Ted Ballantine | Pension360

Canada Pension Board to Open India Office

Pension360 covered last week the reported interest in Indian investments expressed by the Canadian Pension Plan Investment Board (CPPIB). Today, that interest became much clearer, as the CPPIB announced plans to open an India office in Mumbai.

More details from the Economic Times:

Canada Pension Plan Investment Board (CPPIB), the giant pension fund that makes private-equity investments, plans to open an India office and has hired Kotak Realty Fund executive V Hari Krishna as a key member of its local team.

Krishna would join CPPIB in the coming month from the Kotak fund where he was a director for more than nine years, said two people having direct knowledge of the matter. He has also worked at real estate consultancy firms in the pat.

The proposed India office will be the second for CPPIB in an emerging market, indicating the fund’s growing focus on India where the economy is expected to turn around after two years of sub-5 per cent growth. “The India office will be set up in Mumbai in the next two-three quarters and CPPIB intends to do direct transaction over the next 12-18 months,” said one of the two people. “The fund has been looking to hire heads for real-estate, infrastructure and equities for India to drive investment.”

The pension fund refused to comment on office opening or recruitment in India, including of Krishna. “As a growing global investment organisation, we do look at expansion to more locations,” said Mark Machin, senior managing director and president of Asia at CPPIB. Krishna didn’t reply to a text message seeking comment.

The CPPIB appears to be primarily interested in Indian infrastructure and real estate investments. From the Economic Times:

In June this year, it offered to invest around $322 million in India’s infrastructure sector through L&T Infrastructure Development Projects, a unit of Larsen & Toubro.

It offered another $250 million in a strategic alliance with Piramal Enterprises to provide structured debt financing to residential projects across major urban centers this February, and a $200 million strategic alliance with the Shapoorji Pallonji group to acquire stabilised office buildings that are foreign-direct-investment compliant in late 2013.

“India is a key long-term growth market for CPPIB. The fund has committed approximately US $1.4 billion in India since 2010 and will continue to look to India for investments that fit with our long-term investment mandate,” CPPIB’s Machin said in an email response.

The CPPIB would not confirm or deny the plans for an India office.

United Nations Appoints New Officer To Head Pension Investments

The United Nations has hired a new top investment officer to manage the investments of its $54 billion pension fund. The position — officially titled Representative of the Secretary-General for Investments — will be manned by Carol Boykin, who has worked on the investment staff of numerous public pension funds over the last two decades. From Ai-CIO:

As representative of the secretary-general for investments—a role created in March—Carol Boykin will be responsible for overall asset management strategy, policy, and oversight.

She has spent the last several years as president of Bolton Partners Investment Consulting, an independent Baltimore-based benefits practice.

Boykin served as CIO of the Maryland State Retirement and Pension System from 1999 through 2003, before leaving abruptly. She had come to the then-$25.2 billion public fund from Lucent Technologies, where she spent two years as deputy CIO.

She began her career in 1995 at the New York State Teachers’ Retirement System, where she spent three and half years as a securities investment officer.

The UN’s defined benefit fund has a highly complex governance structure and is entirely internally managed.

Carol Boykin’s biography from Bolton Partners’ website reads:

Ms. Boykin is a CFA charterholder, and she is a member of CFA Institute. She is a past president of the Baltimore CFA Society, and she currently serves on their Advisory Board. She holds a Master of Science in Finance from Loyola University Maryland and a Bachelor of Arts in Economics from Emory University.

According to Chief Investment Officer magazine, the United Nations was actively looking to hire a woman or minority to lead the pension fund’s investments.

New Jersey Credit Rating Cut By S&P; Record 8th Downgrade Under Christie

Credit rating agency S&P has downgraded New Jersey’s credit rating by one step, to A. The downgrade comes just 5 days after Fitch downgraded the state’s rating.

Notably, the state has been downgraded eight times under Chris Christie, the most under any governor in the state’s history.

Reported by Bloomberg:

The reduction to A, the sixth-highest level, with a stable outlook follows a Sept. 5 downgrade by Fitch Ratings. It gives New Jersey the same general-obligation grade as California, which is on track for an upgrade as revenue exceeds Democratic Governor Jerry Brown’s estimates. Only Illinois has lower ratings than New Jersey among U.S. states.

“New Jersey continues to struggle with structural imbalance,” S&P analyst John Sugden in New York said in a statement today. “The governor’s decision to delay pension funding, while providing the necessary tools for cash management and budget control, has significant negative implications for the state’s liability profile.”

Christie, a 52-year-old Republican in his second term, broke his promise this year to make $2.5 billion in extra pension payments in fiscal 2014 and 2015 to help trim unfunded obligations. He has called for more changes to the plan as costs for employee benefits crowd out other state spending.

