Category: Pension Newsroom

The New Jersey Investment Council, the body that sets investment policy for the state’s pension systems, unanimously voted to cut its strategic allocation for hedge funds from 12.5% to 6%, as well as to prioritize low-fee managers.

Union officials had been putting pressure on the Council to make such a move; but ultimately, the Council decided it couldn’t stomach the fees it was paying for a hedge fund portfolio that returned -3 percent last fiscal year.

From Bloomberg:

“It sends a message to the hedge fund community that the world has changed,” New Jersey council Chairman Tom Byrne said Wednesday in the meeting in Trenton. “Public funds aren’t going to just pay whatever fees they are charging.”

The pension’s investments in hedge funds, which typically charge a 2 percent management fee and 20 percent of profits, lost about 3 percent this year through May. The entire pension fund has gained 1.6 percent in 2016.

As part of the plan, the state is targeting to pay only a 1 percent management fee and 10 percent of profits.

The state’s investment division has made almost $1 billion in redemption requests from hedge funds this year, including Brevan Howard Asset Management and Farallon Capital Management. The plan calls for withdrawing an additional $300 million from hedge funds and reducing the number of firms it invests in to below 25 by the end of 2016, according to the documents.

New Jersey will eliminate its exposure to long-short equity and event-driven hedge funds next year, the plan says, and reduce its allocation to credit and distressed debt hedge funds to 1 percent from 3.75. Its target allocation to market-neutral and global macro funds will remain at 5 percent.

 

With another property tax increase as unpalatable as ever, Chicago Mayor Rahm Emanuel is considering levying a larger tax on utilities as a mechanism for raising funds to help stabilize the city’s underfunded pension systems, according to sources who talked to the Chicago Sun-Times.

Emanuel was coy on the subject when speaking this week, however.

From the Chicago Sun-Times:

Unwilling to hit property owners for the third time in one year, Mayor Rahm Emanuel plans to raise the city’s utility taxes to save the largest of Chicago’s four city employee pension funds, City Hall sources said Monday.

Chief Financial Officer Carole Brown acknowledged that the city needs “in the ballpark” of $250 million to $300 million in new annual revenue to shore up a Municipal Employees Pension fund with 71,000 members and $18.6 billion in unfunded liabilities.

After a luncheon address to the City Club of Chicago on Monday aimed at touting the progress made to right the financial ship, Budget Director Alex Holt refused to say where Emanuel would find the massive sum needed to save the Municipal Employees pension fund.

“Everything’s on the table and we’ll hopefully be in the position of announcing both the benefit reforms and the funding plan in the coming weeks,” Holt said.

“We’ve got to look at every possible source,” she said. “This is about solving a long-term problem and making sure that we’ve got funding sufficient to do that.”

Brown read from the same script. “Everything is on the table and we’ll be telling you our solution shortly,” she said. “We’re looking at every option. The mayor is committed to putting forth a solution for the Municipal Fund. Right now, we’re publicly considering everything.”

A Democratic Party official confirmed this week that the union representing teachers in New Jersey will not make any cash donations to the party until the Senate votes for a proposed constitutional amendment requiring the state to make full, quarterly payments to its public pension fund.

According to NJ.com:

County Democratic Party leaders won’t be able to count on New Jersey’s largest teachers union for political contributions this year because state lawmakers haven’t acted to put a constitutional amendment on state pension payments on the fall ballot.

Three county chairman told NJ Advance Media they received calls from a New Jersey Education Association lobbyist informing them the powerful union would be withholding campaign contributions until next spring out of frustration with stalled legislative action on the proposed public pension constitutional amendment.

[…]

The constitutional amendment would require the state increase payments into the government worker pension fund. It must be approved by the voters in a public referendum. But Senate President Stephen Sweeney (D-Gloucester) has so far declined to hold a vote on the referendum for a vote in the upper chamber until lawmakers resolve a transportation funding impasse.

The potentially steep price tag of a deal to fund the Transportation Trust Fund could jeopardize funding for the pension amendment, Sweeney has said. He was booed by public workers Monday when he adjourned a Senate session without holding a vote on the referendum.

The Assembly has already passed the measure.

 

Affluent retiree households — despite having similar median incomes as “traditional” retiree households — rely more on financial accounts for retirement income than sources like Social Security and pension benefits, according to a recent Vanguard study.

In an article on Benefits Pro, the specifics of the study were discussed:

The study divided households into two segments: the “traditional retirement” group, made up of households whose wealth holdings consist largely of guaranteed income sources like Social Security and pension income, and the “new retirement” group, which has predominant wealth holdings from financial accounts, including tax-deferred retirement accounts, a variety of taxable investment and insurance accounts, as well as bank checking and savings, money market, and similar accounts.

Among the study’s findings was where the two groups’ incomes originated. For both groups, the median total household income was about $69,500. The two groups of retirees, traditional and new retirement, showed very similar median incomes, the study said, and overall, a quarter of retirement income for wealthier households comes from financial account withdrawals.

But when it came to those financial account withdrawals, the new retirement group’s withdrawals made up an average of 39 percent of their retirement income; that’s more than twice as much as such withdrawals contributed to traditional retirement households.

In addition, withdrawals from retirement accounts are often made more to comply with required minimum distribution rules and their attendant tax penalties, and less because those households use the money.

In fact, nearly a third of such withdrawals are saved and reinvested in other accounts—while those households spend less than they withdraw.

Leo Kolivakis is a blogger, trader and independent senior pension and investment analyst. This post was originally published at Pension Pulse.

Eleanor Warnock of the Wall Street Journal reports, Japan’s GPIF Pension Fund Suffers Worst Year Since 2008 Financial Crisis:

Japan’s $1.3 trillion public pension fund—the world’s largest of its kind—posted its worst performance since the 2008 global financial crisis in the fiscal year ended March on a fall in share prices world-wide and a strengthening yen.

The Government Pension Investment Fund recorded paper losses of ¥5.3 trillion ($51 billion), or a return of -3.81% on its investments, putting its total assets at ¥134.7 trillion at the end of March, the fund said Friday.

The GPIF’s results are seen as a gauge of broad market performance, as the fund owns nearly 1% of global equity markets and more than 7% of the Japanese stock market. Domestic and foreign equities comprised 44% of the portfolio at the end of March, below its 50% target weighting for the asset class, the fund said in a statement.

The GPIF isn’t the only major pension fund to struggle recently. The U.S.’s largest public pension fund, the California Public Employees’ Retirement System, or Calpers, said this month that it earned 0.6% on its investments for the fiscal year ended June 30, the second straight year the fund missed its 7.5% internal investment target. Norway’s Government Pension Fund Global had its worst performance since 2011.

