Ted Ballantine | Pension360

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.

Japan Pension Called “Stupid” By Top Advisor For Prematurely Announcing Target Allocations

Japan’s Government Pension Investment Fund (GPIF) is in the process of increasing its domestic equity holdings from 12 percent of its portfolio to around 20 percent.

The pension fund announced the plan in June and the implementation is well underway – but one of the fund’s top advisors called the announcement “stupid”.

Why? Here’s his logic, explained by Chief Investment Officer magazine:

Takatoshi Ito, a vocal proponent of overhauling Japan’s $1.2 trillion Government Pension Investment Fund (GPIF), has been among those encouraging the giant fund to increase its allocation to domestic equities. But in an interview with Bloomberg this week, he warned against publishing target weightings before making asset allocation changes as the information could move markets before GPIF has a chance to access good prices.

Ito said: “Saying ‘we’re going to purchase as much as whatever percent’ before buying anything is a stupid idea. It’s tantamount to not fulfilling their fiduciary responsibilities and not appropriately investing the money entrusted to them. It’s wrong, and I’m against it.”

Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank, also hit out at the idea of announcing the allocation changes before acting. He said: “The market will front-run it, and our pension money will be invested at highs. It makes it pointless to entrust our savings to experts, and we should ask for it back so we can manage it ourselves. It makes those experts meaningless.”

The GPIF is currently reviewing its asset allocation, with Prime Minister Shinzo Abe having urged the fund to reach a decision this year. Ito said the fund has probably not started any shift yet, as it would become obvious through market data and filings when the trillions of yen expected to be reallocated start to move.

GPIF plans to slash its fixed-income holdings and shift more money towards domestic equities:

At the end of June the GPIF had 53.4% in domestic fixed income and 17.3% in Japanese equity. Ito’s personal recommendation, according to Bloomberg, was to slash the fixed income element to 35% of the portfolio and increase Japanese equities to 25%. This would involve the sale of roughly $220 billion in bonds and the purchase of roughly $96 billion in equities, based on the fund’s June 2014 valuation of ¥127 trillion ($1.2 trillion).

The GPIF manages $1.2 trillion of pension assets.

Photo by Ville Miettinen via Flickr CC License

Florida Pension Invests $63 Million In European Real Estate

The Florida State Board of Administration, the entity that manages assets for the Florida Retirement Systems, announced a $63.76 million commitment to a JP Morgan fund that invests in real estate in France, the UK and Germany.

Reported by I&P Real Estate:

Florida State Board of Administration has approved a €50m (€39.1m) commitment to JP Morgan Asset Management’s opportunistic European IP Fund III fund.

The fund has also approved a $100m allocation to Prologis’ Targeted US Logistics fund.

As revealed by IP Real Estate last week, JP Morgan’s opportunistic fund is aimed at assets in the UK, Germany and France.

The fund manager can raise as much as €750m for the fund, which will invest in office, industrial, retail and residential properties, according to Florida SBA. Buildings with low vacancy and in need of refurbishment and redevelopment are being targeted by the fund.

As reported, the fund is currently investing in office properties in Berlin and Paris. With leverage, the fund could invest as much as €3bn across Europe.

Florida said it would continue to identify international pooled fund opportunities as part of its plan for the current fiscal year.

[…]

Florida has also recently sold two office buildings for $202m. The Nyala Farms office asset in Westport, Connecticut was sold for Florida by L&B Realty, while One Boca Place was sold through Invesco Real Estate.

The pension fund has allocated $900m for new real estate investment opportunities, split into $500m for core and $400m for non-core. Capital will be invested via both funds and direct ownership through separate account managers.

Florida’s long-term real estate allocation target is 10 percent. It currently invests 7.5 percent of assets in real estate.

New Jersey Senate Moves To Tighten Pension Pay-to-Play Rules

A New Jersey Senate committee on Thursday approved a bill that would broaden the state’s pay-to-play rules regarding pension investments.

The bill intends to further strip out politics from pension investments: the new rules would prohibit the state’s pension fund from investing in firms that have recently made donations to national political groups.

Reported by NorthJersey.com:

The legislation would broaden the New Jersey conflict of interest restrictions that apply to the pension system to cover national party committees and organizations like the Democratic Governors Association and the Republican Governors Association, an agency that’s being led this year by Governor Christie.

The measure, sponsored by Sen. Shirley Turner, D-Mercer, passed the Senate State Government, Wagering, Tourism and Historic Preservation Committee by a 3-1 vote.

That vote came just weeks after the state Division of Investment, which manages the $80 billion pension system, decided to sell its stake in a venture capital fund with ties to a Massachusetts gubernatorial candidate who donated to the New Jersey GOP. The state Department of Treasury is also in the midst of an internal audit of the investment to determine whether state regulations were violated.

