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Ontario Teachers’ New CIO?

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

Barbara Shecter of the National Post reports, Ontario Teachers’ Pension Plan finds new chief investment officer in Denmark:

The Ontario Teachers’ Pension Plan has appointed a new chief investment officer to replace longtime CIO Neil Petroff, who retired in June.

Bjarne Graven Larsen, who will also serve as executive vice-president, takes the role Feb. 1, and will report to chief executive Ron Mock.

Graven Larsen is a former CIO and executive board member of Denmark’s largest pension plan, ATP, which is the fourth largest pension in Europe.

Most recently, however, he was chief financial officer of Novo A/S in Copenhagen, and before that he led the successful turnaround of Denmark’s sixth largest bank, FIH Erhvervsbank A/S, which was acquired by an ATP-led Danish consortium.

“With his investment expertise, global experience, forward thinking on risk management, and importantly, hands-on work within a total return framework, Bjarne is uniquely positioned to be our Chief Investment Officer,” Mock said in a statement Monday.

“He has the experience and vision to lead our world-class investment team into our next generation of global growth.”

Graven Larsen will lead Teachers’ senior investment leadership team, which was recently restructured “to reflect the evolving global pension investment environment,” the pension plan said.

Divisions include infrastructure and natural resources, public equities, capital markets, portfolio construction, emerging markets, Asia-Pacific, real estate and investment operations.

Graven Larsen, who is also former managing director of Denmark’s largest mortgage bank and a former monetary policy director at Denmark’s central bank, said he has “admired the innovative work and success of Ontario Teachers’ for many years.”

Jennifer Paterson of Benefits Canada also reports, Ontario Teachers’ appoints new CIO:

The Ontario Teachers’ Pension Plan has appointed Bjarne Graven Larsen as executive vice president and chief investment officer (CIO), effective February 1, 2016.

Graven Larsen is the former CIO and executive board member of ATP, Denmark’s largest pension plan and the fourth largest in Europe. He was most recently the chief financial officer at Novo A/S in Copenhagen. Between these two engagements he led the successful turnaround of Denmark’s sixth largest bank, FIH Erhvervsbank A/S, which was acquired by an ATP-led Danish consortium.

Graven Larsen will head up Ontario Teachers’ senior investment leadership team, which was recently restructured to reflect the evolving global pension investment environment.

“With his investment expertise, global experience, forward thinking on risk management, and importantly, hands-on work within a total return framework, Bjarne is uniquely positioned to be our chief investment officer,” said CEO Ron Mock. “He has the experience and vision to lead our world-class investment team into our next generation of global growth.”

“I have admired the innovative work and success of Ontario Teachers’ for many years,” said Graven Larsen. “I consider this position to be a career opportunity of a lifetime and I look forward to learning from the outstanding team here and sharing my experiences with them as we work together to deliver members’ pensions.”

Lastly, Reuters also reports, Ontario Teachers appoints Danish investment veteran as CIO:

The Ontario Teachers’ Pension Plan (Teachers’), one of Canada’s biggest investors, has appointed veteran Danish investment professional Bjarne Graven Larsen as its new chief investment officer (CIO) and executive vice president.

Graven Larsen, 52, is a former CIO and executive board member of ATP, Denmark’s biggest pension plan and the fourth largest in Europe. He was most recently chief financial officer at holding company Novo A/S, majority shareholder in Danish insulin maker Novo Nordisk.

Teachers’, which is Canada’s third biggest public pension fund, said on Monday that Graven Larsen would report to its Chief Executive Ron Mock and be based in Toronto. He will take up the position on Feb. 1.

“With his investment expertise, global experience, forward thinking on risk management and, importantly, hands-on work within a total return framework, Bjarne is uniquely positioned to be our chief investment officer,” Mock said in a statement.

Teachers’ and peers like the Canada Pension Plan Investment Board and Caisse de dépôt et placement du Québec have been among the world’s most active dealmakers in recent years, with major bets on real estate, natural resources and infrastructure.

