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Chart: New Jersey Pension Turns In Below-Median Performance

Over the last decade, New Jersey’s pension investments have out-performed those of similar public pension fund. But in more recent years, New Jersey’s performance has fallen off. Although its returns have climbed into double-digits, it hasn’t kept pace with its peers.

Here’s a closer look at the New Jersey’s pension returns over the last four years:

2012 was a down year for nearly every pension fund. But New Jersey managed to perform better than its peers on that occasion. Otherwise, the last four years have been marked by under-performance.

Chart 1 credit: New Jersey Treasury Department

Chart 2 credit: International Business Times

Redacted Document Demonstrates Secrecy Surrounding Pension Funds and Private Equity Investments

The New York Times recently obtained a copy of a private equity limited partnership agreement from Carlyle Partners, and the document offers outsiders a rare peak into the opaque world of private equity investments.

[Document can be viewed at the bottom of this post, or by clicking here.]

The document is heavily, heavily redacted, but it’s important because it reveals just how few details are publicly available regarding the private equity investments of pension funds.

Many pension funds sign agreements just like this one – in fact, the list of pension funds that invest in Carlyle funds is long:

New York City Retirement Systems

CalPERS

CalSTRS

Illinois Teachers’ Retirement System

Florida State Board of Administration

Michigan Retirement Systems

Texas County & District Retirement System

New Mexico Public Employees Retirement System

Los Angeles County Employees’ Retirement Association

and many more.

Pension360 has previously covered how private equity firms encourage pension funds not to comply with FOIA or public records requests pertaining to private equity investments.

That sentiment is reflected in the Carlyle agreement, which pushes pension funds to resist public records requests if possible. From the New York Times:

Another blacked-out section in the Carlyle V agreement dictates how an investor, like a pension fund, also known as a limited partner, should respond to open-records requests about the fund. The clean version of the agreement strongly encourages fund investors to oppose such requests unless approved by the general partner.

Some pension funds have followed these instructions from private equity funds, even in states like Texas, which have sunshine laws that say “all government information is presumed to be available to the public.”

For an in-depth foray into the redacted elements of the agreement and its implications, head over to this Naked Capitalism post or the New York Times article.

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Photo by Truthout.org via Flickr CC License

Few Details On New York Pension’s Partnership With Goldman Sachs As Comptroller Remains Quiet

New York State Comptroller Thomas DiNapoli, the sole trustee of the states $181 billion Common Retirement Fund (CRF), announced last month a partnership between the pension fund and Goldman Sachs.

CRF will give Goldman $2 billion to invest in global equities. But few other details have emerged about the partnership. That led one think tank, the Pioneer Institute, to push for more clarity. But the Comptroller’s office has remained mum on specifics. From Public Sector Inc:

The lack of transparency in portfolio management and the conspicuous absence of a board of trustees overseeing the investment process is troubling, if not perilous.

Matthew Sweeney, a spokesman for the comptroller’s office, answered some of a dozen questions about the GSAM deal. Here are a few of those he did not comment on, completely unedited:

– Which other investment management firms applied to the competitive bidding for the $2 billion allocation?

– What were the specific criteria on the basis of which GSAM was selected?

– Can you share the investment policy sheet that was publicized as part of the RfP for this portfolio segment? This would include targets like concentration risk and counterparty risk limits as well as a number of other parameters related to the asset classes included, long/short ratios, other risk metrics, geographies and other relevant characteristics of the desired portfolio.

– What are the performance targets in terms of risk and return for the performance-based compensation, if any?

– What are the benchmarks selected to evaluate the performance of this portfolio sleeve in the coming years?

Mr Sweeney did answer a question regarding the compensation structure in the contract – with the laconic: “Fees are disclosed on an annual basis.”

[…]

With so much pension money at stake, why didn’t Mr DiNapoli’s office publicize the selection process, a clear rationale for the investment and the performance objectives he has (or so one hopes) for Goldman? What value are Goldman’s undoubtedly well-compensated analysts and investment bankers supposed to add?

