investment strategy | Pension360

Japan Pension Isn’t Hedging Against Stronger Yen; Investment Committee Member Calls Strategy “Unbelievable”

A member of the investment committee of the world’s largest pension fund expressed shock this week upon learning that the fund wasn’t hedging against a stronger yen.

Japan’s Government Pension Investment Fund (GPIF) overhauled its investment strategy in 2014, but hedging against the yen isn’t part of its plans.

From ai-cio.com:

Japan’s $1.1 trillion pension fund is refusing to hedge against a stronger yen despite the risks this poses to its growing pool of overseas assets.

The Government Pension Investment Fund (GPIF)—the world’s biggest pension fund—overhauled its strategy last year, buying into Prime Minister Shinzo Abe’s economic plan to boost inflation and weaken the yen. A weaker domestic currency would aid foreign holdings as well as some Japanese equities, asset classes to which the GPIF is increasing exposure.

However, Junko Shimizu, a professor at Gakushuin University and a member of the GPIF’s investment committee, told Bloomberg it was “unbelievable” that the pension had not moved to hedge the risk of the yen strengthening relative to other currencies. “My personal opinion is that they should look to hedge,” she added.

Shinichirou Mori, director of the planning department at the GPIF, said the pension did not make decisions “based on currency forecasts. We wouldn’t hedge based on a forecast.”

The GPIF manages $1.1 trillion in assets.

Photo by Ville Miettinen via FLickr CC License

CalPERS Invests $211 Million in U.S. Apartments

CalPERS has committed an additional $211 million to a partnership that invests in apartments in the Western half of the United States.

More details from IP Real Estate:

California Public Employees Retirement System (CalPERS) has made a new $211m (€186.7m) allocation to the Pacific Multifamily Investors partnership.

[…]

Pacific will buy apartment properties at least 11 years old west of the Mississippi. Core assets are typically thought to be less than 10 years old, putting the strategy outide what most funds consider core.

Pacific Urban believes that the properties it will buy still have core attributes and be able to achieve durability of income. A mixture of teachers, firemen, police officers and nurses, are typical tenants of the assets it invests in.

No more than 25% leverage will be used in the portfolio.

Acquisitions to date have been on the West Coast, from Southern California up to Seattle. The partnership can also consider Texas, Salt Lake City and Las Vegas.

The partnership now includes seven properties totaling more than 2,000 units.

CalPERS manages $296 billion in assets as of October 31, 2014.

Video: Africa Pension Executive Talks Investment Strategy, Funding

Here’s an interview with John Oliphant, principle executive of the Government Employees Pension Fund.

The GEPF is the largest institutional investor in Africa; it manages $114 billion in pension assets for over a million workers.

Oliphant talks about the fund’s investment strategy, performance and funding progress.

Japan Pension Hires Four Managers to Oversee Equities in Wake of Portfolio Overhaul

Japan’s Government Pension Investment Fund in 2014 decided to make major changes to its portfolio, including a doubling of its equity allocation from 25 to 50 percent.

The pension fund this week hired four external managers to oversee portions of the fund’s equity portfolio.

From Bloomberg:

The $1.1 trillion Government Pension Investment Fund picked Schroder Investment Management Ltd., Daiwa SB Investments Ltd. and Nomura Asset Management Co. to oversee Japanese traditional active investments, and UBS Global Asset Management for foreign active holdings, it said today. GPIF didn’t say how much money the funds would manage.

[…]

“Passive stock holdings had become extremely high, so it looks like they’re trying to adjust this,” said Kenji Shiomura, a Tokyo-based senior strategist at Daiwa Securities Group Inc. “Also, there are limits to how much some of their existing managers, like their engagement fund, can oversee. As they increase stocks, they’re trying to avoid a situation where their share of passive investments increases further.”

GPIF had 14 active Japanese equity funds managing a total 2.6 trillion yen as of March 31, compared with 10 passive funds with 18.3 trillion yen. For foreign stocks, 15 funds managed 2.1 trillion yen in active investments, compared with six funds overseeing 17.6 trillion yen in passive strategies.

GPIF manages $1.1 trillion in assets, and is the largest pension fund in the world.

Photo by Ville Miettinen via FLickr CC License

San Diego County Pension Trustee Decries Investment Strategy, CIO in Newspaper

Samantha Begovich, a trustee for the San Diego County Employees Retirement Association (SDCERA), has penned a column in an area newspaper decrying the fund’s outsourced CIO, Salient Partners, and its investment strategy.

The fund voted last year to move on from Salient Partners and hire an in-house CIO after critics called Salient’s investment strategy too risky. But the process has been slow, and Salient could retain asset management duties until November 2015.

