Indiana Pension Commits $100 Million to Real Estate Fund

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The Indiana Public Retirement System has committed $100 million to a Blackstone fund that invests in real estate.

From IPE Real Estate:

The US pension fund, which has had limited exposure to core-plus funds, said it was unconcerned by Blackstone’s move into core-plus property and its branching out into opportunistic strategies.

Most of Indiana’s fund investments in real estate – totalling approximately $2bn – have been in core and opportunity funds.

The pension fund has made three previous investments with Blackstone, totalling $216m, including a co-investment and two investments in the fund manager’s opportunity funds VI and VII.

With the new investment, Indiana joins several other public pension funds in the Property Partners fund.

The Virginia Retirement System and the Texas Permanent School Fund each made $100m commitments to the fund last year, while the Arizona State Retirement System committed $50m.

Blackstone is looking to raise $1bn for the fund, which is open-ended and leveraged at around 50%.

The fund manager is co-investing $35m.

Limited partners are projected to achieve 9-11% returns from the fund, focused solely on US multifamily, office, retail and industrial real estate.

The fund will buy single properties, as well as make entity-level investments in real estate operating companies.

The Indiana PRS manages $30 billion in assets.


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Benefit Tweak Could Be Catalyst Behind Wave of Retirements in Indiana


The Indiana Public Employees Retirement Fund (PERF) says it’s seeing a 35 percent increase in retirements this year, and the Teacher’s Retirement Fund (TRF) is projecting a 10 percent increase, as well.

The exact reason behind the surge is unknown, but the retirements have coincidentally timed with a benefit cut that took effect October 1.

From the Indiana Business Journal:

In a recent estimate provided to IBJ, the Indiana Public Retirement System said it expects 11,140 retirements in 2014 from state and local government, including school districts.

INPRS would not break down the number of departing workers that are covered by the Public Employees Retirement Fund, or PERF, for state and local government civilian employees, and how many are teachers. Spokeswoman Jennifer Dunlap did say, however, that PERF retirements will rise 35 percent, and that the Teachers Retirement Fund, or TRF, will see a 10-percent increase.

INPRS declined to attribute the wave to its recent decision to lower its annuity savings rate from 7.5 percent to 5.75 percent, effective Oct. 1. “It would be difficult to identify any one factor as being the reason for INPRS members to retire,” Dunlap said.

INPRS reported that 83.5 percent of the retirements were effective Sept. 1, which was the deadline for members to receive the 7.5-percent annuity rate. The most high-profile retirement in that time frame was state Treasurer Richard Mourdock, who resigned Aug. 29 with four months left in his term.

An Annuity Savings Account is one leg of the INPRS system, and members have the option when they retire to annuitize their savings, which means they receive set monthly payments at a particular rate of return; roll the money into a privately managed account; or take a lump-sum payment.

The Indiana Public Retirement System, the entity that administers the PERF and TRF, manages $30.2 billion in assets.


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Public Pension Funds Drive Venture Capital Boom, But Performance Is An Issue

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The venture capital industry is becoming a major force again, and pension funds are the major driver of the resurgence. From Businessweek:

Public pension funds—the state-run investment pools responsible for the retirement benefits of nearly 20 million Americans—have quietly been funding the recent boom in venture capital. The investment pools are made up of tax dollars and contributions from state employees. For the last few years, they have made up the biggest single source of funds flowing to venture capital, according to the most recent Dow Jones Private Equity Analyst Sources of Capital survey. In 2014, they contributed 20 percent of the sector’s overall haul, down slightly from a 25 percent contribution in 2013.

Indiana’s Public Retirement System allocates (PDF) 1.6 percent ($363 million) to venture capital, which is on the higher end as a percentage of assets; the California Public Employees’ Retirement System (CalPERS) allocates a more typical half percent of assets, although the fund is so big that this meager fraction totaled $1.8 billion in 2013. The amounts are small enough that if pension funds’ entire venture capital investments were to evaporate, pensioners would still be all right. In most states, pension obligations are guaranteed by state constitutions. If the investments—in venture capital or anything else—don’t pay off, taxpayers are on the hook for the shortfall.

But there’s a problem: some of the best venture capital funds don’t want to do business with public pension funds. From Businessweek:

Because public pensions must be transparent about their investments, which are subject to the Freedom of Information Act, many top-performing venture capital funds won’t accept pension money; they don’t want to publicly disclose their portfolios. This makes public pensions pick from other—often lesser-performing—funds.

