Category: Pension Newsroom

Public pension news, commentary and analysis.

Washington Pension Manager Commits $1.1 Billion to REOCs

Washington stateThe Washington State Investment Board, the entity that manages Washington state’s pension assets, has committed a total of $1.1 billion to two funds that invest in real estate operating companies (REOCs).

From IPE Real Estate:

Commitments of $600m and $500m were made to Calzada Capital Partners and Evergreen Real Estate Partners, respectively.

[…]

Calzada, which buys real estate operating companies in the Americas, places capital with companies investing in major property sectors.

It has around $4bn in assets under management.

The private equity firm has invested in Terramar Retail Centers, which owns neighbourhood shopping centres on the US West Coast, as well as in Corporate Properties of the Americas, which owns industrial property in Mexico.

Hometown America, an owner and operator of manufactured housing, Pacific Beachcomber, a luxury hospitality renovation firm in French Polynesia and Pivotal Capital Group have also received capital as part of Calzada’s niche investment strategy.

Evergreen, which invests in US-based real estate operating companies, will use capital for future growth.

The company mostly makes investments in the office, industrial, retail and apartment sectors.

The Board manages $103.6 billion in assets.

 

Photo credit: “Washington Wikiproject” by Chetblong – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons

Memphis Council Approves Hybrid Pension Plan; Changes Will Affect Many Current Workers

Memphis City Council

After several meetings worth of debate, the Memphis City Council passed major changes to the city’s pension system on Tuesday – and the changes won’t just affect new hires.

Details of the new hybrid plan, reported by Fox Memphis:

Council passed a hybrid plan that was backed by Councilwoman Wanda Halbert that grandfathers in current employees with 7.5 years of experience, effective July 1, 2016.

This plan was introduced by Councilwoman Halbert, who drew harsh criticism from the crowd despite that her plan was approved.

So what does it mean? New hires and city employees with less than 7.5 years on the job will switch over to a new pension system. It mixes a retirement account with a defined contributions plan. Her plan only introduced two weeks ago after Councilman Myron Lowery introduced his plan that would only apply to new hires.

City employees in the crown expressed their anger over the changes. From Fox Memphis:

Members in the audience, many of them city employees, agreed with Councilman Lowery and blasted Councilwoman Halbert saying she had betrayed the city.

[…]

“This was an embarrassment to the City of Memphis that they make decisions that are that callous with that little bit of research on he table,” ,” said Kathy Hurley of Memphis. “If you just watch the film and see what all went on it’s obvious the right hand doesn’t know what the left hand it doing. It’s sad.”

Labor groups will likely sue over the changes.

Canada Pensions Look For Opportunities in Energy Slump

oil barrels

The Canada Pension Plan Investment Board was weighing a bid for Talisman Energy Inc. – the Board decided against it, at the company ended up being bought Tuesday morning by Repsol SA.

But the interest the Board displayed in troubled Talisman Energy is emblematic of a larger trend: Canada’s pension funds are looking for opportunity in the midst of a serious energy slump.

From Bloomberg:

The 22 percent slump in Canadian energy stocks since late November is just the kind of event that can create opportunity for investors such as pension funds, said Ron Mock, head of the Ontario Teachers’ Pension Plan.

“Sometimes that happens when everybody is heading out the door and we actually use our long-term advantage to go in,” Mock, chief executive officer of Ontario Teachers, the country’s third-biggest pension fund, said during an interview at Bloomberg’s office in Toronto last week. The energy market doesn’t appear to have quite bottomed for Teachers yet, he said.

Lower energy prices will reduce companies’ cash flows and eventually put pressure on them to weigh their capital plans for next year, Mock said. That will have some producers looking for investors, or outright takeovers, he said.

[…]

Ontario Teachers isn’t consciously counter-cyclical in its investment strategy, Mock said. The focus is on value-oriented, long-term investments, a strategy that tends to provide it with opportunities during both the ups and downs of the market, he said.

[…]

Mark Wiseman, CEO of Canada Pension, said on Nov. 13 that the plunge in oil prices might offer investment opportunities in Canada’s energy sector.

“We are seeing a period now where there may be increasing opportunity in the Western Canadian basin and Canadian energy companies as the market sort of reprices,” Wiseman said.

[…]

One of Ontario Teachers key concerns about investing in Canada’s oil patch is the potential for regulatory changes, Mock said. This doesn’t dissuade the pension fund from investing in the oil and gas sector, he said, but it does raise concerns that certain assets might become too expensive to develop, he said.

The pension fund also will consider investments based on environmental factors.

 

Photo by ezioman via Flickr CC License

California Senator Formulating Bill to Force CalSTRS, CalPERS to Divest From Coal

smoke stack

California Senate President Kevin de León said Monday he may introduce a bill in 2015 that would require the state’s pension systems – CalPERS and CalSTRS, two of the largest systems in the world – to divest from coal-related investments.

