Here’s a rundown of the eligible pensions of Illinois elected officials due to leave office in 2015. In addition to the above pension benefits, any lawmaker who served 4 years in the state’s General Assembly — and was elected before 2011 — can receive free health insurance for their rest of their lives.
Graphic credit: Scott Reeder at the Journal-Courier
Hedge funds are looking to lock up investor funds for longer periods of time — 66 percent of hedge funds aimed to lock up funds for one year or more in 2013, according to a survey by eVestment.
In exchange, funds are willing to revise their fee structures downward.
From the Wall Street Journal:
Managers say tying up investor money for a year or more enables them to buy less easily tradable but potentially more profitable assets. It also reduces the pressure from monthly or quarterly redemption requests when performance wanes.
Extending the term also allows managers to distinguish themselves from the growing cadre of “liquid alternative” mutual funds that try to replicate hedge-fund-style trading but must allow daily redemptions.
[…]
Two-thirds of new hedge funds demanded a lockup of one year or more in 2013, a 30% increase from the previous year, according to the most recent data available from research firm eVestment. The average fund has a lockup of 377 days, eVestment said. Those pushing for longer terms include funds managed by industry stalwarts like Fir Tree Inc., GoldenTree Asset Management LLC, Trian Fund Management LP and Viking Global Investors LP, said people with knowledge of the funds.
The fact that investors have been receptive to longer lockups could indicate higher confidence:
That investors are agreeing to the extended terms, or lockups, demonstrates a significant shift in confidence since the financial crisis, when trust was shaken by rapid market losses and some fund managers prevented investors from withdrawing their money. That was quickly followed in late 2008 by Bernard Madoff ’s admission he had been running a Ponzi scheme, causing billions of dollars in losses for his investors.
“As we move further and further from 2008, people are getting more comfortable,” said Spiros Maliagros, president of $3 billion hedge-fund firm TIG Advisors LLC.
But some investors are skeptical of longer commitments:
Some observers warn that investors should be careful about allowing a manager to keep their money for so long, pointing back to the crisis when some hedge funds—particularly those holding less-liquid assets— halted withdrawals. Some investors still haven’t been paid back.
“People have forgotten a lot of the lessons from the crisis,” said Andrew Beer, chief executive of Beachhead Capital Management, which invests in hedge funds.
Several investors said they were skeptical that many hedge funds, particularly those that invest in markets that are easily traded such as stocks, need the extra leeway. Some pointed to the recent underperformance of these equity-focused funds relative to their benchmark markets as a risk of extended lockups.
View the graphic at the top of this page to see how hedge funds are changing their fee structures for longer commitments.
North Carolina’s state-level pension funds, jointly managed by the state Treasurer, collectively declined 1 percent in the 3rd quarter after the funds’ stock portfolio turned in weak returns.
From the News Observer:
The slight decline was largely the result of losses in the fund’s stock portfolio.
Stock investments, which accounted for 43 percent of the portfolio, declined 2.9 percent in the third quarter and are up 10.9 percent over the past year. Returns are calculated after deducting fees paid to money managers hired by the state.
Fixed-income investments, which account for 30 percent of the portfolio, gained .4 percent in the quarter and have returned 5.9 percent over the past 12 months. Other 12-month returns for the portfolio: real estate, 17.9 percent; alternatives such as hedge funds, 17.5 percent.
The pension fund’s assets at the end of the third quarter were valued at 88.4 billion, down from $90.1 billion at the end of its fiscal year in June.
The pension fund provides retirement benefits for more than 900,000 workers, including teachers, state employees, firefighters and police officers.
The state Treasurer’s office manages assets for the Teachers’ and State Employees’ Retirement System, the Consolidated Judicial Retirement System, the Firemen’s and Rescue Workers’ Pension Fund, the Local Governmental Employees’ Retirement System, the Legislative Retirement System, and the North Carolina National Guard Pension Fund.
A Star-Gazette investigation has revealed that retirees are leaving New York due to high cost of living and taxes – and since 2004, the fleeing retirees have cost the state over $20 billion in lost tax revenue.
More from the Star-Gazette:
Between 2004 and 2011, Internal Revenue Service data that tracks taxpayers moving in and out of states showed that New York lost $20.5 billion in total income with nearly 40 percent of that income flowing to Florida, a state that assesses no income tax. Not all that sum can be attributed to retirees, but it indicates that New York is losing both retirees and a share of its working core.
In 2012, more Boomers left New York — after accounting for those coming and those going — than any other state in the nation.
While New York’s retirees have long been been fleeing to Florida and other warmer states to escape the cold weather, the outflow is increasing. Now, even those retirees who would have preferred to stay in New York with the cold winter weather are moving south for a more hospitable tax climate.
“Economically speaking, the Baby Boomers are a powerhouse group, and they’re heading for the hills,” said David Irwin, communications manager for AARP in New York.