The so-called partnership “will initially focus on dynamic manager selection opportunities in global equities to enhance returns” and then provide “improved analytics and reporting on its portfolio and enhanced evaluation and due diligence on current and potential active managers.” In other words, the CRF added a potentially expensive actively managed distraction for its global investment team days before CalPERS announced ditching its $4 billion hedge-fund allocation precisely because it was too small to make a dent in overall return and too expensive in terms of time and money to manage.

The bottom line is that, because of their sheer size, most pension funds can do little but focus on efficient cost and risk management. An open and competitive bidding process is essential to keeping costs down. And a critical part of risk management is having a robust, transparent and accountable investment process, which the CRF appears to be patently lacking. One need not look far afield to see where this sort of conduct ultimately leads.

The Common Retirement Fund paid $575 million in management fees in fiscal year 2013-14. The fund manages $181 million in assets.

You can read more coverage of the Goldman Sachs deal here and here.

Union Leader Calls Out Christie, New Jersey For Playing “Fiscal Games” That Led to “Self-Made” Pension Crisis

Patrick Colligan, the president of the New Jersey State Policemen’s Benevolent Association, has written an op-ed piece in the New Jersey State-Ledger expressing his discontent with the report recently produced by the state’s Pension and Health Benefit Study Commission.

In the piece, Colligan chastises Christie for playing “fiscal games” with the state pension system:

The Commission should tell the public about the fiscal games going on behind their backs. Before the ink was dry on the pension reform law the governor began using increased employee contributions to reduce employer pension payments. When the Legislature tried to close that loophole and use the extra contributions for pension funding, the governor vetoed it.

Add that to the failure of the state to make its actuarially required pension contributions and you have the making of a self-made pension crisis. It is worth noting if full PFRS pension payments were made during the last 15 years, it would be funded in the mid-90 percent ratio and no one today would be discussing pension reform.

New Jersey does a great job of shifting costs to employees without ever tackling the reason for those costs. Health benefits are a prime example. If the state were truly interested in reducing their health care costs they can take a number of bold steps. First, cut out insurance companies and administer its own healthcare network.

Second, rein in pharmacy benefit manager costs. How much do these PBMs make off the state? Requests for that information are repeatedly denied. Contracts for prescription costs should be required to show the true costs and rebates for the medicines involved and how much of those costs are enriching the companies brokering the deals.

Finally, the state has too many health plan choices with no real cost containment strategies. The State could consider innovative approaches to control costs like State Health Benefits Program-owned patient care centers, and wellness and disease management.

Contrary to popular belief, no one wants a healthy, well-funded and long-lasting pension and health care system more than the people who pay for it and count on it for their retirement. Put us at the table and have an open mind about our thoughts, and the state would be shocked how fast pension and benefit costs are brought under control.

Colligan also spends a good portion of the piece talking about the funding situation of the Police and Firemen’s Retirement System (PFRS).

Read the whole piece here.

Court: Colorado Pension System Can Cut COLAs

The Colorado Supreme Court ruled Monday that Colorado’s largest pension fund could legally scale back cost-of-living adjustments.

In 2010, the Colorado Public Employee’s Retirement Association (CPERA) cut annual COLA increases from 3.5 percent to 2 percent. Retirees took the cuts to court, alleging breach of contract. But the ruling today sided with the pension system, and so the COLA cuts will remain.

From the Denver Post:

The Colorado Supreme Court on Monday ruled that the Colorado Public Employee’s Retirement Association can adjust the cost-of-living increases that current retirees under the state’s largest pension plan receive.

“We hold that the PERA legislation providing for cost of living adjustments does not establish any contract between PERA and its members entitling them to the perpetual receipt of the specific COLA formula in place on the date each became eligible for retirement or on the date each actually retires,” the Colorado Supreme Court stated in its ruling.

Cost-of-living formulas were first implemented in 1969 and have been adjusted several times over the years, with a 3.5 percent fixed rate set back in 2000 after stock markets had several years of big gains.