The bill wouldn’t cover oil or gas investments.

The legislation seems to be in its earliest stages.

The move would be a controversial one not just for the fiduciary complications involved. The Center for Retirement Research has done work on the subject of social investing (and divesting) and found that outcomes may not favor pension funds.

More from SF Gate:

The state Senate’s top leader said at an Oakland forum organized by billionaire environmental activist Tom Steyer that he’s planning to introduce a measure next year to require the state’s public-employee pension funds to sell their coal-related investments.

“Climate change is the top priority of the California state Senate,” said Senate President Pro Tem Kevin de León, D-Los Angeles. He said his legislation would require that the California Public Employees Retirement System, which manages public employees’ pensions and health benefits, and the California State Teachers Retirement System divest millions of dollars in coal-related investments.

“Coal is a dirty fossil fuel, and we generate very little electricity in California from coal,” de León said. “And I think our values should shift in California.”

De León, who just returned from an international climate-change summit in Peru, said he hadn’t worked out the specifics of his bill but that it would be limited to coal investments. He said it would not extend to all fossil-fuel holdings such as those in oil and gas production.

“We’re working out all the (divestment) details,” he said. “We’re talking about a way that’s smart and intelligent, not a way that hurts investment strategies.”

Climate-change activists have been pushing large investors to shed their holdings in coal, a major contributor to greenhouse gases. CalPERS, the nation’s largest public pension fund with $300 billion in investments, would be the environmental movement’s biggest prize should de León be able to push his legislation into law.

CalPERS manages $295 billion in assets. CalSTRS manages $187 billion in assets.

 

Photo by  Paul Falardeau via Flickr CC License

CalPERS To Work New Guiding Principle Into Portfolio Analysis

building

According to a Pensions & Investments report, CalPERS’ investment staff have begun working a new guiding philosophy into their portfolio analysis: whether a strategy is “repeatable, predictable and scalable”.

The mantra came about when the fund was reviewing its hedge fund portfolio. But Wylie A. Tollette, chief operating investment officer, wants to work the philosophy into the fund’s entire portfolio.

From Pensions & Investments:

Mr. Tollette told the $295.7 billion California Public Employees’ Retirement System’s investment committee that the three principles were used in the determination to end CalPERS’ hedge fund program in September, and will now be used to analyze whether other parts of the portfolio are measuring up to investment return and risk standards.

“We want to apply the same principles to the entire portfolio,” Mr. Tollette said in an interview after making his comments to the board. Mr. Tollette said in the interview no decision has been made to cut any other investment strategy for the CalPERS portfolio, but he did say investment staffers are examining the pension fund’s forestland portfolio and its multiasset-class strategies, among others.

Like CalPERS’ hedge fund portfolio, which made up only 1.1% of the total portfolio, forestland and the multiasset-class strategies are small — forestland made up 0.8% of CalPERS’ portfolio as of Oct. 31, while multasset-class strategies made up 0.4%.

Mr. Tollette said in the interview while hedge funds were cut because it was determined the asset class was not scalable, he said that just because an asset class is small doesn’t mean it doesn’t play a strategic purpose in the CalPERS portfolio. He said the review will be looking at the roles some of CalPERS’ portfolios play in the total risk-return portfolio.

CalPERS managed $295 billion in assets as of September 30, 2014.

 

Photo by  rocor via Flickr CC License

Ohio Police and Fire Pension To Invest Additional $200 Million in Real Estate in 2015

businessman holding small model house in his hands

The Ohio Police and Fire Pension Fund has set aside $200 million to be allocated to real estate in 2015. It plans to make a series of investments, sized from $40 million to $70 million, to as-yet-unnamed managers

From IPE Real Estate:

The capital is being allocated as part of the pension fund’s 2015 real estate investment plan, with some capital to be invested outside the US, including Europe and Asia.

Ohio Police & Fire said it would only consider tactical or non-core opportunities via funds.

It said its current real estate portfolio had reached its allocation levels for core real estate, and that it would not be conducting any new manager searches.

The investor will receive recommendations from The Townsend Group on where capital will be invested.

Potential new investments will range from $40m to $70m.

Ohio Police & Fire’s portfolio is currently valued at $1.4bn, or 9.6% of its total investment portfolio, as of the end of November.

The fund has a 12% targeted allocation for real estate.

The pension fund’s most recent commitment was approved last month, an allocation of up to $50m for AEW Partners VII, a fund that buys distressed US properties in primary and secondary markets.

The Ohio Police and Fire Pension Fund manages $14.52 billion in assets.

Kentucky Pension Director: Fewer Active Workers, More Retirees Is Problem For Fund

Kentucky flag

Kentucky Retirement Systems (KRS) executive director Bill Thielen spoke in front of the state’s Pension Oversight Board on Monday, and revealed an as-yet unaddressed trend that spells bad news for the pension system.

