Ted Ballantine | Pension360

Video: CalPERS CIO Talks Hedge Fund Exit, Market Risk of Climate Change and Corporate Tax Avoidance

http://youtu.be/jRDuJt_jJqQ?list=UUWHcVDsYvL_xcRjarkRlqoQ

The above video features an interview with CalPERS chief investment officer Ted Eliopoulos. Topics include CalPERS’ hedge fund exit, the fund’s stance on corporate tax avoidance, and how climate change has impacted the fund’s portfolio.

Ai-CIO.com summarizes a few key points from the interview. On hedge funds:

“One of our prime considerations in reviewing the program is whether we believe we could scale the program to a much more significant part of the overall portfolio,” he said. “Our analysis, after very careful review, was that mainly because of the complexity of the hedge fund portfolio and the cost we weren’t comfortable scaling the program to a much greater size than it currently held.”

On corporate tax inversion:

Eliopoulos emphasised that, in general, tax was something to be addressed by relevant governments as a policy issue, but expressed concern about corporate inversions.
“We think the best approach is for the US government to address this type of a loophole in the context of overall corporate tax reform, and we’ve urged the government to get at it,” he said.

The Role of Diversity in Investment Committee Effectiveness

A recent Vanguard survey looked at the diversity of investment committees of pension funds and endowments – diversity in gender, race, education, age and professional background.

The survey also gauged the opinions of committee members on a variety of topics: How much do they value diversity? Are they satisfied with the level of diversity on their board? How does diversity impact committee effectiveness?

The results were published in a Vanguard report and in the September issue of Pension Benefits.

From the report:

Four in ten respondents to our survey said that committee diversity was either ‘not’ or ‘not very’ important, and another 37% remained noncommittal in terms of diversity’s role in driving committee effectiveness. Few respondents placed a high level of importance on diversity of any kind-65% were ‘extremely satisfied’ or ‘very satisfied’ with their committee’s level of diversity.

Respondents considered their investment committees to be most diverse in terms of members’ professional experience-more than 60% of members indicated their committee was ‘very/extremely diverse’ in this respect. Nonprofit committees reported a higher level of diversity than retirement committees in terms of professional experience and investment committee experience. Overall, committee members reported the least diversity in terms of race/ethnicity.

When survey respondents were asked to rank the top three diversity elements that positively contributed to the effectiveness of a committee, diversity in professional experience and diversity in committee experience ranked highest. Based on these findings, committee members tended to point to job-related diversity as the main driver of committee effectiveness, whereas biodemographic diversity again played a more secondary role.

Fewer than one in ten investment committee member respondents said that they have a formal, written policy in place to develop and foster diversity within their committee. The importance placed on developing such a policy moving forward is relatively low, as just 6% of committee member respondents said this was ‘very/extremely important.’

Just one-quarter of our survey respondents said their committee had become more diverse than five years previous-with the majority (70%) indicating that their committee had not changed one way or the other.

One-third of our survey respondents ranked being ‘fully engaged in the committee process’ as the most valuable trait among effective committee members.

The entire report can be read here.

Canada Pension Invests Nearly $400 Million In Brazilian Real Estate

The Canada Pension Plan Investment Board (CPPIB), the entity that manages investments for the Canada Pension Plan, plans to invest $396 million in commercial real estate in Brazil.

From Reuters:

In a statement released late on Monday, CPPIB said the investments include the purchase of warehouses, land and stakes in development projects in the logistics and retailing industries, adding to the fund’s portfolio of more than 100 properties in Latin America’s largest economy.

The move brings CPPIB’s real estate commitments in Brazil to over $1.8 billion. Since 2009, CPPIB has bought real estate in Brazil to profit from rising demand for corporate and distribution facilities.

[…]

CPPIB will pay 507 million reais for 30 percent in a joint venture with Singapore’s Global Logistic Properties Ltd. , the world’s No. 2 owner of industrial properties, to run 32 logistics properties in São Paulo and Rio de Janeiro, the statement added.

