May 7, 2013 at 10:43am
P&I's April 29 special report analyzed the largest U.S. corporate defined benefit pension plans. Over the past five years, the aggregate funding ratio declined 2.5 percentage points to 78.7%. However, there were significant differences between individual plan sponsors' funding ratios. Of the plans with Dec. 31 fiscal years and five years of data, Duke Energy and J.P. Morgan Chase & Co. had the largest improvements.
Duke Energy's funding ratio improved 28 percentage points to 96.6% at the end of 2012 from 68.6% at the end of 2008. J.P. Morgan Chase & Co.'s improved 24.9 percentage points to 113.4% at the end of 2012.
The plan sponsors' annual financial reports had many similarities. Both plans had significant declines in asset values in 2008 and subsequently recovered from losses in the following four years. Both companies faced actuarial adjustment headwinds. The biggest positive for funded status came from the level of employer contributions.
Duke Energy put $1.7 billion into its defined benefit pension plans during the past five years. Contributions averaged almost 10% of starting assets each year. Its 2009 contribution of $800 million was the most significant. J.P. Morgan's $2.8 billion contribution in 2009 was a whopping 40.6% of the company's starting U.S. defined benefit assets.
The two funded status winners highlight that while capital market returns and actuarial factors are often beyond the control of plan sponsors, contributions can move the funded status needle significantly.
April 24, 2013 at 12:00pm
In a recent paper titled “Yale's Endowment Returns: Case Study in GIPS Interpretation Difficulties” in The Journal of Alternative Investments, author Ludovic Phalippou analyzed Yale's endowment private equity returns highlighting a flaw in the widely used and GIPS-recommended internal rate-of-return measure. The author's chief criticism pertained to Yale's private equity portfolio's since-inception IRR, which is published yearly in the Yale University Investments Office's annual review of the Yale endowment annual review of investments.
The first “oddity” the author points out is that an investor earning 30.4% over a 38-year period would have 24,000 times the initial investment. In Yale's case, if they the endowmenthad allocated $1 million to private equity in 1973, the value of the investment would be $24 billion. As of June 30, 2012, the Yale endowment stood at $19.3 billion.
A second oddity noted in the paper was that the return since inception “has basically never changed over time” while 10-year performance has changed substantially. Since-inception (“SI-IRR”) return has barely budged to 30% in 2010 from 34.1% in 2000, although the 10-year rate of return dropped to 6.2% in 2010 from 37.9% in 2000.
The last oddity Mr. Phalippou points out is that the numbers published in the report “simply do not add up.” The author calculates that if the returns were equally weighted by year or weighted by capital allocated, the returns since inception would be lower.
The oddities relate to the “implicit re-investment assumption” in IRR calculations. Successful investments early on in an investment program continue to compound at their return rate in future periods though subsequent investments might not have as high of a return.
Ludovic Phalippou constructed both a simple and complex cash flow model to illustrate the point. The complex model looked at a theoretical institution that invested a series of cash flows in private equity and earned an average return as measured by Cambridge Associates. The highly successful investments in the 1990s led to SI-IRRs not budging in the 2000s.
The author's suggestions for better performance reporting of an institution's private equity investments include a breakdown of return between types of private equity (e.g. venture capital vs. buyout), use a modified IRR approach or use a net-present value analysis.
April 16, 2013 at 5:18pm
As of March 31, the Lilly Endowment Inc. held 135,670,804 shares of Eli Lilly & Co. (NYSE: LLY) common stock. Lilly's stock has increased more than 40% over the past year, bolstering the foundation's assets to an estimated $8 billion, up from $5 billion at the end of 2010. Eli Lilly stock, which trades around $57, is still well below the August 2000 all-time high of more than $100.
At the end of 1993, the earliest information available, the foundation held 190,861,368 shares after adjusting for two 2-1 stock splits. The foundation steadily reduced its exposure to Eli Lilly stock until 2008. The foundation has held the same amount of shares for more than four years.
Over the 25 years ended Dec. 31, 2012, the foundation has benefited from market-like returns in Lilly stock, which returned 9.7% annually. That was in line with the annual 9.83% return of the Russell 3000 over the same period. The past 10 years have been more of a struggle; the stock's total return was only 1.18% annually compared to the Russell 3000's annual return of 7.63%.
According to the latest 990-PF, the foundation has $389 million in other investments as of Dec. 31, 2011. The investments were: Vanguard Institutional Total Stock Market Index Fund, $262 million; Vanguard Institutional Developed Market Index Fund, $91 million; and Vanguard Institutional Emerging Markets Stock Index Fund, $18 million. The foundation also had $18 million in “art held for investment.”