The trend involves the balance of active workers to retirees receiving payouts – and the balance is not shifting in the pension system’s favor.

Reported by WFPL:

One problem that remains unaddressed, said Thielen, is the imbalance created by fewer employees paying into KRS and more retirees receiving benefits this year. Board members were told that between 2007 and 2014, the number of active members in the Kentucky Employee Retirement System dropped from 47,913 to 40,365, while the number of retirees grew from 33,849 to 41,223.

That difference represents $228.9 million in losses this year (not counting payouts for hazardous jobs), and Thielen said the state will see more increases in benefit payout during 2015. Overall pension benefits (for all sectors) paid “for fiscal 2014 totaled $1769.7 million compared to $1706.2 in fiscal 2013,” according to the audited data report.

“Our own staff at KRS, also. About 40-45 percent of staff will be eligible to retire,” he said, explaining that private sector wages have begun to lure state employees into early retirement as Kentucky employees go into a fifth year of wage freezes.

“Without raises, we’ll probably see a lot retire.”

The 21 percent funded KERS Non-Hazardous plan is a sub-plan of the Kentucky Retirement Systems.

CalPERS Encourages Employers to Make Extra Contributions Now For Long-Term Savings

Flag of California

CalPERS is asking municipalities and other government employers to use any extra money available to boost their contributions to the pension system — a move that is tricky in the present moment for cash-strapped cities but that would yield long-term savings.

From CalPensions:

CalPERS is encouraging government employers to make extra payments to reduce their pension debt or “unfunded liability” if budgets allow, saying millions can be saved in the long run.

Annual CalPERS reports to 1,581 local government agencies this fall began showing estimates of future savings when extra payments, going beyond the required amount, are made to the pension fund.

The Newport Beach city council approved a plan for extra payments to CalPERS last month that is expected to save $47 million over 30 years, compared to the standard payment plan.

Huntington Beach approved extra payments to CalPERS last fiscal year based on an analysis by an independent actuary, Bartel Associates, showing each additional $1 million contributed to CalPERS saves $5 million over 25 years.

CalPERS estimates that about 60 employers made 111 extra payments to CalPERS last fiscal year. The new “alternate amortization schedules” in the annual reports to local governments are a response to requests from employers.

“The message we want to get out to employers is that if they have the ability, the financial means, to pay off some of this unfunded liability, it’s a smart business move and can really benefit them over the long run,” Anne Stausboll, CalPERS chief executive officer, said last week.

Read the entire report from CalPensions here.

Institutional Investors Bullish on Stocks, Alternatives in 2015

stock market numbers and graph

Institutional investors around the globe believe equities will be the best-performing asset class in 2015, according to a survey released Monday.

Investors are also bullish on alternatives, but not as thrilled when it comes to bonds, according to the survey.

The results summarized by Natixis Global Asset Management:

Forty-six percent of institutional investors surveyed say stocks will be the strongest asset category next year, with U.S. equities standing above those from other regions. Another 28 percent identify alternative assets as top performers, with private equity leading the way in that category. Only 13% predict bonds will be best, followed by real estate (7%), energy (3%) and cash (2%).

Natixis solicited the market outlook opinions of 642 investors at institutions that manage a collective $31 trillion. The survey found:

– Realistic expectations of returns: On average, institutions believe they can realistically earn yearly returns of 6.9 percent after inflation. In separate surveys by Natixis earlier this year, financial advisors globally said their clients could anticipate earning 5.6 percent after inflation1 and individuals said they had to earn returns of 9 percent after inflation to meet their needs.2

– Geopolitics leads potential threats: The top four potential threats to investment performance in the next year are geopolitical events (named by 17% of institutional investors), European economic problems (13%), slower growth in China (12%) and rising interest rates (11%).

– Focus on non-correlated assets: Just under three-quarters of respondents (73%) say they will maintain or increase allocations to illiquid investments, and 87% say they will maintain or increase allocations to real estate. Nearly half (49%) believe it is essential for institutions to invest in alternatives in order to outperform the broad markets.

– Words of advice for retail investors: Among the top investment guidance institutions have for individuals in the next 12 months: avoid emotional decisions.

[…]

“Institutional investors have an enormous fiduciary responsibility to fund current goals and meet future obligations,” said John Hailer, president and chief executive officer for Natixis Global Asset Management in the Americas and Asia. “The current market environment makes it difficult for institutions to earn the returns that are necessary to fulfill both short-term and future responsibilities. Building a durable portfolio with the proper risk management strategies can help investors strike a balance between pursuing long-term growth and minimizing losses from volatility.”

[…]

“Institutional investors have an unusually good perspective about markets and long-term prospects,” Hailer said. “Like ordinary investors, institutions have short-term worries. They also feel the pressure to take care of current needs, no matter what the markets are doing. Because of their longer-term time horizon, they offer valuable perspective.”

The full results of the survey can be read here.


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