The $54.2 billion Massachusetts Pension Reserves Investment Management board voted to add $510 million each to active EAFE equity portfolios run by AllianceBernstein and AXA Rosenberg, $150 million to SSgAs Alpha Select strategy and $34 million to Baillie Giffords active EAFE portfolio. AllianceBernstein, AXA Rosenberg and Baillie Gifford will now manage $1.4 billion each, and SSgA, $1.04 billion. Funding comes from a $1.2 billion active EAFE portfolio run by Boston Co., which was terminated earlier this year.
The board also approved a rebalancing of its emerging markets equity portfolio, moving $150 million each from portfolios run by GMO and Emerging Markets Equity to T. Rowe Price. GMO now runs $1.26 billion for the fund, while EMM will manage $1.1 billion, and T. Rowe, $694 million.
Finally, the board also approved a one-year extension of its contract with general consultant Cliffwater, through March 31, 2009, to simplify the pension funds review procedures by bringing that contract in synch with PRIMs hedge fund consulting services agreement with Cliffwater.
Funded ratios climb in Japan
Japanese pension plans have improved their funding ratios significantly over the past five years, according to a study by Greenwich Associates. The average funding ratio of Japanese plans was 103%, based on the most recent data available typically for the year ended Dec. 31 when the survey was conducted between March and May. That compares with a 62% funding ratio in 2003. Nearly two-thirds of funds reported that their assets cover more than 90% of their long-term liability requirements.
Favorable equity market returns are one obvious factor in this story, Dev Clifford, Greenwich Associates consultant, said in a news release. Another factor was the significant plan contributions made by some corporate and public employers throughout the year.
In addition, 21% of corporate sponsors closed their pension plans to new employees, up from 12% the year before. That trend may be slowing, however; only 3% of corporate plan sponsors said they anticipate closing their plans over the next two to three years.
The annual study was based on interviews with 271 corporate funds, 22 public funds and 68 financial institutions.
Countrywide losses could cost N.Y. funds
ALBANY, N.Y. New York municipal pension funds may suffer combined losses of up to $100 million on their exposure to Countrywide Financial, according to Jim Fuchs, a spokesman for New York State Comptroller Thomas DiNapoli, sole trustee of the $154.5 billion New York State Common Retirement Fund. The common fund, along with the $114 billion New York City Retirement Systems, are co-lead plaintiffs in a class-action suit accusing Countrywide and its officers of failing to fully represent risks related to its subprime mortgage exposure.
Grail takes Creighton stake
Grail Partners acquired a minority stake in quantitative investment firm Creighton Capital Management, confirmed John Siciliano, managing partner at Grail. Details of the transactions were not disclosed, but Mr. Siciliano said Grails stake in the firm is less than 25%. It is Grails ninth acquisition through its Chalice Fund.
San Diego County ratio rises
San Diego County Employees Retirement Associations funding ratio increased to 89.7% as of June 30, up from 83.6% the year before. The information was included in actuarial data released at a Dec. 7 board meeting, said Johanna Shick, communications manager for the $8.4 billion fund. The improvement is due in part to investment returns of 16.4%, compared with 15.6% last year.
Retirement ages move back
Retirement ages are increasing worldwide as governments look to cut social security costs, which are on the rise as people live longer, according to a report from Mercer.
In Japan, the minimum age to qualify for benefits will be raised to 65 from 60 over the next six years, according to a report from Mercer. South Koreas normal retirement age of 60 will increase by one year in 2013 and again every five years until it reaches 65. Germany and Denmark will increase their normal retirement age to 65 from 60 between 2012 and 2029 and between 2024 and 2027, respectively.
Retirement ages in Norway and the U.S., at 67, are the highest of the 47 countries Mercer reviewed. The U.S. and Brazil have not made any recent retirement age changes.
Many countries have different retirement ages for men and women. In 2014, Colombias retirement age will climb to 62 from 60 for men and to 60 from 55 for women. Australia will raise the minimum qualifying retirement age for women to 65 from 60 to match the standard for men. The Czech Republic has been raising retirement ages by two months for men and four months for women every year since 1996 to reach target ages in 2013: 63 for men and 59 to 63 for women depending on the number of children raised, the report said.
