CalSTRS Plans to Redefine ‘Diverse Managers’ and ‘Emerging Managers,’ in Accordance With New California Law

Link: https://www.ai-cio.com/news/calstrs-plans-to-redefine-diverse-managers-and-emerging-managers-in-accordance-with-new-california-law/

Excerpt:

The California State Teachers’ Retirement System is now planning to formally define the term “diverse manager” and adjust their definition of “emerging manager.” Though the two categories overlap, they are not identical.

The term “emerging manager” is based on the following criteria, according to CalSTRS: “the amount of assets under management; fund lifecycle of funds; firm legal structure; non-employee ownership percentage; and other various factors including track record, private placement memorandum.”

The term “diverse manager” will refer exclusively to the diversity of the firm’s ownership. The term will be defined in a tiered way such that if a firm is 25% to 49% owned by women, ethnic minorities, and/or LGBTQ individuals, it will be labeled as “substantially diverse.” A firm would be labeled as “majority diverse” if it is more than 50% owned by women, ethnic minorities, and/or LGBTQ people. Ethnic minorities include all non-white groups listed on the census.

Author(s): Anna Gordon

Publication Date: 4 May 2022

Publication Site: ai-CIO

How Much Private Equity Is Too Much for a Public Pension?

Link: https://www.ai-cio.com/in-focus/shop-talk/how-much-private-equity-is-too-much-for-a-public-pension/

Excerpt:

Pension funds around the U.S. are upping their allocations to private equity after a year of record-breaking returns. According to data obtained from Preqin, the average public pension’s allotment to private equity increased to 8.9% in 2021. In contrast, the average allocation was just 6.5% in 2012.

New York City’s pensions are among those that may see an increased allocation to the asset class in their portfolios should a new law pass. Currently, New York State implements a “basket clause,” which prevents public pensions from investing above 25% of their total portfolios in investments considered higher risk, including real estate, infrastructure, hedge funds, international equities, and private equity. The proposed law would increase that allocation to 35% for all pension funds in the state. If the law passed, the boards of New York City’s five public pensions would vote on whether to increase the “basket” for their own pension funds.

New York City Interim CIO Michael Haddad, who is responsible for overseeing investments in the five pension plans across the city, says that while the change in the law isn’t targeted at private equity exclusively, it’s likely that the asset class would increase.

Author(s): Anna Gordon

Publication Date: 10 May 2022

Publication Site: ai-CIO

PSERS Considers Suing Aon for Miscalculating Returns

Link: https://www.ai-cio.com/news/psers-considers-suing-aon-for-miscalculating-returns/

Excerpt:

At their board meeting last week, Pennsylvania’s Public School Employees’ Retirement System voted to hire law firm Blank Rome to help determine if it should sue Aon, an investment consultant the pension fund hired.

The potential suit concerns a calculation error Aon made that caused PSERS to inaccurately report its returns in December 2020. While initially the nine-year performance figure was reported to be 6.38%, a correction showed that it was in fact lower, and thus below the threshold needed to prevent increased contributions. When the miscalculation was revealed in March 2021, the pension fund’s beneficiaries were forced to increase their payments.

PSERS paid Aon $7.2 million for investment advice over the course of almost a decade. Currently, Aon is still employed by PSERS. Both the FBI and the SEC are investigating the miscalculation. PSERS is also under investigation for gifts given by Wall Street firms to PSERS employees.

Author(s): Anna Gordon

Publication Date: 16 May 2022

Publication Site: ai-CIO

High Inflation Leads to Expensive Cost-of-Living Adjustments for CalPERS and Others

Link: https://www.ai-cio.com/news/high-inflation-leads-to-expensive-cost-of-living-adjustments-for-calpers-and-others/

Excerpt:

With big returns come big expenses. That’s what seems to be the case for pensions across the country, as they are forced to increase their payouts to beneficiaries due to inflation. While the past year has been a record breaker for pension fund returns, inflation will be claiming its fair share of the gains as well.