Japan’s labor ministry has asked the GPIF to achieve a real investment return—accounting for a rise in wage increases—of 1.7% yearly. Though the fund’s performance for fiscal 2015 was well below that target, the fund’s average real annual performance of 2.60% over the past 15 years exceeded it.

However, because the GPIF manages reserves for Japan’s national pension plan, poor investment performance in the short term is judged harshly by the public and opposition political parties, many of whom are suspicious of financial markets. Even the timing of the announcement of the fund’s latest results had drawn criticism. Opposition politicians have pointed out that it was scheduled to come after national election earlier in the month. A loss reported before the vote could have hurt the ruling party’s showing, they said. The fund has said there was nothing political about the release date.

Domestic bonds were a bright spot in GPIF’s portfolio, even though the Bank of Japan has pursued a massive easing program in part to push Japanese investors away from domestic bonds and into higher-yielding assets. At the end of March, the fund had 37.55% of its portfolio in domestic debt—higher than the fund’s 35% asset-class allocation.

Domestic bonds returned 4.07% in the year ended in March as the BOJ’s asset purchases and the introduction of a negative interest-rate policy lifted bond prices.

Yuko Takeo and Shigeki Nozawa of Bloomberg also report, Japan Pension Whale’s $52 Billion Loss Tied to Passive Ways:

Friday was a big day for the world’s largest pension fund, which posted its worst annual loss since the financial crisis and disclosed individual equity holdings for the first time. The two may be connected.

The list of domestic shares owned by Japan’s $1.3 trillion Government Pension Investment Fund hews closely to the benchmark Topix index, which isn’t that surprising for a fund where almost 80 percent of investments are passive. But it means that in market downturns like in the past year, GPIF will struggle to increase assets.

The fund recorded a 5.3 trillion yen ($52 billion) loss for the 12 months ended March, the largest decline in seven years. Japan stock holdings tumbled 10.8 percent. For Sumitomo Mitsui Asset Management Co., GPIF should branch out from hugging indexes.

“There’s more they can do,” said Masahiro Ichikawa, a senior strategist at the Tokyo-based money manager. “They should be more active with their currency hedging and their investments. They should also look to increase exposure to alternatives.”

While criticism of GPIF’s passive approach to investing isn’t new, this is the first year the fund posted a loss since it doubled its allocation to stocks in 2014 and reduced its investments in domestic bonds, which were the only asset to return a profit in the year. The fund is taking flak on both sides, from those who want to turn back the clock to when it held more bonds to people who say it should become more of a stock picker.

The Topix index fell 0.1 percent at the close in Tokyo on Monday, as the yen traded at 102.43 per dollar following a 3.1 percent jump on Friday.

For a QuickTake on Japan’s pension fund, click here.

GPIF’s investment loss of 3.8 percent was the worst since a 7.6 percent slide in the 12 months ended March 2009. The fund lost 9.6 percent on foreign shares and 3.3 percent on overseas debt, while gaining 4.1 percent on Japanese bonds. GPIF said Toyota Motor Corp. and Mitsubishi UFJ Financial Group Inc., which have the largest weightings in the Topix, were the biggest Japan stock investments as of March 31, 2015.

GPIF’s Canadian pension peer, hailed as an example of how the Japanese fund should be run, posted a 3.4 percent return on investments for the fiscal year ended March, despite the global equity rout. The $212 billion Canada Pension Plan Investment Board had its biggest gains from private emerging market equities, real estate and infrastructure. South Korea’s national pension fund had a return rate of 2.4 percent this year as of April.

Home Bias

The Canadian retirement manager wrote in its 2016 annual report about how it had moved away from passively managing its portfolio to take advantage of its size, certainty of pension contributions and long-term investment horizon. The fund has just 19 percent of its holdings invested in Canada, whereas GPIF has 59 percent in Japanese securities.

“GPIF should invest more actively but from a long-term perspective,” said Tetsuo Seshimo, a portfolio manager at Saison Asset Management Co. in Tokyo. “That’s the only way they can improve their returns.”

GPIF President Norihiro Takahashi, speaking after the results announcement on Friday, said the fund planned to use its allowable deviation limits when allocating assets, in a sign he will be flexible in managing the portfolio.

In 2013, a panel handpicked by Prime Minister Shinzo Abe recommended ways to overhaul GPIF. While suggesting the fund move away from its concentrated investments in Japanese bonds, which it did the next year, the group led by Columbia University professor Takatoshi Ito said GPIF should consider increasing active management, moving some investments in-house, and tracking indexes other than the Topix as it includes stocks “lacking sufficient investment profitability.”

In-House Investments

GPIF took some suggestions on board, including adopting the JPX-Nikkei Index 400 as a new benchmark equity measure. Still, the fund’s overseers stopped short of letting the fund make in-house stock investments, a course that GPIF Chief Investment Officer Hiromichi Mizuno said would have helped cut costs and increase internal expertise.

GPIF also lost on overseas assets last fiscal year as the yen advanced 6.7 percent against the dollar, reducing the value of investments when repatriated. It wasn’t until December last year that reports said GPIF would start to hedge against currency fluctuations for a small part of its investments, a strategy called for almost a year earlier by one of its investment advisers.

“The results should lead to a debate on searching for new investments, whether it’s alternative assets, domestic small and mid-cap corporate debt, REITs or real estate,” said Akio Yoshino, chief economist at Amundi Japan Ltd. in Tokyo. “But the mainstream expectation is that GPIF probably won’t change its management direction.”

So Japan’s pension whale recorded a $52 billion loss (-3.81%) during its fiscal year ending at the end of March and “experts” are now giving them advice to be more active in alternatives and in hedging their foreign exchange risk.

I think a lot of people are making a big deal over nothing. A $52 billion loss is huge for North America’s large pension funds but it’s peanuts for the GPIF. Also, if the Caisse can come strong from a $40 billion train wreck in 2008, GPIF can easily come back from this loss in the future.

The loss GPIF recorded during its fiscal year can be explained by two factors:

1. A shift in its asset allocation away from domestic bonds to riskier domestic and foreign stocks.
2. A surging yen which negatively impacted its foreign stock and bond holdings.

In order to put some context to this, you all need to read a recent Bloomberg article by Tom Redmond on Japan’s Pension War.

I will leave it up to you to read that article but the key here is to understand the shift in GPIF’s asset allocation over the last two years (click on image):

As you can see, GPIF reduced its target weight in domestic bonds from 50% to 35% and increased its target weight in domestic and foreign stocks to 25% and slightly increased its weight in foreign bonds to 15%.

