Japan Pension Puts Governance Overhaul on Hold, For Now


A governance overhaul at the world’s largest pension fund was put on hold this week.

Officials at Japan’s Government Pension Investment Fund (GPIF) had been planning a major governance overhaul, including the creation of a new board to oversee the fund’s investments.

But that proposal and others have been put on the backburner, as Prime Minister Shinzo Abe approved a bill that will make governance changes on a much smaller scale.

More from the Wall Street Journal:

Minister of health, labor and welfare Yasuhisa Shiozaki, whose ministry has purview over the fund, has advocated installing a governing board that would oversee GPIF’s investments and ensure independence from political interference. But his idea was at odds with the overhaul process envisioned by others in the Abe administration. They believed a Shiozaki-style plan would be difficult to push through parliament in its current session, which ends in June, and they wanted to pursue as many changes as possible without a major new law.

Chilly relations between Mr. Shiozaki and the GPIF’s new chief investment officer, Hiromichi Mizuno, have also hindered the Abe government’s ability to build consensus.

On Tuesday, Mr. Abe’s cabinet effectively settled the dispute for now by approving a more modest bill without the Shiozaki proposals. The bill allows the fund to keep its headquarters in Tokyo, overturning a previous measure requiring a move, and gives legal imprimatur to the position of chief investment officer. Mr. Mizuno, a former private-equity executive in London, took the post in January. The smaller bill now goes to parliament for final passage.

Welfare Minister Shiozaki said he would continue to push for larger governance changes.

The GPIF manages $1.1 trillion in pension assets.


Photo by Ville Miettinen via Flickr CC License

Chicago Municipal Pension Looks for CIO


The Chicago Municipal Employees’ Employees’ Annuity & Benefit Fund is looking for a new chief investment officer to replace Michael Walsh, who left the fund in October for a high-level position at another pension fund.

The desired experience and education requirements for the position, according to the job posting:

*Advanced degree in a business, related major or the CFA designation or commitment to completing the designation are preferred

*Leadership experience in a similar institution, organization or government agency;

experience in a public pension system is desirable

*Good understanding of institutional investment management

*Management of staff experience

*Ability to analyze and evaluate investment managers; solid understanding of and experience with the due diligence process

*Experience working with a Retirement Board, investment consultants, auditors, and actuaries

*Basic technology skills and knowledge

*Experience in management of institutional assets is preferred

*Fundamental accounting skills

*Knowledge of the Illinois Pension Code

The full job posting can be found here.

Application are due on Feb. 25 by 4:30 p.m. central time.


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For CalPERS CIO, Lack of Stock and Bond Experience Not a Problem


The LA Times on Sunday published an interesting and thorough profile of CalPERS chief investment officer Ted Eliopoulos.

It chronicles Eliopoulos’ beginnings as an Ivy League tennis star, his appointment to CIO of the country’s largest public pension fund, and his headline-making decision to pull out from hedge funds.

The piece also dives into why Eliopoulos was an interesting choice for the CIO position, given that he was an expert in real estate but had little experience with stocks or bonds.

From the LA Times:

In turning to Eliopoulos, a consummate insider, CalPERS’ board made what is in some ways an odd choice.

Trained as a lawyer, not an investment professional, Eliopoulos has spent much of his career in state bureaucracies and had never directly managed stocks or bonds — more than 70% of the total CalPERS portfolio — before being named interim chief investment officer a year ago.

His area of expertise had been in buying, selling and managing real estate, which makes up only 10% of CalPERS’ portfolio and remains a rehabilitation effort.


Some believe even the most deft investor can’t keep the system solvent over the long term. But his supporters said he’s up to the task.

Former state Treasurer and Democratic Party Chairman Phil Angelides called Eliopoulos, whom he mentored, a methodical thinker and steady manager.

“He’s not threatened by having good, strong people around him,” Angelides said.


His lack of stock-and-bond experience may matter less than his ability to manage the massive investment operation that includes 400 in-house staffers and dozens of highly paid consultants and advisors, said investment professionals.

“It’s perfectly possible to be a very effective leader even if you don’t have all the experience in the weeds,” said Michael Rosen, a principal at Angeles Investment Advisors, which advises institutional investors.

Read the whole profile here.


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Japanese Government Officials Disagree Over Pension Fund Changes


2014 was a year of change for Japan’s Government Pension Investment Fund (GPIF), and 2015 will bring more of the same.

