CalPERS Considering Selling Up to $6 Billion in Private Equity Stakes

Link: https://www.ai-cio.com/news/calpers-considering-selling-up-to-6-billion-in-private-equity-stakes/

Excerpt:

The California Public Employees’ Retirement System (CalPERS) has engaged financial services company Jefferies about the potential of selling up to $6 billion of its private equity stakes, according Buyouts magazine. This comes just after CalPERS announced it would be increasing the percentage of its portfolio allotted to private equity to 13% from 8% in November.  

CalPERS board member Margaret Brown told Secondaries Investor in November that the fund is considering investing in secondaries and divesting from some of its legacy private equity investments.

“We have some really old private equity that’s just sitting there and doing nothing,” she said.

Author(s): Anna Gordon

Publication Date: 13 Jan 2022

Publication Site: ai-CIO

This Local Pennsylvania Police Pension Fund Is About to Run Out of Benefits. How Did That Happen?

Link:https://www.ai-cio.com/news/this-local-pennsylvania-police-pension-fund-is-about-to-run-out-of-benefits-how-did-that-happen/

Excerpt:

But of all the struggling pension funds in Pennsylvania, the pension system in the city of Chester was shown to be the most underfunded municipal public pension plan in the entire state in 2019. And now, that situation has gone from bad to worse.

Reports say the pension will run out of money in less than four months, according to Philadelphia’s PBS station, WHYY. One of the primary reasons for this situation appears to date back to 2009, when the pension board adjusted the pension calculation procedure. These adjustments seem to have made it easier for some police officers to spike their pensions.

Under the 2009 change, police officer pensions in Chester were calculated using the salary of the final year of service, which may have encouraged some officers to work overtime as much as possible in their final year in order to inflate their pensions, according to the state’s appointed receiver. In October 2021, this rule was changed so that calculations will now be based upon the last three years of service. 

This one-year policy, combined with the practice of spiking among approximately 80 police officers, appears to be the cause of the pension system’s lack of funding. Officials are hoping to recoup some of the overpayments to retirees, and they are expecting future payments to be reduced significantly.  

Author(s): Anna Gordon

Publication Date: 10 Jan 2022

Publication Site: ai-CIO

Pacific Life Fined for Unlicensed Pension Risk Transfers in New York

Link: https://www.ai-cio.com/news/pacific-life-fined-for-unlicensed-pension-risk-transfers-in-new-york/

Excerpt:

Pacific Life Insurance Co. has agreed to pay a $3 million fine after a New York Department of Financial Services (DFS) investigation found that the firm had conducted pension risk transfer (PRT) business in the state without a license.

It is the third enforcement action by the DFS against a major insurance company for unlicensed PRT business. In April 2020, the regulator fined Athene $45 million, and in February it fined AIG $12 million, both for conducting unauthorized pension risk transfer transactions in New York.

Author(s): Michael Katz

Publication Date: 14 Jan 2022

Publication Site: ai-CIO

Massachusetts PRIM Proposes $1 Billion Investment to Boost Diversity in Managers

Link:https://www.ai-cio.com/news/massachusetts-prim-proposes-1-billion-investment-to-boost-diversity-in-managers/

Excerpt:

Massachusetts’ $95.7 billion state pension fund has preliminarily approved a plan to invest up to $1 billion in emerging-diverse managers over the next two years. The move is part of the Massachusetts Pension Reserves Investment Management (PRIM)’s initiative to abide by the state’s investment equity law, which contains a target of at least 20% diversity among PRIM’s vendor base.

“The PRIM team, by investing $1 billion into its emerging-diverse managers program, is taking important steps in addressing the inequities endemic in the financial services sector,” State Treasurer Deborah Goldberg, who is also the chair of PRIM’s board, said in a statement. “This is real and tangible progress that will reduce barriers and expand opportunities for diverse investment managers.”

Author(s): Michael Katz

Publication Date: 1 Dec 2021

Publication Site: ai-CIO

CalSTRS Expected to Hit Full Funding Five Years Ahead of Schedule

Link:https://www.ai-cio.com/news/calstrs-expected-to-hit-full-funding-five-years-ahead-of-schedule/

Excerpt:

The California State Teachers’ Retirement System (CalSTRS) is now expected to hit full funding in 2041, five years ahead of last year’s prediction of reaching that level in 2046, according to a presentation from CalSTRS Deputy System Actuary David Lamoureux at the fund’s most recent board meeting on Friday. Additionally, board members anticipate that CalSTRS will hit 80% funding in 2024, 10 years ahead of schedule.

