At Deadline

CalPERS staff categorized the $200.2 billion fund's 135 private equity relationships in preparation for overhauling the $25.5 billion program, as recommended by Pension Consulting Alliance. Staff divided the investments into three categories: a core portfolio of 20 to 30 firms; a prospective core portfolio of 30 to 40 firms that have the potential to move to the core portfolio; and a legacy portfolio that includes non-core and underperforming funds that will eventually be sold off. Subject to board approval on Dec. 12, the overhaul will be performed over the next year, but the legacy portfolio sales will take three years.

In addition, CalPERS is creating a new category that will include funds of funds, smaller investments and co-investments as part of the reorganization. CalPERS plans to select managers for the new categories and negotiate contracts in the second and third quarters.

Staff also plans to select a firm to monitor the legacy investments in the first quarter of 2006 and transfer those relationships during the second quarter.

CalPERS also plans to hire a consultant to help review co-investment strategies in the second quarter. The fund also hired Russell Investment Group to evaluate the program's benchmarks.

Separately, CalPERS staff recommended renewing the annual contracts of its two currency overlay managers, Pareto Partners and State Street Global Advisors. As of Sept. 30, Pareto and SSgA ran overlays on $5.8 billion and $2.5 billion, respectively, of CalPERS' passively managed international equity portfolios. Wilshire Associates is consultant on both proposals, which will be considered by the board Dec. 12.

Legg Mason earmarked $30 million to compensate Citigroup Asset Management employees who will be terminated because Legg Mason acquired the unit. According to a regulatory filing with the SEC, Legg Mason implemented an employee termination plan on Dec. 1 that it expects to have completed within one year.

Aloha Airline, received the green light to terminate its four defined benefit plans when a U.S. Bankruptcy Court judge in Hawaii affirmed an earlier ruling, according to court documents. Judge Robert J. Faris made the ruling a week after the PBGC asked the court to reconsider a Nov. 29 decision to allow the airline to terminate the plans.

Aloha has $281 million in total retirement assets, according to the Money Market Directory; no figure for liabilities was available. Stu Glauberman, Aloha spokesman, did not return a call requesting comment.

The CalSTRS board voted to oppose an amendment to the state constitution that would give new teachers the choice of joining a defined contribution plan or a combination of defined contribution and defined benefit plans. The amendment would affect employees hired after July 1, 2007.

A previous constitutional amendment that would have required all new employees to participate in a defined contribution plan only was withdrawn from the November ballot because it failed to provide death and disability benefits.

Board members opposed the new bill because it would pose a threat to the financial stability of the existing trust fund, a CalSTRS press release said. Barring new teachers from joining the existing defined benefit fund would shrink the amount of contributions, forcing CalSTRS to invest in more liquid instruments and thus reducing the system's expected return, a memo to the board said.

Tellabs hired Prudential Retirement Services as bundled provider for the company's $330 million 401(k) plan, said Patricia Elliot, benefits manager. Prudential will replace Hewitt Associates, which was reconsidered in the search. The company had not searched for a bundled provider in 13 years, Ms. Elliot said.

Townsend Group will be providing real estate consulting services for Watson Wyatt Investment Consulting's U.S. clients under a new strategic alliance between the two companies, said Ed Emerman, Watson Wyatt spokesman. Sanjay Mansukhani, who heads Watson Wyatt's private equity and real estate investment manager research business, will manage the Townsend relationship. Watson Wyatt Investment Consulting had provided some real estate investment manager consulting services, but executives decided to expand the real estate services by entering an alliance with a real estate specialist rather than building a full-service unit, said Howard Crane, director of North American investment consulting. Rob Kochis, principal at Townsend, said the relationship with Watson Wyatt "will help us explore new relationships with corporate clients." The deal is based on a one-year contract with the option to renew.

Real estate cap rates, which have been declining the last couple of years, might be stabilizing because of declining vacancy rates and stabilizing rents for many property types, according to Deloitte & Touche USA's "Real Estate Capital Markets: 2006 Industry Outlook & Top 10 Issues."