Climate change data urged
The SEC is being urged by a group of institutional investors to require corporations to disclose in their financial reports the risks associated with climate change. John W. White, director of the SECs corporate finance division met with institutional investors including Russell Read, CIO of the $259.5 billion California Public Employees Retirement System to discuss the issue, said Peyton Fleming, spokesman for the group. Also participating were Randall Edwards, Oregon state treasurer, who oversees the $65.6 billion Oregon Public Employees Retirement Fund, Salem, and a representative of the New York State Comptrollers office, which manages the $154.5 billion New York State Common Retirement Fund, Albany.
We dont expect any immediate actions to be taken, but it was a very productive meeting, Mr. Fleming said, declining to provide details. We would expect more conversations with (SEC) staff, he said. No other meeting has been scheduled, he added.
SEC spokesman John Heine declined to comment.
Oklahoma Teachers shifts $240 million
The $9.5 billion Oklahoma Teachers Retirement System will reallocate $240 million from an active domestic large-cap value equity portfolio run by Hotchkis and Wiley to three current active domestic large-cap growth managers, said Tom Beavers, executive secretary. The fund will add $80 million each to portfolios run by Aletheia Research and Management, Chase Investment Counsel and Sawgrass Asset Management, for a total of $210 million for Aletheia and $300 million each for Chase and Sawgrass. The Hotchkis portfolio will total $430 million.
We had a nice run-up by Hotchkis over a period of time, Mr. Beavers said. The move was just rebalancing back to our normal targets. The manager is on alert status for personnel changes made earlier this year and has performed below its benchmark in recent months, but the rebalancing was not really caused by performance, Mr. Beavers said. The plan will continue to monitor Hotchkis; the firm has performed well, but their style is out of favor at the moment, Mr. Beavers explained.
Separately, Loomis Sayles was cleared to include emerging market investments in its $360 million active domestic bond portfolio, an exception to the plans guidelines; overall international investments in the portfolio are limited to 20%.
Also, the fund will reallocate $75 million to the PIMCO Distressed Mortgage Fund from a $650 million core fixed-income fund, also run by PIMCO; the board had originally approved moving $100 million, but the mortgage fund is oversubscribed, Mr. Beavers said.
Alaska, SSgA officials in talks over losses
Alaska state officials are negotiating with SSgA over $5.65 million in losses suffered by state employees participating in plans administered by the $18.8 billion Alaska Retirement Management Board, when SSgAs purportedly low-risk Daily Corporate/Government Bond Fund fell sharply in August as credit markets seized up, confirmed Michael Barnhill, an attorney in the state attorney generals office. He declined to comment further. State Street spokeswoman Hannah Grove declined to comment.
Teachers commits to Bridgepoint
The $16.2 billion Teachers Retirement System of Louisiana committed up to $75 million to Bridgepoint European IV, said CIO Bob Leggett. Funding will come from cash. Hamilton Lane Advisors, the funds private equity consultant, assisted.
New provider for Pacific Press
The $20 million Pacific Press Technologies hired Diversified Investment Advisors as bundled provider of its $20 million 401(k) plan, said Kay McCandless, vice president and CFO. She declined to provide additional information.
Louisiana Muni Police hikes international stocks
The $1.6 billion Louisiana Municipal Police Employees Retirement System increased its international equity allocation by nine percentage points to 35%, at the expense of domestic equities, which was cut to 30% from 39%, according to recently posted minutes on the systems website. The changes are based on a recent asset/liability study conducted by consultant Summit Strategies, according to the Oct. 17 meeting minutes.
No further information was available. Kathy Bourque, LAMPERS director, did not return a call seeking comment by press time.
New governance website open
Governance & Accountability Institute has unveiled the Accountability Central website, providing news and research resources to pension fund sponsors, corporations and other public policy leaders about critical accountability on issues including corporate governance, institutional governance, shareholder activism, accounting and financial reporting, disclosure, the capital markets and economics. The site is at www.accountability-central.com.
As public expectations for greater accountability on the part of corporate, public and institutional leaders continue to rise in the United States and around the world, weve designed Accountability Central to be the resource for those interested in the specific activities and topics grouped under the widening umbrella of institutional and individual accountability, Henry Boerner, chairman of Governance & Accountability Institute, a research and consulting company, said in a statement.
