Tag: asset allocation

Pension Funds Are Pulling Hundreds of Billions From Stocks

Mary Pat Campbell

Link: https://www.wsj.com/finance/investing/pension-funds-stocks-bonds-679b8536?st=v0qwhq895irsqxn&reflink=desktopwebshare_permalink

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Stock portfolios at large pension funds had a blockbuster run. Now, managers are cashing out.

Corporate pension funds are shifting money into bonds. State and local government funds are swapping stocks for alternative investments. The nation’s largest public pension, the California Public Employees’ Retirement System, is planning to move close to $25 billion out of equities and into private equity and private debt.

Like investors of all kinds, the funds are slowly adapting to a world of yield, where they can get sizable returns on risk-free assets. That is rippling throughout markets, as investors assess how much risk they want to take on. Moving out of stocks could mean surrendering some potential gains. Hold too much, for too long, and prices might fall.

Author(s): Heather Gillers, Charley Grant

Publication Date: 18 Apr 2024

Publication Site: WSJ

Dallas officials question lingering private investments in police and fire pension fund portfolio

Mary Pat Campbell

Link: https://www.keranews.org/news/2024-02-09/dallas-officials-question-lingering-private-investments-in-police-and-fire-pension-fund-portfolio

Excerpt:

The Dallas Police and Fire Pension System — which as been severely underfunded for years — still has about 25% of its assets tied up in private investments.

That’s according to pension system official’s briefing during Thursday’s Ad Hoc Committee on Pensions meeting.

Those include investments in an energy fund, natural resources — and assets in real estate. The private investments were deemed “legacy” assets that the pension system still maintains.

It was risky private investments that landed the system in the situation it’s in now — with over a billion dollars in unfunded liabilities.

“Currently we’ve gotten that down to 26%,” Dallas Police and Fire Pension System Chief Investment Officer Ryan Wagner said during the meeting.

Author(s): Nathan Collins

Publication Date: 9 Feb 2024

Publication Site: KERA News

Minority- and Women-Owned Business Enterprise: Asset Management and Financial Institution Strategy Report

Mary Pat Campbell

Link: https://www.osc.state.ny.us/files/reports/special-topics/pdf/mwbe-fiscal-2022-23.pdf?utm_content=20230610&utm_medium=email&utm_source=weekly+news

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In the 2022-23 fiscal year, the Fund recorded growth in its investments with MWBE managers. Despite increased market volatility from the banking disruptions to small financial institutions and the regional banking system and the rise in interest rates, the Fund has continued its steady deployment of capital to MWBE investment managers. As detailed in the tables below, total investments and commitments of Fund capital to MWBE partners for 2022-23 was $31.5 billion.

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While Fund management is very pleased with these results, our team is committed to retaining our long-term focus on steady, incremental growth, partnering with successful MWBE managers. The 2022-23 results illustrate another important measure of the success of the Fund’s MWBE Strategy. Of the approximate $141 billion of the Fund’s assets that are actively and externally managed, 22.3 percent is managed by MWBEs.

Author(s): Comptroller Thomas P. DiNapoli

Publication Date: May 2023

Publication Site: Office of the New York State Comptroller

ESG tug-of-war leaves taxpayers shortchanged

Mary Pat Campbell

Link: https://thehill.com/opinion/finance/4028654-esg-tug-of-war-leaves-taxpayers-shortchanged/

Excerpt:

The whole ordeal picked up steam years ago with efforts initiated by progressives in states like California, which has repeatedly imposed politically motivated restrictions on its largest pension funds, CalPERS and CalSTRS. In 2000, the state forced the funds to divest from tobacco companies, a move that cost nearly $3.6 billion in investment earnings. The pension funds have faced frequent — and occasionally successful — demands from activists and legislators on the left to divest of other progressive bogeymen, like firearms, oil and gas, and private prisons.

