Posts by dietrichknauth

I’m a writer and reporter based in Brooklyn, NY. My specialty is legal reporting, particularly government contracts law, government policy, and federal spending.

U.S. takes more direct oversight of foreign investment in tech

The U.S. government is planning to ramp up its scrutiny of foreign investment in national-security-sensitive businesses and technology, which could affect the way some private equity funds deal with foreign investors.

The 2018 National Defense Authorization Act, passed in August, expanded the jurisdiction of the Committee on Foreign Investment in the United States to include a broader range of investments.

CFIUS, a multiagency body that includes representatives from the U.S. Departments of Defense, Treasury, Homeland Security, Commerce and others, has long had authority to review or block transactions that could lead a foreign buyer to acquire control of a business or location that could affect national security.

That mandate was often interpreted broadly by CFIUS, such as when it prevented a Chinese company from building wind farms near a U.S. Navy facility, but the new defense bill gives CFIUS even more authority, sweeping in investments that do not include “control” but enable foreign investors to access critical technology, critical infrastructure, or personal data.

“This is going to sweep a larger number of transactions into the ambit of CFIUS review, so it will be a challenge for investors,” said Priya Ayar, a partner at Wilkie Farr & Gallagher and a former acting general counsel of the Treasury Department.

Read the full story, as published by Buyouts:

TPG eyes disruptive opportunities in education, healthcare, dying malls

While plenty of investors are nervous about a potential market downturn, TPG’s James Coulter sees reason for hope in the rapid changes occurring across several parts of society.

Rapid change and big disruptions can provide opportunities for growth even through a market downturn. And TPG is focused on several sectors that are seeing shift away from industrialization and standardization, Coulter said at Buyouts Insider’s PartnerConnect West conference in early October.

“What we’re doing at TPG these days is basically looking at the world trying to  find change that we can identify, and find change that we can access,” Coulter said, giving as an example dying malls nationwide. “This is something you can despair about, or it’s something you can get pretty excited about, and we’ve decided to get excited about it at TPG. One of the great opportunities out there is to reprogram hundreds of millions of square feet.”

Read the full article, as published by Buyouts:

CalPERS needs to upgrade its skills to succeed in private equity, CIO says

The $353bn California Public Employees Retirement System (CalPERS) needs to develop new expertise if it’s going to overhaul its private equity strategy, according to CIO Ted Eliopoulos.

CalPERS’ private equity portfolio is currently composed solely of traditional private equity funds run by general partners, and it has become quite good at vetting those partners and the opportunities they offer, Eliopoulos said at the mega fund’s June meeting. But that model won’t be enough to keep CalPERS near its preferred 10% allocation to private equity, which is why CalPERS is pursuing a new strategy that includes direct investments, a commitment to larger strategic partnerships and co-investments with private equity firms, and an increased focus on emerging managers.

The new strategy will require substantial additions to CalPERS’ internal skills and resources, so that it is less reliant on its private equity managers, Eliopoulos said.

“Our private equity program, our team, our systems, our methods are really geared all towards performing this function of selecting an external general partner,” Eliopoulos said. “The [new strategy] really seeks to add to this capacity the ability to select and invest in individual portfolio companies. This is a new domain.”

The board has not made a decision on the new strategy, but board members generally sounded positive when discussing the new model at the meeting. The plan also received an endorsement from University of California professor Ashby Monk, who said that more public pension plans could benefit from thinking outside the box on private equity.

Read the full story: CalPERS needs to upgrade its skills to succeed in private equity, CIO says

Published by Money Management Report/Pageant Media.

Montana explores multi-asset strategies, commits $125m to private markets

The Montana State Investment Board is researching multi-asset strategies to build out a new diversifying strategies, and may also be on the lookout managers in its natural resources and real estate portfolio.

The fund, which manages $18.4bn in assets in several pension funds and state trusts, including $11.4bn in pension assets, also reviewed $125m in private markets commitments at its May 22 meeting.

Diversifying assets is a new asset class for the state, which gave investment staff the go-ahead in February to begin allocating to a target of 0% to 4%. The asset class includes a potentially wide mix of public markets investments that seek to provide downside protection while maintaining liquidity and providing a better return than just holding onto cash. Creating a new asset class was necessary, according to CIO Joe Cullen, to allow the state pension funds to take advantage of multi-asset strategies and other investments that otherwise would not fit within the state’s asset allocation structure.

Montana has started building the asset class with an internally-managed strategy focused on long duration U.S. Treasuries, and currently has an allocation of $26m, or 0.26% of its pension portfolio.

“If interest rates continue to rise meaningfully, we’ll probably add a little bit more that that position, but more meaningful to this asset class of diversifying strategies, [director of public markets] Rande [Muffick] and the public markets team are looking at some of these multi asset class managers,” Cullen said at the May meeting. “We’re looking, we’re not going to say ‘oh by this date we’ll have one’ but we’re going through a process now during the summer that if one comes out of that process, or two, over the summer, then that’s something we’ll bring to you in the fall.”

Read the full story: Montana explores multi-asset strategies, commits $125m to private markets

Published by Money Management Report/Pageant Media.

Institutional appetite drives a rise in PE ‘mega-funds’

As institutional investors try to ramp up or maintain their commitments to private equity without spreading themselves thin on due diligence efforts, their increasingly concentrated investments have helped support a trend toward private equity mega-funds.

