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Virginia Retirement System Appoints Acting Director; Search Begins for Permanent Replacement

On the heels of the resignation of Virginia Retirement System director Robert P. Schultze, the system’s trustees have named a new acting director: Patricia S. Bishop, who also serves as VRS’ deputy director.

The system will begin looking for an executive search firm to find its next, permanent director.

From Pensions & Investments:

Patricia S. Bishop will serve as acting director for the $66 billion Virginia Retirement System, Richmond.

The announcement was made at the board of trustees meeting Friday. Current director Robert P. Schultze is leaving Feb. 16 to become the president and CEO of ICMA-RC.

Ms. Bishop, who joined VRS in 2008, is currently deputy director, overseeing implementation of benefit policy and processing, retirement counseling, call center services, training and education services, and insurance programs.

The VRS staff was instructed to prepare an RFP for an executive search firm to find a permanent replacement.

Robert P. Schultze announced his resignation from VRS earlier this month.

VRS manages $66 billion in assets.

Photo by Nathan Stephens via Flickr CC License

Virginia Retirement System Director Steps Down After 10 Years

Robert P. Schultze, longtime director of the Virginia Retirement System, said Tuesday that he will be stepping down from the job to take a new position as the president and CEO of a national retirement company.

VRS will begin searching for a new director this week.

From DailyProgress.com:

Virginia is losing the leader of the retirement system it operates for more than 600,000 state and local government employees.

Schultze, 64, has led VRS since 2005, guiding it through an economic recession that slashed its financial assets by $16 billion and a series of political reforms that reshaped pension benefits for most newly hired state and local government employees, including teachers.

“Bob has been a strong hand at the tiller,” said R. Ronald Jordan, executive director of the Virginia Governmental Employees Association, representing more than 100,000 state workers and retirees. “State employees will miss him as a friend.”

The board of trustees of the $66 billion retirement system will begin a national search for a successor to Schultze this week. His annual salary is $175,709, and he is eligible for a $50,000 performance bonus, which would be paid into a deferred compensation plan.

[…]

Schultze will become president and chief executive officer of ICMA-Retirement Corp., which manages and administers more than 9,000 retirement plans, including the hybrid retirement plan that took effect Jan. 1, 2014, in Virginia as a result of sweeping pension system reforms in 2012.

VRS chose ICMA to manage the hybrid plan — combining traditional defined pension benefits and 401(k)-type contributions — and the system’s deferred compensation plan two years ago. A year later, the company’s president and CEO, Joan McCallen, announced her retirement, creating an opening that Schultze was chosen to fill.

“It’s kind of an opportunity that I thought would never come around for me,” Schultze said. “So when it landed in my lap, I decided I’d better pursue it.”

The Virginia Retirement System manages $66 billion in assets for 600,000 public employees.

Photo credit: “Flag of Virginia”. Licensed under Public Domain via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Flag_of_Virginia.svg#mediaviewer/File:Flag_of_Virginia.svg

Virginia Pension To Put $100 Million in Blackstone Real Estate Fund

The Virginia Retirement System (VRS) has committed $100 million to a Blackstone real estate fund that will invest in large office, retail, and apartment properties.

From IPE Real Estate:

The Virginia Retirement System (VRS) has allocated $100m (€80.1m) to the core-plus Blackstone Property Partners fund.

The open-ended fund, which invests in a combination of core, value-added and opportunistic strategies, is targeting returns of between 9% and 11%.

[…]

The pension fund is the third to commit to the Blackstone vehicle, following $100m in overall commitments from the Arizona State Retirement System and the Texas Permanent School Fund – the latter being one of the first to invest in the fund.

Blackstone is co-investing $75m in the fund, which will be 50% leveraged.

The manager will buy larger properties and portfolios across the office, industrial, retail and apartment sectors.

Blackstone, traditionally an opportunistic fund manager, can buy either directly or invest in real estate operating companies.

VRS, which has no targeted allocation to real estate, had a total $6.84bn in its real assets category as of September.

VRS manages $66.1 billion in assets.

Virginia Pension Commits $200 Million To Industrial Properties

The Virginia Retirement System (VRS) is committing $200 million to a joint venture with LaSalle Investment Management that seeks to build industrial warehouses in the United States.

From IPE Real Estate:

The pension fund told IP Real Estate it was committing $200m in equity to the LaSalle VA Industrial JV.

The partnership will develop industrial warehouses in select US markets. Virginia would not comment on which markets the venture would focus on.

LaSalle said it would focus on opportunities to develop and lease large, modern distribution buildings in major population centres with strong transportation infrastructure.

