Home | Pension360

UN Secretary General to Pension Funds: Divest From Fossil Fuels

The United Nations’ Intergovernmental Panel on Climate Change presented its latest report on climate change over the weekend.

UN Secretary General Ban Ki-moon attended, and he used the opportunity to urge the world’s pension funds to begin divesting from fossil fuel investments.

From a 350.org press release:

At a press conference in Copenhagen yesterday, UN Secretary General Ban Ki-moon urged big investors such as pension funds and insurance companies to reduce their investments in fossil fuels and invest in renewable energy instead.

“I have been urging companies like pension funds or insurance companies to reduce their investments in a fossil-fuel based economy [and shift] to renewable sources of energy,” said Ban Ki-Moon. He joins a growing list of distinguished high-level figures calling for fossil fuel divestment such as UN climate chief Christiana Figueres, Archbishop Emeritus Desmond Tutu, World Bank President Jim Yong Kim and US President Barack Obama.

Ki-moon made his comments during the presentation of the latest summary of climate science in the form of the Intergovernmental Panel on Climate Change’s (IPCC) fifth assessment report. The report strengthens the case for fossil fuel divestment by stating that “substantial reductions in emissions would require large changes in investment patterns”.

May Boeve, Executive Director of the global climate campaign 350.org commented, “The report strengthens the case for fossil fuel divestment. It clearly states that the vast majority of coal, oil and gas must remain underground and that investments in the sector must fall by tens of billions of dollars a year. The fossil fuel industry’s business plan and a liveable planet are simply incompatible.”

Ban Ki-moon’s endorsement is the latest sign of growing momentum for the fossil fuel divestment movement. Fossil fuel divestment campaigns at more than 500 institutions around the world ask local authorities, universities, pension funds, religious and medical institutions to drop their investments in coal, oil and gas companies.

Sweden’s largest pension fund announced in October plans to divest from $116 million of fossil fuel investments.

Many pension funds are being pressured to take similar action, but funds have instead expressed interest in using their power as shareholders to bring change from within companies.

Photo by Penagate via Flickr CC

San Francisco Pension To Vote Again On Hedge Funds

The San Francisco Employees’ Retirement System is once again weighing whether to begin investing in hedge funds.

Last Spring, the fund formulated a plan to invest up to 15 percent of its assets, or $3 billion, in hedge funds. But the vote has been tabled three times since then.

This week, the fund will vote again on the issue.

From SFGate.com:

The board of the San Francisco Employees’ Retirement System is scheduled to vote Wednesday on a controversial proposal to invest $3 billion — 15 percent of its assets — in hedge funds. The system, which manages $20 billion in pension money on behalf of about 50,000 active and former city employees, has no hedge funds today.

[…]

A 15 percent allocation would definitely have an impact on the San Francisco pension fund. William Coaker Jr., who joined the system Jan. 30 as chief investment officer, wants to put 15 percent of its assets in hedge funds as a way to protect against a market correction. But some board members and pensioners see them as too expensive and risky.

[…]

Earlier this year Coaker and his staff, along with outside consultant Leslie Kautz of Angeles Investment Advisors, recommended investing 15 percent of the system’s assets in hedge funds as part of a realignment of its portfolio. The goal was to “reduce volatility in investment returns, improve performance in down markets, enhance diversification of our plan assets, increase the flexibility of the investment strategy, and to increase alpha (excess returns),” according to minutes of the June 18 meeting. Coaker did not return phone calls.

A vote on the measure was scheduled for October but shortly before the meeting, board President Victor Makras learned that Kautz’ firm has a fund of hedge funds registered in the Cayman Islands. “That was a material fact,” Makras said. “I continued the item and instructed the consultant to disclose that to my satisfaction.”

If the fund does vote to invest in hedge funds, there would be the following allocation changes, according to SFGate:

U.S. and foreign stocks would drop to 35 percent from 47 percent of assets. Bonds and other fixed-income would fall to 15 percent from 25 percent. Real estate would rise to 17 percent from 12 percent. Private equity would rise to 18 percent from 16 percent. And hedge funds would go to 15 percent from zero.