These politically motivated demands to place social goals above the fiduciary responsibility to pensioners persist, not just in California but also in Maine, Vermont, Massachusetts and many other blue states. At a time when many state pension funds are facing enormous fiscal imbalances, these policies are worsening the problem and shifting massive burdens onto taxpayers, who will have to foot the bill for the progressive aims of policymakers.

Indeed, research shows that putting social policies ahead of fiduciary responsibility can come at a hefty cost. A study found that public pension funds with ESG investment mandates have investment returns that are 70 to 90 basis points lower than those that do not — meaning retirees are financially hurt by these investment strategies.

Not to be outdone, conservatives in red states have been fighting back with anti-ESG policies of their own. Unfortunately, rather than establishing an environment that ensures taxpayers are best served, many of these policies elevate conservative cultural preferences above fiscal considerations. Like the pro-ESG policies of the left, these anti-ESG policies have cost taxpayers considerably.

Author(s): Brandon Arnold

Publication Date: 1 Jun 2023

Publication Site: The Hill

U.S. Asset Managers Fear Federal Reserve Rate Hikes Will Cause Recession

Mary Pat Campbell

Link: https://www.ai-cio.com/news/u-s-asset-managers-fear-federal-reserve-rate-hikes-will-cause-recession/?oly_enc_id=2359H8978023B3G

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A significant portion of U.S.-based asset managers think further Federal Reserve rate hikes would lead to a recession or some disruption in global financial markets, according to research last month by London-based CoreData Research.

The greatest anticipated risk of continued Federal Reserve rate hikes is a possible recession. Overall, 59% of survey respondents took a neutral look at a recession scenario, that there would be “a moderate recession in 2023, followed by a gradual recovery as central bank policies bring down inflation over time,” while 14% opted for a bull case, defined as “a mild recession in the first half of 2023, followed by a strong recovery, falling inflation and rising equity markets [in the second half of 2023],” and 27% said they agree with a bear case, defined as a scenario in which “stagflation and a deep recession [occur] in 2023, accompanied by a 10-20% fall in the equity markets, as central banks struggle to defeat inflation which remains high.”

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Within fixed income, 36% of respondents said they are increasing allocations to investment-grade corporate bonds, the most of any fixed-income subtype, and 33% are set to increase allocations to government bonds. A further 23% of respondents said they plan to cut their exposures to emerging-market debt as a consequence of higher yields domestically.

Author(s): Dusty Hagedorn

Publication Date: 24 Feb 2023

Publication Site: ai-CIO

Private Equity (PE)-Owned U.S. Insurers’ Investments Decrease as of Year-End
2021; Number of PE-Owned U.S. Insurers Increases

Mary Pat Campbell

Link: https://content.naic.org/sites/default/files/capital-markets-special-reports-PE-owned-YE2021.pdf

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The BACV of total cash and invested assets for PE-owned insurers was about 6% of the U.S. insurance
industry’s $8.0 trillion at year-end 2021, down slightly from 6.5% of total cash and invested assets at
year-end 2020. The number of PE-owned insurers, however, increased to 132 in 2021 from 117 in 2020,
but they were about 3% of the total number of legal entity insurers at both year-end 2021 and year-end 2020.

Consistent with prior years, U.S. insurers have been identified as PE-owned via a manual process.
That is, the NAIC Capital Markets Bureau identifies PE-owned insurers to be those who reported any
percentage of ownership by a PE firm in Schedule Y, and other means of identification such as using
third-party sources, including directly from state regulators. As such, the number of U.S. insurers that
are PE-owned continues to evolve.1
Life companies continue to account for a significant proportion of PE-owned insurer investments at
year-end 2021, at 95% of total cash and invested assets (see Table 1). This represents a small decrease
from 97% at year-end 2020 (see Table 2). Notwithstanding, there was a slight increase in PE-owned
insurer investments for property/casualty (P/C) companies, to 4% at year-end 2021, compared to 3% the
prior year. In addition, there was also a small increase in total BACV for PE-owned title and health
companies’ investments, at about $1.1 billion at year-end 2021, compared to under $1 billion at yearend 2020.

