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.”

Read the full story: Willis Towers Watson stakes its claim to $150bn gov. contracts pension market

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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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Turmoil in LACERS’ board

Pension boards have an important duty to oversee the investment apparatus that ensure that retirees will be paid their promised benefits — but what happens if a board member goes too far, becoming more attack dog than watch dog?

That was an accusation recently leveled at a public meeting of the Los Angeles City Employees’ Retirement System (LACERS), when the $17bn fund’s recently-retired general manager spoke up to protest what he saw as “breakdowns in board decorum” that were interfering with the plan’s ability to recruit and retain the staff and consultants needed to meet the city’s investment goals.

Pension trustees face a difficult task in striking the right oversight balance — often working part-time to oversee investment staff that are making day-today decisions in a complicated industry where trustees often have little direct expertise. Education, training, and relationship management are all important tools in such a context, allowing board members to ask productive questions without being either needlessly antagonistic nor a rubber stamp for investment staff, according to Matrice Ellis-Kirk, a managing director at RSR Partners. Ellis-Kirk has offered governance consulting and recruiting services to the boards of pension plans, investment managers, and public and private companies.

“You’re not looking to have a monolith,” Ellis-Kirk told MMR. “The most important part of a board is having diversity of thought. What you’re trying to do is create an environment where you can get honest information, get transparency, and hold people accountable without making them want to run or hide. Hostile environments do not create that.”

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Montana moves cautiously on diversifying strategies

The Montana Board of Investments is proceeding slowly with a new allocation to diversifying strategies, moving forward only after a close board vote and a cautious initial allocation of 0-4% of the overall portfolio.

The board updated its asset allocation targets for the $11.3bn Consolidated Asset Pension Pool in November, including a brand-new target for diversifying strategies. 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.

“There’s no place for them in our current portfolio,” Cullen said at the fund’s February meeting. “The opportunity set for diversifying strategies is larger than what we collectively utilize across the other asset classes.”

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Iowa receives wide interest in ‘unconventional’ alpha search

The Iowa Public Employees Retirement System (IPERS) has received wide interest in its search for active management that can show high performance regardless of the manager’s asset class or benchmark, collecting more than 700 proposals by the December due date.

The $31bn system is using the unconventional RFP to help it take a more holistic view of its public markets portfolio options and identify topperforming managers across a range of traditional asset class “silos.” IPERS is open to a wide range of investments that are primarily comprised of liquid, publicly traded securities, looking for strategies 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.” It issued a request for proposals in October, with assistance from Wilshire Consulting, and proposals were due December 8.

The response has been overwhelming, according to IPERS spokeswoman Judy Akre. All 25 of IPERS’ current active public markets managers and products were automatically included in the search, Akre said. No decisions have been made yet, and IPERS has not yet set a timeline for the next stages of the search.

“There is no established timeline,” Akre told MMR. “We are still evaluating the manager responses.”

IPERS also has not set a firm target for the amount it would invest through the RFP, or the number of managers it would hire, Akre said.

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NYC police pension not on board with city’s fossil fuel divestment plan

The New York City Police Pension Fund, one of the five city pension plans overseen by the Comptroller’s Office, voted down a proposal to divest the city’s pension funds from companies that own fossil fuel reserves.

Mayor Bill de Blasio and Comptroller Scott Stringer announced the divestment proposal earlier this month, saying that the $189bn New York City Pension Funds should divest from companies that own fossil fuel reserves in the next five years, becoming the first major U.S. pension plan to do so (MMR, 1/10/2018). The comptroller introduced a resolution to begin the process at the common investment meeting last week, starting with a broad request for information from experts, stakeholders, industry, and members of the public and following with a request for proposals for a consultant to study divestment and guide the pension funds’ efforts.

One of the pension funds, the $63.2bn New York City Employees Retirement System has passed the resolution thus far, and the plan also has majority support from the Teachers Retirement System and the Board of Education Retirement System, which will vote soon. But the $39.8bn New York City Police Pension Fund did not sign on to the divestment effort, with one trustee saying that he felt that the board was being pressured to go along with a plan that was formed without its input.

“I don’t know what the sudden urge to do this was,” said trustee Joseph Alejandro, representing the Patrolmen’s Benevolent Association. “I see that a lot of work was done without us being involved in the very beginning of it…. I don’t think we need another resolution with another undefined process being pushed by someone who may or may not be here four, five years from now.”

Read the full story: NYC police pension not on board with city_s fossil fuel divestment plan

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