Which Public Pension Funds Have the Highest Holdings of Alternative Assets? 2021 Edition

Link: https://marypatcampbell.substack.com/p/which-public-pension-funds-have-the

Graphic:

All the data for alternative allocation 2001-2020, with key percentiles plotted as lines

Excerpt:

What you see in that graph is a data point for each of the plans I know their asset allocation for, with the median, 25th percentile, and 75th percentiles marked out so you can see the allocations increasing.

That pattern does not make me feel good.

Allocating more to alternatives doesn’t seem to get asset managers higher returns. But the group is generally sliding upwards in their allocations, and I’m very unhappy about this.

Author(s): Mary Pat Campbell

Publication Date: 11 May 2021

Publication Site: STUMP at substack

Private Equity Returns Stumbled in 2020, Hurting Public Pension Plans

Excerpt:

Private equity investments underperformed broad US stock indexes for the fiscal year that ended June 30, 2020.  Importantly for taxpayers and governments, this underperformance of private equity weighed down public pension system asset returns during a particularly difficult year for investments.

These investment results may mark the beginning of the end of superior private equity returns that have characterized early 21st century institutional investing. If private equity returns have now fallen “back to earth,” many public pension systems can expect heightened scrutiny over their allocations to this asset class and the high investment costs that go with it.

Author(s): Marc Joffe

Publication Date: 27 April 2021

Publication Site: Reason

Your Pension Board Thinks It’s Smarter Than Warren Buffett—It’s Not

Link: https://www.forbes.com/sites/edwardsiedle/2021/05/01/your-pension-board-thinks-its-smarter-than-warren-buffett-its-not/?sh=b3fdc2611302

Excerpt:

Buffett has a consistent history of blasting Wall Street firms for charging high fees for actively managed investments and has recommended pensions invest in low-cost passively managed index funds.

You might think that underfunded pensions struggling to pay benefits would heed Buffett’s advice and seek to cut the fees they pay Wall Street.

Embrace austerity. Tighten their belts. Trim the fat. 

In fact, every forensic investigation I’ve ever undertaken has exposed that the nearer a pension is to insolvency, the higher the fees and the greater the risks the pension takes on.

Author(s): Ted Siedle

Publication Date: 1 May 2021

Publication Site: Forbes

Expose at Pennsylvania’s Biggest Public Pension Fund Reveals Lavish Private Equity Travel, But Misses How It Serves as a Bribe

Graphic:

Excerpt:

The article points out that the PSERS investment office regularly violates state travel policies, which require employees on Commonwealth business to hew to Federal guidelines for airfare and lodging. Eight PSERS officers have been granted waivers from this policy.

PSERS defends the travel costs by saying staff traveled business class and the fares were typically refundable and sometimes bought at the last minute.

My issue isn’t with the cost of the flights but their necessity, and with the hotel costs. Public servants should be staying in Westin/Marriott level rooms. These prices are consistent with five star hotels, like the Four Seasons or St. Regis in New York City.

Author(s): Yves Smith

Publication Date: 12 April 2021

Publication Site: naked capitalism

Pennsylvania pension system officials disclose federal probe

Excerpt:

Officials atop Pennsylvania’s largest public pension system have received subpoenas from federal investigators, although the $64 billion Public School Employees’ Retirement System has yet to publicly discuss the nature or scope of the newly disclosed inquiry.

In addition to giving few details, pension system officials and board members — which includes state lawmakers, two members of Gov. Tom Wolf’s Cabinet and state Treasurer Stacy Garrity — have declined to answer questions publicly about what information federal investigators are seeking.

Garrity told lawmakers at a Senate Appropriations Committee hearing Tuesday that “federal subpoenas have been served on several PSERS management officials.”

Author(s): Marc Levy, Associated Press

Publication Date: 8 April 2021

Publication Site: WHYY PBS

From Hong Kong to Sydney, San Francisco to Zurich, the staff at Pennsylvania’s largest pension fund have run up big travel bills

Link: https://www.inquirer.com/business/psers-pension-teachers-travel-expenses-sers-public-school-trips-cost-20210403.html

Graphic:

Excerpt:

The bills are high because PSERS for years has operated under a system in which it often never knew the true costs of travel. The fund repeatedly left the job of booking tickets, hotels, and meals to the outside money managers who invest the fund’s money. The charges were later buried in overall travel bills that the managers submitted to the fund to be paid by taxpayers and teachers.

In recent years, the fund has been roundly criticized for its lagging investment performance, especially given that the plan, underfunded by many governors and legislatures, is $44 billion short of the money to pay all future retirees

Author(s): Craig R. McCoy

Publication Date: 3 April 2021

Publication Site: The Philadelphia Inquirer

LACERS Board Member Lambastes Lousy Private Equity Returns as More Studies Confirm Poor Performance for Decades

Graphic:

Excerpt:

CEM, using a simple mix of small-cap indexes, found that even though private equity funds deliver what looks to be outsized raw returns, they fall short of CEM’s benchmark since 1996. However, as we’ve also said for some time, the big exception is investing in house, which CEM calls “internal direct”. And the worst, natch, is fund of funds, which have an extra layer of fees.

There are two additional reasons the CEM findings are deadly. First, the time period they look at, going back to 1996, includes a substantial portion of the 1994-1999 “glory years” where private equity firms were coming back from a period of disfavor after the late 1980s leveraged buyout crash. Less competition for deals meant better buying prices and better returns. Alan Greenspan dropping interest rates for a full nine quarters after the dot-com collapse was the first episode of the Fed driving money into high risk investment strategies by creating negative real returns for a sustained period, and the rush of money into private equity elevated deal prices.