This shift in asset allocation was very sensible for the GPIF over a very long investment horizon because having 50% of its assets in Japanese bonds yielding negative interest rates isn’t going to help pay for future pension liabilities that are mounting as rates sink to record lows.

Ironically, negative rates are bad news for Japan’s biggest bank but they didn’t really hit GPIF’s domestic bond portfolio which returned 4.07% in the year ended in March as the BOJ’s asset purchases and the introduction of a negative interest-rate policy lifted bond prices.

Of course, on Friday, the Nikkei whipsawed after BOJ disappointment, the yen surged against dollar and Japanese government bonds (JGBs) sold off:

Japan shares whipsawed and the yen surged after the Bank of Japan threw markets a smaller-than-expected bone in a keenly watched decision on Friday.

While the BOJ eased its monetary policy further by increasing its purchases of exchange-traded funds (ETFs), it didn’t change interest rates or increase the monetary base, as analysts had widely expected.

The central bank said it would increase its ETF purchases so that their amount outstanding on its balance sheet would rise at an annual pace of 6 trillion yen ($56.7 billion), from 3.3 trillion yen previously.

“The message the BOJ is sending is not so much much ‘whatever it takes’ as ‘monetary policy’s pretty much played out’,” said Kit Juckes, global fixed income strategist at Societe Generale.

The Japanese yen surged against the dollar after the announcement, with the dollar-yen pair falling as low as 102.85, compared with around 103.75 immediately before the decision. The pair was already volatile before the announcement, touching a session high of 105.33.

At 2:31 p.m. HK/SIN, the dollar was fetching 103.52 yen.

The benchmark Nikkei 225 whipsawed after the decision, tumbling as much as 1.66 percent immediately after the announcement. It quickly retraced the fall, but then spent the remainder of the session volleying between gains and losses. At market close, the Nikkei finished up 92.43 points, or 0.56 percent, at 16,569.27.

In the bond market, Japanese government bonds (JGBs) sold off. The yield on the benchmark 10-year JGB jumped to negative 0.169, from an earlier low of negative 0.276. Yields move inversely to bond prices. Many analysts had expected the BOJ would increase its JGB purchases.

Sean Darby, chief global equity strategist at Jefferies, said in a note that the news on the ETF purchases “should boost sentiment on stocks,” but “overall monetary policy will only be marginally changed given that the BOJ’s balance sheet expansion has already decelerated.”

“The absence of any change on deposit rates will have disappointed those investors seeking a bolder move by the BOJ,” said Darby.

Other Asian markets were nearly flat or mostly lower. The ASX 200 in Australia saw a slight gain of 5.80 points, or 0.1 percent, to 5,562.35. In South Korea, the Kospi closed down 4.91 points, or 0.24 percent, at 2,016.19. Hong Kong’s Hang Seng index slipped 327.06 points, or 1.47 percent, to 21,847.28.

Chinese mainland markets were lower, with the Shanghai composite closing down 14.94 points, or 0.5 percent, at 2,979.37, while the Shenzhen composite was off by 9.44 points, or 0.48 percent, at 1,941.55.

So what is going on? Why did the Bank of Japan not do more to raise inflation expectations? The Japan Times reprinted an article from Reuters, BOJ eases further, signals policy review as inflation target eludes:

The Bank of Japan expanded stimulus Friday by doubling its purchases of exchange-traded funds, yielding to pressure from the government and financial markets for action but disappointing investors who had set their hearts on more audacious measures.

The central bank, however, said it will conduct a thorough assessment of the effects of its negative interest rate policy and massive asset-buying program in September, suggesting that a major overhaul of its stimulus program may be forthcoming.

BOJ Gov. Haruhiko Kuroda said the bank will conduct the review not because its policy tools have been exhausted, but to come up with better ways of achieving its 2 percent inflation target — keeping alive expectations for further monetary easing.

“I don’t think we’ve reached the limits both in terms of the possibility of more rate cuts and increased asset purchases,” Kuroda told reporters after the policy meeting.

“We will of course consider what to do in terms of monetary policy steps, based on the outcome of the assessment.”

Ahead of the meeting, speculation had mounted over the possibility it would take a so-called helicopter money approach that would entail more direct infusions of money into the economy.

Recently, the government downgraded its growth forecast for 2016 to 0.9 percent from 1.7 percent.

“With underlying inflation set to moderate further toward the end of the year, we think that the bank will still have to provide more easing before too long,” Marcel Thieliant of Capital Economics said in an analysis. “Overall, today’s decision was a clear disappointment,” he said.

The 7-2 central bank decision was to almost double its annual purchases of exchange traded funds to ¥6 trillion from the current ¥3.3 trillion. A fifth of that will be earmarked for companies that meet new benchmarks for investing in staffing and equipment, it said in a statement.

It also doubled the size of a U.S. dollar lending program to support Japanese companies’ operations overseas, to $24 billion.

The BOJ already is injecting about ¥80 trillion a year into the economy through asset purchases, mainly of Japanese government bonds.

The BOJ was under heavy pressure to act after earlier this week Prime Minister Shinzo Abe announced ¥28 trillion in spending initiatives to help support the sagging economic recovery led by his feeble Abenomics policies.

By coordinating its action with the big fiscal spending package, the BOJ likely aimed to maximize the effect of its measures on the world’s third-biggest economy, which is struggling to escape decades of deflation.

“The BOJ believes that (today’s) monetary policy measures and the government’s initiatives will produce synergy effects on the economy,” the central bank said in a statement announcing the policy decision.

The BOJ maintained its rosy inflation forecasts for fiscal 2017 and 2018 in a quarterly review of its projections. It also left intact the time frame for hitting its price growth target, but warned uncertainties could cause delays.

The BOJ justified Friday’s monetary easing as aimed at preventing external headwinds, such as weak emerging market demand.

The recent vote by Britain to leave the European Union has added to the uncertainties clouding the global outlook at a time when Japan’s recovery remains in question.

“There is considerable uncertainty over the outlook for prices against the background of uncertainties surrounding overseas economies and global financial markets,” the central bank said.

The central bank did not change the interest it charges on policy-rate balances it holds for commercial banks, which is now at a record low minus 0.1 percent.

Financial markets seemed underwhelmed by the central bank’s modest action.

The Nikkei 225 stock index had dropped nearly 2 percent on Friday but later regained some ground to end 0.56 percent higher.

Ahead of the BOJ decision, Japan reported further signs of weakness in its economy in June, with industrial output and consumer spending falling from the year before.

Core inflation, excluding volatile food prices, dropped 0.5 percent from 0.4 percent in May, while household spending fell 2.2 percent from a year earlier.