[…]

New Jersey’s pension deficit, which reached $53.9 billion in 2010 after a decade of skipped payments and expanded benefits, fell to $36.3 billion with Christie’s changes. It then grew to $47.2 billion in 2012 as he made only partial contributions.

For fiscal 2014, which ended June 30, Christie contributed $696 million, less than half the planned $1.6 billion. Superior Court Judge Mary C. Jacobson, ruling in Trenton on June 25 in a lawsuit filed by state worker unions, said Christie was within his power to reduce the payment because he faced a fiscal emergency.

All three of the major rating agencies – Fitch, Moody’s and S&P – have downgraded New Jersey’s credit rating in 2014.

Gina Raimondo Wins Rhode Island Democratic Primary; Pensions Remain Campaign Issue

Rhode Island Governor candidate Gina Raimondo has beaten out challengers Angel Taveras and Clay Pell to win the state’s Democratic Primary. From Politico:

With 96 percent of precincts reporting, Raimondo led Providence Mayor Angel Taveras, 42 percent to 29 percent, with first-time candidate Clay Pell at 27 percent.

Rhode Island Democrats are hoping Raimondo can break a long streak of gubernatorial heartbreak: It’s been since 1992, when Bruce Sundlin earned a second two-year term, that a Democrat won an election for governor. Current Gov. Lincoln Chafee, who is not seeking reelection, took office as an independent but later became a Democrat as he pondered his electoral future.

The primary was of particular interest because of the pension issues surrounding the candidates, and the lack of public-sector union support for Raimondo.

Some further analysis of the outcome, courtesy of Daniel DiSalvo at Public Sector Inc:

Raimondo won for three reasons. First, in a three way race that included the Mayor of Providence Angel Taveras and Clay Pell, the 32-year old scion of former Senator Claiborne Pell, Raimondo enjoyed greater name recognition and outraised and outspent her opponents.

Second, the Ocean State’s public employee unions were divided between Taveras and Pell. Traveras had run afoul of the state’s teacher unions after a labor dispute in Providence and he had also supported pension reform, albeit a milder version than Raimondo. In short, the unions could either back Pell–the least experienced candidate–or they could chose between pension reformers. Some went for Pell, most notably the teacher unions, and others for Taveras. The lack of unity weakened the force of the public employee voting block.

Third, the labor movement was divided between public and private sectors–a phenomenon that has occurred frequently in recent years. Many private sector unions, concerned about the state’s business climate, backed Raimondo.

Raimondo will face Allan Fung in the general election. Fung, who is currently the mayor of Cranston, defeated Ken Block in the Republican primary.

New Jersey Launches Website Seeking Pension Comments From Public

New Jersey’s newly established Pension and Benefit Study Commission is seeking public comments and suggestions regarding the panel’s mission of “making the system sustainable for taxpayers and retirees”.

Click here to access the comment form.

The panel was created by Chris Christie last month to brainstorm cost-cutting and reform ideas to implement into the state’s pension system.

More details from the Absury Park Press:

If you’re interested in providing Gov. Chris Christie with some feedback on how to handle New Jersey’s underfunded public employee pension systems, now is your chance.

The state Department of the Treasury has created a web page and a comments form for the newly formed New Jersey Pension and Health Benefit Study Commission.

That nine-member commission was appointed by Christie in August and tasked with providing recommendations for reforming the system, which has been chronically underfunded by the state for years.

[…]

The new web page features short biographies of the nine commission members, a widget that takes viewers to a page on which they can submit feedback and a link to Executive Order 161, which established the commission.

View the website by clicking here or visiting the direct URL:

https://www.state.nj.us/treas/reform.shtml

New York Common Fund Gives $2 Billion to Goldman Sachs

The New York State Common Retirement Fund announced today it plans to give $2 billion to Goldman Sachs Asset Management to invest in global equities.

Reported by Bloomberg:

It’s the first time the $180.7 billion fund has formed such a partnership, Comptroller Thomas DiNapoli, the pension’s sole trustee, said today in a statement. In addition to investing the funds with equity managers, the unit of Goldman Sachs Group Inc. (GS) will also provide advice across the pension’s remaining $98 billion equity portfolio.

“Identifying new opportunities is key to the continued growth of the fund’s long-term value,” DiNapoli said. It will give the pension “full access to world-class global equity investment opportunities and the nimbleness to take advantage of them on a timely basis.”

New York joins public pension funds including New Jersey, New York City and the Teacher Retirement System of Texas in making big allocations of capital to investment managers that can be deployed more quickly and across different strategies. Such separately managed accounts offer cheaper fees and more control for investors, who in turn agree to commit large sums for a decade or more.

[…]

Timothy O’Neill and Eric Lane, global co-heads of the investment management division at Goldman Sachs, said the partnership is a “landmark assignment” for the firm.

