investment strategy | Pension360

Study: Pension Funds Can Work Harder To Be Long-Term Investors

A new paper by Keith Ambachtsheer and John McLaughlin dives into the question: Do pension funds invest for the long term?

Nearly all pension funds would identify themselves long-term investors if asked. But the paper reveals that there is a gap between that sentiment and the funds’ actual investment strategies.

From ai-cio.com:

The authors […] reported a significant gap between the long-term investment aspirations of asset owners and the reality of their strategies’ implementation.

[…]

On long-term investment, the authors said there was “broad consensus” among respondents to the survey that a longer investment timescale was “a valuable activity for both society, and for their own fund.”

“However, there is a significant gap between aspiration and reality to be bridged,” Ambachtsheer and McLaughlin added.

“Here too a concerted effort—both inside pension organizations and among them—will be required to break down these barriers.”

The authors listed the barriers to long-termism: some areas of regulation, a “short-term, peer-sensitive environment”, a lack of clear investment processes and performance metrics, and difficulties in aligning interests with outsourcing providers.

The paper, which also covers governance issues, can be read here.

Photo by Santiago Medem via Flickr CC

CPPIB Commits $330 Million to Canadian Private Equity

The Canada Pension Plan Investment Board (CPPIB) is putting an additional $330 million into a fund managed by NorthLeaf Capital Partners that invests in the Canadian private equity market.

The move is the latest in a series of commitments to Northleaf funds and Canadian private equity.

From a CPPIB press release:

This investment is in addition to CPPIB’s $70 million commitment in 2014 to the Northleaf Venture Catalyst Fund. Since 2005, CPPIB has committed $1.2 billion to Canadian private equity investments through its partnership with Northleaf.

The investment objective of this additional mandate is to focus on Canadian small and mid-market buyout and growth equity funds that are seeking to raise $1 billion or less in capital commitments.

CPPIB is one of the largest and most active investors in Canadian private equity and venture capital with approximately $4.1 billion in commitments to Canadian fund managers and an active direct private equity investment strategy for the Canadian market.

“By expanding our successful Canadian fund-of-funds program, CPPIB can effectively access the Canadian private equity market,” said Jim Fasano, Managing Director, Head of Funds, Secondaries & Co-Investments, CPPIB. “We remain confident in Northleaf’s capabilities, expertise and proven track record in continuing to manage this program.”

“We look forward to continuing our longstanding partnership with CPPIB in managing this additional mandate for the Canadian private equity market, and building a focused portfolio of top-tier Canadian mid-market funds,” said Jeff Pentland, Managing Director, Northleaf Capital Partners. “We are proud to have supported CPPIB in advancing their program since 2005, and we value and appreciate CPPIB’s continued confidence in our team, track record and investment process.”

The CPPIB managed $201.1 billion in assets as of March 31, 2014.

Photo credit: “Canada blank map” by Lokal_Profil image cut to remove USA by Paul Robinson – Vector map BlankMap-USA-states-Canada-provinces.svg.Modified by Lokal_Profil. Licensed under CC BY-SA 2.5 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Canada_blank_map.svg#mediaviewer/File:Canada_blank_map.svg

Video: African Pension Funds Diving into Private Equity

Here’s a panel discussion on the rise of private equity as an investment option for African pension funds. The discussion was held in January at an event sponsored by the Africonomie Group – but the footage was released this week.

From the video description:

Africa pension funds remain underweight in private equity due to restrictive allocations caps that limit or hinder investments into Africa PE funds. However this trend is changing, buoyed by increases in asset under management and better understanding of PE strategies – appetite for PE is growing. This interactive session explores innovative approaches to mainstreaming PE strategies in pensions portfolio.

Canada Pension Chief Talks Profitable Alibaba Investment

The chief executive of the Canada Pension Plan Investment Board (CPPIB) talked with the Financial Post this week about the Board’s investment in Alibaba in 2011.

At the time, Alibaba was an unknown tech company in China. A few years later, the company’s initial public offering was the largest in history.

But CPPIB CEO Mark Wiseman says the investment was no “quick win”.

He told the Financial Post:

The US$314.5-million investment, while very profitable, happened because of a decision more than five years earlier to put “feet on the ground in Asia” by opening an office in Hong Kong in 2008, he said Monday.

“Our team in Hong Kong was able to educate our investment committee and others back here in Toronto, so that when the [initial] investment opportunity finally came to fruition in 2011, we were in a position to understand the business,” Mr. Wiseman said in an interview.

“They understood the Chinese market and the Chinese consumer. They had real experience in the region and understood both the similarities and, importantly, the differences between the way that retailing and trade are done in China [and how it’s done in North America].”