Author(s): Jennifer Johnson and Jean-Baptiste Carelus

Publication Date: 19 Sept 2022

Publication Site: NAIC Special Capital Markets Reports

Ohio’s Out-of-the-Box Pension

Mary Pat Campbell

Link: https://www.toledoblade.com/opinion/editorials/2022/09/18/editorial-ohio-out-of-the-box-public-pension/stories/20220914044

Excerpt:

Alarm bells should be ringing about the Ohio Police & Fire Pension following the release of a fiduciary audit of the fund, finished six years after the legal deadline.

Ignoring the law falls on the Ohio Retirement Study Council and their creator, the Ohio General Assembly. But the warnings on investment risk within the OP&F portfolio demand immediate, widespread attention.

The combined pension contribution for police is 31.75 percent of their salary and with firefighters the employer-employee combination is 36.25 percent.

…..

Ohio Police & Fire is “clearly thinking outside the box,” according to Funston Advisory Services. “OP&F is among a very small number of major institutional investors to have adopted a risk parity investment approach across the plan’s entire investment structure,” Funston tells us. Ohio’s police and fire pension is also a pioneer in an investment strategy called “portable alpha.”

In each case, the characteristic that separates OP&F from the rest of the public pension pack is “meaningful use of portfolio leverage.” The Ohio safety forces pension is using one of the riskiest investment strategies in America. The 25 percent of leverage showing on the balance sheet is actually much higher because the alternative investments also include leverage.

The entire portfolio is managed by outside managers, 135 fund managers by our count, who pulled down “mind boggling” fees according to pension expert Richard Ennis. If Mr. Ennis’ name sounds familiar you probably remember he was the expert Ohio turned to for comprehensive analysis of the Coingate scandal at the Ohio Bureau of Workers Compensation. Mr. Ennis gave us an assessment of the OP&F performance over the last 10 years that indicates the pension matched the results of an index fund despite the high fees.

Author(s): The Blade Editorial Board

Publication Date: 18 Sept 2022

Publication Site: The Toledo Blade

PW special report: NC treasurer’s love for cash in the pension fund hobbled returns during the stock market boom

Mary Pat Campbell

Link: https://ncpolicywatch.com/2022/08/05/pw-special-report-nc-treasurers-love-for-cash-in-the-pension-fund-hobbled-returns-during-the-stock-market-boom/?eType=EmailBlastContent&eId=8dfd910d-e76e-4e65-91ce-d144637d3017&eType=EmailBlastContent&eId=18903da7-2756-43a1-92ce-b1403da31f40

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* The pension fund holds much more of its money in cash than other comparable state pension funds and more than its allocation policy suggests. State Treasurer Dale Folwell routinely overrides the policy to prevent “rebalancing.”
* Folwell emphasizes steeling the pension plan against stock market downturns. That’s led to the plan missing out on the big stock market gains of the last few years. Returns for the state pension fund are far lower than comparable public pension funds.
* Folwell repeatedly liquidated stock to shift money to bonds and cash.
*He has lowered the pension fund’s assumed rate of return in stages, which means the state and local governments have had to increase their contributions.

Author(s): Lynn Bonner

Publication Date: 5 August 2022

Publication Site: NC Policy Watch

Wrong Way CalPERS Increased Private Equity Allocation by Over 50% as Investors Are Dumping Holdings

Mary Pat Campbell

Link: https://www.nakedcapitalism.com/2022/08/wrong-way-calpers-increased-private-equity-allocation-by-over-50-as-investors-are-dumping-holdings.html

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CalPERS is so reliably bad at market timing that the giant fund serves as a counter indicators. Last fall, CalPERS increased its allocation to private equity from 8% of its total portfolio to 13%, which is an increase of over 50%. This is after this humble blog, regularly citing top independent experts, pointed out that the investment raison d’etre for private equity had vanished in the 2006-2008 time frame, not once, but many many times as various studies kept confirming that finding. Not only did private equity no longer earn enough to compensate for its much higher risks (leverage and illiquidity) but it was no longer beating straight up large cap equities.