April 5, 2013 at 12:41pm
The P&I Research Center now contains the assets and asset allocations of public Canadian pension funds in the P&I/Towers Watson 300 ranking. The pension plans have more than US$600 billion in assets. The average asset allocation for 2011 was 39.7% public equities, 33.8% fixed income, 26.3% alternative investments and 0.2% in cash and other.
Information is now available for 2011, 2010 and 2009. 2012 data will be updated once a more than half of the plan sponsors have released their annual reports.
April 5, 2013 at 12:27pm
The first quarter of 2013 was a breakout quarter for money manager mergers and acquisitions activity, with total assets involved in transactions jumping to $599 billion — up more than 250% year over year and more than double the fourth quarter of 2012.
AUM involved was at the highest level since the third quarter of 2009, when BlackRock Inc. purchased Barclays Global Investors from Barclays PLC. The first-quarter 2013 increase was driven by Orix Corp.'s acquisition of Rabobank's Robeco Group and a management purchase of a stake in Investec PLC's Investec Asset Management. Those two transactions involved more than $355 billion in assets.
All information in this analysis of money manager M&A activity is based on transactions reported by Pensions & Investments' global reporting staff.
April 3, 2013 at 10:11am
A more than 50% increase in fixed-income searches led to a 21.2% increase in overall searches in traditional asset classes during the first quarter of 2013. Fixed-income searches were dominated by international/global mandates. Six pension funds were searching for an emerging markets fixed-income manager. Among them was the Denver Employees Retirement Plan, which has not previously made an allocation to emerging markets fixed income.
March 25, 2013 at 12:55pm
Pennsylvania Public School Employees' Retirement System's asset allocation tweak could mean around half a billion dollars more for master limited partnership managers Atlantic Trust Private Wealth Management, Harvest Fund Advisors and Salient Capital Advisors. On March 22, Pensions & Investments reported changes to Harrisburg-based PPSERS' target asset allocations including a one-percentage-point increase to MLPs citing an attractive risk return profile. The new target allocation stands at three percentage points of the total fund.
On June 22, 2012, P&I reported the hires of Atlantic Trust Private Wealth Management and Salient Capital Advisors, who both received $250 million. On March 12, 2012, P&I reported that Harvest Fund Advisors, who at the time managed $106 million, was being moved to PPSERS' MLP allocation from their emerging investment manager program.
March 22, 2013 at 10:11am
An analysis of the nuclear decommissioning trusts of listed utilities — based on SEC annual report filings — revealed significant year-over-year gains in assets. Total NDT assets increased 12.2% to $34.8 billion for the 10 companies with the most in NDT assets. Actual asset allocations were mostly unchanged among the 10, with the average allocation to equities increasing slightly to 51.3% from 50.1%. The average fixed-income allocation had a 3.8 percentage-point decrease to 43.5%.
Exelon Corp. noted a shift in its fixed-income strategy “During 2012, the NDT fixed-income portfolio completed its transition from solely core fixed-income investments to a blend of Treasury inflation-protected securities …, investment-grade corporate credit and middle-market lending. “
Other recent NDT asset allocation news includes the Public Utilities Commission of the state of California allowing Southern California Edison Co., San Diego Gas & Electric Co. and Pacific Gas and Electric Co. to modify the asset allocations of their NDTs. The commission raised the cap on total equity exposure to 80% from 60%, raised the cap on international equity to 30% from 20% and authorized the investment in below-investment-grade fixed-income securities (although the average credit quality of the portfolio requirement was unchanged). The commission did not authorize the inclusion of alternative investments, but would consider allowing alternative investments if a utility applies and demonstrates it has “both experience with institutional investing and sufficient staff support.”
Data Editor Tim Pollard contributed to this post.
March 8, 2013 at 12:46pm
Pensions & Investments collected defined benefit fund information from the annual reports of companies in the Standard & Poor's Europe 350 index. This executive summary provides commentary and information on the plan sponsors' funded status, asset allocation and other key topics.
March 4, 2013 at 4:05pm
Pensions & Investments recently published the results from its latest defined contribution record-keeper survey. The survey now includes information on investment vehicle type, mobile applications and participants by client type. Mutual funds held 44.1% of the assets, with “other” and separate accounts accounting for most of the remainder. The P&I survey revealed that 62% of record keepers have mobile apps offerings for participants. Of those that offer mobile apps, 97% offer smartphone applications and 81% offer tablet applications.