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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.

The Dutch Pension System’s “Hidden Risk”

The Dutch pension system has been getting lots of press in recent days – a recent New York Times report and a PBS documentary from last year have espoused the virtues of the system, which covers 90 percent of workers while remaining well-funded.

But the system carries a “hidden risk” for participants. Allison Schrager explains in BusinessWeek:

Compared with defined-benefit plans in the U.S.—rare, underfunded, and governed by accounting standards derided by almost every economist—the Dutch pension system looks even better. It does have a weakness, though, one that’s often overlooked, even though it may be the only aspect of the Dutch system that’s likely to be adopted here: In the Netherlands, annual cost-of-living increases depend on the health of the pension’s balance sheet. If returns fall, benefits don’t increase. If the fund performs badly enough, pensioners may even suffer benefit cuts.

[…]

But to call it risk-sharing makes it sound more benign than it really is, particularly because retirees can’t tolerate as much risk as working people can. Post-retirement, most people live on a fixed income. In general, it’s too late to save more or get another job. Many state employees don’t have other sources of inflation-linked income like Social Security. If “fairness” means everyone has to bear risk equally, then the Dutch system makes sense. But if it’s more “fair” to treat people differently according to their means, then it would be better to share the risk with current workers instead.

Inflation risk may not seem like a big deal now. But the future is uncertain, which is why the guarantees are so valuable. Until the financial crisis, Dutch pensioners took it for granted they’d get their cost-of-living adjustment each year. Gambling on future inflation may be preferable to an underfunded pension—or no pension at all—but it’s no free lunch.

As Schrager points out, variations of the “risk-sharing” model have made their way to the United States:

This kind of risk-sharing has been catching on in America. Public pension benefits are often secured by state constitutions, but it’s not clear whether those guarantees extend to inflation-linked adjustments. Eager to contain costs, some states have eliminated cost-of-living increases entirely. The state of Wisconsin adopted a variant of the Dutch model in which retirees in the Wisconsin Retirement System get a cost-of-living adjustment only when pension assets return at least 5 percent. Previous inflation adjustments can be clawed back; monthly checks were 10 percent smaller in 2013 as a result of the financial crisis. Although, unlike in the Dutch plans, retirement income can never fall below its nominal level at retirement.

Stanford’s Josh Rauh and University of Rochester’s Robert Novy-Marx have projected that unfunded liabilities in the U.S. would fall by 25 percent if every state adopted Wisconsin’s pension model.

New York Comptroller DiNapoli Touts Pension Reforms in Letter

New York State Comptroller Thomas P. DiNapoli is likely to win re-election to his post without much trouble, according to recent polls.

But amidst questions about conflicts of interest in the New Jersey pension system, DiNapoli seized an opportunity to tout his own pension reform measures in a letter to the editor of the Times-Union:

A recent commentary rightfully condemned the culture of “pay to play” in which politically connected financial executives gain access to public pension money in exchange for political campaign contributions (“Public pensions, politics don’t mix,” Oct. 3).

After I was appointed state comptroller, my top priority was to restore the office’s reputation after it was badly tarnished by a scandal based on this corrupt practice. We took immediate steps to set new standards and controls to codify ethics, transparency and accountability.

In time, we have returned the office’s focus to where it should be – on the investments and performance of the New York State Common Retirement Fund. This was accomplished by: Banning the involvement of placement agents, paid intermediaries and registered lobbyists in investments; issuing an executive order and pressing the U.S. Securities and Exchange Commission to prohibit “pay-to-play” practices; and expanding vetting and approval of all investment decisions.

I’m proud to say the latest independent review of the pension fund by Funston Advisory Services found it operates with an industry-leading level of transparency and that our investment team acts within ethical and professional standards.

This review is a validation that we are on the right path and should reassure the people of New York that the pension fund is being managed properly and ethically.

DiNapoli (D) is running against political newcomer Robert Antonacci (R).

Photo by Awhill34 via Wikimedia Commons

Virginia Pension Funding Improves For First Time in 5 Years

The five major pension plans that fall under the umbrella of the Virginia Retirement Systems (VRS) all improved their funding statuses in fiscal year 2013-14, according to the state’s actuary.

It was the first funding improvement for VRS since 2008. More from the Times-Dispatch:

The state employee plan was 67.9 percent funded on June 30, up from 65.1 percent the previous year, and the teachers plan rose to 65.4 percent from 62.1 percent, based on an actuarial calculation that smooths gains and losses over five years.

