NYC pension funds seek advice on hiring a consultant for fossil fuel divestment

Three New York City pension funds, with $141.5bn in assets, have issued a request for information seeking advice on how to begin divestment from companies that own fossil fuel reserves.

The divestment plan, announced by the Mayor and Comptroller’s Office in January, would make the city pensions the first major U.S. pension plan to divest from fossil fuels (MMR, 1/10/2018). But not all of the pension plans are on board – the Police Pension Fund and the Fire Department Pension Fund, which control about $52bn in assets, or 27% of the city’s $193bn in pension assets, have declined to sign onto the divestment initiative.

But even without the support of the Police and Fire pension funds, the Teachers Retirement System, New York City Employees Retirement System and Board of Education Retirement System are moving ahead with a plan to divest from fossil fuel companies within five years.

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Published by Money Management Report/Pageant Media.

NYC pension plans to ease up on U.S. equity, high yield

The $198bn New York City Pension Plans are rebalancing towards the extreme ends of their asset allocation ranges in response to market conditions, pulling away from high-priced U.S. equities and high-yield fixed income.

CIO Scott Evans said at the funds’ common meeting on April 18 that the pension plans will become tactically overweight in some asset categories and underweight in some others, bracing for the impacts of rising interest rates and the potential for a decline in equity values. The pension plans will not exceed limits in the strategic asset allocation policy, and would come back to the pension plans’ boards before doing so, he added.
Evans attributed the tactical shift to increasing volatility, the Trump administration’s newly-aggressive trade policy, high equity valuations, and other factors. The pension plans, as long term investors, still believe in the approved asset allocation for the long term, but even a less-than-nimble system like the city pension funds should be able to adjust to changing circumstances, he said.

“We’re a big oil tanker, as a pension plan,” Evans said. “We point that sucker northeast and we’re headed to that destination, and it doesn’t pay for us to fool with the settings that much unless it becomes very obvious in a calm period of time that there is the possibility of a very bad storm afoot. We’re in one of those times now.”

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Willis Towers Watson stakes its claim to $150bn gov. contracts pension market

Willis Towers Watson (WTW) is looking to corner the market on consulting services for government contractor pension plans, bringing on two experts that have decades of specialized experience in that space.

Government contractors are an attractive industry segment for pension consultants, because they are more likely to have pension plans than most other private companies, and because they often need specialized assistance to navigate the regulations that determine how much the federal government will contribute into those pensions, according to Bill Gulliver, head of the firm’s North America retirement business.

“The government contractor group is one of the sectors where defined benefit plans continue to be an important part of the reward strategy for many of those clients,” Gulliver said. “That’s why we’ve spent a lot of time and effort building significant capabilities in that space.”

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LACERS hesitant on hedge funds

The Los Angeles City Employees’ Retirement System (LACERS) is debating whether to bring hedge funds into its $17bn portfolio, but board members and staff have expressed concerns about their ability to access top managers and hedge funds’ willingness to comply with new California transparency rules.

The retirement system is in the midst of long-term asset allocation discussions, and consultant NEPC has recommended including a 4% allocation to hedge funds in one of its three candidate portfolios. LACERS does not currently have an allocation for hedge funds, and NEPC senior research consultant Dulari Pancholi visited LACERS’ March 27 board meeting to provide education on the topic to the board. The first step for LACERS, if it added hedge funds, would be to decide what role they play in the overall portfolio, Pancholi said. Some pension funds use hedge funds to improve risk-adjusted returns, while others are looking solely to mitigate downside risk, and others look to hedge funds to offer strategies that might not be included in traditional allocations, such as shorting capabilities, Pancholi said.

“Clients are more aware of what is in their book, what are their needs, and how they want hedge funds to work out for them,” Pancholi said. “Hedge funds are used across our entire client base, and within public funds, clients use them in different ways.”

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NY Common Fund will vote against all-male boards

The $209bn New York State Common Retirement Fund plans to vote against all board directors at companies without a single woman on their boards, according to State Comptroller Thomas DiNapoli.

The Comptroller’s office also announced agreements with four companies that agreed to formally include gender and racial diversity in their considerations of board candidates after engagement with the Common Retirement Fund. DiNapoli commended Bristol-Meyers Squibb, Leucadia National, Packaging Corp. of America and PulteGroup for their actions, saying that the Common Retirement Fund had withdrawn shareholder
proposals it had filed at the companies. While the retirement fund will continue to pressure companies to diversify their boards, its board votes will give additional force to those efforts, DiNapoli said.

“It is unconscionable that hundreds of publicly-held U.S. companies have no women directors,” DiNapoli said in a prepared statement. “We’re putting all-male boardrooms on notice – diversify your boards to improve your performance.”

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NYC urges smaller pension funds to follow its lead on ESG in real estate

Trustees for the New York City Pension Funds urged institutional investors around the country to take up policies that pressure real estate and infrastructure managers to pay more attention to ESG concerns like worker safety, wages and benefits, in a discussion at the Council of Institutional Investors’ spring conference in Washington, D.C., on March 12.

The city’s five pension funds, which collectively manage $193.5bn in assets, adopted responsible contractor policies (RCP) in May and June of 2017, and trustee representatives Susannah Vickers and David Katzman said that the policies provide a good pressure point for engaging managers on environmental, social and governance concerns.

Vickers, who is the Executive Director for Pensions at NYC’s Bureau of Asset Management, as well as the NYC Comptroller’s representative on four of the five pension boards, said that the city has invested in six or seven real estate projects since the policies went into effect. None of the managers had any problems agreeing to the city’s wage, safety, and benefits policies, she said.

“Many of the big managers are relying more and more on institutional investors to raise these huge funds, to do the mega deals that they’re doing in private real estate, private infrastructure, private equity,” Vickers said. “They really need us as clients, and I think it’s harder for them to put the deals together that they want to do and be the big players that they want to be without institutional dollars. So when we create a policy, they sort of have to listen.”

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SEC chair not eager to take action on unequal stock schemes, IPO arbitration

The chair of the Securities and Exchange Commission expressed reluctance to take additional action on dual-class stock structures and arbitration clauses in companies’ initial public offerings.

Jay Clayton, speaking at the Council of Institutional Investors’ spring conference in Washington, D.C. on March 12, said that his agency has limited resources, and that he was hesitant to commit to game-changing actions on topics of interest to the institutional investors in attendance.

One topic which has discussed frequently at the conference was dual-class capitalization structures, in which some classes of stock carry more voting weight than others. The issue has been more hotly debated by investors since the 2017 IPO of Snap, the maker of SnapChat, which sold shares of common stock that conferred no voting rights at all. SEC commissioner Robert Jackson, Jr. said in February that such structures were undemocratic, and called for listing standards addressing the use of perpetual dual-class stock that can be passed down to heirs without any diminishing of voting power. Clayton, however, was more circumspect when asked about dual-class shares at the CII event.

“I’m not putting this at the front of the agenda for something we should weigh in on,” Clayton said.

Clayton said that the “one share, one vote” model is not the only model of governance for successful public companies, although extreme examples like Snap were cause for concern.

“Where you draw the lines, and whether that’s something that should be done by the SEC or by the stock exchanges or some other authority – or by people with a great deal of capital to put to work in the markets – is a question worthy of debate,” Clayton said. “But from my own perspective, I’m not an absolutist on either end.”

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