Another 231 million reais were committed to GLP Brazil Development Partners I, a real estate investment vehicle in which Global Logistic Properties has a 40 percent stake and CPPIB a 39.6 percent stake.

CPPIB also pledged to spend 159 million reais to buy a 25 percent stake in a São Paulo logistics project alongside Cyrela Commercial Properties SA.

The fund also paid 100 million reais for a 33.3 percent stake in the Santana Parque Shopping mall, which is jointly run by partner Aliansce Shopping Centers SA, the statement added. CPPIB has a 27.6 percent in Aliansce, a shopping mall operator.

From a CPPIB statement released Monday:

“Since making our first real estate investment in Brazil in 2009, CPPIB has become one of the largest investors in the sector with ownership interests in logistics, retail, office and residential assets or developments,” said Peter Ballon, Managing Director & Head of Real Estate Investments – Americas. “Over the past 10 months, we deepened relationships with our key partners to commit additional equity in high-quality real estate assets that are important additions to our diversified Brazilian portfolio. Our team of real estate professionals based in our recently opened Sao Paulo office continues to pursue attractive investment opportunities in the region.”

The Canada Pension Plan Investment Board manages $226 billion in assets.

Fitch Slaps Jacksonville With Credit Downgrade Over Pension Obligations

Fitch warned Jacksonville earlier this year that a credit downgrade was waiting in the wings if the city didn’t move to control its rising pension costs.

Fitch has now followed through on the threat, downgrading several city bonds from AA+ to AA, and others from AA to AA-.

In doing so, Fitch becomes the second agency to downgrade Jacksonville’s credit in the last four months. Moody’s did so in June.

From the Jacksonville Daily Record:

Fitch Ratings has downgraded several of Jacksonville’s bonds, citing pension risk and lack of reform as key drivers to its negative changes.

In all, about $1 billion in bonds and commercial paper notes were downgraded. Three bonds went from AA+ to AA, while one bond and the city’s commercial paper went from AA to AA-.

Regarding the city’s unlimited tax general obligation, its pension and liability profile is more consistent with an AA rating as opposed to an AA+ rating, the agency explains in its notes. Ratings affect the city’s interest rates on borrowing.

“The rating action focuses on credit risk associated with the city’s pension plans, which have a large collective unfunded actuarial accrued liability and rapidly escalating funding costs,” it states.

The city’s police and fire pension plan’s unfunded liability is more than $1.6 billion. The annual cost of paying into the plan is a projected $154 million for fiscal year 2014-15, up $6 million from the year before.

Chief among Fitch’s concerns is the city’s stalled pension reform efforts. One Fitch analyst said reform has been “very slow to evolve”. From the Florida Times-Union:

Fitch Ratings voiced concerns Monday about whether Jacksonville can actually achieve pension reform that will strengthen the city’s financial outlook.

[…]

After noting that some City Council members have filed amendments seeking to change a pension bill introduced by Mayor Alvin Brown, Fitch’s report questions “when or if” the City Council will vote on that bill.

Fitch also points out that Brown’s bill doesn’t identify a “definitive long-term funding source” to pay for a $400 million piece of Brown’s proposal — a criticism also lodged by several City Council members and the Jacksonville Civic Council, a high-profile business group.

[…]

Fitch put Jacksonville on notice earlier this year it would downgrade the city’s ratings if pension reform isn’t achieved. Brown filed his pension bill in June but it went on the back-burner during the summer budget hearings. The City Council conducted its first session last Wednesday to discuss the bill.

The Mayor’s Office has said the question-filled meeting was productive. But Fitch’s analysts were “concerned that it was not the progress they were after,” said city Chief Financial Officer Ronnie Belton, who talked to the analysts last week.

“I think the message from them is, ‘We’re looking for you to deal with the No. 1 issue you’ve got,’ ” Belton said.

Read the Fitch report here.

