philadelphia board of pensions

Philadelphia Pension Board Appoints Interim CIO

The chief investment officer of Philadelphia’s Board of Pensions, Sumit Handa, announced his plans to resign earlier this month.

He officially left the post on January 15.

Now, the Board has appointed an interim CIO to take Handa’s place while a search for a long-term CIO plays out.

From Philly.com:

Francis Bielli, executive director of the Philadelphia Board of Pensions and Retirement, will be serving as the board’s interim chief investment officer, while the board conducts a search for a new CIO.

The board asked Bielli to put on a second hat, following Sumit Handa’s recent resignation. Handa, who was hired in 2011 to manage the investments of the underfunded $5 billion Philadelphia city workers’ retirement plan, is going back to the private sector, said Rob Dubow, pension board chairman and city finance director.

Bielli’s salary will get a $35,000 bump, totaling $204,000, to fill in the second job, the board announced at its meeting Thursday. A national search will be conducted to find a replacement for Handa.

Bielli will oversee the management of $4.7 billion in pension assets.

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Philadelphia Pension Board Now Asking Investment Firms To Disclose Political Spending

For the first time, investment firms will be asked to submit campaign disclosure documents before managing money for the Philadelphia Board of Pensions.

Reported by PhillyDeals:

Over the opposition of Mayor Michael Nutter’s appointees, a majority of the trustees of Philadelphia’s $4.8 billion city pension plan have agreed to “request” dozens of private firms that are paid to manage city money — from giants like KKR and Barclays to local investors like Ted Aronson’s AJO Partners — to “disclose their political spending,” and will send current and future managers campaign finance disclosure requests, starting Jan. 1.

The move was cheered by city controller Alan Butkovitz, who had recommended this disclosure, noting the city has previously urged similar disclosures by the publicly-traded companies it invests in. “We will be asking for all donations from everybody,” including federal and state as well as city contributions, Butkovitz told me in a statement.

The four trustees representing city police, fire, white-collar and blue-collar workers joined Butkovitz in supporting the disclosure request, outvoting Nutter’s vote-no faction.The move follows the Securities and Exchange Commission’s first-time-ever order that a private money manager, Wayne-based TL Ventures, return $300,000 in state and city pension fees after founder Robert Keith gave cash gifts to Pa. Gov. Tom Corbett and Philadelphia Mayor Michael Nutter while getting paid to manage state and city pension funds, in violation of a 2010 federal law limiting contributions to officials with influence over pension boards.

Investment firms won’t be forced to disclose their spending – but they will be “urged” to by trustees.

The resolution can be read here.

Investment Firm Charged With Violating SEC Pay-To-Play Rule After Making Political Donations While Working For Two Pension Funds

A Philadelphia-area private equity firm has become the first ever to be charged by the SEC for violating a pay-to-play rule set up in 2010 designed to prevent conflicts of interest when pension funds hire investment firms.

The firm, TL Ventures Inc, was charged with violating the rule after an employee at the firm made political contributions to Pennsylvania’s governor and Philadelphia’s mayor while the firm was doing work for the Philadelphia Board of Pensions and the Pennsylvania State Employees’ Retirement System.

The employee, an investment advisor, made a $2,500 campaign contribution to a candidate for Mayor of Philadelphia and a $2,000 contribution to a candidate for Governor of Pennsylvania.

The SEC says that presented a conflict of interest because the Mayor and Governor appoint a total of nine members to the two pension boards for which TL Ventures was providing investment services for at the time of the donations.

Those boards are tasked with hiring investment firms to do advisory work for the pension funds.

Bracewell & Giuliani explains the specifics of the rule:

Rule 206 (4)-5, which was adopted in 2010, prohibits investment advisers from providing compensatory advisory services to a government client for a period of two years following a campaign contribution from the firm, or from defined investment advisers, to any government officials, or political candidates in a position to influence the selection or retention of advisers to manage public pension funds or other government client assets. Some de minimus contributions are permitted, topping out at $350 if the contributor is eligible to vote for the candidate, and the contribution is from the person’s personal funds.

TL Ventures has agreed to give up the $257,000 worth of fees it earned from the state, as well as pay a $35,000 fine.

Republicans are now suing the SEC in an attempt to block the rule, saying that preventing investment advisors from making political donations is, in effect, a restriction on free speech. From Reuters:

Republican politicians sued the U.S. Securities and Exchange Commission, seeking to throw out a rule that limits political donations by investment advisers.

The Republican state committees from New York and Tennessee said the federal securities regulator had flouted due procedure when adopting its Political Contribution Rule, which they said also violated the constitutional right to freedom of speech.

“The (rule) directly harms Plaintiffs, as potential donors have informed each Plaintiff that they will not make political contributions because of the SEC’s rule,” said the complaint before a federal court in the District of Columbia, which was filed late on Thursday.

The SEC in 2010 approved the rule, which prohibits investment advisers from making campaign contributions in the hope of being awarded lucrative contracts to manage public pension funds, a practice known as “pay to play”.

The plaintiffs want the court to decide that the rule violates the law and to stop the SEC from enforcing the rule with respect to federal campaign contributions.

Specifically, Republicans are arguing that the SEC violated the Administrative Procedures Act when drafting the law. The Act requires specific procedures to be followed when drafting rules.

The Administrative Procedures Rules has been used successfully to strike down previous SEC rules.

Photo by jypsygen via Flickr CC License

Philadelphia Funds Return 15 Percent As New Investment Strategies Play Out

The Philadelphia Board of Pensions, the entity that handles investments for the city’s pension funds, released its annual return data this week. The fund returned just over 15 percent for the fiscal year. From the Philadelphia Enquirer:

The total fund ended the fiscal year up 15.6 percent, outperforming its benchmarks by 1.96 percent. A more narrow portfolio, managed internally, did well, too, showing an 11.97 percent return, about 3.5 percent higher than similar benchmark funds.

The city’s pension system is severely unfunded, with only about half the money it needs to pay its $5 billion in obligations to current and future retirees.

The fund altered its investment strategy in recent years, in large part to the hiring of Chief Investment Officer Sumit Handa. From the Inquirer:

The board’s investment strategy has been revamped with the arrival three years ago of Handa and executive director Francis X. Bielli.

Investments were tweaked, Handa said, particularly the pension board’s fixed-income portfolio.

While investment firms handle the bulk of funds, the pension board staff manages a portfolio of about $260 million, or 5.3 percent of the pension fund. Known as the Independence Fund, it is designed as a “tactical” fund, Handa said, to be used to rapidly respond to opportunities the staff might see.

It strives for high returns at low risk. Since it was established in early 2012, it has been an overachiever by those standards. Outperforming its benchmark, it has shown only a third of the risk associated with investing in the S&P 500, while achieving 60 percent of the rate of return.

This marks the third consecutive year the fund has outperformed its benchmark. Previous to that, the fund has underperformed its benchmarks over the past five and ten-year periods.

The S&P 500 returned 21 percent over the period (July 1- June 30) that the Board of Pensions reported their annual return.