The San Francisco Employees’ Retirement System manages $20 billion in assets.

Illinois Prepares To Contribute More To Teachers’ Retirement System

Illinois is gearing up to make a higher payment this year to its largest public pension system.

The Teachers’ Retirement System of Illinois will be receiving a $3.72 billion contribution from the state in FY 2015-16. That payment is over $300 million higher than last year’s.

From the Pekin Daily Times:

The Teachers’ Retirement System board of trustees has given preliminary approval to a state contribution to the system of $3.72 billion for the budget year that starts July 1, 2015. That’s a $307 million increase from the state’s contribution for downstate teacher pensions in the current budget.

About $200 million of the increase is the result of TRS lowering the estimated rate of return it expects to get on its investments, said TRS spokesman Dave Urbanek.

Earlier this year, TRS reduced the estimated rate of return from 8 percent annually to 7.5 percent, which brought TRS into line with anticipated returns used by other major pension systems.

“There are other factors that play into the increase, but that is a big one,” Urbanek said. “We’ve always said that you lower the rate of return the (state) contribution goes up.”

The calculations were made using current state pension laws, not the pension reforms that were passed by the General Assembly a year ago. The pension reforms are on hold while the constitutionality of the law is challenged in court. Another hearing on the case is scheduled in Sangamon County Nov. 21.

TRS said about 70 percent of the annual contribution is devoted to paying off the system’s unfunded liability. TRS is the largest of the five state-funded pension systems. The total state bill for the pension systems in the current budget is $6.2 billion.

The change in TRS’ state contributions has fluctuated in the last couple of years. It actually dropped slightly in the current budget after increasing by $736 million the previous year, according to TRS figures.

TRS manages $45.3 billion in assets and is 44.2 percent funded.

Dallas Police Pension To Exit Luxury Real Estate After Big Losses

After experiencing big losses, the Dallas Police & Fire Pension System is exiting its position in luxury real estate investments, including a piece of Arizona land meant for a golf course that never materialized.

The fund’s luxury real estate investments have dragged down its portfolio’s overall returns since 2011.

From Bloomberg:

The Dallas police and firefighters’ retirement plan has soured on luxury real estate.

The $3.4 billion Dallas Police & Fire Pension System is selling houses in Hawaii, a Napa Valley vineyard and a patch of Arizona desert after losing about $200 million on the deals, according to city council members who serve as board members for the fund. The system plans to put the cash into traditional assets such as stocks and bonds.

The sales mark a shift from an approach that by 2011 left more than 60 percent of the system’s money in real estate, private equity and other alternative investments, only to see returns suffer. The fund’s 4.4 percent gain in 2013 compared with the 16.1 percent average advance for U.S. public pensions as stocks rallied, according to research firm Wilshire.

“It’s a terrible indictment of our strategy,” said Councilman Philip Kingston, who sits on the pension’s board. “Losses have been caused by our exposure to luxury real estate.”

More details on two of the investments: a piece of land in Arizona that was to be developed into a golf course, and a downtown Dallas apartment tower. From Bloomberg:

Land it bought for a golf-course development in Pima County, Arizona, couldn’t be developed because the fund hadn’t secured water rights, Kleinman said. The land later sold for $7.5 million, a fraction of the $34 million invested, the Dallas Morning News reported in September.

Tettamant, who was at the fund for more than 20 years, resigned in June after board members questioned how the real estate investments affected returns. He didn’t respond to a phone call to his home seeking comment on his role.

The city, which has four council members on the fund’s 12-member board, has been exercising more control and has asked the fund to list properties based on market value, Kleinman said. That led to audits that reduced values, depressing returns for 2013.

The fund may face other liabilities from an investment in a $200 million apartment tower in downtown Dallas. The nearby Nasher Sculpture Center says light reflected from the building is damaging art work and plants in its garden. The dispute is unresolved and the pension may be stuck with the expense of reducing the glare.