For CalPERS members, those who retired between 2006 and 2014 will receive the biggest increase at 4.7%. This will be the largest cost-of-living increase for beneficiaries in the past 32 years, dating to 1990.

While the Bureau of Labor Statistics has estimated the Consumer Price Index to have increased by 7% over  2021, CalPERS is not using the 7% to calculate its increased payments. Instead, it uses an average of each month’s numbers.

CalSTRS similarly also has built in inflation protection, thanks to a California law that requires public pensions to do so. However, CalSTRS’ method of calculating this payment is slightly different. The fund gives quarterly supplement payments to those whose annual benefit falls below 85% of their original benefit. This year’s inflation numbers will likely increase the number of supplemental payments that CalSTRS in forced to provide.

Author(s): Anna Gordon

Publication Date: 1 Mar 2022

Publication Site: ai-CIO

PSERS Internal Investigation Into Miscalculated Returns Released

Link:https://www.ai-cio.com/news/psers-internal-investigation-into-miscalculated-returns-released/

Excerpt:

This Monday, the Pennsylvania Public School Employees’ Retirement System (PSERS) finally released its long-awaited internal investigation into the pension fund’s misreporting of December 2020 investment return results and allegations that staff accepted gifts that would have been considered conflicts of interest. While the investigation was completed more than two months ago, the publication of the findings had been delayed multiple times.

The report was released after a series of closed-door board meetings that took place that same day. During those meetings, representatives from the law firm Womble Bond Dickinson, which had conducted the investigation, briefed the board on the findings.  

Claire Rauscher, a lawyer from Womble, told the board that, as of now, there was no evidence of criminal conduct, but some important pieces of evidence remain missing. Aon Consulting, a Chicago company that helped PSERS calculate its inaccurate return results, refused to cooperate in the investigation. Because Womble Bond Dickinson is a private law firm, it has no subpoena power to force Aon to comply.

Author(s): Anna Gordon

Publication Date: 2 Feb 2022

Publication Site: ai-CIO

AstraZeneca to End Its US Corporate Pension Plan

Link:https://www.ai-cio.com/news/astrazeneca-to-end-its-us-corporate-pension-plan/

Excerpt:

AstraZeneca, a British–Swedish biopharmaceutical company responsible for developing one of the world’s most widely distributed COVID-19 vaccines, announced on January 25 that it will be transferring its pension assets to an insurance company.

“This is a common practice, achieved via a process known as ‘plan termination’ and ‘buy-out.’ This action does not impact any participant’s eligibility to receive the benefit earned under the pension plan,” AstraZeneca representatives wrote in a statement explaining the transition.

AstraZeneca’s US pension initially began struggling with its funded status in 2017, and the company made the decision to freeze benefit accruals that year. This move ended up making a significant difference, bringing funded status from 80% in 2017 up to 99.19% by the end of 2018. The plan currently has $1.3 billion in assets under management (AUM) and serves approximately 7,000 employees, according to its Form 5500.

Author(s): Anna Gordon

Publication Date: 7 Feb 2022

Publication Site: ai-CIO

Looks Like Politicians Will Extend Illinois’ Pension Buyout Program

Link:https://www.ai-cio.com/news/looks-like-politicians-will-extend-illinois-pension-buyout-program/

Excerpt:

In 2019, the state of Illinois introduced a pension buyout system that allowed pension plan holders to receive a lump sum of cash now as opposed to keeping their money invested in the pension system. The payments are funded by a state bond issue of $1 billion.

Now, however, politicians are concerned the funding for this program will run out of money. Illinois state Representative Bob Morgan introduced a fast-tracked bill that is currently pending in the state House to renew this program for another two years and authorize another $1 billion in funding.

With over $130 billion in unfunded liabilities statewide, the state of Illinois has been actively searching for ways to help alleviate its financial burdens.

Author(s): Anna Gordon

Publication Date: 28 Jan 2022

Publication Site: ai-CIO

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

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