Author: Ted Ballantine

The Ontario Teachers’ Pension Plan is looking to offload a portion of its PE portfolio in the secondaries market.

It’s looking to sell a $1 billion chunk of PE fund stakes, which represents about 5 percent of its overall PE portfolio.

More from Financial News:

The portfolio is worth around $1 billion and consists of fund stakes in a range of private equity funds spread globally, the people said.

The Canadian pension plan is speaking to a limited group of potential buyers. The process is at an early stage and no formal bids have been made yet.

A spokesman for Ontario Teachers’ declined to comment on the deal, but said in an emailed statement: “We regularly review our allocation of funds. We remain committed to investing in Europe via GP [general partner] allocation, co-investments and directly.”

As the private equity market continues to mature, many institutions have become active buyers and sellers in the secondaries market, which saw an annual volume of around $40 billion in 2015, according to secondary advisory firm Greenhill Cogent.

While just 14% of sellers in the secondaries market last year were public pension funds, they accounted for over 45% of the aggregate dollar volume in 2015, according to Greenhill Cogent’s Secondary Market Trends & Outlook report, which was published in January.

Ontario Teachers’ managed $155 billion in assets as of the end of 2014.

 

Photo  jjMustang_79 via Flickr CC License

The Canada Pension Plan Investment Board is continuing its expansion into Brazil, even as the country goes through troubled economic times.

The fund is adding two people to its Sao Paulo office, according to Bloomberg, despite the fact the the country’s credit rating was lowered another notch this week.

Bloomberg talked to CPPIB’s Rodolfo Spielmann, head of Latin America:

“This crisis, like others, will pass,” Spielmann said in an interview at Bloomberg’s office in Sao Paulo. “We’re not reassessing our strategy for Brazil, unless a cataclysm happens. We’re still very excited about investment prospects in the country in the medium and long term.”

Born in Argentina, Spielmann worked for Bain & Co. Inc for 21 years, 14 of them in Brazil, before joining CPPIB in 2014.

The Canada Pension Plan Investment Board isn’t calling a bottom for Brazilian assets, and sees a sustained rebound in the currency as a ways off. Still, there’s long-term value in the region’s best companies, Spielmann said, declining to specify which stocks he is buying.

“We are not bottom fishers,” Spielmann said. “Our ambition is to have the best assets on the market, because their price may fall 10 percent, 20 percent or 30 percent, and, still, they will always perform better than the medium-quality assets in the long term.”

The fund returned about 18 percent in the 2015 fiscal year, more than double its 10-year annual average.

[…]

Brazilian stocks are trading near the lowest in six years, while the nation’s currency has dropped every year since 2011 as President Dilma Rousseff struggles to get support for measures to reverse a budget deficit that has caused the country to lose its investment-grade rating.

CPPIB has about $1.8 billion in Brazil-related investments.

 

Photo by  Horia Varlan via Flickr CC License

Japan’s Government Pension Investment Fund (GPIF) is considering disclosing more details on its stock portfolio in an effort to boost transparency at the fund.

The GPIF is in the midst of ramping up its allocation to stocks; any details made public would be of interest and consequence to the market.

From Reuters:

An executive of Japan’s trillion-dollar public pension fund said the fund is considering disclosing details of its stock holdings in a bid to enhance transparency, information that could potentially move market prices when released.

The remark by Hiromichi Mizuno, chief investment officer of the Government Pension Investment Fund (GPIF), comes amid concerns that the government may wield influence over corporate management as the fund boosts its allocated weighting of stock holdings.

“We are considering unveiling how much shares (the GPIF) holds in what companies,” Mizuno told a panel meeting of experts on corporate governance at the Financial Service Agency on Thursday.

Such a move would reveal investment trends by the mammoth public fund and could potentially shift market sentiment when made public.

GPIF manages $1.19 billion in assets and is the world’s largest pension fund.

Ninety-two percent (92%) of pension funds globally are looking to improve their governance over the next calendar year, according to a recent report from State Street.

The report, Pensions with Purpose: Meeting the Retirement Challenge, surveyed 400 pension professionals from 20 countries on topics ranging from governance to ESG investment to alternatives.

More on governance from Benefits Canada:

Respondents believe their board’s expertise is not strong enough in critical areas and must be improved, with 45% planning to increase training and education opportunities for board members.

About a third (32%) of respondents rate their board’s ability to think beyond short-term issues to address longer-term, strategic factors affecting their portfolio as “very strong.”

Just 36% rate their board’s understanding of the risks facing the retirement fund as “very strong,” while 38% believe their board has a high level of general investment literacy.

“As a result of the difficult economic environment and shifting demographics, the most innovative pension funds are proceeding with confidence in tackling the retirement challenge,” said Martin J. Sullivan, head of asset owner sector solutions for North America at State Street.

“While there’s no single strategy that will solve the challenges for the entire industry, leading pension funds are employing stronger governance frameworks, more advanced risk management capabilities and a more diverse and specialized talent pool to meet long-term objectives.”

Request access to the full report here.

 

Photo by jypsygen via Flickr CC License

 

Arizona Gov. Doug Ducey on Tuesday signed a bill that affects pension benefits for the state’s new public safety hires.

The measure would slash and cap cost-of-living-adjustments and limit the amount of salary that can be used in calculating a pension, among other changes.

The measure still needs to be approved by voters.

More on the bill, from the Arizona Republic:

Voters will be asked to link retirees’ pension cost-of-living adjustments to the regional Consumer Price Index, with an annual cap of 2 percent. A 4 percent compounded increase has been paid out for the past two decades, significantly cutting into the trust’s money.