Like hedge funds and other kinds of private equity, venture capital funds charge an annual management fee of 2 percent, plus 20 percent of profits. Performance is an open question. Many funds fail to perform (PDF) as well as an Standard & Poor’s 500-stock index fund. Diane Mulcahy,senior fellow at the Kaufmann Foundation, has observed that many venture capital funds aren’t profitable and that steady fee income diminishes the funds’ incentive to find profitable investments.

Other institutional investors are funding the VC resurgence, as well. Endowment funds provided the VC industry with 17 percent of its capital in 2014, according to the Dow Jones survey. Corporate pension funds accounted for 7 percent, while union pension funds accounted for 2 percent.


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Indiana Pension Fund Assets Hit Record High

Balancing The Account

Recent data revealed that assets of the Indiana Public Retirement System (INPRS) hit at all-time high of $30.2 billion in 2014.

Fund officials attribute the record to “great” investment returns. The fund returned 13.7 percent in fiscal year 2013-14, which ended June 30. That number falls well short of what the S&P 500 returned over the same period, but the INPRS improved its funding ratio because of a confluence of factors, including employers making full contributions into the system.

More from the Associated Press:

Indiana public employers paid 99.4 percent of their actuarial determined contributions last year.


Indiana’s pension program is known as a hybrid plan because it features both a modest employer-paid pension and an employee-owned but state-managed annuity savings account to which employees must contribute at least 3 percent of their annual salaries.

INPRS assets have grown by $13 billion since the 2009 low point for the stock market.

[INPRS executive director Steve] Russo said Indiana remains on track to cover its obligations in the pay-as-you-go teachers retirement fund that was closed to new members in 1995.

State appropriations to fund that plan are set to grow 3 percent a year from $776.3 million in 2014 to an estimated $841 million in 2017 before peaking at $1.1 billion in 2029.

Required state funding then gradually will shift to the $2.6 billion pension stabilization fund, made up in part of Hoosier Lottery profits, that will cover pension benefits until there are no more participating retired teachers.

The INPRS is 88.9 percent funded.


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Thousands of Early Retirements Coming In Indiana As New Law Takes Effect

Early retirements in Indiana in wake of new pension tweak

A new law has pushed forward the retirement plans of thousands of Indiana workers, who may retire early to try and avoid lower interest rates on their monthly retirement benefits.

One state system, the Indiana Public Retirement System, said it expects 2,000 more retirements than last year, which amounts to a 25 percent increase. From the Lafayette Journal and Courier:

A law, passed by the General Assembly this spring, lowers the interest rate retirees will be paid if they choose to annuitize some of their retirement benefits, taking monthly payments for the rest of their lives rather than a lump sum.

For employees whose last day of work is before the end of August, the rate is 7.5 percent. It’ll drop to 5.75 percent thereafter and keep dropping until it’s tied to the market rate.

The change is supposed to prevent a changing world from bankrupting the system, according to INPRS documents. Concerns stem from longer life expectancies and the system’s return on investment, which is lower than the current interest rate.

While system administrators say the lower rates are necessary, the change has inspired government workers who were nearing retirement to move up their plans.

Of course, nobody knows for sure how many of those extra retirements were spurred specifically by the new law. From JC Online:

Local officials says it’s hard to judge the exact impact the new law has on retirees.

In the Lafayette School Corp. for example, 37 teachers retired this year, more than the typically 20 to 25 teachers, said assistant superintendent John Layton. But without asking each one point blank why they’re retiring, the reasons prompting that retirement aren’t always clear.


West Lafayette city human resources director Diane Foster said the change has had minimal impact on the city. The only retiree to cite that as a reason is soon-to-retire parks and recreation superintendent Joe Payne.

“Other than that I’m not aware of any other employees who have made that decision based on this,” Foster said. “It could be that if an employee is already considering retirement this may be just one more factor that could help them go ahead (and do it).”

It’s unclear how the change is impacting Lafayette. Human resources director Kim Meyer said retirement data wasn’t immediately available.

Rhondalyn Cornett, president of the Indianapolis Education Association, told the Lafayette Journal Courier that a retiree could see significantly less benefits under the new law—to the tune of $5,000 a year.

With that number in mind, it’d be surprising if the new law wasn’t at least a factor in most of these early retirements.


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