investment strategy | Pension360

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

Is It Harder Than Ever for Pension Funds to Invest With Top Private Equity Funds?

Many more private equity funds reached or surpassed their hard caps in 2014 than in 2013, and the funds are also raising capital at a faster pace.

As a result, many pension funds are finding it difficult to put their money in the most sought-after private equity funds.

From the Wall Street Journal:

Heated competition to get into top private-equity funds is leaving some investors out in the cold.

Pension funds, endowments and wealthy individuals that invest with private equity are finding it increasingly hard to get into the most sought-after funds, according to data and industry participants.

Private-equity firms, which raise money from such investors and then put it to work in various investment strategies, are generally filling their coffers faster this year from clients. The proportion of private-equity funds that reached or exceeded the maximum amount the firms set out to raise this year is at its highest level since at least 2009, according to a snapshot of funds for which private-equity tracker Preqin has data. Typically, firms put a limit on the size of the fund they are raising, known as a hard cap, at the beginning of the fundraising process. That hard cap generally can’t be exceeded without approval from fund investors.

As of Nov. 13, 55% of roughly 280 funds for which Preqin had hard-cap data reached or surpassed that maximum size. Last year, 43% of funds hit or exceeded those limits.

Also, private-equity firms have taken an average of 16.4 months to raise capital for funds that have closed this year, Preqin data show. That’s two months shorter than the average time it took to raise funds that closed in 2013.

“The number of quick fund closings has been especially pronounced this year,” said Cathy Konicki, a partner at investment-consulting firm NEPC LLC.

Read the entire Wall Street Journal report here.

Photo by Matthias Ripp via Flickr CC License

Ventura County Pension Seeks CIO

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.

Canada Pensions Team With Spanish Bank on Energy Investment

Two Canadian pension funds – the Ontario Teachers’ Pension Plan Board and the Public Sector Pension Investment Board – have teamed up with Spanish bank Banco Santandar S.A. to manage a $2 billion portfolio of renewable energy assets.

From the Financial Post:

Santandar, which already owned the portfolio, will transfer it to a new company owned equally by the bank, the Ontario Teachers’ Pension Plan Board, and the Public Sector Pension Investment Board (PSP Investments).

The portfolio includes wind, solar and water infrastructure assets that are either operating or in development in seven countries.

The three partners said in a statement Monday they intend to make significant investments in the new company over the next five years.

“This investment fits well with our strategy of deploying capital in sizeable opportunities that offer long term revenues and growth potential along with solid partners,” said Bruno Guilmette, senior vice-president of infrastructure investments at PSP Investments.

Teachers’ investment was led by its infrastructure group, which manages a global portfolio of $11.7-billion of direct infrastructure investments, including water and wastewater, electricity distribution, gas distribution, airports, power generation, high-speed rail and port facilities.

Pending regulatory approval, the transaction is expected to close in the first half of 2015.

The Ontario Teachers’ Pension Plan manages $138.9 billion in assets. The Public Sector Pension Investment Board manages $94 billion in assets.

Ontario Pension Commits $200 Million to Infrastructure

The Ontario Pension Board has earmarked $200 million to AMP Capital for investment in global infrastructure.

Details from IPE Real Estate:

Launched in October, the strategy is aiming to raise CAD2bn (€1.57bn) for investments in OECD transport, communication and utilities.

AMP, which manages unlisted and listed infrastructure investments in Asia, Europe, North America, Australia and New Zealand, said the strategy currently holds a $750m portfolio of diversified European infrastructure equity assets.

Glenn Hubert, a private markets managing directors at OPB, said the pension fund was attracted by the possibility to gain exposure to multiple, high-quality assets.

OPB had a 3.2% allocation to infrastructure at the end of last year.

The commitment, he added, grows OPB’s presence in North America, a region that AMP has been building its presence in. The manager has an infrastructure equity team in New York.

AMP Capital global head of infrastructure equity Boe Pahari said growing numbers of institutional investors are seeking greater exposure to alternative assets such as infrastructure, attracted to ”predictable risk-adjusted returns, consistent yields and portfolio diversification”.

As reported in October, private equity firm Pantheon is among investors backing AMP Capital’s strategy.

The Ontario Pension Board manages more than $19 billion in assets.

Washington Pension Manager Commits $1.1 Billion to REOCs

The Washington State Investment Board, the entity that manages Washington state’s pension assets, has committed a total of $1.1 billion to two funds that invest in real estate operating companies (REOCs).

From IPE Real Estate:

Commitments of $600m and $500m were made to Calzada Capital Partners and Evergreen Real Estate Partners, respectively.

[…]

Calzada, which buys real estate operating companies in the Americas, places capital with companies investing in major property sectors.

It has around $4bn in assets under management.

The private equity firm has invested in Terramar Retail Centers, which owns neighbourhood shopping centres on the US West Coast, as well as in Corporate Properties of the Americas, which owns industrial property in Mexico.

