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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CalPERS plays waiting game on dualshare voting structures

The $351bn California Public Employee Retirement Plan (CalPERS) doesn’t plan to take immediate action to protect its equity investments from corporate structures that limit investors’ voting rights, saying that it will wait to see how regulators, index providers, and stock exchanges address the issue first.

Investors are increasingly concerned about dual-class stock structures – particularly after the 2017 initial public offering (IPO) of Snap, in which the Snapchat maker offered stock with no voting rights at all – and have pressured regulators and major market players to step in and protect investors’ rights. The pension fund has a “material” allocation to companies with dual-class voting structures, investment staff said at the megafund’s April meeting – about $20bn, or about 10% of the fund’s $180bn global equity portfolio. CalPERS has about $1bn invested in securities that offer no voting rights, including Snap and some master limited partnerships.

Dual-share structures pose a dilemma for CalPERS, which believes in equal voting rights, but also wants as broadly diversified a portfolio as possible, CIO Ted Eliopoulos said. CalPERS is in no rush to take action, however, since its investment staff believes that there will be a lot of activity and debate among regulators, exchanges, and index providers in the next 12 to 18 months, Eliopoulos said.

“We do see quite a roiling debate by market participants about what is the appropriate treatment for regulators, for stock exchanges, for index providers given this more recent development of more and more companies coming to market with restricted or non voting share rights,” Eliopoulos said. “We’re in the thick of it, the CalPERS staff is right in the thick of all those discussions.”

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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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Published by Money Management Report/Pageant Media.

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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CalPERS blocks gun divestment proposal

The $335bn California Public Employees Retirement System rejected a proposal to begin divestment from retailers and wholesalers of firearms that are illegal in California but legal in other states.

The proposal, from California State Treasurer and CalPERS board member John Chiang, would have gone a step further than CalPERS’ previous divestment from manufacturers of military-style assault weapons. Many public commenters, including victims of mass shootings in San Bernardino and Las Vegas, spoke in support of the measure, and some opposed it.

Board members debated whether divestment was a more effective tactic than engagement with retailers and wholesalers, some of whom have already made moves to remove such weapons from their stores. Board member Theresa Taylor said she wasn’t sure if divestment was the best option, and said she’d prefer to stick the planned schedule rather than voting in April.

“We have a divestment policy that states that we generally don’t divest,” Taylor said. “If we are divesting, we lose our seat at the table. We wouldn’t have been able to get Dick’s or Walmart or the other companies to engage with us if we no longer own those stocks.”

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Published by Money Management Report/ Pageant Media.