Based on current market value, both plans were funded at more than 74 and 71 percent, respectively, at the end of the last fiscal year.

The improved funded status reflects a 15.7 percent increase in investment income in the last fiscal year for the $65 billion retirement system and potentially reduces pressure on contributions that state and local governments and school systems must make to pension plans for more than 600,000 active, retired and inactive employees.

“For us, what’s important is the trend is in the right direction,” said Jose I. Fernandez, principal and consulting actuary for Cavanaugh Macdonald Consulting, LLC, which advises the VRS on the rates necessary to fund current retirement costs and long-term liabilities for public employees.

Part of the reason for the funding improvement: the state began paying back $1.1 billion dollars in missed pension payments. From the Times-Dispatch:

The analysis also reflects the required payback of $1.1 billion in deferred state and local pension contributions in the 2010-12 budget. The state has repaid about $250 million of the deferred obligations with interest, but will owe about $851 million over the next seven years.

The net result was a reduction in the system’s unfunded liabilities from almost $24 billion a year ago to about $22.6 billion now. The liability falls by almost $858 million for the teachers plan, the largest retirement plan with about 147,000 active employees and more than 81,000 retirees. But the plan still had an unfunded liability of about $14.3 billion on June 30.

VRS manages $65 billion of assets.

Photo Credit: “ChancellorsvilleBattlefieldModern” by MamaGeek. Licensed under Creative Commons Attribution 3.0 via Wikimedia Commons

The Ten Pension Funds Getting Best Private Equity Returns

A new report from Bison and the Private Equity Growth Capital Council (PEGCC) ranked the ten pension funds seeing the best private equity returns over the last decade.

[List can be seen above.]

Video: Christie, Caller Trade Jabs Over Pensions During Radio Segment

A retired police officer called in to Chris Christie’s monthly radio segment Wednesday night and accused Christie of “hurting the working man” with his pension cuts.

Christie shot back at the caller, accusing him of “spewing union talking points.”

Christie said of the caller: “You have a union-based political agenda…you guys crack me up.”

Watch the video of the exchange above.

CalPERS Reprimands Two Board Members for Campaign Finance Violation, Bashing CIO

Two CalPERS board members were punished yesterday; one for failing to disclose campaign finance documents and the other for publicly criticizing the fund’s chief investment officer.

One board member, J.J. Jelincic, was instructed to stop speaking to the press after he publicly criticized CalPERS’ new chief investment officer, Ted Eliopoulos. Writes the Sacramento Bee:

“He doesn’t have the temperament or the management skills,” Jelincic said in a Sept. 29 Pensions & Investments story about the hiring [of the fund’s new CIO].

And he didn’t stop there. Eliopolous played favorites with staff, Jelincic said, listened too much to outside consultants and made poor investment decisions.

CalPERS board President Rob Feckner called the comments “unfortunate and a breach of board governance policy of civility and courtesy as well as a breach of the CalPERS core values.” Jelincic was then instructed to stop talking to the media.

After the board meeting, Jelincic told the media:

“I’m not sure what the hell it meant other than they didn’t want me talking to the press.” As for the statements he made about Eliopoulos, he added: “It was a comment on a public action.”

The other reprimanded board member, Priya Mathur, was stripped of several leadership positions on Wednesday after repeatedly failing to disclose campaign finance disclosures. From the Sacramento Bee:

Priya Mathur, a board member since 2003, was removed as board vice president and chair of the CalPERS Pension and Health Benefits Committee. She also is out as vice chair of two committees: Board Governance and Performance, Compensation & Talent Management.

Mathur, who is facing a $4,000 fine from the state Fair Political Practices Commission, sat stoically as CalPERS board President Rob Feckner announced the punishment at a board meeting. She didn’t speak and wasn’t available for comment afterward.

[…]

The FPPC is fining Mathur for failing to file four campaign finance statements in connection with her recent successful bid for re-election to the CalPERS board.

She had no campaign funds to report, and Mathur has previously described the issue as a paperwork snafu. Nonetheless, “we still believe that rules are rules,” Feckner said.

Mathur has been fined $13,000 by the FPPC during her tenure as a board member. She failed to make necessary disclosures in 2002, 2007, 2008, 2010, 2012 and 2013.

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