Author(s): Yves Smith

Publication Date: 1 April 2021

Publication Site: naked capitalism

Australia gets a $156 billion pension merger as new laws spur consolidation

Link: https://www.reuters.com/article/us-australia-pensions/australia-gets-a-156-billion-pension-merger-as-new-laws-spur-consolidation-idUSKBN2B70QC

Excerpt:

The mega-merger reflects the rapid consolidation of Australia’s A$3 trillion pension industry after a 2018 inquiry found fees charged by some managers were unjustified and eroded workers’ savings, and that many funds were not putting customers’ interests ahead of their own.

The government has since made it mandatory for funds to put member interests first, triggering a wave of mergers as fund boards determine that scaling up results in a better deal for people’s savings.

“The due diligence process we have undertaken demonstrates a strong business case for merging with achievable efficiencies and savings,” said QSuper Chair Don Luke and Sunsuper Chair Andrew Fraser in a statement.

Author(s): Reuters staff

Publication Date: 15 March 2021

Publication Site: Reuters

Recent Judge Rakoff Decision May Curb Private Equity Leverage Abuses By Pinning Liability on Directors of Selling Company

Excerpt:

For decades, authorities and experts have tried restricting excessive borrowing by private equity investors, since it’s been repeatedly shown that they leave lots of bankruptcies in their wake. And these abuses continue because private equity looting fee structures result in general partners making out handsomely whether or not the business does well. In 1987 (no typo), the Treasury proposed limiting the deduction of interest on highly leveraged transactions. That idea went by the wayside thanks to the 1987 crash. Other proposals to restrict debt levels have similarly not gone anywhere. Yet now an important ruling looks set to deliver where regulators and legislators have failed.

The decision is related to bankruptcy ruling, In re Nine West LBO Securities Litigation, in early December. I’m late to it; several readers called it to my attention via a William S. Cohan op ed in the New York Times, The Private Equity Party Might Be Ending. It’s About Time. I think Cohan is overstating its significance; investment bankers and lawyers are prone to howling loudly about anything that might reduce the size of their meal tickets while working full bore to preserve them. But Nine West does appear likely to restrict very highly leveraged deals by pinning the liability tail for likely insolvencies on the directors and officers of the selling company.

The very short version of this story is that the directors of the selling company approved a sale transaction that they knew would saddle the company, renamed Nine West, with more debt than its own bankers had said it could support while removing its best assets. They sat pat as the buyer revised the deal to load even more borrowings on the acquisition, despite having a fiduciary “out” clause.

Author(s): Yves Smith

Publication Date:

Publication Site: naked capitalism

Gov. Wolf puts critic back on $60 billion pension board

Link: https://www.inquirer.com/news/torsella-psers-garrity-muth-20210225.html

Excerpt:

In November, Democrat Joseph Torsella lost his position as an overseer of Pennsylvania’s $60 billion school pension fund when he lost reelection as state treasurer. But on Thursday, Gov. Tom Wolf tapped Torsella to return to the PSERS board as his representative.

The appointment, which requires majority approval by the State Senate, would restore Torsella to a growing reform bloc on the 15-member board for PSERS. That stands for Public Schools Employees’ Retirement System, which sends checks to about 250,000 retired teachers and other former school workers.

During his single four-year term as treasurer, Torsella, by dint of his position, served on the PSERS board and that of its smaller, $30 billion sister fund for state employees, known as SERS.

Author(s): Joseph N. DiStefano

Publication Date: 25 February 2021

Publication Site: Inquirer

Still primed for public life, ex-Pa. Treasurer Torsella reflects on pensions and bipartisanship

Excerpt:

Torsella also was at the center of a burgeoning bloc of hedge fund and private equity skeptics on state pension boards. He has publicly criticized Wall Street firms for charging too many fees for too little gain.

Torsella also co-authored a bipartisan legislative report that estimated Wall Street firms had taken $5.5 billion from the state over the past 30 years.

Pension officials have countered that private equity investments pay off, and provide a way for the fund to grow its assets hurt by bad policy, underinvestment, and losses from the 2008 crash.

Author(s): Stephen Caruso

Publication Date: 3 February 2021

Publication Site: Pennsylvania Capital-Star

Pa. Treasurer Joe Torsella tried to reform the state’s biggest pension funds. Then he lost his job.

Link: https://www.inquirer.com/business/joe-torsella-treasurer-pa-pennsylvania-psers-pensions-teachers-lost-harrisburg-20210220.html

Graphic:

Excerpt:

As treasurer, Torsella automatically got a board seat on Pennsylvania’s two massive pension plans, the $60 billion PSERS for public school employees and the $30 billion SERS for state workers. (The letters stand for the Public School Employees’ Retirement System and the State Employees’ Retirement System.)

Everything about them is supersized. Together, they serve more than 700,000 retired and working Pennsylvanians. Taxpayers pay $7 billion into the funds annually, up from near zero in the early 2000s, and five times what employees contribute. Despite that, the plans are hugely underfunded — collectively short $65 billion.

Their health is heavily dependent on their investments. Once on board, Torsella asked to see investment contracts and fee deals with outside money managers — and was told they were not public. It was as if they were somehow more confidential than a town paving contract or a sanitation worker’s salary.

Author(s): Joseph N. DiStefano

Publication Date: 19 February 2021

Publication Site: Philadelphia Inquirer