LaSalle recently announced it had been awarded a mandate from a large US public pension fund, an existing client.

Jason Kern, chief executive of Americas at LaSalle, said end-user demand for industrial real estate is “very strong”, driven by growing GDP and global trade, as well as the need for “modern buildings part of an efficient supply chain”.

According to the firm’s research and strategy team, the availability rate for industrial supply has dropped 2.2% since the end of 2012 and 4.2% since 2010. LaSalle is forecasting annual rental growth of 3%. Internet retailing and larger multinational retailers’ focus on improving supply-chain efficiencies are also improving demand.

Virginia has existing exposure to industrial real estate, with 15.6% of its private real estate portfolio invested in the sector at June this year.

Real estate assets make up 10.5 percent of the VRS portfolio. The fund manages $65 billion of assets.

Virginia Pension Funding Improves For First Time in 5 Years

The five major pension plans that fall under the umbrella of the Virginia Retirement Systems (VRS) all improved their funding statuses in fiscal year 2013-14, according to the state’s actuary.

It was the first funding improvement for VRS since 2008. More from the Times-Dispatch:

The state employee plan was 67.9 percent funded on June 30, up from 65.1 percent the previous year, and the teachers plan rose to 65.4 percent from 62.1 percent, based on an actuarial calculation that smooths gains and losses over five years.

Based on current market value, both plans were funded at more than 74 and 71 percent, respectively, at the end of the last fiscal year.

The improved funded status reflects a 15.7 percent increase in investment income in the last fiscal year for the $65 billion retirement system and potentially reduces pressure on contributions that state and local governments and school systems must make to pension plans for more than 600,000 active, retired and inactive employees.

“For us, what’s important is the trend is in the right direction,” said Jose I. Fernandez, principal and consulting actuary for Cavanaugh Macdonald Consulting, LLC, which advises the VRS on the rates necessary to fund current retirement costs and long-term liabilities for public employees.

Part of the reason for the funding improvement: the state began paying back $1.1 billion dollars in missed pension payments. From the Times-Dispatch:

The analysis also reflects the required payback of $1.1 billion in deferred state and local pension contributions in the 2010-12 budget. The state has repaid about $250 million of the deferred obligations with interest, but will owe about $851 million over the next seven years.

The net result was a reduction in the system’s unfunded liabilities from almost $24 billion a year ago to about $22.6 billion now. The liability falls by almost $858 million for the teachers plan, the largest retirement plan with about 147,000 active employees and more than 81,000 retirees. But the plan still had an unfunded liability of about $14.3 billion on June 30.

VRS manages $65 billion of assets.

Photo Credit: “ChancellorsvilleBattlefieldModern” by MamaGeek. Licensed under Creative Commons Attribution 3.0 via Wikimedia Commons

Pension Staffers Are Highest-Paid Workers on Virginia Payroll

The Richmond Times-Dispatch recently obtained salary data for all workers on Virgina’s payroll. Who topped the list of the state’s highest paid employees? Two top investment staffers at the Virginia Retirement System.

From the Richmond Times-Dispatch:

VRS Chief Investment Officer Ronald D. Schmitz tops the list, with $786,596 in cash compensation thanks to a hefty bonus. And former CIO Charles W. Grant, now director of internal asset management, earned $670,811.

[…]

The top pair earned more managing the $66 billion Virginia Retirement System than the top pair of employees for California’s $302 billion state employee retirement system, the largest in the nation. They also took home more than the top two managers in other states with larger portfolios, including Texas, New York and North Carolina.

“We’re basically paying, if you compare it to New York, three times the salary for a fund that is one half of New York’s,” Michael W. Thompson, chairman and president of the Thomas Jefferson Institute for Public Policy, said of the top earners. “When you just look at the numbers, you can’t help but wonder why we are special. What puts Virginia in a position to offer that kind of compensation?”

VRS officials say they have a fair compensation package designed to attract and keep the best investors. VRS paid $4.5 million in bonuses to 42 of its investment staff members for exceeding performance benchmarks.

Its investors make far less than they would on Wall Street or working for a private endowment. But that’s true of most government jobs, which in Virginia historically lag behind private business wages. A state Department of Human Resource Management report from December said state workers would need a 21 percent raise on average to make them equal to the private market.

The VRS board aims to pay better than 75 percent of public pensions.

Like most public pension funds, the Virginia Retirement System must manage a delicate balancing act: paying salaries high enough to hire and retain strong talent while taking care to not waste taxpayer money.

The Joint Legislative Audit and Review Commission, the entity that has oversight over VRS, said concerns about the high compensation totals were “valid.” The Commission will “monitor the situation.”