Former Illinois Attorney General: Pension Reform “Single Most Important” Issue Facing Illinois

Ty Fahner, president of the Civic Committee of The Commercial Club of Chicago and former Illinois attorney general, has been pushing Illinois lawmakers for months to come up with a “Plan B” for pension reform.

He contends that it’s likely the Illinois Supreme Court will overturn the state’s pension reform law. And if it does, Illinois has no contingency plan in place.

In a column in the Belleville News-Democrat, Fahner says of pension reform: “no issue of greater importance to Illinois’ future”. He writes:

What if?

It’s the single most important question that Illinois residents should be asking, and candidates for office should be answering.

Yet as Election Day approaches, too few are asking about the most critical issue facing the state.

What if the Illinois Supreme Court rejects pension reform?

Illinois needs an open and honest conversation about the potential impact this decision could have on the state and its citizens. Regardless of the outcome, the consequences are far-reaching and voters deserve to know whats at stake.

This is about what is good for the state and its future. Illinois needs to be in a position to grow its economy, create jobs for Illinois residents, invest in education and infrastructure and provide for the most vulnerable among us. The pension law decision will have a sweeping impact that will touch every Illinois resident in one way or another.

Illinois can no longer kick the can down the road. Half measures will not suffice. We need to address these issues now. Even if the law is upheld, we are still lagging virtually every state in the nation. All of the answers to these questions will take time to develop, win approval from the General Assembly and implement. Many of the social services already have been cut to the bone and educational funding reduced by $2.7 billion since 2009 — what is the plan?

[…]

With the future of pension reform hanging in the balance, now is the time to ask the question.

What if?

No issue is of greater importance to Illinois’ future.

And if the Supreme Court does reject the state’s pension reform law, Fahner writes:

If the court rejects the law, $145 billion in state contributions is immediately added to the taxpayer tab over the next 30 years. Whether through even more tax hikes or continued service cuts, that money has to be accounted for. We would pay a lot more for a lot less in return.

Property taxes could rise to the highest in the nation. School districts could face further budget strain. Tens of thousands of seniors, children and mentally ill could face significant reductions, if not loss, of the state assistance on which they rely. The security of the pension systems themselves would be jeopardized.

Illinois needs this conversation. The sad truth is that all of the state”s biggest problems are directly tied to the pension crisis, which has already resulted in paralyzing tax hikes, steep cuts to social services, unreasonable burdens on students and the loss of jobs to neighboring states. Already, Illinois ranks last or near last among the states on every economic indicator from unemployment, to property taxes, to jobs climate and state support for education.

Read the entire column here.

Survey Says: Middle-Class Americans Aren’t Saving For Retirement

A new poll conducted by Wells Fargo has affirmed what other recent surveys have already found: many Americans are putting off saving for retirement, and a significant percentage of people have no retirement savings at all.

This survey is of interest because it focused specifically on middle-class Americans.

The results:

Forty-one percent of middle-class Americans between the ages of 50 and 59 are not currently saving for retirement. Nearly a third (31%) of all respondents say they will not have enough money to “survive” on in retirement, and this increases to nearly half (48%) of middle-class Americans in their 50s. Nineteen percent of all respondents have no retirement savings. On behalf of Wells Fargo, Harris Poll conducted 1,001 telephone interviews from July 20 to August 25, 2014 of middle-class Americans between the ages of 25 and 75 with a median household income of $63,000.

Sixty-eight percent of all respondents affirm that saving for retirement is “harder than I anticipated.” Perhaps the difficulty has caused more than half (55%) to say they plan to save “later” for retirement in order to “make up for not saving enough now.” For those between the ages of 30 and 49, 59% say they plan to save later to make up retirement savings, and 27% are not currently contributing savings to a retirement plan or account.

Sixty-one percent of all middle-class Americans, across all income levels included in the survey, admit they are not sacrificing “a lot” to save for retirement, whereas 38% say that they are sacrificing to save money for retirement.