Teachers’ managed net assets worth 154.5 billion Canadian dollars ($109 billion) at the end of 2014.

Graven Larsen will succeed Neil Petroff, who retired in June.

Ontario Teachers’ put out a press release here which basically states a lot of what is stated above.

Bjarne Graven Larsen is a huge recruit for Ontario Teachers. He has unbelievable experience as a former CIO of ATP and as a monetary policy director at Denmark’s central bank.

He also has big shoes to fill as Neil Petroff who retired last year was unquestionably a great CIO. And before Neil Petroff, there was Bob Bertram, another great CIO who built Teachers’ investment divisions along with Claude Lamoureux.

In my last conversation with Ron Mock before Christmas, he told me they were on the verge of hiring a CIO. And they hired a veteran who was a CIO at ATP, arguably one of the best pension plans in the world (on par with OTPP and HOOPP, if not better, and highly regarded by everyone including Jim Keohane, CEO of HOOPP, who told me he reformed HOOPP’s asset-liability approach based on the one ATP is using).

This is a critical position and Ron Mock took his time recruiting someone who really knows his stuff. And I’m sure a lot of people within and outside Teachers’ wanted this position which not only has big perks like huge compensation, but is also responsible for overseeing private and public investments as well as hedge funds and the risk that is allocated between them.

The fact that Ron Mock, who has tremendous investment experience under his belt, hired someone with this experience tells me he wanted a veteran who is able to navigate what increasingly looks like a very difficult investment landscape. Ron also wanted someone who will command the same respect Neil Petroff had and someone who offers fresh eyes and views to the way Teachers’ invests across public and private markets.

Graven Larsen will now be responsible for a great investment team which includes Jane Rowe, John Sullivan, Michael Wissell, Wayne Kozun, Ken Manget, and Lee Sienna, just to name a few.

There is no doubt in my mind that Graven Larsen will be another great CIO for Ontario Teachers’ during what will be a very difficult period marked by global deflation and lower returns.

When I met Kevin Uebelein, AIMCo’s chief executive officer, here in Montreal in late November, he asked me my thoughts on separating the CEO and CIO function at public pension funds. He appointed Dale MacMaster as the chief investment officer responsible for private and public investments.

I told him flat out: “I don’t care if it’s Ron Mock, Mark Wiseman, Leo de Bever, Gordon Fyfe or you, I do not think any CEO of a major Canadian pension fund can successfully carry both CEO and CIO hats. And if you’re going to hire a CIO, make sure he or she is responsible for both private and public markets.”

Michael Sabia at the Caisse who has the least investment experience hired Roland Lescure as CIO but the latter is only in charge of public markets. Neil Petroff once told me on the phone that to be an effective CIO, you need to allocate risk across public and private markets and he was absolutely right.

I know people have different views on this matter. Gordon Fyfe once told me he likes being CEO and CIO but as I explained to him during our breakfast right before I was wrongfully dismissed from PSP in October 2006, “it’s stupid and leaves you exposed to all sorts of risks you have no idea of” (boy, that was an understatement).

Let me be crystal clear. I can’t take any CEO of any major public pension fund seriously if they don’t appoint an experienced CIO to oversee and allocate risk across public and private markets. I think it’s highly irresponsible not to do so.

Again, Ron Mock has more direct investment experience than all other CEOs at Canada’s Top Ten (apart from Jim Keohane who is equally investment savvy) and he still chose to find an exceptionally talented CIO to help him manage investment risks. That speaks volumes to Ron’s judgment and lack of investment ego.

I’m sure Gordon Fyfe is reading this and saying “everything worked well at PSP without a dedicated CIO” in charge of public and private markets. He is wrong, he was always wrong on this front. Period.