Unemployment had fallen to 3.1 percent in June from 3.2 percent for the past several months, but tightness in the job market has not spilled into significant increases in wages that might help spur more consumer demand and encourage businesses to invest in the sort of “virtuous cycle” Abe has been promising since he took office in late 2012 under Abenomics.

Still, while industrial output fell 1.9 percent from the year before, it rose 1.9 percent from the month before, with strong shipments related to home building and other construction.

My reading is that despite improving employment gains, Japan is still stuck in its deflation rut and policymakers are increasingly worried which is why they’re openly debating “radical policies” like helicopter money.

Importantly, by not acting forcibly, the BoJ basically intensified deflation in Japan because the yen surged higher which means import prices in Japan will fall further, putting more pressure the declining core CPI. It will also impact Japanese exporters like car and steel producers which isn’t good for employment.

Also, as I’ve warned of earlier this year, the surging yen can trigger a crisis, including another Asian financial crisis which will spread throughout the world and lead to more global deflation.

At this writing, the USD/ JPY cross is hovering around 102.4, which is above the 100 level, but if it falls below this level and continues to decline, watch out, things could get very messy very fast.

A surging yen below the key 100 level isn’t good news for risk assets as it will trigger massive unwind of the yen carry trade with big hedge funds and trading outfits use to leverage their positions in risk assets.

A full discussion of currency risks merits another comment. All I can say is that the GPIF’s results weren’t as terrible as they look given the big move in the yen and its new asset allocation.

As far as mimicking the Canada Pension Plan Investment Board (CPPIB) and the rest of Canada’s large pensions allocating a big chunk of their portfolio in alternatives like private equity, real estate and increasingly in infrastructure, that all sounds great but if they don’t have the right governance which allows them to manage these assets internally, then I wouldn’t recommend it.

Sure, GPIF is big enough to go to the big alternatives shops like Blackstone, Carlyle, KKR, etc. and squeeze them hard on fees but this isn’t the best long term approach for a mega fund of its size. before it heads into alternatives, it needs to get the governance right to attract and retain talented managers who will be able to do a lot of direct investments along with fund and co-investments.

There are a lot of moving parts now impacting the GPIF’s performance, least of which is the surging yen. A full discussion on currencies will have to take place in my follow-up comment as this one is already too long.

I’d be happy to talk to the people at the GPIF to discuss this post and put them in touch with some contacts of mine, including my buddy who trades currencies and can steer them in the right direction in terms of currency hedging policy (read my follow-up comment).

Japan’s $1.3 trillion Government Pension Investment Fund posted its worst return since 2009 in fiscal year 15-16, officials confirmed last week.

They also disclosed the fund’s equity holdings for the first time, and it revealed a largely passive investment strategy. Some observers wonder whether the fund could improve its long-term prospects by taking a more active approach.

From Bloomberg:

The list of domestic shares owned by Japan’s $1.3 trillion Government Pension Investment Fund hews closely to the benchmark Topix index, which isn’t that surprising for a fund where almost 80 percent of investments are passive. But it means that in market downturns like in the past year, GPIF will struggle to increase assets.

“There’s more they can do,” said Masahiro Ichikawa, a senior strategist at the Tokyo-based money manager. “They should be more active with their currency hedging and their investments. They should also look to increase exposure to alternatives.”

[…]

While criticism of GPIF’s passive approach to investing isn’t new, this is the first year the fund posted a loss since it doubled its allocation to stocks in 2014 and reduced its investments in domestic bonds, which were the only asset to return a profit in the year. The fund is taking flak on both sides, from those who want to turn back the clock to when it held more bonds to people who say it should become more of a stock picker.

“GPIF should invest more actively but from a long-term perspective,” said Tetsuo Seshimo, a portfolio manager at Saison Asset Management Co. in Tokyo. “That’s the only way they can improve their returns.”

GPIF President Norihiro Takahashi, speaking after the results announcement on Friday, said the fund planned to use its allowable deviation limits when allocating assets, in a sign he will be flexible in managing the portfolio.

GPIF is unlikely to make any major changes.

Reporter Ed Mendel covered the California Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com.

Twice in recent decades CalPERS fell below 100 percent of the funding needed for promised pensions, and twice CalPERS climbed back. But since a $100 billion investment loss in 2008, the CalPERS funding level has not recovered.

Now with about 75 percent of the projected assets needed to pay future pensions, CalPERS has had low investment earnings during the last two fiscal years. Experts expect the trend to continue during the next decade.

“We have some challenges to confront in what is, both for ourselves and all institutional investors, moving into a much more challenging low-return environment,” Ted Eliopoulos, CalPERS chief investment officer, told reporters last month.

If the investment fund earnings that are expected to pay two-thirds of future pensions remain low, the annual payments to CalPERS from state and local governments may continue to grow.

So far, the CalPERS board has resisted Gov. Brown’s calls to raise rates even higher, citing the pressure on local government budgets of recent rate increases. The last one, covering longer lives expected for retirees, is still being phased in.

Many employer rates are already at an all-time high. For 80 miscellaneous plans, rates are over 30 percent of pay. For 135 police and firefighter plans, rates are over 40 percent of pay.

“Employers are reporting that these contribution levels are putting significant strain on their budgets and limiting their ability to provide services to the people in their jurisdictions,” the annual CalPERS funding and risk review said last November.

Low earnings also would undermine a new CalPERS “risk mitigation” strategy that over the decades could very gradually, without triggering a major rate increase, reduce the current earnings forecast, 7.5 percent a year, which critics say is too optimistic.

When earnings are 11.5 percent or higher, the strategy switches half of the money above 7.5 percent to investments with lower yields but less risk of loss. The CalPERS board rejected a Brown aide proposal for a five-year phase in of a 6.5 percent forecast.

After the CalPERS board adopted the risk mitigation strategy last November, Brown said in a news release: “This approach will expose the fund to an unacceptable level of risk in the coming years.”

Some CalPERS board members and union officials predicted CalPERS would once again recover when investments plunged from $260 billion in the fall of 2007 to $160 billion in March 2009, dropping the funding level from 101 percent to 61 percent.

But among the differences this time, in addition to the size of the loss, were low interest rates, stagnant or shrinking payrolls, a wave of Baby Boom retirements, and a maturing fund with negative cash flow requiring the sale of investments to pay pensions.

When the funding level remained low after a lengthy bull market in stocks, which are half of the CalPERS fund valued at $302 billion last week, board members began to mention a new threat.

The board has been told by experts that if the funding level drops low enough, perhaps around 40 to 50 percent, pushing rate increases and earnings forecasts high enough to get back to full funding becomes impractical.