“We were throwing good money after bad,” Kleinman said. “The board is going to take a more critical look at its investments going forward. We have no business investing directly in real estate.”

Dallas Police & Fire Pension System manages $3.4 billion in assets. Its investments returned 4.4 percent in 2013

Poll: Retirees Ready To Leave New Jersey

A recent poll reveals that a large percentage of New Jersey residents plan to leave the state before retiring – 25 percent of respondents said it was “very likely” that they would move away from New Jersey and retire in another state.

From the Daily Journal:

Joseph Peters wants to retire in New Jersey, but instead he plans to move elsewhere.

[…]

He’s not alone.

Half of New Jerseyans would like to retire elsewhere, according to a new Monmouth University/Asbury Park Press poll. More than a quarter of those surveyed consider it very likely that they will actually move. Cost of living and taxes remain the driving factors for those wanting to flee upon retirement, with more than a third of adults concerned about their savings.

“Taxes are considerably less in Pennsylvania and areas that I’m looking at,” said Peters, who will rely on his savings in his employer’s 401(k) plan, a federal pension and Social Security in retirement. “My federal pension will not have a state tax on it in Pennsylvania, and the property costs are considerably less for buying a raw piece of land and building a new house, or even buying an existing house.”

If soon-to-be-retirees do start moving, there are implications for New Jersey’s economy. From the Daily Journal:

If more retirees follow Peters’ footsteps, New Jersey gradually will experience a difficult time making economic ends meet. An exodus of retirees would mean the loss of income taxes from their pensions and sales taxes from their spending at businesses within the Garden State. Combined, the factors paint a grim picture for those left behind.

“That means less state revenues for other programs that may be valuable to New Jersey citizens,” said James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University.

But New Jersey’s options to fix the situation remain scarce. The Garden State’s budget fell short by $800 million last year. The state balanced its budget this year only after Gov. Chris Christie slashed the state’s contribution to a pension fund for public workers.

“We don’t have a lot of wiggle room to adjust our tax system as it is since we’re short of revenues,” Hughes said. New Jersey’s “not going to change that destiny very much. We are going to lose some affluent seniors, middle-income seniors and the like.”

New Jersey’s housing costs for seniors are the highest in the U.S., and healthcare costs are the third-highest.

The state also taxes pension benefits at a rate of 3.6 percent; that number has grown from 3.1 percent since 2000.

Illinois Teachers’ Fund Returns 17 Percent; Unfunded Liabilities Still Growing

The Illinois Teachers’ Retirement System announced over the weekend its investments had returned over 17 percent in fiscal year 2013-14.

As a result, the system’s funding ratio improved – climbing from 42.5 percent to 44.2 percent.

But unfunded liabilities grew, as well.

From Reuters:

The funded ratio for Illinois’ biggest public worker pension fund improved slightly in fiscal 2014 due to strong investment returns, but the system still ranks among the worst funded major retirement systems, the Teachers’ Retirement System (TRS) said on Friday.

The system for teachers and other school workers outside of the Chicago Public Schools reported that its funded ratio rose to 44.2 percent in the fiscal year that ended June 30 from 42.5 percent. While that marked the first improvement since fiscal 2006, the funded ratio remains far below the 80 percent level considered healthy.

“An improved funded ratio is always good news, but it doesn’t mean by any means that the financial problems at TRS have been solved. We cannot invest our way out of this problem,” TRS Executive Director Dick Ingram said in a statement.

The retirement system said its investment rate of return was 17.4 percent, net of fees. But its unfunded liability grew by 10.51 percent from $55.73 billion at the end of fiscal 2013 to $61.59 billion.

“TRS members still face a fiscal day of reckoning in the future unless a dramatic improvement is seen over time in the funded status,” Ingram said.

TRS manages $45.3 billion in assets for its nearly 400,000 members.