But let me not be too critical of Gordon, after all, I hear PSP is a total mess now after the departure of Bruno Guilmette, the head of Infrastructure and Jim Pittman, a senior VP of Private Equity. Neil Cunningham is still there as the head of Real Estate and Daniel Garant is CIO (of what exactly? public markets??) but the senior managers Gordon put in place have been forced out or are leaving on their own.

My sources tell me the culture at PSP is going from bad to terrible with a lot of infighting between and within investment teams and no real direction on where they’re heading. You can criticize Gordon Fyfe on many fronts, and God knows I have done so on my blog, but at least he kept cohesion in his senior ranks and kept a balance between anglophones and francophones (even if it was a boys club full of egos).

I don’t know what exactly André Bourbonnais is trying to accomplish but I suggest he takes me up on my lunch invitation and I will give it to him straight (have nothing to lose!). He needs to do a hell of a lot more to improve the culture at PSP and this means getting rid of some cockroaches at that place who are nothing more than backstabbing egomaniacs. I can say the same thing to Michael Sabia over at the Caisse. He too needs to shake things up in the senior ranks (and I’m not referring to Roland Lescure).

When I hear stories at all of Canada’s Top Ten on some power-hungry weasels backstabbing people, it makes my blood boil, especially since it’s typically these idiots that are responsible for poor performance and god awful culture at these big shops.

As far as Ontario Teachers’, I’m sure it has its share of backstabbing egomaniacs but that shit won’t fly with a guy like Ron Mock at the helm. And I doubt it will with a veteran outsider from Denmark like Bjarne Graven Larsen who is serious and focused on risk-adjusted returns.

The first article above states Teachers’ senior investment leadership team was recently restructured “to reflect the evolving global pension investment environment.” I have no details if this means some people were let go for poor performance or other reasons but knowing Ron, you better be focused on your job and be a team player or you’re out. It’s that simple.

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CIO of World’s Largest Pension: “I’m Sick Of” Outsourcing Most Investments

Japan’s Government Pension Investment Fund is the largest pension fund in the world, but still delegates most of its investing — even domestic equity management — to external managers.

At a panel discussion on Tuesday, the fund’s CIO said he is eager to bring more investment management in-house, a plan that has been in the works for over a year.

From Bloomberg:

“I’m frequently meeting the CIOs of global pension funds, and when I tell them that most of our investments are outsourced and that only some passive domestic bond investments are in-house, they look amazed, and I’m sick of seeing it,” [GPIF CIO Hiromichi] Mizuno said. “From a global standpoint, GPIF’s investment is behind the curve.”

The government panel is likely to meet about three more times to discuss changes to the law determining what GPIF assets can buy directly. The fund’s own staff managed 867.3 billion yen ($7.4 billion) of active domestic bond investments and 31.4 trillion yen in passive Japanese debt holdings at the end of March.

[…]

If the panel agree GPIF should begin in-house stock investments, the health ministry will draft a bill along with the governance proposal and submit it to the Diet, which runs through mid-June.

By investing directly in equities, GPIF would gain access to more market information and reduce the fees it pays external managers, according to Mizuno. Under the current law, the fund is also unable to invest in derivatives to hedge investments, and this should also be reviewed, he said.

GPIF’s average annual payout in fees to domestic stock managers over the past three years was about 6 billion yen, it said.

Six billion yen, cited in the article as GPIF’s average annual fee payout to domestic stock managers, is equal to approximately $51 million USD.

Photo by Ville Miettinen via Flickr CC License

Greek Official: Further Pension Cuts Are Non-Starter in Creditor Negotiations

The International Monetary Fund’s (IMF) Greek bailout program expires in March. In order for the country to keep getting help from the institution, it must reform its pension system.

Greece offered a pension overhaul plan last week, which included benefit cuts of up to 30 percent.

But Labor and Social Security Minister George Katrougalos says further benefit cuts are “an absolute red line” that won’t be crossed in negotiations with creditors.

From Bloomberg:

Greece’s “absolute red line” in negotiations with its creditors? No further cuts in primary pensions.