CPPIB subsequently increased its stake in Alibaba in 2012 and again through the IPO, and the combined stake is now worth “substantially more” than the cost base.

The CPPIB has a total of $314.5 million invested in Alibaba.

Photo by Charles Chan via Flickr CC License

George Soros: Hedge Funds “Not a Winning Strategy” For Pensions

Hedge fund guru George Soros said at the Davos Economic Forum last week that he doesn’t think pension funds should be investing in hedge funds. He cited the current market, management fees and recent under-performance as reasons for his view.

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

San Diego County Pension May Ramp Up Real Estate Investment As it Looks to Reach Target Allocation

To reach its target real estate allocation, the San Diego County Employees Retirement Association (SDCERA) could invest $500 million in real estate over the next two years, according to an Investments & Pensions Europe report.

The fund’s target real estate allocation is 10 percent.

More details from IPE Real Estate:

According to board meeting documents, San Diego is considering placing this capital with existing and new real estate managers.

The pension fund, advised by consultant The Townsend Group, is considering hiring a manager for a new separate account.

It is also considering investing in commingled funds to gain access to niche investment strategies, as well as real estate investment trusts (REITs).

The fund has previously placed capital with CBRE Global Investors, Blackstone, Cornerstone Real Estate Advisers, JP Morgan Asset Management, Pramerica Real Estate Investors and Deutsche Asset & Wealth Management.

San Diego will look to rebalance its portfolio, moving from an even split between core and non-core investments to a 70-30 weighting, a move that will be aided by some of its existing opportunity fund investments coming to an end.

The expected return for the new portfolio weighting is around 7.5%, with a standard deviation of 10.8%, according to Townsend.

SDCERA manages approximately $10 billion in pension assets.

Photo by c_ambler via Flickr CC License

CalPERS Is Cutting Its Private Equity Managers, But That Doesn’t Mean It’s Breaking Up With PE

CalPERS announced this week that it was cutting down the number of private equity managers it employs – possibly by as much as two-thirds.

The change comes in the name of cutting costs. A similar rationale was used when the pension fund decided to exit its entire hedge fund portfolio last year.

But unlike hedge funds, private equity will remain a significant part of CalPERS’ investment strategy going forward.

From the New York Times:

Calpers is not planning to significantly reduce its allocation to private equity, though it may redistribute it, Joe DeAnda, a Calpers spokesman, said in an email. He said the pension fund may increase its allocation to individual private equity managers as it culls the number of managers.

As of October, Calpers had $31.2 billion invested in private equity, or about 10.5 percent of its overall portfolio, according to the most recent disclosure. It aims to have 10 percent of its portfolio allocated to the strategy.

[…]

When it comes to private equity, Calpers is also trying to reduce costs. But its approach is more subtle.

Réal Desrochers, the pension’s head of private equity since 2011, announced in late 2013 that Calpers aimed to reduce the number of managers to as few as 100. (DealBook reported on it here.)

In a presentation to the Calpers investment committee in December that year, Mr. Desrochers discussed his review of the pension fund’s private equity portfolio. It included 389 managers at the time.

“I think this portfolio should have — given the size where we are — it should be probably around 100, 120, something like that,” Mr. Desrochers said. (See the 29:15-minute mark in this video.)

In other words, this move has been in the making for a long time.

CalPERS allocates about 10 percent of its assets towards private equity.

Photo by rocor via Flickr CC License

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.

Fired CIO of San Diego Pension May Retain Role Until Nearly 2016

Trustees of the San Diego County Employees Retirement Association (SDCERA) voted in November to fire the firm acting as its outsourced CIO, Salient Partners, and hire an in-house official.

The pension fund could make that hire by March. But trustees learned this week that Salient Partners could retain its asset management duties until November 2015.

The reason for the delay: a consultant told the board that it would be best if Salient continued its duties while a new CIO adjusted to the job and developed and investment strategy.

From U-T San Diego:

Salient Partners, the embattled outside investment strategist for San Diego County’s pension fund, may continue managing much of the $10.3 billion fund through November.

The timeline, which was presented at a meeting Thursday by the pension system’s independent consultant, surprised some trustees who’ve been pressing to fire Salient since late summer.

[…]

“I also thought I understood, at the end of the year (2014), it was stated that we would be terminating the Salient contract after we hired the CIO,” said trustee and county supervisor Dianne Jacob, who moved in September to terminate the contract and begin a transition. The board rejected the motion.

[The fund’s consultant] Scott Whalen advised the board to let Salient continue managing its portions of the portfolio until a new CIO was in place and trustees had settled on a new strategy.

He said the board could fire the firm and shift the investments into index funds, but that would amount to two major portfolio transitions in a brief period.

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

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