Category / Institutional Investors

by dietrichknauth

Iowa launches unconventional RFP to seek alpha unconstrained by asset class

The Iowa Public Employees Retirement System (IPERS) has issued a request for proposals for active investment management services, saying that it will seek top-performing managers regardless of the manager’s asset class or benchmark.

The $31bn system is looking for a separately managed account that gives the manager full discretion to actively implement their investment selection and portfolio construction process, as long as the investments are primarily comprised of liquid, publicly traded securities. IPERS is also looking for public market investment products that show “persistent risk-adjusted alphas that are uncorrelated with IPERS’ strategic asset allocation, liabilities, and the alphas of other public market products within the IPERS investment program.”

Wilshire Consulting, which is assisting IPERS with the search, said that the unconventional RFP will help the pension fund take a more holistic view of
its public markets portfolio options and identify top-performing managers
across a range of traditional asset class “silos.”

“This search is unique in the way that IPERS is approaching it, which is taking a deeper dive into the excess returns that managers are producing in relation to their benchmark,” Ali Kazemi, managing director at Wilshire, told MMR.
Published by Money Management Report/Pageant Media.

Read the full story: Iowa launches unconventional RFP to seek alpha unconstrained by asset class

Published by Money Management Report/Pageant Media.

by dietrichknauth

Money managers willing to play ball in SDCERA’s fee revamp

The $12bn San Diego County Employees Retirement Association (SDCERA) is overhauling its fee agreements by asking money managers to take only an index-level base fee when they fail to outperform the market, in exchange for higher upside when they beat the benchmark. For the most part, managers are willing to chase upside in exchange for sacrificing the safety of a flat-fee structure.

Although SDCERA has traditionally paid a flat-percentage fee to its external managers, CIO Stephen Sexauer has been working to move toward performance incentives since he took the position in the summer of 2015. With mounting industry-wide pressure on costs, and a major nationwide shift from active management to passive management, asset
managers are willing to be more open to non-traditional compensation structures.

“There’s just enormous pressure on management fees – people are using ETFs, they’re using index funds – so managers, to maintain their business, are now open-minded about performance fees,” Sexauer told MMR. “If you randomly called up 20 money managers, they’d all say the same thing. The industry is changing and changing rapidly.”

Read the full story: Money managers willing to play ball in SDCERA’s fee revamp

Published by Money Management Report/Pageant Media.

by dietrichknauth

Oregon eyes expansion in redefined alternatives asset class

The Oregon Investment Council is planning to hire three new managers in a newly-defined alternatives asset class, seeking to bolster its investment in areas like infrastructure and real assets.

The council, which oversees $95.5bn in assets and plans to nearly double its investment staff over the next two years, has separated private equity and real estate out of its alternatives portfolio. The fund wants to limit the asset class to investments that offer greater investment diversity and are less correlated with broader market.

The new alternatives class, which is underweight a 12.5% target allocation, includes investments like real assets, infrastructure, and timberland, according to spokesman James Sinks. Separating out real estate and private equity, whose valuations are more correlated to market swings, will allow the new alternatives class to provide a better hedge in the event of another downturn, Sinks said.

“This is one of the lessons learned from the global economic crisis in 2008 and 2009, when a lot of pension plans thought they were really well diversified,” Sinks said. “In that particular event, stocks, bonds, real estate and private equity all went down.”

Read the full story: Oregon eyes expansion in redefined alternatives asset class

Published by Money Management Report/Pageant Media.

by dietrichknauth

Public pension funds fret over high-flying U.S. equities

With U.S. stock prices regularly hitting new records in 2017, pension plans are enjoying high returns from their public equity investments. But many institutional investors are beginning to get nervous, wondering when the good times will inevitably come to an end.

A recent Northern Trust Asset Management survey found that 65% of investment managers believe U.S. equities are overvalued, compared to just 30% in the first quarter of 2016. Some pension funds are reacting with cuts to public equity allocations,
others are standing pat, and some are second-guessing their recent shifts to non-U.S. equities.

“There are fewer and fewer managers that think U.S. equities are fairly valued or undervalued,” said Mark Meisel, senior vice president at Northern Trust. “Some people are beginning to reallocate toward European equities and emerging markets. You are seeing some assets flowing that way.”

Despite growing nerves around valuations, institutional investors tend to have faith in the overall U.S economic outlook, benefiting from a longterm investment horizon as a shield from the pressure. Scott Evans, CIO for the $160bn New York City Retirement Systems, attributed recent positive returns to “ebullient” markets, calling the funds’ situation “dicey” and “fraught with risk” at a June 21 quarterly meeting.

“This is as good as it gets, so we should not be complacent,” Evans said.

Read the full story: Public pension funds fret over high-flying U.S. equities

Published by Money Management Report/Pageant Media.

by dietrichknauth

Public pensions show uneven progress toward diversity goals

The investment profession is slowly moving away from the stereotype of “pale, male and stale,” as newer and smaller money managers take advantage of opportunities with large public pension funds.

Public pensions are increasingly interested in diversity, seeking to invest their assets with more women-owned and minority-owned firms. But how to how to achieve diversity — and even what it means — remains open for debate, and differing legal frameworks and practical challenges have contributed to uneven progress toward diversity goals.