Labor and Social Security Minister George Katrougalos says the government’s proposal of raising 600 million euros ($651 million) through increased mandatory contributions is a more palatable option, pitting it against creditors, who say it may hurt growth. The country’s newly-elected leader of the main opposition New Democracy party leader, Kyriakos Mitsotakis has also said he won’t back such an increase, ensuring the government’s slim parliamentary majority will be tested.

[…]

The bind Greece finds itself in shows the limited room for maneuver the government has as pension reform becomes the most contentious issue in the country’s first review under its new bailout, set to begin in the coming days. Representatives of the country’s creditors are due in Athens on Jan. 18, according to Katrougalos. Completing the review is a condition for Greek debt relief talks to begin.

Greece must satisfy the International Monetary Fund that its pension reforms are far-reaching enough to put the country’s finances on a sustainable footing, as the fund decides whether it will remain involved in the Greek bailout after its program expired in March.

Read about the initial package of reforms here.

Study Confirms What Pensions Know: Corporate Board Diversity Pays Off

Screen shot 2016-01-06 at 3.49.25 PM — Source: *Diversity Investing* study

In 2015, we repeatedly saw some of the U.S.’ largest pension funds push for more diversity on corporate boards.

Last winter, Massachusetts’ pension fund voted to begin using its proxy voting status to push for board diversity from within. Around the same time, a group of nine large pension funds, including CalPERS, CalSTRS and the New York Retirement Fund, penned a letter to the SEC asking for better disclosure of a company’s board diversity.

Research shows that a majority (60%) of institutional investors believe corporate board diversity is important on some level. Nineteen percent believe that diversity is “very important” to strong decision-making.

Now, in the largest study yet conducted on the subject, researchers have found that there is significant merit to pensions’ pleas: companies with diverse boards consistently outperform those without.

The findings come from a new paper, Diversity Investing, which examined 50,000 executives from over 5,000 companies dating back to 2002. The paper only looked at professional diversity – background, education, affiliations, etc. Gender and race was not included in the analysis.

Ai-cio summarizes the report:

Public company leadership with varied career backgrounds have persistently and substantially outperformed stocks from homogenous C-suites, according to the largest study to date on management diversity.

The link was most pronounced in large-cap stocks, contrary to the majority of accepted equity-market performance anomalies.

[…]

Manconi, Rizzo, and Spalt posited three potential drivers of the diversity anomaly.

First, varied expertise among executives could be correlated with an omitted risk factor, although they noted standard risk adjustments failed to produce a likely candidate.

Second, and more likely in the researchers’ view, was a link between diverse management and “quality” stocks. “An attractive feature of this explanation is that a part of the related management literature emphasizes the potential of diverse teams to make better, less biased, decisions,” according to the authors.

Finally, investors could simply undervalue well-rounded leadership, producing persistent mispricing of securities under such teams, or even find them repellent.

“Investors may be more confident assessing the quality of a homogenous team,” the authors wrote—a biotech firm led by biotech veterans inspires optimism. Or allocators and analysts could be put off by “higher perceived ambiguity in the expected performance of a diverse team.”

Read the paper here.

Pension Funds Could Be In Line For Settlement Stemming From Credit Derivative Trading Lawsuit

Many investors, pension funds included, find out on Monday how big their share might be of a $1.9 billion settlement stemming from the way credit-default swaps were traded by banks.

The lawsuit claimed that Wall Street banks conspired to overcharge investors for the swaps. The class period is January 2008 to September 2015.

CalSTRS $11.5 Billion Reserve: Money Well Spent?

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.

The state makes large annual payments to a CalSTRS supplemental fund with a reserve that more than doubled in the past six years to $11.5 billion, while the fund’s annual payments to retirees dropped from $348 million to $193 million.

State payments required by law — $582 million last fiscal year and $607 million this fiscal year — continue to flow into the huge inflation-protection fund that keeps teacher pensions from falling below 85 percent of their original purchasing power.