The investment earnings CalPERS reported for the fiscal year ending June 30 were a scant 0.61 percent, lower than the 2.4 percent earned the previous year. The two lean years followed two good years of double-digit earnings, 17.7 and 12.5 percent.

Markets, like most things happening in the future, tend to be difficult to predict with certainty. In the famous quip of the distinguished economist Paul Samuelson: “Wall Street indexes predicted nine out of the last five recessions.”

The earnings forecast or “capital market assumptions” adopted by CalPERS two years ago was 7.1 percent during the next 10 years, Eliopoulos told reporters last month. Now Wilshire and other consultants have dropped their 10-year forecast to 6.64 percent.

“We quite clearly have a lower expected return expectation than we had just two years ago,” Eliopoulos said. “So that will be reflected in our next cycle, which again will look at a 10-year period.”

A routine CalPERS “asset liability management” process begins next year and will be completed in 2018. If the earnings forecast is lowered, CalPERS presumably faces difficult decisions about raising rates and adding higher-yielding but riskier investments.

“We are cognizant that this is a challenging environment for institutional investors and that we have to work collectively within CalPERS to address these challenges,” Eliopoulos said.

The CalPERS reply to earnings forecast critics has been that its long-term earnings average more than 7.5 percent. But after the two weak years, the three-year CalPERS earnings average is 6.86 percent and the 20-year average 7.03 percent.

In a new nationwide look at public pension funding, CalPERS is about average despite generous pensions it sponsored (SB 400 in 1999) and encouraged (AB 616 in 2001) and placing last five years ago in a Wilshire ranking of investment performance.

The average pension system was 74 percent funded last year with an earnings forecast of 7.6 percent, said a brief by Alicia Munnell and Jean-Pierre Aubrey of the Center for Retirement Research at Boston College using the Public Plans Database.

Why the earnings forecast is at the center of the debate over whether CalPERS and other public pension systems are “sustainable” or need major cost-cutting reform is shown by a chart in the brief.

Using a 7.6 percent earnings forecast to offset or “discount” future pension costs, the funds in the national database have 74 percent of the projected assets needed to pay future pensions and a debt or “unfunded liability” of $1.2 trillion.

But if the earnings forecast is dropped to 4 percent, near the risk-free bond rate some critics say should be used to discount guaranteed pensions, the funding level drops to 45 percent and the unfunded liability soars to $4.1 trillion.

The brief issued in June by Munnell and Aubrey uses italics to emphasize that financial economists argue that a risk-free rate should be used for reporting purposes, apparently implying not for setting employer rates and allocating investments.

“Moreover, even many who agree that the expected return may be appropriate for funding purposes are concerned about the level of assumed returns in the current financial market environment,” their brief added, echoing the remarks by Eliopoulos.

Since the CalPERS funding level last year reported in the database, 74.5 percent, is similar to the 74 percent national average, another chart in the brief shows two possible investment scenarios that might roughly apply to CalPERS, given investment differences.

If investment earnings are the “baseline” average of 7.6 percent, the funding level would by 77.6 percent in 2020. If earnings are the “alternative” average of 4.6 percent, the funding level would be 72.1 percent in 2020.

Japan’s Government Pension Investment Fund — the largest pension fund in the world with $1.3 trillion in assets — posted a return of -3.8 percent for its fiscal year 15-16, officials confirmed on Thursday.

The loss, which amounts to $51 billion, comes on the heels of a years-long portfolio overhaul which saw the fund skew its allocation towards equities and away from bonds.

More from Bloomberg:

The annual loss — GPIF’s first since doubling its allocation to stocks and paring domestic bond holdings in October 2014 — came during a volatile stint for markets. Japanese shares sank 13 percent in the year through March while the yen climbed 6.7 percent against the dollar, reducing returns from overseas investments. The only asset class to post a profit was local debt, which jumped in value as the Bank of Japan’s adoption of negative interest rates sent yields tumbling.

“The results are painful,” said Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui Asset Management Co. in Tokyo. “Because it’s a pension fund, they need to have a long-term outlook, so I don’t think we can say yet that they took on too much risk. It was a harsh investment environment for most of us.”

In a press briefing in Tokyo after the results were announced, GPIF President Norihiro Takahashi said he will reflect on the performance, but that the current portfolio has enough flexibility to adapt to different market conditions and he wants to run the fund steadily. Yoshihide Suga, Japan’s chief government spokesman, said GPIF’s management shouldn’t be influenced by short-term moves and there is absolutely no issue with its financing.

Leo Kolivakis is a blogger, trader and independent senior pension and investment analyst. This post was originally published at Pension Pulse.

Andre Tartar and Jill Ward of Bloomberg report, Brexit’s Biggest Fans Face New 115 Billion-Pound Pension Hole:

Turning 65 in the U.K. used to mean mandatory retirement and a future of endless holiday. But in 2016 it has come to signify a very different cut-off: membership in the single most pro-Brexit age group in the June 23 European Union referendum.

About 60 percent of Britons 65 and older voted to leave the world’s largest trading bloc in the recent vote, the most of any age group, according to two separate exit polls. The glaring irony is that senior citizens are also the most reliant on pensions, which face a worsening funding gap since the Brexit vote.

The combined deficits of all U.K. defined-benefit pension schemes, normally employer-sponsored and promising a specified monthly payment or benefit upon retirement, rose from 820 billion pounds ($1.1 trillion) to 900 billion pounds overnight following the referendum, according to pensions consultancy Hymans Robertson. Since then, it has grown further to a record 935 billion pounds as of July 1.

A sharp drop in U.K. government bond yields to record lows, and a similar decline in corporate bond yields, is largely to blame for the uptick in defined-benefit pension liabilities. That’s because fixed income represented 47.5 percent of total 2014 assets for corporate pensions funds, of which about three-quarters were issued by the U.K. government and/or sterling-denominated, according to the 2015 Investment Association Annual Survey.

And the slump may not be over yet. While the Bank of England held off on cutting rates or increasing asset purchases at its July 14 meeting, early signals point to serious pain ahead for the U.K. economy. If additional quantitative easing is ultimately required to offset growing uncertainty, this would suggest “that bond yields are going to fall, which makes pensions a lot more expensive to provide,” former pensions minister Ros Altmann told Bloomberg. “Deficits would be larger if gilt yields fall further.”

Beyond gilt yields, Altmann said that anything that damages the economy is also bad news for pensions. The country’s gross domestic product is now expected to grow by 1.5 percent this year and just 0.6 percent in 2017, according to a Bloomberg survey of economists conducted July 15-20. That’s down from 1.8 percent and 2.1 percent, respectively, before the Brexit vote.