The timeline shift is due to the unexpectedly high 27% return CalSTRS earned in the most recent year. The CalSTRS board plans to release the excess funds from this year’s record return over the course of three years. This means that this year, only one-third of the excess funds will be used to alleviate the funded rate. “Because of that, our funding levels will improve, but they will improve slowly over time,” Lamoureux said at the board meeting.

Author(s): Anna Gordon

Publication Date: 10 Nov 2021

Publication Site: ai-CIO

New York State Common Retirement Still Holds Boeing Stock, Despite Lawsuit

Link:https://www.ai-cio.com/news/new-york-state-common-retirement-still-holds-boeing-stock-despite-lawsuit/

Excerpt:

The New York State Common Retirement Fund and the Fire and Police Pension Association of Colorado (FPPA) agreed to a $237.5 million settlement with Boeing’s board after they sued the aerospace company’s board for failing to protect against safety risks related to its 737 Max jets. The money will be paid by the board director’s insurance companies to Boeing itself.

….

The exact reasons why NYS Common chose to hold the stock after suing the company are unknown, as the fund did not respond to a request for comment. However, it’s possible that the pension maintained its shares in order to play a role in restructuring Boeing. It’s taken that approach in the past with companies such as ExxonMobil. In part of the recent settlement between NYS Common and Boeing, the company has agreed to implement new safety measures, including an ombudsman program for employees.

Author(s): Anna Gordon

Publication Date: 9 Nov 2021

Publication Site: ai-CIO

Ohio Teachers Pension Faces Special Audit Over Scathing Report

Link:https://www.ai-cio.com/news/ohio-teachers-pension-faces-special-audit-over-scathing-report/

Excerpt:

The $95 billion Ohio State Teachers Retirement System (STRS) is facing a special state audit over a report that accuses the pension fund of secretly collaborating with Wall Street firms, lacking transparency, and wasting billions of dollars.

In June, Benchmark Financial Services released preliminary findings of a forensic investigation of Ohio STRS titled “The High Cost of Secrecy.” The report ripped into the retirement system, saying it “has long abandoned transparency, choosing instead to collaborate with Wall Street firms to eviscerate Ohio public records laws and avoid accountability.”

The Ohio Auditor of State’s Office recently sent a letter to Ohio STRS Executive Director William Neville saying it has received “numerous complaints” regarding the report and that it had conducted a preliminary examination into the matter.

Author(s): Michael Katz

Publication Date: 25 Oct 2021

Publication Site: ai-CIO

The Curious Case Against Hedge Funds in Kentucky

Link: https://www.ai-cio.com/news/the-curious-case-against-hedge-funds-in-kentucky/

Excerpt:

The lawsuit notes the difficult position the retirement system was in, saying that “there was no prudent investment strategy that would allow KRS to invest its way to significantly improved funded status,” and that “the trustees were trapped in a demographic/financial vise.” However, while acknowledging there was no prudent investment strategy for KRS to get out of the hole it was in, the plaintiffs are simultaneously critical of Carlson and the other defendants for taking what they consider to be “longshot imprudent risks.”

The lawsuit also criticizes the hedge funds of funds for not providing high enough returns for the entire KRS portfolio to meet or exceed its 7.75% assumed rate of return. However, the same could be said for fixed income and many other assets in the KRS portfolio. Broad hedge fund portfolios are generally created to reduce risk, not beat equity markets.

“The Black Boxes did not provide the investment returns trustees needed for KRS to return to or exceed on the average its AARIR [assumed annual rate of investment return] of 7.75%,” says the lawsuit, which is targeting approximately 3% of KRS’ overall investments, while saying they should carry the entire portfolio to meet or outperform a rate of return the state acknowledged as “unrealistic and unachievable.”

The lawsuit also claims the investments “lost millions of dollars in 2015 to 2016,” which was more than two years after Carlson left, and which was a particularly bad time period for the entire hedge fund industry. The lawsuit criticized one of the investments, known as the Henry Clay Fund, for providing “exceptionally large fees for Blackstone”; however, the suit also states that “the amount of the fees could not be calculated and were not disclosed.”

Author(s): Michael Katz

Publication Date: 15 Oct 2021

Publication Site: AI-CIO

States Divest Unilever Stock Over Ben & Jerry’s Boycott

Link: https://www.ai-cio.com/news/states-divest-unilever-stock-over-ben-jerrys-boycott/

Excerpt:

State treasurers in New Jersey and Arizona are divesting approximately $325 million in investments from consumer goods giant Unilever after subsidiary Ben & Jerry said it will stop selling its ice cream in Israeli-occupied territories.