[…]

While a majority of middle-class Americans say that they are not sacrificing a lot to save for retirement, 72% of all middle-class Americans say they should have started saving earlier for retirement, up from 65% in 2013. When respondents were asked if they would cut spending “tomorrow” in certain areas in order to save for retirement, half said they would: 56% say they would give up treating themselves to indulgences like spa treatments, jewelry, or impulse purchases; 55% say they’d cut eating out at restaurants “as often”; and 51% say they would give up a major purchase like a car, a computer or a home renovation. Notably, fewer people (38%) report that they would forgo a vacation to save for retirement.

The survey also asked people how much money they had saved:

According to the survey, middle-class Americans have saved a median of $20,000, which is down from $25,000 in 2013. Middle-class Americans across all age groups in the study expect to need a median savings of $250,000 for retirement, but they are currently saving only a median amount of $125 each month. Excluding younger middle-class Americans who may be earning less money, respondents between the ages of 30 and 49 are putting away a median amount of $200 each month for retirement, whereas those between the ages of 50 and 59 are putting away a median of $78 each month for retirement.

Twenty-eight percent of all age groups included in the survey report that they have a written financial plan for retirement. That number is slightly higher, 34%, for those between the ages of 30 and 39. People with a written plan for retirement are saving a median of $250 per month, far greater than the median $100 per month that is being saved by those without a written plan.

The entire report can be read here.

Photo by www.SeniorLiving.Org

Massachusetts Pensions Reach $170 Million Settlement In Lawsuit Against Fannie Mae

Two Massachusetts pension funds have been leading a class action lawsuit against Fannie Mae, accusing the firm of securities fraud that caused shareholders to lose money.

On Monday the pension funds, the Pension Reserves Investment Trust and the Boston Retirement Board, said they had reached a $170 million settlement with Fannie Mae.

From the Boston Globe:

The Massachusetts state pension fund announced Monday a proposed $170 million settlement in a class-action lawsuit brought in 2008 against the Federal National Mortgage Association, known as Fannie Mae.

The state fund, called the Pension Reserves Investment Trust, was co-lead plaintiff in the lawsuit, with the Boston Retirement Board. It’s not yet clear how much the state and Boston funds will receive from the proposed settlement, which includes thousands of stockholders.

“We are proud to have helped negotiate a meaningful recovery for Fannie Mae investors by stepping forward in this case,” Michael Trotsky, executive director of the $60.7 billion state fund, said in a statement. “Pursuing meritorious litigation where we believe we can add value” is part of the fund’s overall strategy, he said.

[…]

The lawsuit was filed in federal court in the Southern District of New York and alleged that shareholders lost money due to securities fraud by Fannie Mae and two of its former officers between Nov. 8, 2006, and Sept. 5, 2008.

Specifically, the lawsuit alleged that the defendants made false and misleading statements concerning the company’s internal controls and its exposure to subprime and other risky mortgage loan products.

A separate lawsuit brought previously by other plaintiffs against Freddie Mac had failed.

The proposed settlement must be approved by the court. If approved, a court-appointed administrator would oversee the claims and the divvying up of the recovered money.

The Boston Retirement Board manages $4 billion in assets. The Pension Reserves Investment Trust manages $53 billion in assets.

Photo by 401kcalculator.org

How Confident Are Institutional Investors Right Now?

The results of a recent survey, conducted and released by Pyramis, indicate that institutional investors are more confident than ever about their investment returns.

But funds in Asia and Europe are much more optimistic about market volatility than their counterparts in Canada and the U.S.

The survey of 811 pension fund managers found that Canadian pension funds were the most pessimistic of the bunch about future markets.

From Chief Investment Officer:

Despite the return of volatility, confidence in meeting investment goals has resurged as more than nine in 10 institutional investors said they would hit their targeted returns.

Some 91% of 811 investors told a survey, run by fund manager Pyramis, they believed their goals would be hit over the next five years, a large increase on the 65% who said the same in the company’s 2012 survey.