A weaker economy means companies will be less able to afford extra contributions precisely when pension schemes face a growing funding gap, possibly threatening future payouts to pensioners and creating a vicious feedback cycle. “If companies have got to put even more into their pension schemes than they have previously while their business is weakening, then clearly their business will be further weakened,” Altmann said.

Bad news, in other words, for Brexit’s biggest supporters.

Very bad news indeed but I guess British seniors weren’t thinking with their wallets as I thought they would when they decided to vote for Brexit.

Zlata Rodionova of the Independent also reports, Brexit supporters hit with record £935bn pension deficit because of the EU referendum:

The UK pension deficit hit a record level of £935 billion following UK’s vote to leave the EU, likely hitting pro-Brexit voters the hardest.

Support for the UK to leave the EU bloc grew with each age category, peaking at 60 per cent among those aged 65 and over, according to a survey of 12,356 referendum voters by Lord Ashcroft.

Ironically, the same voters are reliant on defined benefit pension to deliver their retirement income.

But UK’s pension deficit rose from £830 billion to £900 billion overnight following the EU referendum.

The vote then pushed the gap further to £935 billion as of July 1, according to Hymans Robertson, an independent pension’s consultancy, making it responsible for £115 billion of debt.

Gilt yields, the assets used to help value the cost of future payments, tumbled in the aftermath of the June 23 referendum, as investors bolted in favour of assets with a reputation for safety, putting more pressure on the pension industry.

Record lows in gilt yields in turn pushed the liabilities of UK pension schemes up to an all-time high £2.3 trillion on July 1.

“The gyrations in UK pension deficits are eye-watering. But one of the biggest factors that will determine whether or not pensions are paid to scheme members in full will be the health of the sponsoring company post Brexit,” Patrick Bloomfield, partner at Hymans Robertson, said.

Ros Altman, the former pensions minister, warned pensions could be under threat from the economic turmoil following UK’s vote to leave the EU.

“Good pensions depend on a good economy. Markets don’t like uncertainty, and we are clearly in unchartered territory,” Altmann said at an event in London.

“I hope we will get the political turmoil settled soon and do what we really need to be doing -which is making good policy for everyone in the country – who hopefully one day will be a pensioner if they aren’t one already,” she added.

As British businesses struggle to plan for an uncertain future in the aftermath of Britain’s decision to leave the EU, a worsening funding gap can reduce their scope to borrow money, curb their ability to invest and act as barrier to mergers and acquisitions.

High profile companies Tata Steel and BHS already showed evidence of the impact of pension deficits on investments and deal making this year.

The British Steel pension scheme, backed by Tata, has an estimated deficit of £700 million which has complicated the quest to find a new owner for Tata’s factories.

BHS’s pensions scheme had a £571 million hole when it collapsed. The risk of taking on the pensions burden is thought to be one of the reasons behind BHS’s failure to find backers or buyers for the business as a whole.

The fallout from Brexit on UK pensions is even more widespread than these articles suggest. Rob Langston of Raconteur reports, Brexit shock wave hits pension investors:

The full impact of Britain’s vote to leave the European Union has still to be felt, but uncertainty continues to affect pension investments as challenging times may lie ahead.

Pensions may not have been at the front of many people’s minds when entering the polling booths on June 23, but the Brexit referendum result is likely to have a lasting impact on pension schemes for years to come.

The immediate aftermath saw sterling plunge and markets fall, taking a toll on investors’ savings. But the longer-term effect may be just as significant.

While the impact of the EU referendum on markets may have trustees and pension scheme members seeking out the latest performance of their investments, there have been implications for the pension industry as a whole.

Ongoing annuity rates

For some scheme members close to retirement, the referendum result has had a major impact on their choices as annuity rates fell sharply post-Brexit.

“The cost of buying an annuity has got more expensive for DC [defined contribution] members close to retirement,” says Joanna Sharples, investment principal at consultancy Aon Hewitt. “Post-Brexit it will be really interesting to see how this translates across different annuity providers; however, quotes from one provider suggest that annuities are about 4 per cent more expensive, which is quite meaningful.”

Yet, the introduction of pension freedoms in April 2015 may have offered members a wider range of choices to mitigate the referendum result. Data from insurer and long-term investments industry body ABI suggests that annuity-buying activity has fallen away since the introduction of pension freedoms, with income drawdown products enjoying a corresponding rise in take-up.

Pension freedoms are likely to have a bearing on the type of investment decisions that are made in the post-referendum period, opening up opportunities to members they may not have enjoyed in previous years.

“Pensions freedoms have put existing default life cycles into question and there has been a sizeable shift from annuities to drawdown,” says Maya Bhandari, fund manager and director of the multi-asset allocation team at global asset manager Threadneedle Investments.

“We are now able to start on a blank sheet of paper and ask two crucial questions: what do people want and what do they need? Ultimately what people need is relatively simple tools and solutions that help them identify, manage or mitigate the three risks they face in retirement – financial market volatility, real returns and longevity.”

Brexit-proofing pensions

In light of the uncertainty brought about by Brexit, more scheme members might choose to take greater control over their pension savings. So-called Brexit-proofing pensions may appeal to many investors, although they will face a number of challenges.

“Pensions freedoms are still relatively new, which means people are currently faced with very mixed messages about how best to act in times of market uncertainty,” says Catherine McKenna, global head of pensions at law firm Squire Patton Boggs.

“We already know that one of the biggest trends of 2015 was the rise of the pensions scam and individuals should be careful to guard against Brexit uncertainty being used as a trigger to cash out their fund if this isn’t right for them.”

While the referendum decision and subsequent government shake-up may have ramifications for pension freedoms, any changes to existing pension legislation are unlikely to emerge in the immediate aftermath of the leave vote.

“In terms of legislation on pension freedoms, it is unlikely that the government will look to repeal what is already in place but, irrespective of Brexit, there may be further regulation to impose better value by reducing charges and product design for freedoms to develop,” says Ms McKenna.

Taking greater control of investment decisions in the current environment may pose a number of challenges, however, particularly with the increased level of volatility in markets seen in the wake of the result.

“From an investment perspective, Brexit has created much greater uncertainty and volatility in the markets, and made them more than usually reactive to political events,” says James Redgrave, European retirement director at asset management research and consultancy provider Strategic Insight.

“The FTSE 100 fell 500 points on June 24 – below 6,000 – and savers entitled to access their pots were advised to wait to take cash, if they could afford to do so.

“These markets have settled largely on the quick and orderly transition to a new government, after David Cameron’s resignation, and will have been buoyed by the Bank of England’s conclusion that an interest rate cut is not economically necessary.”

