Pension360

CalPERS CIO Ted Eliopoulos said during a Monday board meeting that he expects his portfolio’s return to be flat in FY 15-16; and that the next few years will be challenging for the country’s largest pension fund.

More from Reuters:

California Public Employees’ Retirement System Chief Investment Officer Ted Eliopoulos on Monday described the pension fund’s current fiscal year performance as “likely to be flat, which is a nice way of saying zero.”

[…]

On Monday, Eliopoulos warned CalPERS Investment Committee that the coming three to five years will be “a challenging market environment for us.”

“It is going to test us,” he said at the board meeting.

CalPERS lowered its performance expectations in each major asset class.

The fund’s primary pension consultant, Wilshire Associates, predicted that the total fund, estimated to be worth $293.6 billion, will return 6.4 percent annually over the next decade, reduced from a 2013 forecast of 7.1 percent.

[…]

Wilshire’s largest cuts to forecasts for CalPERS’ annual returns were in global equity, reduced to 6.7 percent from 7.75 percent, and private equity, which it cut to 9.4 percent from 10.45 percent.

CalPERS returned 2.4 percent in FY 14-15, following several years of double-digit returns.

Back in 2014, the Central States Pension Fund was the first multiemployer pension fund to submit a rescue proposal to the U.S. Treasury.

The pension-slashing measure was rejected last month; but Bloomberg took a look at which pensioners would have been most affected by the plan.

Some pensioners famously claimed they would be better of if the fund went insolvent. Is that true?

Bloomberg analyzed the data:

When they learned of the fund’s proposal to cut their pensions, some of the fund’s retirees said they didn’t expect to live long enough to benefit if the fund managed to avoid insolvency 10 years down the road, as projected by the fund. Instead, they said they preferred to get their full benefits now and worry about the fund’s collapse later.

[…]

Examination of the numbers reveals that retirees between the ages of 60 and 79 who were slated to have their benefits slashed by 30 percent or more stood to gain the least under the fund’s ill-fated proposal. It would logically follow that members of this group mounted the greatest opposition to the rescue proposal.

More specifically, nearly 42,000 retirees, a little more than 10 percent of the fund’s 400,000 participants, were better off financially by getting full payments until the fund’s projected insolvency in 10 years than if they had received reduced benefits under the rescue plan until their projected life expectancy.

[…]

In total, it appears that nearly 42,000 retirees knew what they were talking about when they said they preferred to get their full benefits now even if the fund became insolvent in 10 years.

For the full analysis, including scores of charts, check out the full piece here.

Sitting in the U.S. Senate is a Puerto Rico rescue bill that would allow the territory to restructure its debts, and to cease making payments to its bondholders for now.

Details are still vague; but if the bill passes, does it mean anything for pensioners living in distressed states like Illinois?

Ike Brannon of the Cato Institute, writing in the Hill, thinks it might:

Right now, states cannot declare bankruptcy, which is one reason why states have traditionally been able to borrow at such low rates of interest. However, financial markets have come to realize, belatedly, that Illinois (along with other states) is making promises to its lenders that it will have trouble keeping.

Puerto Rico was not supposed to be eligible for bankruptcy either, but the legislation before Congress will allow the territory to reduce its debt, both general-obligation and non-general-obligation debt.

[…]

If the bill does become law, the island will promptly cease making payments to its bondholders for the indefinite future: The proposed 2017 Puerto Rican budget — which assumes as much — sets aside no money to pay general obligation bondholders. Since the legislation also stays creditor lawsuits, the island can proceed to use the funds freed up by stiffing the creditors to hire more workers, build infrastructure and put money into its nearly bankrupt pension fund.

Any money that does gets stashed in the pension fund will be well-nigh impossible to disgorge when the stay is lifted. The Puerto Rican government can pull out its pockets and plead poverty and any creditor that lost money during the stay will likely be out of luck.