Aside from appointing a chief investment officer, the pension fund is overhauling its investment strategy and hiring new managers.

But Japan’s welfare minister, Yasuhisa Shiozaki, along with other government officials, might not be on the same page as the GPIF.

From the Wall Street Journal:

Japan’s welfare minister has frequently disagreed with officials in Prime Minister Shinzo Abe ’s government over the nation’s $1.1 trillion Government Pension Investment Fund, according to people familiar with the matter, adding uncertainty to efforts to remake the fund.


Fights over the process—including the recent hiring of a London-based private-equity executive as chief investment officer—have broken out between Mr. Shiozaki’s camp and other officials at his Ministry of Health, Labor and Welfare, as well as aides to Mr. Abe, according to those involved.


So far, the disagreements haven’t significantly derailed Mr. Abe’s plans. But in an interview Wednesday, Mr. Shiozaki laid out a cautious investment strategy and declined to praise the chief investment officer, Hiromichi Mizuno.

Mr. Mizuno’s appointment “was decided by the GPIF’s president, so I don’t think it’s the kind of thing I should comment a lot about,” said Mr. Shiozaki.

He went on, “Mr. Mizuno must do his best to fulfill the necessary condition of being able to invest in a safe and efficient manner. That is what we expect. If he can’t do that—if it does not come out in favor of pensioners—then that’s a problem.”

The GPIF manages $1.1 trillion in assets and is the world’s largest pension fund.


Photo by Ville Miettinen via FLickr CC License

Chicago Police Pension Begins Search For CIO


The Chicago Policemen’s Annuity & Benefit Fund has begun its search for a chief investment officer, according to a job posting and reporting by Pensions & Investments.

The job listing can be seen here.

More details from Pensions & Investments:

Chicago Policemen’s Annuity & Benefit Fund is searching for a chief investment officer, said acting CIO James Maloney, in an e-mail.

Mr. Maloney, chairman of the $4 billion pension fund’s investment committee, was appointed acting CIO last month following the departure of Samuel Kunz. Mr. Kunz joined the University of California, Oakland, in the new position of managing director, asset allocation and investment strategy.


The deadline for applications is Feb. 16. A hiring decision is anticipated this spring, Mr. Maloney wrote.

The CIO of the Chicago Policemen’s Annuity & Benefit Fund oversees a $4 billion portfolio.


Photo by Santiago Medem via Flickr CC

Report: Japan Pension Set to Benefit From Reforms


Japan’s Government Pension Investment Fund (GPIF) – the largest pension fund in the world – implemented numerous changes in 2014, including an asset allocation shake-up and the hiring of its first chief investment officer.

A new report says the reforms will benefit the fund going forward. From Chief Investment Officer magazine:

A report jointly published by Cerulli Associates and the Nomura Research Institute (NRI) stated that the reforms to the ¥130.9 trillion ($1.1 trillion) pension, announced by its management team earlier this year, would help it become “more dynamic.”

“In terms of hiring, the GPIF will not be shackled by low salaries and will be better positioned to recruit top-notch talent,” said Yoon Ng, Asia research director at Cerulli Associates. “This will add more quality to its external manager selection processes.”


“With public pension fund reforms in place, the GPIF… may show a stronger tendency to hire managers with highly distinctive investment strategies that are differentiated from and relatively uncorrelated with other companies’ strategies,” the report offered.

Atsuo Urakabe, a senior researcher at NRI, said the new asset allocation would push the GPIF to hire managers with “highly distinctive investment strategies” that can offer uncorrelated performance, as it seeks to achieve a higher annual return.

Cerulli’s report said Japanese pension funds had been “bogged down by ultra-conservative investment policy requirements” but pointed to the GPIF’s reforms as an indication that other pensions in the country could revise their asset allocations, diversify, upgrade risk management, and reform governance.

As well as identifying external managers, Cerulli’s research paper predicted that Japanese public pension funds outside of GPIF may seek to build up their in-house expertise.

“In the long run, this will help to bring their costs down and lead to some insourcing of assets that had previously been farmed out to be managed,” the report said.

The GPIF manages $1.1 trillion in assets.


Photo by Ville Miettinen via Flickr CC License

Ventura County Pension Seeks CIO

 California flag

California’s Ventura County Employees’ Retirement Association (VCERA) is currently without a chief investment officer. But the fund is looking to hire one.