Concentration at the top poses some challenges, but investors aren’t fazed: Since 2015, fewer investors have sought to make four or more fund commitments annually and more are gravitating towards making two to three fund commitments, perhaps suggesting an increase in ticket sizes, research firm Preqin found. The increased demand, as well as a need to reinvest capital from older private equity investments, and new players like sovereign wealth funds and wealthy individuals, have pushed dry powder held by private equity fund managers to a record high of $1.09tn as of
March 2018.

Private equity managers with good track records are in high demand, and those managers are increasingly able to find enough capital to scale their efforts to previously-unheard of levels, according Christopher Elvin, head of private equity products at Preqin.

“There looks to be a trend towards mega-funds,” Elvin told MMR. “The private equity industry is seeing huge inflows, but investors are increasingly choosing to sink their capital in the largest funds. LPs (Limited partners) prefer to be involved with fund managers that have been successful in the past – with the expectation that those fund managers will be able to generate large returns in the future – and generally fund
managers don’t tend to raise large funds without building up a track record.”

Read the full story: Institutional appetite drives a rise in PE ‘mega-funds

Published by Money Management Report/Pageant Media.

New York Common files its first cyber risk shareholder proposal

The $209bn New York State Common Retirement Fund filed its first shareholder proposal dealing with cybersecurity, calling on Express Scripts to publicly detail its cyber risk and security efforts.

While the proposal failed to gain the support of a majority of shareholders, the state pension system said that cyber risks will be an increasing concern for shareholders in the future.

“A significant number of shareholders spoke loudly at Express Scripts’ annual meeting supporting our call for the company to publicly detail its cyber risk and actions taken to ensure cyber security,” DiNapoli said in a statement. “Cyber security is one of the most critical issues facing businesses today and breaches can affect millions of people, but Express Scripts has provided shareholders with little reassurance or information on
what actions it has taken to mitigate cyber risk in its operations. Company executives should reassure investors that they have taken solid steps to mitigate the risk of a computer breach.”

The New York fund, which holds a $130m stake in the pharmacy benefits management company, requested that the Express Scripts board annually review and publicly report on its cyber risk, including risks related to outsourced business functions, a description of material cyber incidents, risks related to undetected cyber intrusions, and a description of relevant insurance coverage. The company disclosed in 2008 that a data breach affected the personal and medical information of more than 700,000 customers, and State Comptroller Thomas DiNapoli filed the shareholder proposal shortly after the Equifax data breach exposed the personal information of as many as 145 million Americans.

This is the first time the fund filed a shareholder proposal exclusively dealing with cyber security, spokesman Mark Johnson said. Express Scripts had sought to prevent DiNapoli’s proposal from going to a shareholders’ vote, but the Securities and Exchange Commission rejected the company’s request in March, according to the Comptroller’s Office.

Read the full story: New York Common files its first cyber risk shareholder proposal

Published by Money Management Report/Pageant Media.

Oregon CIO uncomfortable with adding more investment risk

Oregon’s investment chief would not recommend adding any more investment risk to the state’s $100bn portfolio, saying in a recent meeting that investment income alone will have a tough time bridging the state pension’s $22bn unfunded liability.

The Oregon Investment Council, whose pool of assets includes the $76bn Oregon Public Employees’ Retirement Fund, had a special meeting in late April to discuss board governance, policy, and its appetite for investment risk. CIO John Skjervem said at the meeting that he appreciated the desire to maximize risk-adjusted investment returns, but said that investment staff couldn’t simply kick their strategies into higher

“We don’t have another gear to go to,” Skjervem said. “This is as aggressive a portfolio as I feel comfortable managing, and I believe to a person my staff feels the same way.”

Read the full story: Oregon CIO uncomfortable with adding more investment risk

Published by Money Management Report/Pageant Media.

LACERS remains indecisive on private equity

The Los Angeles City Employees’ Retirement System (LACERS) remains indecisive about how best to proceed with its 14% allocation to private equity, with one member of the investment committee suggesting looking for a wider pool of consultants before proceeding with interviews of the three finalists identified after a recent search.

The $17bn fund’s private equity program has been unsettled since July of 2017, when the board blew up an ongoing RFP process and started from scratch. At that time, a board member accused the incumbent consultant – and investment staff’s preferred option for a new contract – of fudging the performance numbers for private equity programs managed on behalf of other pension funds. Other pension fund clients stepped to the consultant’s defense, and the consultant explained its methodology in a later meeting, but the bad blood caused by the incident caused the consultant, Portfolio Advisors, to withdraw from consideration during a rebooted RFP process. Now, LACERS is once again on the verge of making a selection during the rebooted consultant search, and once again, some board members seem dissatisfied with the process.

Read the full story: LACERS remains indecisive on private equity

Published by Money Management Report/Pageant Media.


Religious endowments move to the forefront of ethical investing

Churches and their endowments have long been leaders in socially responsible investing, but those efforts are increasingly moving beyond divestment into more proactive approaches, including impact investing and corporate engagement.

In addition to negative screening and divestment, religious organizations are embracing shareholder engagement, thematic investments — choosing to invest in companies or industries that are aligned with their organization’s goals — and impact investing. The proactive turn has been encouraged by growing investor sophistication, better coalition building, and the Pope, who encouraged Catholic organizations to embrace impact
investing in a 2014 speech.

“I think that was a turning point for several of the clients that we work with, where they started thinking in a more proactive framework,” Kristine Pelletier, a member of NEPC’s endowment and foundation practice, told Foundation and Endowment Report. “A lot of institutions felt that call to action, and maybe that put more fire into some initiatives that were already going on.”

Read the full story: Religious endowments move to the forefront of ethical investing

Published by Money Management Report/Pageant Media.