This is the blueprint Illinois will almost surely follow. It will request that Congress extend it some sort of bankruptcy protection and it will present Congress with a facile choice: Does it want to protect the evil vulture funds from Wall Street that lent it money or the hardworking state employees who just want the pension promised to them? Congress may want to pretend otherwise, but the current legislation before it favors one set of pensioners ahead of other pensioners whose money happens to be invested in Puerto Rican debt.

Read the full piece here.

The Ontario Teachers’ Pension Plan, along with the Canada Pension Plan Investment Board (CPPIB), are making a $1.35 billion bet on Latin American infrastructure.

The two pension funds are partnering with an infrastructure development company to acquire a 49 percent stake in one of Mexico’s largest toll roads.

More from the Financial Post:

CPPIB and Teachers are kicking in a combined $1.35 billion to the partnership to acquire a 49 per cent stake in a new company formed by the partners to house one of the largest toll road concessions in Mexico, the group said Thursday.

[…]

The toll road is CPPIB’s first infrastructure investment in Mexico, but there are others in South America including two in Chile, and a gas pipeline in Peru.

Hogg said the infrastructure team in CPPIB’s Brazil office, opened in Sao Paolo in 2014, played an integral role in the Mexican toll road transaction.

“Members of our Sao Paolo office were heavily involved in this deal and bringing it to a successful conclusion,” she said.

Arco Norte is one of the largest federal toll road concessions in Mexico, with more than 30 years remaining on the concession. The 233-kilometre toll road bypass surrounds Mexico City in the north, northeast, and northwest region, “providing a critical link with major trade corridors,” according to the news release.

This week, the New Jersey Supreme Court ruled that the state acted legally when it suspended pension cost-of-living-adjustments in 2011 because state employees had no contractual right to those increases.

Over at CapitolFax.com, Eric Madiar – former Chief Legal Counsel to Illinois Senate President John J. Cullerton, now a lobbyist and consultant – weighed in on whether the ruling would affect Illinois.

His thoughts:

Here’s Eric’s summary:

The New Jersey court held that because of the New Jersey Constitution the legislature lacked the power to create a binding contractually enforceable pension right. The creation of such a right was tantamount to taking on state debt in violation of the state constitution. The court stated that the legislature can only take on state debt and commit itself to the needed appropriations to fund that debt with voter approval. Since that did not occur when the pension right was passed, it was not a binding promise when the legislature enacted it.

Eric re-read the opinion this morning and offers this addendum noting that the New Jersey court looked at what the Illinois court had done and drew a distinction between the two constitutions.

The New Jersey Supreme Court held that COLAs are not protected pension benefits and are distinct from the pension annuity that a retiree is entitled to receive under New Jersey pension law. The New Jersey court focused on the lack of clear and unmistakable statutory language conferring COLA increases as a protected pension benefit. This is unlike what occurred in Illinois where the Illinois Supreme Court found that COLAs are part of the protected benefits that cannot be unilaterally changed. Indeed, in footnote 7 of the decision, the New Jersey Supreme Court notes how the statutory system regarding COLAs in Illinois is different from New Jersey.

The president of New York’s correctional officers union was arrested on Wednesday for steering pension money into a hedge fund in exchange for a percentage of the profit – all while circumventing the other trustees.

His partner in crime, a Platinum Partners hedge fund manager, was also arrested.

More from ai-cio.com:

Seabrook controlled an $81 million member retirement fund, according to the complaint. Despite board opposition, Seabrook allegedly signed over $20 million to Platinum in exchange for a 2% profit share—roughly $100,00 to $150,000 per year.

He is accused of receiving one payment in a luxury bag, along with extensive free travel.

“For a Ferragamo bag stuffed with $60,000 in cash, Seabrook allegedly sold himself and his duty to safeguard the retirement funds of his fellow correction officers,” said Manhattan US Attorney Preet Bharara at a press conference Wednesday.

[…]

Platinum reportedly specializes in assets others won’t touch: Payday loans, insurance products targeting the terminally ill, oil companies facing criminal charges, and—twice—Ponzi schemes.

The strategy has delivered substantial alpha for years, according to figures obtained by Reuters. One of Platinum’s two funds returned an average 17% annually since 2003, and the flagship 13.4% since 2005.