Concerns that the pension plan was severely underfunded triggered 2010 legislation that capped annual cost-of-living increases at 2 percent unless the pension’s investment suffered a loss the prior year.

In that case, the increase adjust at the actual inflation rate, up to 2 percent.

Retirees sued, arguing that PERA had a contractual obligation to provide the increases in place at the time they retired for the remainder of their lives.

A district court judged ruled against the retirees in Justus v. State, but the Colorado Court of Appeals overturned that decision.

Colorado Attorney General John Suthers, who office argued the case for the state, said he was pleased with the decision.

“The law in question was an important part of ensuring that PERA remains there for state retirees long into the future. As we argued to the Court, upholding the law helps protect both current and future retirees, and the state’s taxpayers,” he said in a statement.

PERA manages over $40 billion in assets and has over 400,000 members.

Photo by TaxRebate.org.uk

Major Pensions Commit To Asia Private Equity Fund

A handful of pension funds have recently committed over $200 million collectively to the Baring Asia Private Equity Fund VI.

Pension systems making investments in the fund include the Texas County & District Retirement System, the Pennsylvania Public School Employees’ Retirement System, the Arizona Public Safety Personnel Retirement System and the San Francisco City & County Employees’ Retirement System.

From the Asian Venture Capital Journal:

Texas County & District Retirement System (TCDRS) has committed $50 million to Baring Private Equity Asia’s sixth pan-regional fund, which recently reached a first close of $3.2 billion.

The pension system, which had $24.5 billion under management as of June 2014, invested $40 million in Baring Asia’s previous fund. Earlier this year, it also allocated $40 million to the private equity firm’s first dedicated regional real estate vehicle, which is looking to raise $500 million.

Baring Asia Private Equity Fund VI has already exceeded its initial target of $3.2 billion. AVCJ was previously told that the vehicle has a hard cap of $3.85 billion, not including the GP contribution. Fund V closed at $2.46 billion in January 2011, beating its original target of $1.75 billion after just six months in the market.

Other disclosed investors in Fund VI include Pennsylvania Public School Employees’ Retirement System (PSERS) – also an LP in Baring’s previous three funds – which has committed $100 million, and San Francisco City & County Employees’ Retirement System, which is putting in up to $50 million. The Arizona Public Safety Personnel Retirement System is investing $20 million.

TCDRS has planned to increase its private equity holdings. Its current allocation is 8 percent, but its target is 12 percent.

In fiscal year 2013-14, TCDRS’ private equity portfolio returned 22 percent.

Swedish Pension Divests From 20 Fossil Fuel Companies

One of Sweden’s largest pension funds has announced it plans to divest from $116 million worth of fossil fuel-related holdings.

In an effort to ward off the “financial risk” of climate change, Sweden’s AP2 will cut 20 gas, oil and coal companies from its portfolio. From Chief Investment Officer:

[AP2] is cutting 12 coal companies and eight oil and gas production firms, with a total market value of SEK 840 million, or roughly 0.3% of the portfolio.

“Our starting point for this analysis has been to determine the financial risks associated with the energy sector,” said Eva Halvarsson, CEO of AP2. “By not investing in a number of companies, we are reducing our exposure to risk constituted by fossil fuel based energy. This decision will help to protect the fund’s long-term return on investment.”

In a statement released today, AP2 said its team had reviewed all holdings in fossil fuel companies and assessed the financial risk posed to each one by climate change.

The fund said the coal companies it would sell “face considerable climate-related financial risk, due to the negative environmental and health impacts of coal”. AP2 also cited competition from gas and renewable energy sources as affecting demand for coal.

AP2 also identified “serious climate-related financial risks” for a number of oil producers, particularly involving “high-cost projects” such as extracting oil from oil sands. AP2 said it believed it was “highly likely that these projects may either be stranded or unprofitable”.