Pension plans cite a wide range of reasons for improving diversity among their internal staff and external managers, including social responsibility, better returns, growing the ecosystem of potential investment partners, and hedging against over-commitment to an investment class that thinks the same way. While those goals are not universally shared throughout the U.S. yet, California, Illinois, New York, Oregon, Ohio, Michigan, Maryland,
Pennsylvania, Texas, and North Carolina are among the places where pension funds have active diversity outreach programs. So far, pension funds have found willing partners among investment consultants, managers of funds of funds, and advocacy groups devoted to advancing the interests of women- and minority-owned businesses,
California State Teachers’ Retirement System (CalSTRS) CIO Christopher Ailman said at a May Diversity Forum co-hosted by California Public Employees’ Retirement System CalPERS) and CalSTRS.

“People have really realized that groupthink is a problem and you want to diversify away from that,” Ailman said. “Maybe they’re giving us lip service, but some managers seem genuinely interested in trying to break that mold. They have too many people from East Coast Ivy League schools who all think alike…It’s not just a California interest, it’s broadly shared, not just in the U.S.”

Read the full story: Public pensions show uneven progress toward diversity goals

Published by Money Management Report/Pageant Media.

by dietrichknauth

LACERS private equity consultant defends itself before board

The Los Angeles City Employees Retirement System’s private equity consultant defended itself against accusations that it had skewed its performance numbers, telling the LACERS board that it had done its best to be transparent about all excluded performance data.

Portfolio Advisors was the incumbent and one of two finalists in LACERS’ recent search for a private equity consultant, and it expected to have its contract renewed, as LACERS staff recommended, at the July 11 meeting. Instead, the company found itself accused of puffing up its numbers through the exclusion of previous clients, and an especially large client, the Pennsylvania State Employees Retirement System. With doubts raised about the integrity of Portfolio Advisors and the thoroughness of the RFP process, the board canceled its RFP and decided to begin anew just as it reached the finish line (MMR, 7/14/17).

Portfolio Advisors returned to the board July 25, in what was scheduled to be a routine overview of recent private equity commitments (MMR, 7/24/17), and used the opportunity to defend its reputation.

“We left a very good footnote trail so there was no deception, and we followed the same consistent strategy that we used three years ago when we were hired,” said Brian Murphy, managing director at Portfolio Advisors. “Nothing changed from the way that we did it before. I was a little disappointed that having worked with you for three years, we got zero benefit of the doubt.”

Read the full story: LACERS private equity consultant defends itself before board

Published by Money Management Report/Pageant Media.

by dietrichknauth

CalPERS grapples with its inconsistent reputation on private equity

The $323bn California Public Employees’ Retirement System (CalPERS) is taking a hard look at its reputation in the private equity world, hearing from expert panelists and internal staffers who describe the pension giant as an indecisive and unpredictable partner in private equity investments.

The pension fund is in the midst of a long-term review of its private equity strategy, which offers a chance for the board to “hear the best advice” and “clear our minds,” CIO Ted Eliopoulous said at the fund’s July 17 meeting. CalPERS has the scale and the expertise to be a real leader in private equity, Eliopoulos said, but a major hurdle is getting the board and staff to commit to a clear strategy for the asset class, something that’s been hindered by internal disagreements and staff turnover.

“We’ve wrestled with how to pursue alternative ways to invest in private equity,” Eliopoulos said. “We’ve always come up to the finish line and stopped short of really moving forward in any particular way with any scale or force behind it.”

Read the full story: CalPERS grapples with its inconsistent reputation on private equity

Published by Money Management Report/Pageant Media

by dietrichknauth

CalPERS weighs direct investments in private equity

The $323bn California Public Employees’ Retirement System (CalPERS) is exploring making direct investments in private equity, and is considering a wide range of options as it reviews its long-term strategy for the asset class.

At an offsite meeting in Monterey, California, CalPERS staff discussed options on a continuum from low-risk, high-cost, and relatively simple investments, such as investing in funds of funds, to higher-risk, more complex investments, including direct investment through CalPERS staff. CalPERS noted that direct investments would require very high reliance on expensive internal talent.

Read the full article: CalPERS weighs direct investments in private equity

Published by Money Management Report/Pageant Media.

by dietrichknauth

CalPERS feeling the heat on PE investments

The largest public pension fund in the U.S. is feeling pressure over its private equity investments, and criticism over fee transparency has gotten under the skin of the giant fund’s CIO.

Although the California Public Employees’ Retirement System (CalPERS) has attracted criticism before over fees and risk, the negative attention comes at a time the fund is preparing to review its private equity strategy. The discussion at the fund’s June meeting fueled speculation that CalPERS could pull back from private equity, which currently accounts for $25.9bn of the fund’s $323.8bn portfolio.

Tensions were obvious from the start of the meeting, which took place on June 19. CIO Ted Eliopoulos opened with an unusual defense of a staff that he said had been “denigrated and attacked” over its investments in private equity. Eliopoulos suggested that CalPERS might be near a “tipping point,” where negative attention is “making it increasingly difficult for CalPERS to compete successfully in the private equity marketplace.” At the end of his opening statement, most board members offered applause in support of the private equity staff in attendance at the meeting.

“What happened was, Ted came out and had a pity party,” CalPERS board member J.J. Jelincic told MMR.

CalPERS’ private equity investments first became a particular target for criticism in 2015, when its investment staff reported that CalPERS didn’t have the ability to track carried interest payments that the fund made to private equity firms. Even with that history, the June meeting marked a notable shift in tone, and the CIO’s comments pushed other board members to publicly declare their support for private equity.

Read the full story: CalPERS feeling the heat on PE investments

Published by Money Management Report/Pageant Media.