Former Canada Pension Exec Now Working on Restructuring University of California Fund


Brian Gibson, former investment executive at the Ontario Teachers’ Pension Plan, went into semi-retirement in 2012.

Now he’s brought his expertise to the United States, and is helping to restructure the endowment and pension fund of the University of California.

From the Financial Post:

Gibson was hired last May about one month after Jagdeep Singh Bachher, a former AIMCo colleague, was named chief investment officer.

Bachher, AIMCo’s former chief operating officer, turned to Gibson for help in restructuring the fund that had a healthy unfunded liability and was plagued by having too many external managers and being ill-equipped to deal with the new markets.

“The market returns over the coming decade aren’t going to be great. Big balanced portfolios might earn 6%, maybe 7% on average,” said Gibson on Monday prior to flying to California. “Those are pretty modest returns, which makes it challenging to fund pensions and endowments.”

Bachher and Gibson’s goal in restructuring the investment operation was “on generating better returns over and above the market and on reducing their costs. They needed a lot fewer investment managers. They had hundreds of them, way too many,” said Gibson, who has spent half his time since May on the assignment.

Gibson said higher costs result when too many managers are hired and when each manager is given a small allocation. “The benefit of having some very good managers was diluted by having a long tail of other managers who were just okay. They had too many median managers,” said Gibson, one of the three former AIMCo employees at the fund. Arthur Guimaraes, chief operating officer, is the other.

To do that, the fund “eliminated half to two-thirds of the existing managers and re-allocated the capital to the better managers,” said Gibson, it was a change aimed at generating “several hundreds of millions of dollars of improved returns effects and lower costs, because of the ability to negotiate lower fees.”

University of California’s pension and endowment fund manages contains $91 billion in assets.

How Can Troubled California Cities Address Rising Pension Costs?

San Bernardino

Matthew Covington penned a column for the Sacramento Bee on Thursday that dives into California’s recent spree of municipal bankruptcies — and postulates that, with pension costs rising, bankrupt cities of the future may not opt to preserve pensions the way Vallejo, Stockton and San Bernardino did.

Covington is a managing director at Conway MacKenzie, a financial firm that advises distressed governments. He proposes two possible solutions that could help troubled municipalities deal with pension costs. His ideas:

Establish a protocol for restructuring municipal pensions out of court.

For troubled municipalities, pensions are typically the single largest expense, the most intractable and the most uncontrollable (because CalPERS determines what the municipality will pay each year). If CalPERS decides to change its investment return or mortality assumptions, or its investment performance suffers, the municipality will have to pay more, regardless of its own activities. If a municipality is in dire straits and cannot meet its obligations, an orderly restructuring would likely be superior to a bankruptcy filing.

This could save tens of millions of dollars for the city in fees on lawyers and other advisers. Additionally, plans could be tailored to minimize the impact on vulnerable groups such as the elderly and long-retired pensioners whose pensions were set in the premillennial sane era, something which might not be possible in a bankruptcy case.

Provide uniform budgeting rules and guidance.

Too many municipalities have made promises that jeopardize their long-term fiscal health. While no one wants another bureaucracy meddling in local affairs, the task force could establish certain basic rules such as requiring municipalities to have long-term budget forecasts that clearly show pension expenses and require additional disclosure when a threshold is crossed.

For example, municipalities whose pension expenses exceed 20 percent of total expenditures (the levels at which voters in the non-CalPERS cities of San Jose and San Diego ratified pension amendments) could be forced to explain why the expenditure levels do not threaten the city’s financial stability.

The costs of municipal bankruptcies are borne not just by the creditors who invested in these cities, but also by residents hit with plummeting property values and deteriorating services. California can do more to protect its citizens from these failures. Let’s put systems in place to ensure this dangerous game isn’t played again.

Read the full column here.


Photo by  Pete Zarria via Flickr CC License