Strategic Use of ETFs By Pension Funds Will Grow, Says Research

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New research by BlackRock claims that pension funds will increase their strategic use of ETFs, and that the instruments will become a bigger part of pensions’ investment portfolios.

From Investments and Pensions Europe:

For “certain investors and certain portfolio usages”, ETFs might represent a cheaper route to access equity indices, suggest the authors. Pension funds are among the clients that iShares says are buying into the trend of moving away from futures as the traditional instrument of choice for institutional investors looking for beta and towards ETFs.

“Pension funds are very big passive investors and a number have concluded that ETFs are a better way to access beta than the increasingly expensive futures route,” says Ursula Marchioni, head of equity strategy and ETP research at iShares EMEA.


Pension funds have, of course, been known to use ETFs tactically, to ensure continued exposure while in the throes of transition management, for instance, but Marchioni predicts that strategic use will also increase.

“Approximately 65% of US pension funds already declare they use ETFs for strategic investment, buying and holding for two years or more,” she says, citing Greenwich Associates research (figure 1).

Read the research here.

Ohio School Pension Makes $350 Million in Real Estate Commitments; Hires REIT Portfolio Manager

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The Ohio School Employees Retirement System has committed $350 million to three real estate funds, as well as hired BlackRock to manage a $100 million REIT portfolio.

Reported by Pensions & Investments:

[Ohio SERS] committed $200 million to CBRE U.S. Core Partners fund, a core real estate fund managed by CBRE Global Investors; and $75 million each to Almanac Realty Securities VII, a value-added real estate fund managed by Almanac Realty Investors, and Mesa West Core Lending Fund, an open-end, direct lending real estate fund managed by Mesa West Capital.

The BlackRock hire and the three commitments fall within the pension fund’s 15% global real assets target, which was created in June 2013 to reflect greater investment flexibility than the previous 10% target to real estate.

As of Sept. 30, the actual allocation to global real assets was 10.6%.

The Ohio School Employees Retirement System manages $12.6 billion in assets.

Florida Pension Cuts PIMCO

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In the latest vote of non-confidence in a post-Bill Gross PIMCO, the Florida State Board of Administration (SBA), the entity that manages investments for the Florida Retirement Systems, has announced it will drastically cut its investments with PIMCO.

From the New York Times:

The investment body overseeing the state of Florida’s retirement system said Tuesday that it would be sharply curtailing the funds that it has allocated to the shaken bond giant.

In a statement, Dennis Mackee, a spokesman for the $147 billion pension fund, said that $1.9 billion in assets managed by PIMCO as a separate investment account for Florida would be “significantly reduced.”

Mackee also said that Florida’s investment plan would be terminating PIMCO’s Total Return Fund and its Inflation Response Multi-Asset Strategy Fund. Together, the funds managed just over $1 billion for Florida retirees.

Adding insult to injury, Mackee said that this money would be steered toward two funds belonging to PIMCO’s archrival, BlackRock.

Mackee said that Blackrock would also be one of several other money managers receiving the separate account money withdrawn from PIMCO.

As with many state retirement funds, Florida had put PIMCO on its watch list after reports that its two leaders, Bill Gross and Mohamed El-Erian, were feuding.

The Florida Retirement System is one of the largest public pension funds in the United States. It manages $147 billion.