investment policy | Pension360

CalPERS, CalSTRS to Step Up Climate Change Engagement Efforts

CalPERS and CalSTRS have issued a joint statement recounting their track records on engaging corporations on the topic of climate change. The statement also outlines future initiatives aimed at stepping up their corporate engagement on the sustainability front.

From the statement:

We recognize climate change as a material risk to society, the economy, and the impacts on our investment decisions. We have been at the forefront of tackling climate change issues through policy advocacy, engagement with portfolio companies and investing in climate change solutions.

CalSTRS and CalPERS both have well-established, thorough vetting processes for potential investments, which seek to test not only for financial potential, but for social, human and environmental impacts, as well.

CalSTRS developed an investment policy for mitigating environmental, social and governance risks under its CalSTRS 21 Risk Factors, adopted in 2008.

* Included in the 21 factors are points specific to environmental concerns such as air quality, water quality, climate change, and land protection.

* This policy guides the Teachers’ Retirement Board’s investment decisions.

* CalSTRS internal ‘Green Team,’ made up of representatives across all investment groups, further identifies ways to avoid or mitigate risks to the investment portfolio posed by environmental, social and governance factors.

CalPERS adopted Investment Beliefs addressing Climate Change issues:

* CalPERS believes long-term value creation requires effective management of three forms of capital: financial, physical and human.

* Investors must consider risk factors, for example climate change and natural resource availability that could have a material impact on portfolio returns

Read the full statement here.

The statement comes as the California legislature considers a measure that would force the pension funds to divest from all coal holdings. The funds have come out against the proposal.

Photo by Paul Falardeau via Flickr CC License

Study: Pensions Put Pressure on Private Equity to Formulate Environmental, Social Investment Policies

Research from the London Business School shows that the vast majority of large private equity firms – 85 percent – are feeling increased pressure from Europe’s institutional investors to incorporate environmental, social and governance (ESG) considerations into their investment policies and processes.

Details from Investments & Pensions Europe:

The study was based on responses from 42 private equity firms with collective assets under management of more than $640bn.

“Issues such as climate change, sustainability, consumer protection, social responsibility and employee engagement are no longer viewed solely as components of risk management, but have also gained recognition in recent years as important drivers of firm value, particularly in the long term,” the study said.

[…]

But even though ESG policies were being adopted more and more, there were still some big obstacles to these being implemented, the study showed.

The most notable barrier was the difficulty in collecting the necessary data, it said.

Also, some respondents cited the attitude of internal managers as a barrier to implementation.

“It appears that, while ESG integration has become common, there remain pockets of internal managerial resistance to the whole idea of considering such issues as relevant for investment decisions,” the study said.

[…]

Ioannis Ioannou, assistant professor of strategy and entrepreneurship at the London Business School, said: “The private equity industry is increasingly placing greater importance to ESG, moving it from a purely compliance and risk mitigating strategy to a key long-term strategy through which private equity firms pursue value creation.”

Read the research report here.

Photo by penagate via Flickr CC License

CalSTRS Looks to Partner Up For Direct Infrastructure Investments

CalSTRS is looking to team up with other institutional investors to bid directly on private infrastructure, according to the Wall Street Journal.

The fund’s investment staff is meeting today [Feb. 6] to amend its investment policy to allow such ventures.

CalPERS Taps SIO for Real Assets From Morgan Stanley

CalPERS has hired Paul Mouchakkaa to be its senior investment officer for real assets.

Mouchakkaa has previously been a managing director at Morgan Stanley and Pension Consulting Alliance. He’s also worked at CalPERS as a real estate portfolio manager.

Kentucky Pension Audit Would Cost at Least $150k, Says State Auditor

Kentucky’s Chamber of Commerce last month called for an audit into the Kentucky Retirement Systems.

This week, Kentucky’s top auditor revealed that such an endeavor would cost at least $150,000 and require the expertise of outside investment experts, which could raise the cost further.

The audit would focus on the investment polices at KRS and its reliance on outside money managers.

Alabama Supreme Court Blocks Lawsuit Against State Pension Investments

The Alabama Supreme Court has dismissed a lawsuit brought by public employees who said the Retirement Systems of Alabama has made unwise investment decisions leading to lower returns.

From the Associated Press:

The Alabama Supreme Court has blocked a lawsuit that challenged the state pension fund’s investment in hotels, golf courses and other properties in Alabama.

The court ruled 6-2 Wednesday that the suit filed by two public employees should be dismissed.

The employees contended the Retirement Systems of Alabama had invested up to 15 percent of its assets in Alabama properties that were yielding lower returns than other investments would have. It wanted the courts to block future Alabama investments that would yield lower returns.

The Supreme Court said the pension fund is immune from such suits. The justices also said the courts shouldn’t oversee the investment policies of another branch of government.

Retirement Systems CEO David Bronner called the ruling “good news.” The employees’ attorney said they are disappointed.