The decline in cap rates — net operating income divided by purchase price — resulted in a number of investors selling core real estate or real estate that is not strategic part of their portfolios this year. "The number of transactions is off the charts this year," said Dennis Yeskey, national director of real estate for Deloitte & Touche.

Meanwhile, institutional investors are expected to increase their real estate allocations from about 5% or less now to 10% to 15% in the next 10 years

Emerging markets continued to outperform their developed counterparts in November, with the S&P/Citigroup Emerging Markets index gaining 7.27% for the month, compared with a 3.47% gain for the S&P/Citigroup Developed World index, according to S&P.

For the year through Nov. 30, the emerging markets index was up 22.9%, vs. 8.9% for the developed markets.

Emerging market country returns ranged from 19.21% for Turkey to -5.25% for Nigeria. Among developed markets, returns in November ranged from an 11.94% gain for South Korea to 0.69% for New Zealand.

Among developed markets, value narrowly outpaced growth, with the S&P/Citigroup BMI Value index adding 3.63% for the month, compared with a 3.31% gain for the S&P/Citigroup BMI Growth index. In the three major regions — Europe, North America and Asia-Pacific — growth beat value 4.93% vs. 4%.

The $1.7 billion San Mateo County Employees' Retirement Association will consider at a Dec. 16 board meeting signing a contract with Fidelity Management Trust to run about $165 million in an enhanced Lehman Aggregate index portfolio. The board had held off approving the contract at its November meeting, pending a site visit by staff. Funding will come from terminating a fixed-income index fund managed by Barclays Global Investors. Strategic Investment Solutions consulted.

In addition, the board will interview Milliman and Segal Co. as finalists for an actuarial contract, said Gary Clifton, CIO. Previous actuary Public Professional Pensions had resigned, Mr. Clifton said.

PG&E is seeking approval to make pension contributions of $344 million per year in 2007, 2008 and 2009, as part of the company's request to the California Public Utilities Commission for a rate increase, according to an 8-K filing with the SEC.

The commission will make the final decision as to the amount of the contribution, according to the SEC filing. Peter Corippo, director of investments & benefit finance at PG&E, declined to comment. PG&E had $12 billion in total retirement plan assets as of Sept. 30, according to company data provided to P&I Daily. Accrued benefit liabilities were $47 million as of Dec. 31, 2004, according to PG&E's annual report.

Walt Disney plans to contribute at least $61 million in fiscal year 2006 to its $3.4 billion pension plans, according to its 10-K filed Dec. 7 with the SEC.

The company contributed $291 million for the fiscal year ended Oct. 1, the filing said. The company might make additional contributions in 2006, depending on the funded status of the plan and on pension legislation being considered in Congress, the filing said.

The pension plans had an unfunded liability of $1.1 billion as of Oct. 1, up from $415 million a year before because of a decrease in the discount rate assumption, the filing said.

Allegheny Technologies made a voluntary contribution of $100 million to its U.S. pension plan during the fourth quarter. The plan had $1.8 billion in assets at the end of 2004 and was underfunded by $245 million as of Nov. 30, 2004, said Dan Greenfield, director of investor relations. Allegheny also made a $50 million voluntary contribution to its pension plan last year, Mr. Greenfield added.

Munder Capital Management hired Mayer & Hoffman Capital Advisors as subadviser for its $150 million hedge fund of funds, which is offered through its Pierce Street Advisors subsidiary. Enrique Chang, Munder's president and CIO, declined to identify the previous subadviser.

The $3.1 billion District of Columbia Retirement Board retained executive search firm Korn/Ferry International to conduct a nationwide search for a new executive director to replace Betty Ann Kane.

Ms. Kane, who retired on Nov. 1, is "serving in an advisory capacity to the board" until Dec. 31, said Constance Donovan, general counsel and acting director. The board "will be working with Korn/Ferry to establish criteria" for the search, Ms. Donovan said. She said she expects it will take several months to fill the position.