“We are excited to provide customized access to our broad open-architecture platform, due diligence expertise and portfolio construction capabilities,” they said jointly in the e-mailed statement from DiNapoli.

Thomas DiNapoli is New York State’s Comptroller, but he is also the sole trustee of the New York State Common Retirement Fund.

Audit Estimates Legal “Pension Spiking” by CalPERS Members Could Cost State $800 Million

The California Controller released an audit on Tuesday that found a particular brand of “pension spiking”, although perfectly legal, could cost California $800 million over the next 20 years. From California Healthline:

Dozens of public agencies that contract with CalPERS have engaged in a legal form of pension spiking, putting the state on the hook for nearly $800 million over the next 20 years, according to an audit released Tuesday by the State Controller’s Office, AP/KPCC’s “KPCC News” reports (“KPCC News,” AP/KPCC, 9/9).

The legal practice involves employers withdrawing commitments to cover employees’ pension costs in their final year of work and instead adding the value of the payment to the employee’s salary. The practice was legal under a 1993 law but has since been prohibited for new employees.

The audit found that 97 agencies that contract with CalPERS have amendments allowing them to engage in the practice.

The amendments increased CalPERS members’ compensation by $39.1 million in pensionable pay annually, which could result in as much as $796 million in such compensation over two decades.

The audit found that CalPERS doesn’t have the resources to audit the 3,000 agencies with which it contracts. CalPERS said it has hired more staff recently to combat that issue, but it’s not enough. From California Healthline:

The pension fund also has insufficient resources for auditing all of the 3,100 public agencies with which it contracts. For example, the audit found that a local government contracting with CalPERS would only be audited by the pension fund every 66 years. Since the audit was performed, CalPERS has hired more staff, but the agency is still only capable of performing audits on a contracting entity once every 33 years, according to the controller’s office.

In a release, Controller John Chiang (D) said the prevalence of such issues “invites abuse” and that the pension fund “must be more vigorous in protecting taxpayers from this form of public theft.”

View the Controller’s entire audit here.

Photo credit: Lending Memo

Video: Pennsylvania Lawmakers Host Town Hall On Pension Reform

State Reps. Seth Grove (R-Dover Township) and Mike Tobash (R-Schuylkill/Berks) hosted a town hall meeting on state pension reform in early August.

But the video has just recently hit YouTube, and it’s worth watching if you’re interested in the various proposals currently sitting in the Pennsylvania legislature.

Tobash is a legislative appointee to the Public Employee Retirement Commission; he is also sponsoring a pension reform bill that would switch new hires into a hybrid-style 401(k) plan.

Pension360 covered Tobash’s reform proposal last week.

Funding Status of Largest Plans Falls in August

The funded ratios of the largest pension plans in the country collectively fell during the month of August, according to a Milliman report. Reported by Pensions & Investments:

The funded status of the 100 largest U.S. corporate pension plans fell to 84% in August, down from 84.8% in July, said the latest Milliman 100 Pension Funding index.

[…]

During the same period, investments returned 1.92%, the second best monthly return of the year, Mr. Wadia said, surpassed only by February’s 2.3% return. Assets rose to $1.47 trillion in August from $1.45 trillion in July.

If the pension funds achieve a median 7.4% annual return and the discount rate remains at the current 3.89%, the funded status would increase to 84.9% by the year’s end, still a 3.4-percentage point drop from 88.3% in December 2013, according to Milliman.

“The reason (the funded status) hasn’t fallen more (year-to-date) is because of positive asset growth,” Mr. Wadia said. Assets have returned 7.5% year to date Aug. 31.

The largest corporate defined-benefit plans, on the other hand, improved in August, as funded status improved from 88.3 percent to 88.4 percent.

California Unveils Finance Data Website; Pension Data To Be Added Later

California has launched ByTheNumbers.sco.ca.gov, a website designed to give citizens easy access to financial data for every city and county in the state.

The website, launched by Controller John Chiang, will eventually contain data for all of the more than 100 pension funds in California. That data will include investment returns, administrative costs, assets and liabilities.

From the Fresno Bee:

ByTheNumbers.sco.ca.gov allows taxpayers to track revenues, expenditures, liabilities, assets, fund balances and other information provided by more than 450 cities and the 58 counties statewide. The data runs from fiscal year 2002-03 through 2012-13.

Controller John Chiang, who is running for state treasurer, said in a statement that the website is moving government information “out of the analog dark ages into the digital era.”

The website allows users to download raw figures, convert them into charts and share the information freely. Chiang’s office said the data will be refreshed each year with updates sent in by local governments.

Chiang is a member of the boards of both major California pension funds, CalPERS and CalSTRS.

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