Supplemental Benefit Maintenance Account payments have remained relatively stable for 25 years (see chart below): $169 million to 52,199 retirees in fiscal 1990, peaking at $348 million to 89,412 in 2008, and dropping to $193 million to 52,474 last year.

But the SBMA reserve, fed by an annual state contribution of 2.5 percent of the teacher payroll invested in the CalSTRS portfolio, ballooned from $113 million in fiscal 1996 to $5.3 billion in 2008, then more than doubled to $11.5 billion last year.

As the reserve soars, the CalSTRS pension it supplements only has 69 percent of the projected assets needed to pay future pension obligations and a debt or “unfunded liability” of $73 billion, according to the latest actuarial valuation as of June 30, 2014.

Under long-delayed legislation (AB 1469 in 2014), a plan to get CalSTRS pensions to 100 percent funding by 2046 will take a big bite out of the improving budgets of California schools, which no longer rank 50th among states in per-pupil spending.

The CalSTRS contribution rate paid by school districts and other employers will increase, in seven annual steps, from 8.25 percent of pay to 19.1 percent of pay by July 2020. Teachers and the state have smaller contribution increases.

A rationale for the large inflation-protection reserve is made by Milliman actuaries in a report to the CalSTRS board that assumes, among other things, continuing state contributions of 2.5 percent of pay and investment earnings of 7.5 percent a year.

“For example, if inflation is 3.00 percent each year in the future (as currently assumed), the balance in the SBMA would be projected to last forever,” said the Milliman report delivered in April 2014.

“If inflation is 3.50 percent each year in the future and the purchasing power level remained at 85 percent, the balance in the SBMA is projected to run out in approximately 40 years.”

But under current assumptions, said Milliman, the big reserve and continued state contributions “would be projected to be sufficient to pay purchasing power benefits at the 90 percent level through the fiscal year ending in 2089.”

Dipping into the big supplement reserve, or diverting its annual state payments, might be a tempting target as the rate school districts pay the California State Teachers Retirement System for pensions more than doubles by the end of the decade.

Rising pension costs, for example, are one of the financial forces that could push the Los Angeles Unified School District into bankruptcy, a panel of experts warned in a report obtained by the Los Angles Times last November.

But when the state struggled to close a big budget gap in 2003, part of the solution was withholding a $500 million payment to the CalSTRS supplemental fund, which had a reserve of only $1.6 billion then and was making a $224 million annual payment.

The CalSTRS board filed a lawsuit to get the SBMA payment and won. The state made a $500 million initial repayment to the supplemental fund in 2008 followed by annual $57 million payments of principal and interest that ended three years ago.

If money that went into the inflation-protection reserve during the last two decades had instead gone into the CalSTRS pension fund, the recent rate increase would have been smaller.

How the SBMA reserve is subtracted from the assets used to calculate the funding level on which the new rates were based is shown on the chart below, the latest actuarial valuation as of June 30, 2014.

The SBMA reserve reported that year, $10.3 billion, grew with good investment returns to $11.5 billion last fiscal year, according to the more current CalSTRS Comprehensive Annual Financial Report for 2015.

Is building a giant reserve to ensure inflation protection until 2089, the target set by the CalSTRS board, a cost-efficient use of school funds?

There may be a better way. The California Public Employees Retirement System provides inflation protection through a single employer-employee contribution rate that also covers the cost of pensions and cost-of-living adjustments.

CalPERS provides less protection than the 85 percent of original purchasing power provided by CalSTRS. For state workers, CalPERS maintains 75 percent of the original pension purchasing power and for local government employees 80 percent.

CalSTRS pensions get an annual 2 percent cost-of-living adjustment, a fixed amount based on the original pension. CalPERS provides a similar COLA but it compounds: 2 percent for state workers and 2 to 5 percent for local governments.