Platinum co-founder Murray Huberfeld offered Seabrook additional payouts if he could lead fellow institutions into the fund, the complaint stated.

Federal agents arrested Huberfeld at his home Wednesday.

Both men face up to 40 years in prison on fraud charges, the Department of Justice said.

Canada Pension Plan Investment Board (CPPIB) CEO Mark Wiseman is leaving his post next week. But he’s using his remaining time to defend his fund’s active investment strategy.

Wiseman and incoming CEO Mark Machin wrote a column in a major Canadian newspaper on Monday defending the fund’s active investment strategy.

Ai-cio.com has the highlights:

“We can say with confidence that our strategy is adding value,” Wiseman and Machin wrote.

Through active management, the incoming and outgoing CEOs said CPPIB has been able to capitalize on structural advantages including its long-term horizon, stable and predictable flow of contributions, and size. Additionally, they said active management has made it possible for CPPIB to address risks such as climate change.

“To ignore these advantages would be the sporting equivalent of benching Sidney Crosby, Connor McDavid, and Steven Stamkos for an Olympic gold-medal hockey game,” they wrote.

While critics have attacked the fund’s increasing costs, Wiseman and Machin argued that these costs need to be examined in the context of the additional long-term returns the fund has generated.

“Active management requires more resources, and therefore more expenses, than a passive strategy,” they concluded. “But we firmly believe that it generates significantly higher risk-adjusted returns.”

Read the column here.

On Monday, a NJ Assembly committee advanced a Democrat-backed proposal that would amend the state constitutional to lock in iron-clad, full, quarterly pension payments from the state.

Now, Republicans have offered up their own proposal – or rather, revived a plan initially proposed last year.

Their version would also amend the constitution to require annual contributions from the state. But it would pay for the measure by requiring workers to pay more of their health care costs.

From NJ.com:

Assemblyman Declan O’Scanlon’s legislation, introduced Monday, revives a dormant plan proposed by the governor’s special pension commission last year to overhaul public employees’ benefits and save their employers billions of dollars a year.

While it would require workers to pick up more of the cost for their heath care, they would be rewarded with a constitutional amendment obligating the state to contribute to the public pension system annually — unless tax collections are in trouble.

O’Scanlon (R-Monmouth) unveiled the sweeping legislation Tuesday, just one day after an Assembly committee voted in favor of a Democratic plan to grant workers that constitutional protection.

[…]

Broadly, active employees would be moved onto health care plans equivalent to gold plans under the Affordable Care Act, and retirees would be given retiree reimbursement accounts to cover the cost of purchasing coverage through a private exchange.

Active employees would pay lower annual premiums, because the total cost of the plan is lower, but higher out-of-pocket expenses.

The head of the Massachusetts Bay Transportation Authority (MBTA) pension fund on Monday revealed he’d be stepping down in August.

His fund has been at the center of controversy because, until recently, it was not subject to FOIA laws and does not hold open meetings. It has also had its accounting questioned.

Mass. Governor Charlie Baker signed a bill last month changing that. Additionally, a judge in March ruled that records should be public.

More from the Boston Globe:

A former bus driver who served as general manager of the transit authority before moving to the $1.5 billion pension fund, [Michael H.] Mulhern said he was leaving with “decidedly mixed emotions” after a decade in the job.

Mulhern, 57, has been under pressure from union and administration officials over the pension’s lack of transparency, after a $25 million hedge fund loss in 2012 went undisclosed for more than a year.

The pension fund for employees at the Massachusetts Bay Transportation Authority is organized as a private trust and has used that status to avoid disclosures that are typical of other pension funds for public workers in the state. The fund does not hold open meetings, for example, and for years has published late and incomplete annual reports.

[…]

There are other potential issues lurking in the projections, critics say, including the valuation of alternative assets such as hedge funds and private equity that the FTI report did not fully examine.

In addition, the fund disclosed in a recent audit that it assumes 100 percent of its employees are men, while, in reality, one-quarter are women.