Now there is a way out of this conundrum: to bring private equity in house. Private equity fees and costs are so egregious (an estimated 7% per annum) that even a bit of underperformance relative to private equity indexes will be more than offset by greatly lower fees. A simpler option would be public market replication of private equity.

But the dogged way funds like CalPERS stick to private equity points to rank corruption, of the sort that landed CalPERS former CEO Fred Buenrostro in Federal prison for four and a half years.

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Another problem is cash flow management. Private equity funds do not take investor money at closing. Instead, investors get “capital calls” to pony up part of their commitment to the fund so the fund manager can buy a company. These capital calls require the dough to be sent as specified in the offering memorandum, usually in five to ten days. The consequences of missing a capital call are draconian. The fund manager can seize all the investments made so far and distribute them to the other limited partners.

In the financial crisis, CalPERS had too little cash on hand to meet private equity capital calls. It wound up dumping stocks at distressed prices to satisfy the private equity demands. So the risk outlined below is real.

Author(s): Yves Smith

Publication Date: 9 Aug 2022

Publication Site: naked capitalism

Ohio Teachers’ Pension Increases Alts and Fixed Income Targets, Decreases Public Equities

Mary Pat Campbell

Link: https://www.ai-cio.com/news/ohio-teachers-pension-increases-alts-and-fixed-income-targets-decreases-public-equities/

Excerpt:

The State Teachers’ Retirement Board of Ohio shifted its asset mix at its board meeting last week, announcing it will now target 26% of its assets to U.S. equities, down from 28%. It also decreased its international equity allocation to 22% from 23%. The fund increased its allocation to private equity to 9% from 7% and its allocation to fixed income to 17% from 16%.

The increase in private equity, which had record returns this past year, is part of a broader trend. STRS Ohio saw 29% returns in fiscal year 2021, in part driven by a 45% return on alternative assets. These returns were topped only by domestic equities, which returned 46.3% for the fund.

The pension plan is also beginning to share some of these returns with pension beneficiaries. At its board meeting last week, the pension approved a 3% one-time cost-of-living increase for beneficiaries who retired before June 1, 2018.  The 3% adjustment is still less than half of the Bureau of Labor Statistics’ official inflation calculation of 7% in 2021.

Author(s): Anna Gordon

Publication Date: 22 Mar 2022

Publication Site: ai-CIO

Faulty Regulation Blamed for Pension Plans Cutting Investment in Canada

Mary Pat Campbell

Link: https://www.theepochtimes.com/faulty-regulation-blamed-for-pension-plans-cutting-investment-in-canada_4474326.html

Excerpt:

Canada’s government acknowledges that the significant investments they seek in Canadian businesses and infrastructure must come mostly from the private sector. But in fact for decades, the country’s pension funds have been considerably reducing their domestic investments, a trend the feds and regulation are being taken to task for.

Tony Loffreda, independent senator from Quebec and former vice chairman of RBC Wealth Management, on May 12 asked the government’s representative in the Senate, Marc Gold, what the feds could do to incentivize Canada’s pension funds to invest more in Canada “without necessarily regulating free enterprise.”

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The CPPIB’s 2021 annual report showed that in 2006, 64 percent of its assets were invested in Canada and the remaining 36 percent invested globally. But by 2021, the mix had changed to 15.7 percent in Canada and 84.3 percent globally.

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The report outlined some of the reasons for the trend, singling out regulation.

“Plan sponsors are reacting in very predictable ways to their regulatory environment and the only way to change this behaviour is to change the environment,” LetkoBrosseau said.

It said regulation has over-emphasized short-term fluctuations in asset values, resulting in a shorter investment time horizon for pension fund assets. In contrast, pension savings, which represent 30 percent of Canadian savings, are typically invested for the long term and are meant to be managed such that they can take more risk to earn greater rewards.

Author(s): Rahul Vaidyanath

Publication Date: 18 May 2022

Publication Site: The Epoch Times