In July, the company said in a statement that it was “inconsistent with our values for Ben & Jerry’s ice cream to be sold in the Occupied Palestinian Territory.” It said it has informed the licensee that manufacturers the ice cream in the region that it will not renew its license when it expires at the end of 2022. Despite leaving the Palestinian territories, Ben & Jerry’s said it will stay in Israel through a different arrangement that has not yet been determined.

A New Jersey law enacted in 2016 requires state pension funds to withdraw investments from any company that boycotts the goods, products, or businesses of Israel or companies operating in Israel or territories occupied by Israel. The law requires the state to create a blacklist of companies that boycott Israel.

Author(s): Michael Katz

Publication Date: 20 Sept 2021

Publication Site: ai-CIO

CalPERS’ In-House Private Debt Program Is Dead

Link: https://www.ai-cio.com/news/calpers-in-house-private-debt-program-is-dead/

Excerpt:

A plan by the California Public Employees’ Retirement System (CalPERS) to run its own multibillion dollar private debt investment program is dead for now after the state’s Senate Judiciary Committee rejected a bill that would have allowed the pension system to keep borrowers’ closely guarded financial information confidential.

The rejection by the committee last week is a major setback for the $469 billion pension system. CalPERS officials had planned to give out as much as $23 billion to companies seeking loans in the private debt market in an effort to boost financial returns for the system.

A day after the legislative committee’s vote, CalPERS Board Vice President Theresa Taylor asked at a board meeting whether the pension system could create an asset allocation that would allow it to earn its assumed rate of return without the in-house private lending program. Its current rate of return is 6.8%.

CalPERS does not need legislative permission for its investment program, but it needed state lawmakers to carve out an exemption to the state’s public disclosure laws to create the private debt program.

Author(s): Randy Diamond

Publication Date: 19 July 2021

Publication Site: ai-CIO

What’s the Impact of Early Retirements on Plans?

Link: https://www.ai-cio.com/in-focus/shop-talk/whats-the-impact-of-early-retirements-on-plans/

Excerpt:

Take the California State Teachers’ Retirement System (CalSTRS), which in February reported that it had its second-highest year for retirements in 2020, behind the fallout from the Great Recession. The pension fund reported a steep 26% jump in the second half of 2020 from the same time a year before. 

When the pension fund for educators surveyed roughly 500 of these retirees, about 62% said they retired earlier than they planned. More than half said the challenges of teaching during the pandemic pushed them to seek an early out. Still, a CalSTRS spokesperson said this week that the fund does not expect the retirements to have a “material impact” on the funding levels.  

Broadly speaking, any damage from early retirements is going to be “fairly muted,” according to Kevin McLaughlin, head of liability risk management for North America at Insight Investment. 

Author(s): Sarah Min

Publication Date: 1 July 2021

Publication Site: ai-CIO

FBI Said to Seek Evidence of Kickbacks, Bribery at Pennsylvania PSERS

Link: https://www.ai-cio.com/news/fbi-said-to-seek-evidence-of-kickbacks-bribery-at-pennsylvania-psers/

Excerpt:

Subpoenas indicate that the FBI and federal prosecutors are seeking evidence of kickbacks and bribes in an investigation of the $62 billion Pennsylvania Public School Employees’ Retirement System (PSERS)’s misstatement of its 2020 investment performance and its real estate investment in Harrisburg, Pennsylvania, according to The Philadelphia Inquirer.

In December, PSERS’ board of trustees certified the contribution rates for its members. The board was told by its general investment consultant and another firm that the retirement system’s nine-year performance figure was 6.38%, which was just high enough to avoid triggering additional contributions under state law.

……

The court orders reportedly reveal that the FBI and prosecutors are investigating possible “honest services fraud” and wire fraud. Under a 2010 US Supreme Court ruling, federal prosecutors need proof of illegal payments to seek criminal charges against state officials for not providing honest services, the Inquirer reported.

No one at PSERS, including the executives who received subpoenas, has been accused of any wrongdoing.

And according to a report in The Wall Street Journal, PSERS’ board of trustees has spent more than $1 million and counting in its investigation of the reporting error.

Author(s): Michael Katz

Publication Date: 19 May 2021

Publication Site: ai-CIO