Retirement planners say they are seeing an increasing trend among Baby Boom retirees opting to leave New York. The movement that should alarm policymakers because it poses a potential for drastic shortfalls in state income tax revenue in future years, say economic experts.
More numbers on the migration out of New York reveal it’s not just retirees that are leaving:
Retiree migration is part of a larger issue for New York: The state is losing the competitive battle for all residents.
During the 12 months ended July 1, 2013, the Census Bureau estimated New York lost 104,000 residents to other states, according to data compiled by the Empire Center, The number was the largest net domestic migration loss sustained by any state, according to Empire Center calculations.
“I’m not sure it’s on the radar as much as it needs to be,” said Assemblywoman Donna Lupardo, D-Endwell, who has expressed concern that by the time state reacts to boomer flight it may be too late. “Hopefully, we can add some urgency to the issue.”
[…]
A recent survey by New York’s AARP chapter estimated that 60 percent of the state’s Baby Boomers expecting to retire in the coming years have plans to move from the state, exporting more than $105 billion in income annually.
View the graphic below to see the states retirees are going to.
The Virginia Retirement System (VRS) has committed $100 million to a Blackstone real estate fund that will invest in large office, retail, and apartment properties.
From IPE Real Estate:
The Virginia Retirement System (VRS) has allocated $100m (€80.1m) to the core-plus Blackstone Property Partners fund.
The open-ended fund, which invests in a combination of core, value-added and opportunistic strategies, is targeting returns of between 9% and 11%.
[…]
The pension fund is the third to commit to the Blackstone vehicle, following $100m in overall commitments from the Arizona State Retirement System and the Texas Permanent School Fund – the latter being one of the first to invest in the fund.
Blackstone is co-investing $75m in the fund, which will be 50% leveraged.
The manager will buy larger properties and portfolios across the office, industrial, retail and apartment sectors.
Blackstone, traditionally an opportunistic fund manager, can buy either directly or invest in real estate operating companies.
VRS, which has no targeted allocation to real estate, had a total $6.84bn in its real assets category as of September.
VRS manages $66.1 billion in assets.
The New York Teachers Retirement System (TRS) informed schools this month that their contribution rates would be lowered for the first time in five years.
Contribution rates will fall from 17.53 percent of payroll to 13 percent.
The change applies to schools, not to employees of the schools.
From the Democrat and Chronicle:
The drop, which will be as much as 26 percent, will be a major help to school districts that have faced higher bills for retirement costs in recent years, school officials said.
The Teachers Retirement System quietly told school districts late this month that their pension costs for the 2015-16 school year, which starts July 1, will fall from 17.53 percent of payroll to as low as 13 percent of payroll.
It will be the first drop since the 2009-10 school year. In the current fiscal year, the contribution rates are up 7.8 percent after rising 37 percent the year prior.
The retirement system will finalize its rate for the 2015-16 school year in February. The rate will be between 13 percent and 13.5 percent, and the bill is due in the fall 2016.
“Favorable investment returns over the last several years are the primary reason for the decrease in the rate,” the Teachers Retirement System said in a bulletin to school districts.
Pension costs are easing for schools and governments after they skyrocketed amid the recession — the result of major declines on Wall Street.
New York TRS manages $108 billion in assets and returned 18.2 percent last fiscal year.
U.S. Bankruptcy Judge Steven Rhodes said Wednesday that there will be a review of the legal fees incurred by Detroit’s pension funds – the Police and Fire Retirement System and General Retirement System – during bankruptcy proceedings.
More details from Detroit News:
U.S. Bankruptcy Judge Steven Rhodes ruled Wednesday that the Police and Fire Retirement System and General Retirement System should be subjected to the court’s review of costs associated with litigating the largest bankruptcy in U.S. history.
Robert Gordon, an attorney for the pension funds, argued in court Monday that they should not be subject to fee examiner Robert Fishman’s ongoing reviews because Detroit taxpayers are not directly footing their legal bills.
Rhodes disagreed, while acknowledging there’s no legal precedent for having a creditor’s legal fees subject to court review in a Chapter 9 municipal bankruptcy.
“Simply stated, the city funds the plans and the plans pay its professional fees and expenses from those funds and their earnings,” Rhodes wrote in a five-page ruling. “Contrary to the retirement systems’ assertion, the application of the statute does not depend on a line-item administrative expense paid directly by the city.”
The final cost of millions of dollars in fees charged by an army of city consultants and attorneys remains one of the last hurdles to Detroit’s exit from bankruptcy. Fees from financial advisers, restructuring consultants and law firms had topped $140 million, according to Emergency Manager Kevyn Orr’s office.
[…]
Mayor Mike Duggan has expressed concerns that cost overruns from legal bills could endanger the city’s plan of adjustment, the budgetary blueprint that will govern Detroit’s finances for the next decade.