New York Teachers’ Fund Takes Lead Plaintiff Role In Class Action Suit Against GM

The New York State Teachers’ Retirement System is leading a class action lawsuit against General Motors; the suit claims GM made misleading and false statements about the safety of their vehicles before disclosing many vehicles had faulty ignition switches.

From Pensions & Investments:

New York State Teachers’ Retirement System, Albany, has been approved as lead plaintiff in a class-action lawsuit against General Motors Co., claiming GM committed fraud in its disclosure of faulty ignition switches.

John Cardillo, a spokesman for the $108.2 billion pension fund, said in an e-mail Friday that NYSTRS had been chosen lead plaintiff, but he declined to provide details. “We do not comment on pending litigation,” he wrote.

The pension fund was granted lead plaintiff status Oct. 24 by U.S. District Judge Linda V. Parker of the U.S. District Court in Detroit. In her ruling, Ms. Parker said the pension fund had suffered the greatest losses among four plaintiffs seeking lead-plaintiff status.

According to Ms. Parker’s ruling, the pension fund owns about $98 million in GM shares, and it claimed an estimated loss of $6.23 million between Nov. 17, 2010, and March 10, 2014 — the period cited in the suit against GM.

The complaint against GM alleges the company “touted the safety, quality and reliability of GM vehicles … despite their knowledge that millions of GM vehicles were plagued with faulty ignition switches,” Ms. Parker wrote, citing the complaint. “Throughout the class period, defendants made allegedly false and/or misleading statements, and failed to disclose materially adverse facts related to the quality and safety of GM vehicles and defects in those vehicles.”

The NYSTRS manages $95 billion in assets.

New Mexico Pension Commits Additional $50 Million To Real Estate

The New Mexico Educational Retirement Board will make a $25 million commitment to a vehicle that invests in distressed Western European properties, and will commit an additional $25 million to another fund that invests in healthcare properties in the U.S.

From IPE Real Estate:

The New Mexico Educational Retirement Board is to make an additional $25m (€19.6m) commitment to Kildare European Partners I.

The pension fund also made a $125m investment in April of this year.

Mark Canavan, head of real assets at the pension fund, said New Mexico had concluded the manager of the fund was “best in class”.

European Partners I could have a total equity raise of as much as $2bn for opportunistic real estate, with a 13% potential IRR.

The vehicle will invest in individual and entity-level assets with operating companies in Western Europe.

New Mexico is also making a $25m commitment to Hammes Partners II, having approved an initial $25m commitment late last year.

The fund is investing in a variety of US healthcare-related properties, with a projected $300m total equity raise.

Hammes II is the first fund product offered by Hammes – all previous investments were invested on behalf of high net worth individuals, family office and publicly traded healthcare REITs on a deal-by-deal arrangement.

Capital for the two funds comes from New Mexico’s increased targeted allocation to real estate – up from 5% to 7% earlier this year.

The Retirement Board isn’t the only pension fund putting more money in the Kildare fund. In September, CalSTRS committed $100 million to European Partners I; the fund now has committed a total of $200 million to the vehicle.

Jacksonville Pension Reform Bill Faces Obstacles As It Heads To City Council

Jacksonville Mayor Alvin Brown’s pension reform bill is headed to the City Council, where it will be scrutinized and approved by two separate committees.

But it won’t be smooth sailing for the bill, as several council members will likely push for unpopular amendments to the measure.

The bill aims to improve the funding of the city’s public safety pension system by forcing the city to make higher payments to the system – to the tune of an extra $40 million a year.

From the St. Augustine Record:

When Mayor Alvin Brown’s pension reform deal heads to a City Council committee today, the meeting will be led by a councilman pushing for several significant changes that could jeopardize the bill.

Rules committee Chairman Bill Gulliford said he’ll try to convince his colleagues to adopt one of the six amendments he’s proposed to the pension package, which was based on negotiations Brown conducted earlier this year with the Police and Fire Pension Fund.

Gulliford’s amendments would seek further reductions in pension benefits for current police and firefighters, which the pension fund rejected during negotiations.