But labor union officials in New Jersey have also questioned other political donations made by investment firms that have been hired by the Division of Investment to manage state pension funds, including several to the Republican National Committee and the Republican Governors Association. Both organizations supported Christie’s successful bid for a second term last year, but are not covered by current state law.

Right now, the Division of Investment regulations bar the agency from investing pension funds in a firm only when the fund management professionals have made contributions to New Jersey candidates and political committees within a two-year period.

Any hint of politics and political favoritism should be kept away from the public employees’ pension funds, Turner said.

“The method of investment should be selected based on performance and merit, not because of campaign contributions,” she said.

The bill would also require the State Investment Council, which oversees the Division of Investment, to provide quarterly reports to the Legislature disclosing the fees being that are paid to the investment management firms. Treasury right now does not list those fees on its website as other states do and requires an Open Public Records Act request, which can be a lengthy process, be filed to obtain the information.

“It’s not their money, nor does it belong to any governor or any other political figure,” Turner said.

The Senate drew up the bill after an uproar caused, at least in part, by a recent series of articles by journalist David Sirota about conflicts of interest within the State Investment Council.

Photo by Truthout.org via Flickr CC License

Benefit Tweak Could Be Catalyst Behind Wave of Retirements in Indiana

The Indiana Public Employees Retirement Fund (PERF) says it’s seeing a 35 percent increase in retirements this year, and the Teacher’s Retirement Fund (TRF) is projecting a 10 percent increase, as well.

The exact reason behind the surge is unknown, but the retirements have coincidentally timed with a benefit cut that took effect October 1.

From the Indiana Business Journal:

In a recent estimate provided to IBJ, the Indiana Public Retirement System said it expects 11,140 retirements in 2014 from state and local government, including school districts.

INPRS would not break down the number of departing workers that are covered by the Public Employees Retirement Fund, or PERF, for state and local government civilian employees, and how many are teachers. Spokeswoman Jennifer Dunlap did say, however, that PERF retirements will rise 35 percent, and that the Teachers Retirement Fund, or TRF, will see a 10-percent increase.

INPRS declined to attribute the wave to its recent decision to lower its annuity savings rate from 7.5 percent to 5.75 percent, effective Oct. 1. “It would be difficult to identify any one factor as being the reason for INPRS members to retire,” Dunlap said.

INPRS reported that 83.5 percent of the retirements were effective Sept. 1, which was the deadline for members to receive the 7.5-percent annuity rate. The most high-profile retirement in that time frame was state Treasurer Richard Mourdock, who resigned Aug. 29 with four months left in his term.

An Annuity Savings Account is one leg of the INPRS system, and members have the option when they retire to annuitize their savings, which means they receive set monthly payments at a particular rate of return; roll the money into a privately managed account; or take a lump-sum payment.

The Indiana Public Retirement System, the entity that administers the PERF and TRF, manages $30.2 billion in assets.

Photo by www.nicolas-risch-photography.fr

Orange County Pension Seeks Manager For $150 Million Real Estate Commitment

The Orange County Employees Retirement System (OCERS) is looking for a manager to handle a new, $150m non-core real estate investment. From I&P Real Estate:

Orange County Employees Retirement System is conducting a new manager search for $150m (€117.7m) of non-core investment.

[…]

Orange County and RVK will conduct due diligence on investing some capital in the AG Core Plus IV fund.

An investment recommendation is expected next month, along with a presentation to the pension fund’s investment committee.

Orange County made a $40m commitment to AG Core Plus III in 2011, and the fund has generated a gross IRR of 18.94% since inception.

The $22.7m of capital called and invested is currently valued at $29.5m, as of the end of June.

For Fund IV, Angelo Gordon & Co is targeting 14-15% gross returns, with most investments to be in the US, alongside selective transactions in Europe.

Orange County and RVK will also consider other diversified funds targeting a similar risk/return profile to that of AG Core Plus IV.

The manager needs to have at least $500m in combined US and international real estate assets under management.

Orange County does not want more than 20% ownership of the total fund.

Each manager must have at least five years of performance history managing commercial real estate.

Orange County is looking for a focus on core-plus and value-added assets, with the opportunity to increase value through leasing, redevelopment, repositioning and other activities.

Preferred property types include apartments, hotel, industrial, office, retail and self-storage assets.

The move is part of a plan by OCERS to significantly increase non-core real estate investments. Currently, non-core makes up 23.7 percent of the fund’s real estate assets.

OCERS is shooting to increase that number to 30 percent by the end of 2016.

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