Hometown America, an owner and operator of manufactured housing, Pacific Beachcomber, a luxury hospitality renovation firm in French Polynesia and Pivotal Capital Group have also received capital as part of Calzada’s niche investment strategy.

Evergreen, which invests in US-based real estate operating companies, will use capital for future growth.

The company mostly makes investments in the office, industrial, retail and apartment sectors.

The Board manages $103.6 billion in assets.

Photo credit: “Washington Wikiproject” by Chetblong – Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons

Canada Pensions Look For Opportunities in Energy Slump

The Canada Pension Plan Investment Board was weighing a bid for Talisman Energy Inc. – the Board decided against it, at the company ended up being bought Tuesday morning by Repsol SA.

But the interest the Board displayed in troubled Talisman Energy is emblematic of a larger trend: Canada’s pension funds are looking for opportunity in the midst of a serious energy slump.

From Bloomberg:

The 22 percent slump in Canadian energy stocks since late November is just the kind of event that can create opportunity for investors such as pension funds, said Ron Mock, head of the Ontario Teachers’ Pension Plan.

“Sometimes that happens when everybody is heading out the door and we actually use our long-term advantage to go in,” Mock, chief executive officer of Ontario Teachers, the country’s third-biggest pension fund, said during an interview at Bloomberg’s office in Toronto last week. The energy market doesn’t appear to have quite bottomed for Teachers yet, he said.

Lower energy prices will reduce companies’ cash flows and eventually put pressure on them to weigh their capital plans for next year, Mock said. That will have some producers looking for investors, or outright takeovers, he said.

[…]

Ontario Teachers isn’t consciously counter-cyclical in its investment strategy, Mock said. The focus is on value-oriented, long-term investments, a strategy that tends to provide it with opportunities during both the ups and downs of the market, he said.

[…]

Mark Wiseman, CEO of Canada Pension, said on Nov. 13 that the plunge in oil prices might offer investment opportunities in Canada’s energy sector.

“We are seeing a period now where there may be increasing opportunity in the Western Canadian basin and Canadian energy companies as the market sort of reprices,” Wiseman said.

[…]

One of Ontario Teachers key concerns about investing in Canada’s oil patch is the potential for regulatory changes, Mock said. This doesn’t dissuade the pension fund from investing in the oil and gas sector, he said, but it does raise concerns that certain assets might become too expensive to develop, he said.

The pension fund also will consider investments based on environmental factors.

Photo by ezioman via Flickr CC License

California Senator Formulating Bill to Force CalSTRS, CalPERS to Divest From Coal

California Senate President Kevin de León said Monday he may introduce a bill in 2015 that would require the state’s pension systems – CalPERS and CalSTRS, two of the largest systems in the world – to divest from coal-related investments.

The bill wouldn’t cover oil or gas investments.

The legislation seems to be in its earliest stages.

The move would be a controversial one not just for the fiduciary complications involved. The Center for Retirement Research has done work on the subject of social investing (and divesting) and found that outcomes may not favor pension funds.

CalPERS To Work New Guiding Principle Into Portfolio Analysis

According to a Pensions & Investments report, CalPERS’ investment staff have begun working a new guiding philosophy into their portfolio analysis: whether a strategy is “repeatable, predictable and scalable”.

The mantra came about when the fund was reviewing its hedge fund portfolio. But Wylie A. Tollette, chief operating investment officer, wants to work the philosophy into the fund’s entire portfolio.

From Pensions & Investments:

Mr. Tollette told the $295.7 billion California Public Employees’ Retirement System’s investment committee that the three principles were used in the determination to end CalPERS’ hedge fund program in September, and will now be used to analyze whether other parts of the portfolio are measuring up to investment return and risk standards.

“We want to apply the same principles to the entire portfolio,” Mr. Tollette said in an interview after making his comments to the board. Mr. Tollette said in the interview no decision has been made to cut any other investment strategy for the CalPERS portfolio, but he did say investment staffers are examining the pension fund’s forestland portfolio and its multiasset-class strategies, among others.

Like CalPERS’ hedge fund portfolio, which made up only 1.1% of the total portfolio, forestland and the multiasset-class strategies are small — forestland made up 0.8% of CalPERS’ portfolio as of Oct. 31, while multasset-class strategies made up 0.4%.

Mr. Tollette said in the interview while hedge funds were cut because it was determined the asset class was not scalable, he said that just because an asset class is small doesn’t mean it doesn’t play a strategic purpose in the CalPERS portfolio. He said the review will be looking at the roles some of CalPERS’ portfolios play in the total risk-return portfolio.

CalPERS managed $295 billion in assets as of September 30, 2014.

Photo by rocor via Flickr CC License

Video: South African Pension Head Talks Investing for the Future

In this video, John Oliphant – Head of Investments at the $106 billion Government Employees Pension Fund of South Africa – discusses “irresponsible” investing and how his fund is investing with sustainability issues in mind. How has the strategy worked out for the GEPF? And would it work with other funds?

Oliphant begins by giving some talking points about the GEPF, and the real discussion begins around the 5:00 mark.

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