If the council approves any amendments to the pension deal, the pension fund’s board also must approve the changes.

Brown has touted his deal as the city’s best shot yet at fixing its pension crisis and its looming $1.65 billion pension debt. He has said the deal would save the city $1.5 billion in the next 35 years.

[…]

In recent weeks, some council members questioned the deal’s merits.

The leading criticism: Brown hasn’t identified a realistic funding source for the $400 million more the city and its taxpayers will contribute to the fund over 10 years — on top of the yearly required amount — a major component of the deal’s saving.

The extra $40 million per year in contributions would expedite the paydown of the city’s debt obligation to the pension fund and save money over the long haul, just as homeowners benefit by making extra payments on their mortgages.

Brown’s legislation would use money from the pension fund’s reserve accounts to cover this year’s $40 million payment and then $21 million in the 2015-16 budget. But there isn’t a definitive plan yet to pay the rest.

Other critics say current police and firefighters really didn’t sacrifice anything to help resolve the pension plan’s woes.

For the bill to pass, ten council members need to support it. Currently, only seven council members are on board.

California Attorney: Bankruptcy “Not a Practical or Desirable” Way To Cut Pensions

Teague Paterson, an attorney from Sacramento specializing in labor law, has penned a column in Monday’s Sacramento Bee in which he explains his position that bankruptcy is “not a practical or desirable” way to cut pension benefits.

From the column:

Imagine for a moment that you have run into deep financial trouble and have decided to file for bankruptcy protection. Your credit rating plummets, your home is sold at a fire sale, and you can’t rent an apartment or buy a car. You spend long hours at the negotiating table as creditors pick over the remains of your finances. Ultimately, you place your future in the hands of a total stranger, the bankruptcy judge.

Isn’t that a scenario that you would try to avoid at all costs?

If the consequences for an individual facing bankruptcy are devastating, the consequences for a municipality are 10 times as dangerous. Bankrupt cities face soaring crime rates, shrinking property sales, and the reduction or elimination of basic public services. It’s is not a decision that an elected official or city manager would willingly make unless there were no other options, as the decision by a bankruptcy judge presiding over Stockton’s bankruptcy makes clear.

Judge Christopher Klein’s ruling Thursday to approve Stockton’s bankruptcy plan confirms that the situation in Stockton will have little impact over the larger national debate on public pensions. Municipalities will not be filing for bankruptcy in waves in efforts to jettison pension debt.

For the very few severely distressed cities that may consider bankruptcy, the question will not be whether they can reduce pensions, but whether they should. In Stockton, the answer to that question was clear to all with a stake in Stockton’s future – and after two years of litigation that cost tens of millions of taxpayer dollars, the bankruptcy judge agreed.

Another key excerpt from the column:

Despite the media attention to cities such as Stockton and Detroit, municipal bankruptcy is exceedingly rare. According to one analysis, 13 local governments had bankruptcy filings since 2008. Five of those have been dismissed. To put it in context, there are more than 39,000 local governments in the U.S.

Although the bankruptcy process threatened to rob Stockton of its ability to make the best decisions for its residents, ultimately the judge accepted the city’s decision. In Stockton, the practicalities of running a city with an eye toward a brighter future shaped this outcome. Judge Klein acknowledged the serious and considerable pre-bankruptcy concessions accepted by Stockton’s employees, and the virtual guarantee that employees would leave to work elsewhere if Stockton reduced their compensation any further.

Stockton faced a unique set of circumstances brought on by revenue losses and a crippling national recession. Thankfully, it’s a situation that the overwhelming majority of municipalities will never have to face. As much as pension opponents would like to focus their analyses of Stockton as a blow to pension security, bankruptcy is simply not a practical or desirable option for cities dealing with pension obligations.

Read the whole piece here.

Photo by TaxRebate.org.uk

Deprecated: Function get_magic_quotes_gpc() is deprecated in /home/mhuddelson/public_html/pension360.org/wp-includes/formatting.php on line 3712