In the long run, the CalSTRS and CalPERS cost-of-living adjustments have not kept pace with inflation, hence the protection programs. (A federal survey in 2000 found that only 9 percent of private sector blue-collar and service pensions have COLAs.)

But since 2008 the number of CalSTRS retirees receiving the SBMA payment has dropped. Low inflation during the recession reduced the number becoming eligible for the supplement, while aging took its toll among the recipients.

There apparently has been no study or analysis of whether the CalSTRS inflation-protection program is cost efficient, compared to the CalPERS method or another alternative.

The CalSTRS inflation supplement did not begin as a fully formed plan that could be publicly evaluated on its own merits. Instead, the current SBMA seems to have gradually emerged from legislative bargaining, one piece at a time, in a kind of mission creep.

The SBMA was created by legislation in 1989 (SB 1407 and SB 1513) that phased in a state contribution of 2.5 percent of pay to restore 68.2 percent of purchasing power, according to the 1990 CalSTRS purchasing power report.

“If the balance in the SBMA is sufficient for restoring purchasing power to 68.2 percent for three years, the general fund appropriation for the year may be adjusted to the level that would maintain a three year reserve,” the 1990 CalSTRS report said of the legislation. “In no event may the appropriation be adjusted above 2.5 percent of payroll.”

So, how did a supplement that began with the target of 68.2 percent inflation protection, a three-year reserve and an adjustable 2.5 percent state payment become an $11.5 billion fund to provide 85 percent inflation protection for 73 years?

Separate legislation moved the purchasing power to 75 percent in 1997, 80 percent in 2001, and 85 percent in 2008. An important change (AB 1102 in 1998) made the 2.5 percent state contribution to SBMA a “vested right” for CalSTRS members.

When an appeals court ruled in 2007 that $500 taken from the SBMA reserve in 2003 must be repaid, AB 1102 was cited. And the mandatory state contribution, 2.5 percent of pay, built a big reserve enabling inflation protection to increase to 85 percent.

The SBMA contribution was vested by one of a half dozen bills that boosted CalSTRS benefits and cut contributions in the late 1990s, when a booming stock market briefly pushed the pension funding level above 100 percent.

One of the most notable: For 10 years a quarter of the teacher contribution to the CalSTRS pension fund, 2 percent of pay, was diverted into a new individual investment plan for teachers, the Defined Benefit Supplement.

A Milliman actuarial report three years ago said if CalSTRS were still operating under its 1990 structure, without the changes made in the late 1990s, pensions would have been 88 percent funded instead of 67 percent.

The funding gap could have been closed with a much smaller CalSTRS rate increase. In addition to the school district rate increase from 8.25 percent of pay to 19.1 percent, the rate for most teachers goes from 8 percent of pay to 10.25 percent.

The state contribution to the CalSTRS pension fund increases from 2 percent of pay to 6.3 percent of pay. Only the state contribution to the CalSTRS inflation supplement fund remains unchanged: 2.5 percent of pay.

Photo by Stephen Curtin via Flickr CC License

Jacksonville Mayor Pushing Sales Tax to Boost Pension Funding

Jacksonville Mayor Mayor Lenny Curry last week proposed levying a half-cent sales tax, with the resulting revenue to be used strictly for paying the city’s pension contributions.

The measure would have to be approved by voters in a citywide referendum.

Details of the proposal, from the Florida Times-Union:

The sales tax would run from 2030 to 2060 and provide a dedicated funding source strictly for paying off the city’s pension debt for its three plans — police and fire, general employees, and corrections officers.

From 2030 to 2060, the half-cent sales tax would collect a total of about $8.5 billion, according to financial projections by the city.

The pension bill filed in the Legislature would put requirements in state law for how actuarial reports — which assess the financial health of pension plans and calculate the city’s annual contribution — would treat those sales tax collections.