The description of the position, from the VCERA recruiting brochure:

Under general direction of VCERA’s Board of Retirement, in conjunction with the Retirement Administrator, the Chief Investment Officer serves as the in-house investment expert and acts as a liaison to the Board’s investment consultant and investment managers providing independent analysis of their investment proposals; administers, monitors and evaluates the investment program, including asset allocation, and rebalancing under the authority of the Board; and plans and develops investment strategies. This position is exempt from civil service and serves at the pleasure of the Board.

Duties of the Chief Investment Officer include, but are not limited to:

– Evaluates and provides reports on all types of investment products, including real estate, and alternative investments such as private equity, infrastructure, and limited partnerships, analyzing suitability for VCERA.

– Provides advice to the Board on recommended investment strategies and tactics, and reviews new strategies in coordination with the investment consultant.

– Reviews asset allocations and performs rebalancing in coordination with the Chief Financial Officer, pursuant to Board Policy.

The deadline for applications if January 26.

The recruiting brochure, which contains a full description of the position, can be read here.

San Diego Pension to Begin Recruiting New CIO In 2015, But Board Worried Internal Clashes Could Scare Candidates Away

Now HiringThe board of the San Diego County Employees Retirement Association (SDCERA) heard plans to begin recruiting a new chief investment officer in 2015 – including job postings and coming up with a pool of candidates.

Previously, it had only been decided that the fund would move on from current-CIO Salient Partners, and a general salary range for the new job was decided upon.

But board members wondered aloud at Thursday’s meeting whether the internal drama at the fund would scare good candidates away.

From ai-cio.com:

Mary Hobson of recruitment firm EFL Associates told the board on Thursday that job postings would go up early in the new year. She said she aims to present a pool of candidates to the board for consideration by February 6.

Already, according to Hobson, between eight and ten people have contacted her expressing interest in the position.

However, board members themselves indicated that recruitment efforts could be hamstrung by their highly public and ongoing infighting.

Vice Chairman David Meyers, who has consistently supported the deal with Salient Partners, asked that transcripts of yesterday’s meeting and one in September be combined and given to serious candidates for the job.

“The hypocrisy of this board should be shared with any new CIO that comes forward,” Meyers said. “Talk about running scared.”

The salary for the new position remains capped by lawmakers at $209,000 per year, although Hobson intends to recruit candidates that could fall outside that range.

“I want to leave us wiggle room to talk to people who may need more than that, to see if you can try and push that through,” she said. The job posting will stipulate “a competitive salary,” and said, intentionally leaving compensation details “pretty vague.”

Following individual discussions with the board members, Hobson strengthened the posting to say SDCERA “encouraged diversity” from interested parties, and she would work to present them with minority and women candidates.

The CIO would oversee $10.5 billion in assets.


Photo by Nathan Stephens via Flickr CC License

Sacramento Pension CIO Talks Long-Termism and Investing in Infrastructure

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Chief Investment Officer Magazine interviewed Scott Chan, CIO of the Sacramento County Employees’ Retirement System, as part of its 2014 industry innovation awards series.

Some of the more interesting topics touched upon by Chan were the idea of being a long-term, “contrarian value investor” and the fund’s dive into infrastructure and energy.

Chan, on being a “contrarian value investor”:

“The price you buy something at does dictate your long-term returns,” [Chan] says. “I’ll be at pension conferences where people say they don’t think about those things—they just buy, buy, buy. We do define ourselves as long term, but that’s only part of it. We’re also contrarian value investors.” Chan spent seven years in San Francisco managing equity long/short and opportunistic hedge funds. Two years in the trenches with JP Morgan Securities’ technology equity research team came before that, as did an MBA from Duke University. Nearly a decade of living—and living off of—the “buy low, sell high” ethos made Chan uniquely unsuited to the “buy, hold, rebalance” approach so common among US public pension funds. The man can’t help but root out deals and invest to the rhythms of the business cycle.