The Retirement Systems of Alabama manage $28 billion in assets.

Photo by Joe Gratz via Flickr CC License

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

Incoming Massachusetts Governor to Push for Transparency at MBTA Fund

Massachusetts Governor-elect Charlie Baker says he will push for more transparency and openness from the MBTA retirement fund.

Baker’s statements come days after it was reported by the Boston Globe that the pension fund posted its annual report a full year late; the fund also waited a year to disclose troubles at a hedge fund that held pension money. The hedge fund is now shutting down in the wake of civil fraud charges brought against its executives.

From the Boston Globe:

The incoming Baker administration will press for greater openness at the MBTA retirement fund and encourage it to operate more like other pensions for public workers, a spokesman for Governor-elect Charlie Baker said Monday.

“The governor-elect wants to protect the pensions of hard-working MBTA employees and feels greater transparency and disclosure could help the pension board make better investment decisions,’’ the spokesman, Tim Buckley, said in a statement. Given the significant investment of taxpayer dollars in the MBTA, he said, Baker “feels it is appropriate to explore ways to align the MBTA pension board’s investment practices with those of other public pension boards.”

[…]

Baker’s spokesman declined to offer specifics on how he might tackle the issue. The pension fund is organized as a trust and in 1993 won a Supreme Judicial Court ruling that it does not have to make records public, hold open meetings, or follow the ethics rules of public agencies.

[…]

A governor’s main leverage with the MBTA pension fund is indirect. Governors get to appoint people to the seven-member Department of Transportation board, which in turn sends three “management” appointees to the six-member T retirement board.

Read more Pension360 coverage of transparency issues at the MBTA fund here.

Photo by Marissa Babin via Flickr CC License

Experts: Japan Pension Should Be Run By Board, Not President

Currently, Japan’s Government Pension Investment Fund (GPIF) – the largest pension fund in the world – is managed by a President.

The sole trustee system is rare; it is used by a few pension funds in the United States, but more typically a board of trustees is utilized to make investment policy and governance decisions.

Now, experts are calling on the GPIF to switch to a board of trustees model.

From the Wall Street Journal:

[The] Government Pension Investment Fund should be managed by a board of directors rather than a president, as is currently the case, a panel of outside experts has concluded.

[…]

“If the coach plays with the players in a sports game, if there are mistakes in the game, it’s hard for the coach to make the tough calls he should be making as coach,” said Shuya Nomura, a Chuo University professor who was appointed last month as an adviser to the welfare minister on GPIF issues, referring to how the board of directors should be structured.

The meeting ran 30 minutes over the scheduled time as members argued over whether you could compare the GPIF to the Bank of Japan 8301.TO -0.21% or a public company. They also couldn’t reach consensus about how a nomination panel to appoint fund officials should be structured.

Perhaps it shouldn’t come as a surprise that the group has differed on some issues. Welfare Minister Yasuhisa Shiozaki, an Abe appointee and a staunch advocate of an aggressive overhaul of the fund’s management, pushed hard for the group to be formed, and some of its members have expressed views similar to his. But bureaucrats at the health ministry, which oversees the GPIF, argued that the group should include more cautious voices.

The group will present its ideas to the health ministry panel for further discussion, and eventually the ministry will draft a law to submit to parliament.

The GPIF manages $1.1 trillion in assets.

Photo by Ville Miettinen via Flickr CC License

Alabama Pension Approves Changes To Investment Policy, Governance Structure

The Retirement System of Alabama has updated its investment policy and made some governance changes.

But the specifics of the changes are currently unknown as they are still being finalized.

More details on the investment policy changes from the Times-Daily:

Copies of the two resolutions approved Monday by the Employees’ Retirement System Board were not available Tuesday. The TimesDaily has filed an open records request with the agency for the documents.

One board member said the investment policy add steps to the process.

Board vice chair Jackie Graham, who is also the state’s personnel director, did not return calls Tuesday.

Leura Canary, RSA’s general counsel, returned a request for comment from the system Tuesday, but said she couldn’t provide a copy of the investment policy resolution because it wasn’t yet in its final form.

“It is a good thing for the board to review investment policies, and we’re working to implement the revised policy,” she said.

[…]

Changes have been in the works for months. It was a year ago that the same board passed a resolution that said RSA’s three-member investment committee should “independently consider all investment recommendations made by (Bronner) and independently decide whether to approve or disapprove each investment recommendation.”

For decades, that approval was done by proxy, and committee members reviewed the investments later, but board members questioned the legality of that under state law.

Bronner said then that requiring pre-approval would slow the process and hurt RSA.

A bit of detail on the governance changes:

The other resolution approved Monday creates four committees to oversee various aspects of RSA’s operations.

“They are more for the purpose of setting policies for the operation of the Employees’ Retirement System and that’s very much consistent with standard board governing practices,” Canary said.

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