On Monday, an attorney for Greenhill & Co. disclosed that the financial firm has billed the two retirement systems $3.55 million for its services. The firm’s advisers helped General Retirement System and Police and Fire Retirement System officials negotiate with Orr’s legal team over changes to pensions and long-term investment assumptions.
The Retirement System of Alabama has updated its investment policy and made some governance changes.
But the specifics of the changes are currently unknown as they are still being finalized.
More details on the investment policy changes from the Times-Daily:
Copies of the two resolutions approved Monday by the Employees’ Retirement System Board were not available Tuesday. The TimesDaily has filed an open records request with the agency for the documents.
One board member said the investment policy add steps to the process.
Board vice chair Jackie Graham, who is also the state’s personnel director, did not return calls Tuesday.
Leura Canary, RSA’s general counsel, returned a request for comment from the system Tuesday, but said she couldn’t provide a copy of the investment policy resolution because it wasn’t yet in its final form.
“It is a good thing for the board to review investment policies, and we’re working to implement the revised policy,” she said.
[…]
Changes have been in the works for months. It was a year ago that the same board passed a resolution that said RSA’s three-member investment committee should “independently consider all investment recommendations made by (Bronner) and independently decide whether to approve or disapprove each investment recommendation.”
For decades, that approval was done by proxy, and committee members reviewed the investments later, but board members questioned the legality of that under state law.
Bronner said then that requiring pre-approval would slow the process and hurt RSA.
A bit of detail on the governance changes:
The other resolution approved Monday creates four committees to oversee various aspects of RSA’s operations.
“They are more for the purpose of setting policies for the operation of the Employees’ Retirement System and that’s very much consistent with standard board governing practices,” Canary said.
An investment expert and member of the Alaska pension system’s investment board is calling CalPERS’ hedge fund exit a “perfect contrary indicator”.
Dr. Jerrold Mitchell sits on the Alaska Retirement Board’s Investment Advisory Council, which makes recommendations and reviews pension investment decisions. Dr. Mitchell was also formerly a CIO at the Boston Foundation and the Massachusetts Pension Reserves Investment Trust.
He encourages investors to ignore CalPERS’ lead on hedge fund investments.
More from ValueWalk:
“CalPERS is close to being a perfect contrary indicator, meaning as long as decisions are opposite CalPERS decisions, all will be just fine,” he was quoted as saying in a report for Alaska Retirement Management Board of Trustees meeting, first reported in Bloomberg Briefs.
But Mitchell didn’t just stop there. Not only should they keep alternative allocations steady, ignoring CalPERS lead, but “it may be appropriate to increase the absolute return investments, since the time to hedge is when everything is going well and asset prices are high.”
Many quantitative investment professionals consider the length and consistency of the stock market run-up in a stimulative environment and note that, if markets are allowed to operate freely, they often revert back to the mean. For his part, Mitchell is already there. “There have been six consecutive years of gratifying stock market returns,” he was quoted as saying, indicating that now, with valuations near all time highs and quantitative easing being withdrawn from the U.S. market environment, now might not be the best time to go all in long stock market investments.
Is Mitchell making a prediction on the future? Not likely. Rather, he is probably looking at probability itself and noting that at some point we might see a serious pullback, which could be a natural market occurrence.
“Dr. Mitchell believes neither governments nor private economists can forecast the economy at turning points with accuracy or consistency,” the Alaska Retirement Board report noted. “That does not mean we should give up trying, but when economic forecasts are expressed from managers, actuaries, consultants, or members of the IAC, we should realized just how fallible those forecasts have been.”
Like the boy who cried wolf, the “investment world has been consumed by discussion of risk ever since 2009,” Mitchell was quoted as saying, noting he believes the simplest and best approach to risk is to be long-term, and long term risk could be on the horizon. “Steady investing leads to steady results and is also beneficial from a physiological point of view of lower levels of cortisol.”
Alaska Retirement Management Board manages $25 billion in pension assets for the state’s retirement systems.
The value of New York’s Common Retirement Fund dipped in the third quarter, from a record-high $180 billion to $178 billion.
The decline comes from weak investment returns over the last three months; in the case of the pension fund’s portfolio, the issue was underperformance of U.S. equities.
From News 10:
New York’s pension fund for government workers reports a decline to $178.3 billion following a negative return of less than 1 percent in its latest quarter.
Comptroller Thomas DiNapoli, the fund’s trustee, says investor “challenges” in the quarter ending Sept. 30 followed a “robust” previous quarter when the fund reached a record $180.7 billion.
It has about 38 percent of assets in domestic stocks, 17 percent in international stocks, 27 percent in cash, bonds and mortgages, 8 percent in private equity, 7 percent in real estate and the rest in other investments.
DiNapoli says Wednesday some gains were offset by underperforming U.S. stocks and global central bank actions that made international markets volatile.
For the fiscal year that ended March 31, the fund reported a 13 percent return on investment.
The Common Retirement Fund manages assets for New York’s Employees’ Retirement System (ERS) and Police and Fire Retirement System (PFRS).