The public nature of Begovich’s complaints is unprecedented for a trustee of a fund that, until late last year, didn’t allow its board members to talk to the media at all.

From the column, published in the San Diego Union-Tribune:

I have repeatedly asked that Salient be sent a 30-day termination letter. CalPERS and CalSTRS posted 19 percent returns for 2014. SDCERA? 9 percent. The fund will be short $700 million of its Salient moonshot this fiscal year. How did this happen?

[…]

Critics allege one-sided staging in support of Salient. In August, realists took the mic. Expert after expert said our fund was at-risk. They said it is conflicted and imprudent having one subcontractor direct all $10 billion. They erupted at the irrationality of this adviser investing 50 percent of our money in his product line. If speech bubbles were above the experts, they would’ve said, “Say what?”

Imagine dealing with someone both clergy and salesperson to you. A word picture: Your rabbi/priest/cleric says, “It would be wise and virtuous for you to invest $2 billion in Advanced Manufacturing in the CaliBaja Mega Region. I have no track record, but you should invest in my CaliBaja Advanced Manufacturing firm.” See the tension? Asked why we weren’t in rival funds with stellar track records, Salient’s Lee Partridge said: “I don’t want to talk about my competition.”

Kudos to University of California Chief Investment Officer Jagdeep Singh Baccher, manager of $91 billion, for not laughing when I asked: What do you think of our investment strategy wherein 25 percent of our portfolio puts total value at risk of loss? He paused in disbelief and sagely said: “Well, I think you have your answer, don’t you?”

The fund’s board voted 8-1 last November to move CIO duties in-house and thus cut ties with Salient Partners.

Photo by Gene Han via Flickr CC License

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.

Ontario Teachers’ Pension Completes Purchase of Portable Storage Company

The Ontario Teachers’ Pension Plan (OTPP) has completed its acquisition of PODS, a portable storage company that the pension plan bought for over $1 billion.

OTPP announced the acquisition in December, but the sale wasn’t finalized until Monday.

Strategic Use of ETFs By Pension Funds Will Grow, Says Research

New research by BlackRock claims that pension funds will increase their strategic use of ETFs, and that the instruments will become a bigger part of pensions’ investment portfolios.

From Investments and Pensions Europe:

For “certain investors and certain portfolio usages”, ETFs might represent a cheaper route to access equity indices, suggest the authors. Pension funds are among the clients that iShares says are buying into the trend of moving away from futures as the traditional instrument of choice for institutional investors looking for beta and towards ETFs.

“Pension funds are very big passive investors and a number have concluded that ETFs are a better way to access beta than the increasingly expensive futures route,” says Ursula Marchioni, head of equity strategy and ETP research at iShares EMEA.

[…]

Pension funds have, of course, been known to use ETFs tactically, to ensure continued exposure while in the throes of transition management, for instance, but Marchioni predicts that strategic use will also increase.

“Approximately 65% of US pension funds already declare they use ETFs for strategic investment, buying and holding for two years or more,” she says, citing Greenwich Associates research (figure 1).

Read the research here.

More European Pensions To Move Into Real Assets, Says Study

The coming years will find European institutional investors increasingly turning to real assets, according to new research from alternative asset manager Aquila Capital.

The new paper, titled Real Assets – The New Mainstream, predicts that investors will turn to real assets and equities and bonds will become less attractive.

Details from a press release:

The research predicts that the Dow Jones Index will deliver average total returns of 4% per annum over the next 10 years, while real returns on German 10-year government bonds are set to be negative, even if interest rates were to reach 4% by 2024.

Alongside these estimates, 60% of institutional investors in Europe expect institutional allocations to real assets to increase over the next three years.

Oldrik Verloop, co-head of hydropower at Aquila Capital, says: “This unique investment landscape, for which there is no precedent in history, is giving rise to considerable challenges for pension fund managers struggling to fund deficits.

“Among these challenges is the need to assess the impact of today’s loose monetary policies on global interest rates and inflation tomorrow.”

He says that institutional investors seeking to future-proof their portfolios will be searching for new investment solutions, leading them to shift allocations towards real assets.

“Real assets are uniquely positioned to provide value and enhance overall risk-adjusted returns in a broad range of market environments. The powerful combination of market-independent stability and growth make them an attractive core holding for institutional investors,” he adds.

As part of the research, 50 institutional investors across Europe were surveyed.

Photo by Santiago Medem via Flickr CC

University of California Snags CIO from Sacramento Pension

The University of California has hired former Sacramento County pension chief Scott Chan, according to Chief Investment Officer.

Chan, who will reportedly start on February 17, will be the University’s managing director of public equity.