per his executive order” banning contributions from city contractors.

[…]

On top of the request for an SEC investigation, the aldermen are asking for the city’s inspector general to conduct a review of whether the donations violate Emanuel’s own executive order barring campaign donations from city contractors and subcontractors.

They are also asking Emanuel to release a full list of all the financial firms managing the city’s $23 billion pension system — including the firms in pooled investments known as a “fund-of-funds.” IBTimes obtained documents showing executives at a firm managing Chicago pension money through two Chicago pension systems’ fund-of-funds had made significant campaign contributions to Emanuel.

A copy of the letter sent to the SEC can be read below:

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Photo by Pete Souza

San Jose Police Staffing Could Fall to 30-Year Low In Midst of Retirement Surge, Pension Uncertainty

A new report reveals that the number of police officers employed by the San Jose Police Department could soon drop below 1,000 as it continues to lose policemen and women.

If the Department loses about 50 more officers, which is anticipated to happen by next July, its employment levels will drop to depths not seen in 30 years.

The staffing problems have been attributed to uncertainty surrounding pension benefits and a surge in retirements.

From the Mercury News:

The number of San Jose police officers will fall to the lowest in three decades if current trends continue unabated, and even that projection hinges on an optimistic view of the agency’s ability to retain officers and recruit new blood, according to a new report.

A department report produced for Tuesday’s City Council meeting estimates that with current attrition and hiring, the number of sworn staff will drop from the current 1,010 down to 988 by July, which would mark the first time since 1985 that the force steadily fielded fewer than 1,000 officers. That same model projects a sworn staff of 949 by July 2017.

[…]

Retention “continues to be a major challenge in maintaining current staffing levels,” states the report, which was signed by Chief Larry Esquivel and notes that the department has been challenged by a “lower qualified candidate pool.”

The chief’s report notes that the city set aside a $10 million reserve to bring the authorized number of police positions to 1,250. The department has not been able to meet its authorized staffing level since 2011 due to the aforementioned struggles with retention, with upward of 100 officers leaving each year from resignation or retirement for the past three years.

More from Mercury News on the reasons behind the staffing problem:

An array of factors have been cited in the steady departure of officers, including an anticipated retirement surge of Baby Boomer hires and ongoing legal battles over pension and disability reform between city leaders and the police union. Some gains have been made, including an 11-percent pay restoration, but other items such as a recovery of bilingual pay and a proposed part-time work plan for retirement-eligible officers are pending negotiation and approval.

The San Jose City Council received the report on Tuesday.

Photo by Stefano Mortellaro via Flickr CC LIcense

Illinois Universities Pension Hires Search Firm to Find New Executive Director

William Mabe, executive director of the State University Retirement System of Illinois (SURS), announced in September that he would be retiring on March 31.

SURS has now hired an executive search firm, the Hollins Group, to find his replacement before Mabe’s retirement date.

From the Associated Press:

The State Universities Retirement System has hired a search firm to help it find a new director.

The executive committee of the SURS board of trustees voted this month to hire The Hollins Group of Chicago.

Executive Director William Mabe (MAYB’) plans to retire in March.

Derrick Buckingham will serve as lead consultant. He is senior vice president and managing director for The Hollins Group.

In a September interview with the Chicago Sun-Times, Mabe talked about the reasons behind his retirement:

Mabe, 67, said in an interview…that he could have stayed on for another three years, but chose to retire now to do other things with his life.

“I’ve been here for five years and I’ve stayed as long as I had planned to stay,” Mabe said. “The pension issue had nothing to do with it. It’s still lingering in the courts, and (the SURS leadership) did the heavy lifting we had to do. … I wanted to retire when that was completed and things were quiet.”

SURS has 227,000 members.

Photo by Nathan Stephens via Flickr CC License

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