James Horniman, portfolio manager at investment manager James Hambro & Partners, says: “Investors have to position portfolios sensibly with insurance against all outcomes. Sterling is likely to come under continued pressure and there will almost certainly be volatility.

“As long as valuations are not unreasonable, it makes sense to weight any UK equity holdings towards businesses with strong US-dollar earnings rather than those reliant on raw materials from overseas – companies forced by adverse currency movements to pay extra for essential inputs from elsewhere in the world could see their profits really squeezed.”

The impact of home bias is likely to take a toll on some pension investments as fund managers have warned of being too exposed to the UK market. Under normal circumstances higher UK equities exposure may be expected, but the uncertainty introduced by the referendum result in local markets may harm returns.

Long term plans

Experts note that many trustees have already begun diversifying portfolios to mitigate geography and asset risk. The financial crisis remains a fresh memory for many trustees who will have taken a more robust approach to diversification in recent years.

“There’s been a general trend over the past decade of moving away from fund manager mandates that are very specific and narrow to wider mandates, such as global equities or multi-asset,” says Dan Mikulskis, head of defined benefit (DB) pensions at London-based investment consultancy Redington. “Trustees making fund manager changes will be more motivated to move to less constrained mandates.”

Yet, trustees and scheme members may need to get used to new market conditions and a longer-term, low-growth environment.

“Following Brexit, the conversations we’ve been having with investors are similar to those we’ve been having since the start of the year,” says Ana Harris, head of equity portfolio strategists for Europe, the Middle East and Africa at investment manager State Street Global Advisors.

“We haven’t seen a big shift in money or allocations, but there has been some realignment. What we are advising clients is not to be reactive to short-term volatility in the market and make sure plans for long-term investment are in place.”

“In the short term, it is likely there will be quite a lot of volatility in the market and members need to be aware of that,” says Aon Hewitt’s Ms Sharples. “One option is that everybody carries on as before with no change to strategy; however, the other option is trustees think about whether there are better ways of investing and opportunities to provide more diversification or add value.

“For people who are a bit further away from retirement, the key is what kind of returns can they expect going forward? Returns are likely to be lower than before because of pressure on the economy and lower growth expectations. To help offset this, members have the option of paying more in or retiring later, or a combination of both.”

With further details yet to emerge about what access the UK will have to EU markets and restrictions on free movement, the full impact of Brexit remains to be seen.

“Unfortunately, no one has a crystal ball. Even the best investment strategies may be adversely affected by current market volatility, but this is not to say members, trustees or fund managers should begin to panic,” says Ms McKenna of Squire Patton Boggs.

“There is little doubt that Britain leaving the EU will mean there are challenges ahead for investment funds; however, there are also opportunities for trustees to harness innovation and consider new investment portfolios.”

A greater focus on risk management has emerged as trustees attempt to mitigate some of the impact of June’s EU referendum result on pension schemes.

While attention may be focused on markets, pension scheme trustees will also have to consider a number of other risk management issues brought about by Brexit.

“I don’t think pensions should be focusing too much on whether sterling is going up or down, or whether one asset manager is performing,” says Dan Mikulskis, head of defined benefit pensions at investment consultancy Redington.

“Getting a risk management framework set up is sensible. With a simple framework to go by, there will be opportunities in a volatile market environment, but it’s always best left to the asset manager.”

Mr Mikulskis says regular reviewing of investment decisions and performance is likely to depend on the size of the scheme and the governance arrangements, adding that trustees may be put under pressure to communicate more frequently and effectively with scheme members.

Despite low interest rates, trustees should take care over possible liability hedging, while also recognising the challenges presented by a low-yield environment for bonds.

“We don’t think that just because rates are low they can’t fall further,” he says. “A lot of trustees that haven’t hedged will feel like they’ve missed the boat, but there are still risks on the down side.”

There sure are risks to the downside and trustees ignoring the bond market’s ominous warning are going to regret not hedging their liabilities because if you ask me, ultra low rates and the new negative normal are here to stay, especially if the deflation tsunami I’ve warned of hits us.

Brexit isn’t just hitting UK pensions, it’s also going to hit large Canadian pensions which invested billions in UK infrastructure and commercial real estate. They were right to worry about Brexit and if they didn’t hedge their currency risk, they will suffer material losses in the short-term.

However, Canada’s large pensions have a very long investment horizon, so over the long run these losses can become big gains especially if Britain figures out a way to continue trading with the EU after Brexit.

That all remains to be seen. In my opinion, Brexit was Europe’s Minsky moment and if they don’t wake up and fix serious structural deficiencies plaguing the EU, then the future looks bleak for this fragile union.

Brexit’s shock waves are also being felt in Japan where the yen keeps soaring, placing pressure on the Bank of Japan which is also grappling with expansionary fiscal policy. We’ll see what it decides on Friday but investors are bracing for another letdown.

In other related news, while Brexit’s biggest fans are in big trouble, Chris Havergal of the Times Higher Education reports, Bonuses up at USS as pension fund deficit grows by £1.8 billion:

Bonuses at the university sector’s main pension fund have soared, even though its deficit has grown by £1.8 billion.

The annual report of the Universities Superannuation Scheme says that the shortfall between its assets and the value of pensions due to members was estimated to be £10 billion at the end of March, compared with £8.2 billion last year and predating any negative effect of the Brexit vote on pensions schemes.

The health of the fund is due to be reassessed in 2017 and Bill Galvin, its chief executive, said that it was “too early” to say whether contributions from employers and employees would need to be increased.

Despite the expanding deficit, the annual report reveals that the value of bonuses paid to staff rocketed from £10.1 million to £18.2 million last year, with the vast bulk going to the scheme’s investment team.

This contributed to the number of USS employees earning more than £200,000 once salary and bonuses are combined increasing from 29 to 51 year-on-year.

Thirteen staff earned more than £500,000, up from three the year before. While the highest-paid employee in 2014-15 received between £900,000 and £950,000, last year one worker earned about £1.6 million, with another on about £1.4 million.

Mr Galvin told Times Higher Education that the increases reflected a decision to take investment activities in-house that were previously outsourced, and strong investment performance that meant that the deficit was £2.2 billion smaller than it would otherwise have been.

“Although bonuses to the investment teams have gone up, it reflects the fact they have contributed very substantially to keep the deficit from being in a worse position than it is,” Mr Galvin said. “We are delivering a very good value pension scheme, better than any other comparable schemes we have benchmarked.”

The report shows that Mr Galvin’s total remuneration, including pension contributions, increased by 12 per cent in 2015-16, from £432,000 to £484,000.

This comes after a summer of strike action by academics – many of whom will be USS members, particularly at pre-92 universities – over an offer of a 1.1 per cent pay rise for 2016-17.