Legislation signed by Ducey would offer new workers a choice between a full-defined contribution plan and a traditional pension plan. It also would require new employees and their employers to split the cost of a pension. Currently, employees pay 11.65 percent of their salary toward pension benefits, but there is no cap on contributions by employers. On average, employers pay an amount equivalent to nearly 43 percent of each employee’s salary for retirement benefits.

The new law also would cap pension benefits for new employees by limiting the maximum salary on which it is calculated to $110,000 a year. The current cap is $265,000 a year. This would lower pension benefits and limit “pension spiking,” a method of enhancing retirement benefits by artificially increasing salary and other payments to employees during their last few years before retirement.

The bill also contains a governance change: it expands the board of the Public Safety Personnel Retirement System from seven members to nine.

 

Photo credit: “Entering Arizona on I-10 Westbound” by Wing-Chi Poon – Own work. Licensed under CC BY-SA 2.5 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Entering_Arizona_on_I-10_Westbound.jpg#mediaviewer/File:Entering_Arizona_on_I-10_Westbound.jpg

Moody’s released some interesting data last month regarding the adjusted net pension liabilities of U.S. states.

Bloomberg then spun that data into the chart, above.

If you’re a Moody’s subscriber, you can view their full report here.

Otherwise, here’s a summary of the report:

The majority of US states experienced declines in their adjusted net pension liabilities (ANPL) in fiscal 2014, Moody’s Investors Service says. Moody’s ANPL decreased for 27 states, of which, nine saw a decline for a second year in a row. However, the aggregate 50-state ANPL increased marginally to $1.3 trillion due to rising liabilities in some states.

Strong investment returns drove an average pension liability decline of 15.3%, with median returns for larger plans at 16.1%, Moody’s says in “Fiscal 2014 Pension Medians – US States: Robust 2014 Investment Returns Provide Pause in Growth of Adjusted Net Pension Liabilities.”

“Double-digit investment returns contributed to reducing pension liabilities. More timely plan disclosures under Governmental Accounting Standards Board (GASB) 67 improve comparison between states,” says John Lombardi, a Moody’s Associate Analyst.

Also in fiscal 2014, most states made budgetary contributions at or close to their actuarially determined contribution (ADC) levels. Thirty-six states contributed greater than 90% of ADC, with 12 contributing between 60% to 90% and only two funding below 60% of their pension costs.

An explanation of “adjusted net pension liability” can be found on page 2 of this report.

Two Arizona judges are suing the state, seeking a refund for pension contributions they’ve made over the last four years.

A 2011 law nearly doubled pension contribution rates for judges, who contend that the law was a breach of contract.

If the Supreme Court rules in the judges’ favor, it could lead to a refund totaling $175 million.

More from the Arizona Republic:

Judges, politicians and public-safety workers for the past four years have been required by law to pay significantly more out of their pockets for their state-sponsored pension benefits.

But two Arizona Court of Appeals judges are suing to turn the higher payments, contending they are unconstitutional — even though the 2011 law was passed to help shore up their financially troubled state pension trust.

[…]

The outcome, which may not be known for months, could be financially significant.

The retirement trust fund for judges is part of the Public Safety Personnel Retirement System, and any ruling in their favor also will affect police officers and firefighters, who are the biggest trust members. PSPRS estimated refunds sought by the judges’ challenge would total about $175 million, with another $1.4 million going toward permanent benefit increases.

The Hall case seeks to roll back the pension payments of roughly 200 judges to pre-2011 levels, or 7 percent of their salaries. Today, they pay 13 percent. Employers pay an average of 23.5 percent.

Arguments begin Thursday.

 

Photo by Joe Gratz via Flickr CC License

The 2015 NACUBO-Commonfund Study of Endowments report has been partially released, and it’s full of interesting charts and visuals outlining the size and investment returns of the largest endowment funds in the U.S. and Canada.

The full report will be available to purchase in March 2016; until then, NACUBO was kind enough to put many of the report’s graphics online for public viewing.

Here’s the current rankings of endowments by size; you can also see how the market value of their assets fared between 2014 and 2015.

More:

View the rest of the list here.

 

All charts are courtesy of the 2015 NACUBO-Commonfund Study of Endowments.

A new initiative from the Department of Labor hones in on the benefit payment practices of corporate defined-benefit pension plans.

The initiative originated in the DOL’s Philadelphia office, but may soon be expanded.

From the National Law Review:

The investigations are concentrated on plan procedures in three key areas: (i) locating missing participants, (ii) informing deferred vested participants that a retirement benefit is payable, and (iii) commencing benefit payments when the participant reaches age 70½. The initiative was launched out of the Philadelphia regional office, but the DOL has indicated that it intends to expand the investigation further.

[…]

According to the DOL, it has discovered, among other things, that (i) some plans under investigation have procedures for locating missing participants, but the procedures are not being followed in practice; and (ii) at least a few of the plans seemed to have significant recordkeeping problems and could not verify the age of their participants, with the obvious consequence that the plans could not pay participant benefits when required. A representative from the DOL has said that investigators have found numerous problems with plan records, such as individuals who appear to be over 100 years old with birthdays identified by what are clearly “plug” dates. So far, the DOL has identified more than $500 million in unpaid pension benefits that are owed to participants over the age of 70½.

Read the rest of the detailed analysis here.

 

Photo by TaxRebate.org.uk via Flickr CC License