“Take core real estate,” he says. “A lot of people view that as a ‘safe asset,’ but real estate has a lot of cyclicality risk embedded. In a full cycle, property values could go up 80% or 90%, and then back down. What you’re really getting is net operating income. The risk coming out of a depression is actually pretty low. But as the business cycle matures, and then begins to go down, every time real estate is going to have a problem. We can’t time that, but we know it will happen. Fast-forward to today, and you’re getting maybe 5.5% returns from core real estate. From how we’ve quantified the risk, there’s 25% to 45% upside for the rest of the cycle, but also 30% downside when the economy hands off from expansionary to recession. So you have to ask yourself: Are you getting paid for that risk?”

In Chan’s mind, the answer is “no.” Including real estate investment trusts, separate accounts, and limited partner stakes, the asset class accounts for 8.6% of Sacramento County’s $7.8 billion portfolio, down from 13% when Chan arrived in 2010.

Chan also talked about his fund’s investment in energy and infrastructure:

Like any good hedge fund manager, his next opportunistic play is already underway: infrastructure secondaries. In May, the institution partnered with fund-of-funds Pantheon Ventures to buy deeply discounted energy and infrastructure assets from investors who’ve had second thoughts about the highly illiquid space. In the first deal, the pension picked up two utilities—a power provider to San Francisco and a heating operation on the Marcellus Shale natural gas formation—at a 25% discount. A few months later, the general partner marked up the asset by 40%. “We’re penciling in 15% IRR [internal rate of return],” Chan says proudly, “and we’re trading cyclical risk for non-cyclical risk. When a recession comes, people still need their electricity and heating.” It’s this kind of thinking that wins Sacramento County’s CIO an Innovation Award—if not an invite to the next brunch party.

Read the full interview here.

Illinois Teacher’s Pension CIO Talks Investing in Hedge Funds, Reaction to CalPERS’ Pullout

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Stan Rupnik, CIO of the Teachers’ Retirement System of Illinois, sat down with Chief Investment Officer magazine for an extended interview this week.

He talks about how he increased the fund’s exposure to hedge funds and how he reacted to CalPERS’ high-profile decision to pull out of hedge funds.

Rupnik on how he increased TRS’ exposure to hedge funds after he took the CIO job in 2003:

When Rupnik arrived in 2003, he inherited control of a portfolio with no hedge fund exposure. After gaining board approval in 2006, he started with funds-of-funds. Later, after the hiring of Musick, direct investments commenced (one pities the poor funds-of-funds).

“It was the right way to start the program,” Rupnik now says. Likening it to co-investments in private equity, he comments that “with the first of anything, you feel an extra level of pressure.”

When you only have a few investments, Musick adds, it’s naturally not as diversified as it will end up, leaving the program’s future vulnerable to any upset. With a diversified hedge fund portfolio, he says, you can lose money in one or two funds and still have a phenomenal overall portfolio. Funds-of-funds solved this—for a time.

Letting go of the middlemen required “professionals on staff,” Rupnik says. Once they were in place, Illinois “could flip the model and go direct. You’re still always nervous when you change models and have one or two hedge funds in the direct portfolio—”

“—but don’t view it as sticking your neck out when you’re really behind it,” Musick adds.

“Agreed, entirely agreed,” Rupnik responds.

Rupnik on how TRS reacted, from an investment standpoint, to CalPERS’ hedge fund pullout:

No discussion of direct public plan hedge fund investing would be complete without mentioning the headwinds: namely, the California Public Employees’ Retirement System (CalPERS). In September 2014, the fund announced that it was abandoning its Absolute Return Strategies portfolio. “Our analysis, after very careful review, was that mainly because of the complexity of the hedge fund portfolio and the cost, we weren’t comfortable scaling the program to a much greater size than it currently held,” explained newly appointed CIO Ted Eliopoulos. The reaction was swift: Hedge funds rushed to the defense, some public plan trustees hurried to follow suit, and CIOs everywhere—who know the symbolic value of CalPERS’ move—cringed.

But for Illinois Teachers’—a rose in a bed of weeds, given the state’s general public plan funding situation—the reaction was carefully judicious. “My worry isn’t so much investments or the plan or the team. What I worry about is some external force that causes some skittishness,” Rupnik says. This worry, both he and Musick assert, is decidedly present.

“I’m terrified every day,” the latter says. “I think it’s what makes us good at what we do. We’re just estimating things at the end of the day. We blend our estimates, monitor them as best we can, and structure investments to protect us as best as we can. As far as the cold sweats—I’m just super freaked out about anything. No one thing keeps me up at night.”

Read the full interview here.

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