Tag: private debt

Public Pensions: Double-Check Those ‘Shadow Banker’ Investments

Mary Pat Campbell

Link:https://www.governing.com/finance/public-pensions-double-check-those-shadow-banker-investments

Excerpt:

For almost a decade leading up to 2021, bond yields were suppressed by low inflation and central bank stimulus. To make up for scanty interest rates on their bond investments, many public pension funds followed the lead of their consultants and shifted some of their portfolios into private credit funds. These “shadow bankers” have taken market share from traditional lenders, seeking higher interest rates by lending to non-prime borrowers.

Even during the pandemic, this strategy worked pretty well, but now skeptics are warning that a tipping point may be coming if double-digit borrowing costs trigger defaults. It’s time for pension trustees and staff to double-check what’s under the hood.

For the most part, the worst that many will find is some headline risk with private lending funds that underwrite the riskiest loans in this industry. Even for the weakest of those, however, the problem will not likely be as severe as the underwater mortgages that got sliced, diced and rolled up into worthless paper going into the global financial crisis of 2008. And until and unless the economy actually enters a full-blown recession, many of the underwater players will still have time to work out their positions.

The point here is not to sound a false alarm or besmirch the private credit industry. Rather, it’s highlighting what could eventually become soft spots in some pension portfolios in time to avoid doubling down into higher risks and to encourage pre-emptive staff work to demonstrate and document vigilant portfolio oversight.

Author(s):Girard Miller

Publication Date: 8 Aug 2023

Publication Site: Governing

Municipal Employees’ Annuity and Benefit Fund of Chicago Dives into Private Debt

Mary Pat Campbell

Link: https://www.marketsgroup.org/news/Chicago-MEABF-Private-Debt

Excerpt:

The Municipal Employees’ Annuity and Benefit Fund of Chicago (MEABF) has added private debt to its portfolio.


The MEABF board voted to work with three managers in the sector, allocating up to $100 million. It approved up to $40 million to both Partners Group Credit Strategy and Angelo Gordon Direct Lending Fund and up to $20 million to Brightwood Capital Fund, Stephen Wolff, MEABF’s investment officer, tells Markets Group.

….

Wolff said that the MEABF board approved a dedicated allocation to private debt of 4% in early 2021 and that this search fulfilled the allocation. MEABF had $3.4 billion in assets as of July 31. He said MEABF has in the past had mezzanine investments but has not had a dedicated allocation to private debt.

….

As of Dec. 31, MEABF had a fixed income target allocation of 25% and an actual asset allocation of 21%. Its real estate target was 10%, just above its actual asset allocation of 9%. Domestic equities are its largest segment with a 26% target and a 26% allocation. International equities were at 18%, just above its 17% target. Hedged equities, meanwhile, were at 12%, above its 10% target, while private equity was at 3%, below its 5% target.

Author(s): David G. Barry

Publication Date: 21 August 2022

Publication Site: Markets Group

CalPERS’ In-House Private Debt Program Is Dead

Mary Pat Campbell

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

Dan Walters, Dean of Sacramento Columnists, Blasts CalPERS’ Corruption-Friendly Secret Lending Bill

Mary Pat Campbell
Dan Walters, Dean of Sacramento Columnists, Blasts CalPERS’ Corruption-Friendly Secret Lending Bill

Excerpt:

Walters’ piece has been picked up by the Mercury News and other in-state papers. Since the bill has yet to go to the Senate, his intervention will make it much harder for Sacramento insiders to simply waive the legislation through and pretend they didn’t know about its rancid features.

We wrote up last week in part because the Judiciary Committee staff took the unusual step of sharply questioning whether CalPERS could and should be trusted with the powers it would provide. CalPERS wants to make loans and be exempt from disclosure…including who got the loan, in what amount, what the terms were (such as interest and collateral). The latter is important not just to determine if CalPERS is making proper credit judgments but also to see if it is handing out sub-market loans to cronies. There’s a proud history of this sort of thing. Remember, for instance, the “Friends of Angelo” scandal, when Countrywide gave out mortgages on extremely favorable terms to powerful politicians including Senate Banking Committee chair Christopher Dodd (D-CT), and Senate Budget Committee chair Kent Conrad.

Similarly, the reason yours truly has not been an advocate of public banks is they were tried in the US and virtually all failed. Most states and even some cities had them. All save North Dakota’s were eventually shuttered due to large-scale corruption and losses. I have not seen any of the proponents of public banks in the US demonstrate any awareness of their history of becoming piggy-banks for local notables, much the less recommend how to stop that from happening again. What CalPERS is proposing is an even more degraded version of the old, crooked, insider-controlled public banks.

Author(s): Yves Smith

Publication Date: 5 May 2021

Publication Site: naked capitalism

Pending bill opens door to pension corruption at CalPERS

Mary Pat Campbell

Link: https://calmatters.org/commentary/2021/05/california-pension-calpers-corruption-legislation/

Excerpt:

Assembly Bill 386 sailed through the Assembly Judiciary Committee last week on a unanimous vote with virtually no discussion about its provisions.

….

Potentially it opens the door to insider dealing and corruption in an agency that’s already experienced too many scandals, including a huge one that sent CalPERS’ top administrator to prison for accepting bribes.

CalPERS, which is sponsoring the bill with support from some unions and local governments, claims that the exemption is no big deal since the money it lends through “alternative investment vehicles” such as venture capital funds and hedge funds is already partially exempted from disclosure.

However, there is a big difference. Using outside entities to invest means they have skin in the game. Direct lending by CalPERS means that its board members, administrators and other insiders would be making lending decisions on their own without outside scrutiny.

Author(s): Dan Walters

Publication Date: 3 May 2021

Publication Site: CalMatters