“While the travails of 2008 are far back enough for investors to feel significantly more confident that they will hit their five-year investment targets for their assets, they still remain concerned that there will be a return to volatility, as has been the case in recent weeks,” said Nick Birchall, head of UK institutional business at Fidelity Worldwide Investment, which distributes Pyramis’ products outside North America.

[…]

Volatility cast the longest shadow on institutional investors, according to the survey. Some 22% cited it as their top concern, while investors in the UK were the most nervous, with 31% saying it was their biggest worry.

However, their peers in the US were also concerned by erratic market moves.

Just 7% of US investors agreed with the following statement: “Volatility is decreasing and market bubbles/crashes will become less frequent.”

Some 10% of their Canadian neighbours agreed, while European and Asian investors took the opposite view, with 79% and 91% respectively thinking the statement was dead on the money.

It’s important to note that the survey was conducted back in June, before recent bouts of market volatility.

Canadian pension funds showed some impressive clairvoyance, as they were by far the most pessimistic of the group back in June: 6 out of 10 Canadian respondents said they anticipated increased market volatility in the near future.

From the Business News Network:

The survey, conducted in June and July, found 60 percent of Canadian pension fund managers believe that over the long term, “volatility is increasing and market bubbles/crashes will become more frequent,” while 42 percent in the U.S. agreed with the statement. However, only 4 percent of pension managers in Europe and 5 percent in Asia agreed volatility is increasing.

The survey included 90 Canadian pension funds representing about 25 percent of all pension plan assets in Canada, Pyramis said.

Mr. Young said he believes the findings reflect the broader global focus of Canadian pension funds, saying funds in other regions are often more inward-looking and focus more on their regional markets. They may have responded based on a consideration of their own local economies, while Canadian pension funds may have been assessing the volatility more broadly in all major markets, he said.

“I do believe that Canada has a very unique and global perspective compared to most countries,” [Pyramis vice-chairman] Mr. Young said.

Video: CalSTRS CIO Talks Long Term Investing And Handling Market Volatility

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Chris Ailman, CIO of the California State Teacher’s Retirement System, sat down with CNBC last week to talk about handling market volatility, re-balancing the fund’s portfolio and being a long-term investor.

Ailman also talks about why CalSTRS invests in hedge funds and why that won’t be changing any time soon.

Video credit: CNBC

Alaska Pension Explores Investments In Medical Offices, Other Real Estate

The Alaska Retirement Management Board, the entity that manages investments for the state’s largest pension plans, is looking to shift money out of its REIT portfolio into private real estate investments. The Board has its eye on medial officer buildings.

From IPE Real Estate:

Steve Sikes, state investment officer, said the fund is yet to decide how much capital will be moved from REITs.

“REITs are viewed as a potential funding source for private real estate investments because we are at the high end of the target range for public real estate securities in the portfolio,” he said.

Alaska’s REIT portfolio accounts for 21.1% of its total real estate portfolio. As of June, the REIT portfolio – valued at $322m (€254m) – returned 12.95%, against the FTSE NAREIT All Equity REITs Index of 13.02%.

The fund’s investment staff will explore new private investments in medical office buildings, value-added and opportunistic funds, as well as participating mortgage investments – which would be a new strategy for Alaska.

“Up to now we have not invested in this strategy,” said Sikes. “It offers the potential for higher returns with an attractive income component.”

The LaSalle Medical Office Fund II, which is now being wound down, has given the Alaska an insight into the sector that it believes offers good income.

“Value-add/opportunistic and participating mortgage investments are categories of real estate investments that may create attractive returns,” said Sikes.

Alaska could invest additional capital through core separate account managers – depending on the sale of non-strategic assets at attractive prices. Sikes said he could not predict the amount of property it would sell.

The pension fund is looking to increase its exposure to core markets with high barriers to entry.

The Alaska Retirement Management Board manages $26 billion in assets for five of the state’s retirement plans, including the Public Employees’ Retirement System and the Teachers’ Retirement System.

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