The actuary would take the total amount of projected sales tax collected over the future 30-year period and determine what it would be worth to the pension plan in today’s dollars. That present-day value then would be used as an asset for accounting purposes in determining the city’s annual financial payments to the pension fund.

For instance, if the present-day value of the future sales tax collections were $1.5 billion, that would count toward substantially bringing down the city’s $2.7 billion pension debt for its three pension plans — police and fire, general employees, and corrections officers. Because the debt would be less, the city’s annual cost of paying off that unfunded liability also would be lower.

City voters previously approved sales tax hikes in 1988 and 2000.

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NYC Mayor Wants Police Pension to Drop Gun Investments

New York City Mayor Bill de Blasio on Thursday urged the city’s Police Pension Fund to divest from all assets related to gun and ammo manufacturing.

The city’s Teachers’ Retirement System and its general Employees’ Retirement System have divested from gun holdings in recent years.

Gun holdings make up approximately 0.0001% of the fund’s portfolio, according to Pension360 calculations. But the move to divest, if approved by the board, is a symbolic one.

From Capital New York:

“After the countless tragedies involving assault weapons, public outcry over mass shootings and legislative proposals to outlaw assault weapons, we should not be investing in companies that manufacture and market assault weapons to civilians – ever,” de Blasio said in a statement, adding, “Those weapons belong in the hands of the military and law enforcement only.”

In a release, de Blasio’s office said the resolution requests the pension fund’s Bureau of Asset Management and General Consultant perform an analysis on the fund’s investments in companies that “manufacture assault weapons and high-capacity ammunition magazines.”

The resolution, which the board is expected to vote on sometime within the next couple of months, would also require the Bureau of Asset Management and Police Pension Fund’s general consultant to write a report for the board’s trustees showing options for how the fund could get rid of the investments without forgoing its fiduciary obligations to its shareholders.

De Blasio will send similar resolutions to the Fire Department’s pension fund and the Board of Education Retirement System sometime in the next several weeks, City Hall said.

The city’s Police Pension Fund currently holds about $4.4 million worth of gun-related assets. It’s overall portfolio totals $33 billion.

Photo by Thomas Hawk via Flickr CC License

CalPERS Cut Investment Expenses by $217 Million in ‘15, Aided by Hedge Fund Sell-Off

CalPERS cut its investment expenses by $217 million in fiscal year 14-15, according to the pension fund’s just-released annual report.

The fund is in the midst of a years-long project that aims to reduce the complexity and cost of its investment portfolio. CalPERS’ highly-publicized exit from hedge funds was part of that initiative, as was its decision earlier this year to cull its private equity managers and consolidate its PE investments.

Brazil Bribery Scandal May Have Involved Pension Fund: Report

Brazil is in the midst of the largest corruption scandal in the country’s history, but it still could get bigger. A Brazilian paper this week reported that the bribery may have extended to pension funds.

Executives at numerous engineering firms and Petrobras, the world’s sixth-biggest energy company, are accused of using company money to bribe politicians for contracts.

Reuters explains how pension funds might fit in:

Brazil’s top prosecutor has found evidence that a bribe scheme involving local engineering firms and the state oil company extended to pension funds and a workers’ fund, benefiting the ruling Workers’ Party and allies, newspaper Folha de S. Paulo reported on Friday.

The paper said the potential new front in Brazil’s largest-ever corruption investigation was based on a slew of text messages leaked to the local press on Thursday from Leo Pinheiro, the convicted former head of engineering firm OAS.

“According to what can be inferred from the messages, there were debentures issued by the companies acquired by banks … or by pension funds where there is political interference,” top Brazilian prosecutor Rodrigo Janot wrote in documents seen by Folha.

Janot said the messages indicated OAS might have paid bribes to politicians, including House Speaker Eduardo Cunha, or made official campaign donations to political parties in exchange for the financial transactions that raised funds, according to Folha.

One OAS executive has already been sentenced to 16 years in prison.

Photo by c_ambler via Flickr CC License

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