The increased deficit means that the scheme’s pensions are now estimated to be only 83 per cent funded, compared with the 90 per cent figure predicted by the last revaluation in 2014.

Mr Galvin said that the assumptions made two years ago had been “reasonable”, but that asset values had not kept pace with declining interest rates.

The last revaluation led to the closure of the USS’ final salary pension scheme and an increase in contributions by employers and employees, but Mr Galvin said that a long-term assessment would be taken to determine if further changes were needed.

“Some of the things that will be relevant in the 2017 valuation have gone against [us] in terms of the assumptions we made at the last valuation,” Mr Galvin said. “That is a signal and we will consider what we should do about that…[but] it’s too early to say whether we do need to make any response or what that response might be.”

Mr Galvin added that, while an increase in liabilities since Brexit had been “broadly balanced” with an increase in the value of assets, it was “much too early” to determine the longer term impact of the UK leaving the European Union on the fund.

Looks like the Canadian pension compensation model has been adopted in the United Kingdom. That reminds me, I need to update the list of highest paid pension officers, but keep in mind Mr. Gavin is right, taking investment activities in-house saves the scheme money and it requires they pay competitive compensation to their senior investment officers.

Lastly, Elizabeth Pain of Science Magazine reports, Pan-European pension fund for scientists leaves the station:

Old age may not be something European scientists think about as they hop around the continent in search of exciting Ph.D. opportunities, broader postdoctoral experience, or attractive faculty positions. But once they approach retirement age, many realize that working in countries as diverse as Estonia, Spain, or Germany can be detrimental to one’s nest egg.

But now, there is a potential solution: a pan-European pension fund for researchers, called RESAVER, that was set up by a consortium of employers to stimulate researcher mobility. The fund was officially created on 14 July under Belgian law as a Brussels-based organization. Three founding members—the Central European University in Budapest; Elettra Sincrotrone Trieste in Basovizza, Italy; and the Central European Research Infrastructure Consortium headquartered in Trieste, Italy—will soon start making their first contributions. Researchers can also contribute part of their own salary to the fund.

“We have a solution” to preserve the pension benefits of mobile researchers, Paul Jankowitsch, who is the former chair of the RESAVER consortium and now oversees membership and promotion, said earlier this week here at the EuroScience Open Forum (ESOF). “The excuse [for institutions] to do nothing is gone.”

The European Commission has contributed €4 million to the set-up costs of RESAVER, as part of its funding program Horizon 2020. At least in principle, the fund is open to the entire European Economic Area, which includes all 28 E.U. member states except Croatia, as well as Norway, Lichtenstein, and Iceland.

Most European countries offer social security, and it’s usually possible to get access to benefits even if they’re accumulated in another country. But many universities and institutions also provide supplemental pension benefits that are not so easily transferred. Researchers who spend part of their career abroad—even if it’s just a few hundred kilometers from home—can find themselves paying into a variety of supplemental plans, often resulting in lower benefits than they would enjoy if they just stayed put. This puts a damper on scientists’ mobility.

The idea behind RESAVER is to create a common pension fund so that supplemental benefits will simply follow scientists whenever they change jobs or countries. Individual researchers can only join through their employers, which is why it’s essential for the scheme’s success that a large number of institutions around Europe join the initiative.

The big question is whether that will happen. In addition to the three early adopters, the RESAVER consortium, which was created in 2014, has some 20 members so far, together representing more than 200 institutions across Europe. That’s just a tiny fraction of Europe’s research landscape—and even most members of the consortium have not yet committed to joining the fund.

Take-up has been slow for a variety of reasons. According to Jankowitsch, the fund represents a long-term financial risk that many universities and research institutions are not accustomed to. Local factors further complicate matters. In France, many researchers have their pension fully covered by the state as civil servants. Although many institutions in Spain are part of the consortium, there are obstacles in Spanish law to joining a foreign pension fund. And in Germany, researchers at the Max Planck Institutes have little incentive to join because they already enjoy attractive pension packages.

Risk was also a concern for researchers in the audience at this week’s ESOF session. The RESAVER pension plan will be contribution- rather than benefit-based, meaning that researchers will know how much they put in but not how much they’ll get, as they would with many other pension plans in Europe. Although the fund has been conceived as a pan-European risk-pooling investment, Jankowitsch acknowledges that there will always be risks in the capital market.

Some attendees also wondered whether, with so few institutions participating, RESAVER could actually be a barrier to mobility, at least in the short term, by limiting researchers to those institutions. Young researchers worried about inequalities because Ph.D. candidates are employed in some places but are considered students in others, making them ineligible for participation. (The consortium is currently negotiating a private pension plan for researchers who don’t have an employment contract.)

The International Consortium of Research Staff Associations (ICoRSA) would like to see more transparency in the fund’s investment plan and more flexibility and guarantees for researchers, the organization says in a position statement sent to ScienceInsider today. But overall, “ICoRSA welcomes the initiative.”

Jankowitsch is optimistic: “We see a lot of questions, but not obstacles,” he said at ESOF. Institutes can benefit, because offering RESAVER to employees could give them a competitive hiring advantage, Jankowitsch said—but he encouraged researchers to urge their employers to join, if necessary. “If organizations are not joining, then this is not happening.”

This is an interesting idea but they should have modeled it after CERN’s pension plan which is a defined-benefit plan that thinks like a global macro fund. CERN’s former CIO, Theodore Economou is now CIO of Lombard Odier and he’s a great person to discuss this initiative with.

But before they launch RESAVER to bolster the pensions of European scientists, European policymakers and UK’s new leaders need to sit down and RESAVE the Euro.

CalSTRS this week served a subpoena on Volkswagen as part of the pension fund’s lawsuit against the German carmaker.

CalSTRS, which owned over $50 million of Volkswagen stock at the end of 2015, is suing the car company for shareholder losses related to the emissions scandal.

From the Financial Times:

CalSTRS, which held $52m of VW stock as of December 31, 2015, said it is looking for internal documents at Volkswagen to clarify how the carmaker came up withemissions control technology that cheated official tests.

It also seeks documents that would show how the company responded to a May 2014 study that first proved emissions were far higher than standards permitted, as well as follow-up investigations by US regulators.

“It is expected that these documents will help answer the central questions raised in the German proceedings,” CalSTRS said.

“The US Code permits discovery in support of foreign proceedings, while German law does not provide for such pre-trial discovery.”

The US Court issued an order on July 21, CalSTRS said. On Wednesday, the pension fund’s lawyers then served a subpoena to VW of America, “demanding that they deliver up the documents requested.”