The Swedish fund is the latest institutional investor to reduce or completely scrap their investments in fossil fuel producers. Stanford University’s $18.7 billion endowment said in May that it would sell out of fossil fuel-related companies, while the $860 million Rockefeller Brothers fund in September announced its intention to divest from coal and oil. A group of US charities representing $1.8 billion in assets also took similar steps at the start of this year.

AP2 manages $36.7 billion of assets.

Photo by Penagate via Flickr CC

New Jersey Pension Hires Deputy Director

New Jersey’s Division of Investment, the department that manages assets for the state’s pension systems, has hired Corey Amon as its new deputy director. From Chief Investment Officer:

The New Jersey Division of Investment has hired a deputy director to help manage $80 billion in state pension fund assets.

Corey Amon joins the fund from the corporate pension world. He has spent the last three years in Miami as assistant treasurer of Ryder System, a Fortune 500 trucking and logistics company. But Amon spent the bulk of his career to date as an asset manager. From 1995 through 2011, he worked at a BMO Global Asset Management division called Taplin, Canida & Habacht.

Amon’s first day at the pension’s Trenton offices is set for October 20, a treasury department spokesperson told CIO. He will report to and work closely with Chris McDonough, the fund’s director and #77 on this year’s Power 100 list. McDonough said he and the team are “delighted to have Corey joining the division of investment.”

McDonough noted Amon “has nearly 20 years of investment experience,” including service as a fiduciary. “We expect him to play an intricate role in all aspects of portfolio and operations management at the division,” the director concluded.

Despite its massive size and consistent outperformance, New Jersey’s pension fund has struggled to hold onto its top investment staff. Its pay packages are thin even by public fund standards, and offer no incentives for performance.

McDonough, for example, earns a $185,000 salary, according to public records.

Amon was previously Assistant Treasurer at Ryder System, Inc. Before that, he was the Director of Research at Taplin, Canida & Habacht where he managed a fixed income portfolio.

Update: Naked Capitalism vs. CalPERS

The CalPERS Building in West Sacramento, California.

Last winter, Susan Webber, who runs the financial blog Naked Capitalism, filed a public records request with CalPERS seeking the fund’s private equity return data. According to Webber, CalPERS didn’t fulfill the request – and so Webber filed a lawsuit to get it.

After a few months of back-and-forth, CalPERS said last week it had given Webber the data she requested. But Webber, in a post over the weekend, says otherwise. From Naked Capitalism:

To update you on the state of play with CalPERS: since we received some financial data in February and March, CalPERS has engaged in foot-dragging. Even though CalPERS said in court filings that it stood ready to provide the data we sought, it has failed to do so. For instance, CalPERS’ Deputy Executive Officer for External Affairs, Robert Glazier, promised in mid April that he would send an important missing spreadsheet the following week. More than six months have passed and CalPERS has yet to provide it.

We have three types of data we are seeking: the spreadsheet mentioned (CalPERS has provided an 627 page image, but under California’s version of FOIA, they are required to provide machine-readable records in data form, but continue to fail to comply), commitment dates (CalPERS has consistently ignored this request) and detailed cash flows (of which CalPERS has only provided partial information; by our count, we are still 351 funds short). So of three requests, for two we have yet to receive any information, and for the third, we have received only partial information.

You can read more about the lawsuit and the FOIA results here. CalPERS’ response to Webber’s blogging can be read here.

Photo by Stephen Curtin

Chart: One-Fifth of Public Workers Don’t Know What Retirement Plan Their Employers Offer

According to research from the Pew Charitable Trusts, 20 percent of public sector workers don’t know what type of retirement plan their employer offers. From Pew:

One-fifth of state and local workers polled said they did not know what type of retirement plan their employers offered. Women were more likely to say this—23 percent—compared with 15 percent of men. In addition, workers younger than 50 were more likely to report that they did not know what type of retirement plan they had than were workers 50 or older.

In the graph [above], you can see how retirement plan knowledge breaks down by age. Predictably, people pay more attention to plan offerings as they get older.

Chart from Pew Charitable Trusts.

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