SEC keeps board nominee guidelines
The SEC voted 3-1 to reaffirm existing agency policy permitting companies to exclude shareholders board nominees from proxy materials. During a public commission meeting, SEC Chairman Christopher Cox and Commissioner Annette Nazareth, the lone dissenter, both made it clear that they are sympathetic to enhancing shareholder access to the nomination process. But Mr. Cox said he voted to affirm the status quo because he didnt have the votes to change the regulation now and the existing policy needed reaffirmation to provide marketplace certainty.
Today is not the end, and I hope all stakeholders will continue to work with us, said Mr. Cox, adding that the shareholder access issue may be addressed again next year.
We are deeply disappointed that the SEC took away the right of shareowners to use company ballots to seek approval of director election procedures, said Rob Feckner, board president of the $259.5 billion California Public Employees Retirement System, said in a news release following the vote. This is a serious wrong turn from the commissions duty to adopt regulations that do no harm to investors."
This is a sad day for investors, Ann Yerger, executive director of the Council of Institutional Investors, said in a separate news release. A measured right of access would invigorate board elections.
Suit against ABB, Fidelity gets class-action status
A breach of financial duty lawsuit against ABB and Fidelity Management Trust was granted class-action status in U.S. District Court in Jefferson City, Mo. The suit, filed by an ABB employee, alleges participants in the ABB 401(k) plan were steered toward investments which were managed, operated or advised by Fidelity Trust or one of its affiliates (that) charged higher fees to the plan participants than were charged in the open market for the same product, and that both firms breached their fiduciary duties under ERISA, according to a court memorandum and order.
The suit does not specify a specific time for the alleged breach; ABB hired Fidelity in 1995, and until 2004 the agreement required ABB to get Fidelitys consent before choosing an investment option.
Seattle puts EARNEST Partners on watch
The $2.1 billion Seattle City Employees Retirement System has put EARNEST Partners on watch.
According to recently released minutes of the systems Oct. 4 board meeting, the investment committee met with representatives from the firm about its lagging investment performance, although the firms most recent investment performance has shown some improvement. According to the systems 2006 annual report, EARNEST managed $31.8 million in domestic equities for the fund as of Dec. 31.
Trey Greer, partner at EARNEST, confirmed the firm was placed on watch by the system, probably because of the portfolios performance in 2006 and the beginning of 2007. Over the past eight months, however, the portfolio has improved and has been up 6.6%, nearly 500 percentage points ahead of its benchmark, he said.
Stanislaus County backs away from small-cap search
The $1.5 billion Stanislaus County Employees Retirement Association, nixed a potential search for an active domestic small-cap value equity manager, confirmed Thomas Watson, administrator. Given current market volatility, the board decided to keep its $73.9 million portfolio invested in the iShares Russell 2000 Value Fund. The presentation was part of a planned quarterly review of the portfolio. Strategic Investment Solutions is the consultant.
Supreme Court hears arguments in 401(k) investment case
The Supreme Court heard arguments Nov. 26 in a case over alleged 401(k) plan mismanagement. In LaRue vs. DeWolff, Boberg & Associates Inc., employee James LaRue alleges he tried to change investments in his 401(k) plan before the 2001 stock market plunge but his employer, Dallas-based DeWolff Boberg, didnt follow his instructions. Mr. LaRue claims that caused him to lose $150,000. At issue in the case are the limits to lawsuits under ERISA.
The 4th U.S. Circuit Court of Appeals in Richmond, Va., had ruled the suit wasnt covered by federal pension law
Nevada issues invites for enhanced index
The $22.6 billion Nevada Public Employees Retirement System is conducting an invitation-only search for an enhanced domestic U.S. equity index manager to run $500 million, said Ken Lambert, investment manager. The portfolio will be benchmarked to the S&P 500. Funding will come from various sources; no managers will be terminated. Callan Associates is assisting.
Pzena sued again over IPO statements
Pzena Asset Management Inc. was sued in another shareholder class action over alleged misleading statements made at the time of its Oct. 24 IPO, according to a statement from law firm Brower Piven, which filed the suit in U.S. District Court in Manhattan. Pzena violated federal securities laws by issuing materially false and misleading statements that had the effect of causing class members to overpay for stocks, the statement said.
Law firm Abraham, Fruchter & Twersky filed a separate class action in the same court Nov. 21, according to court documents. A statement from the law firm alleges Pzena failed to disclose a pattern of net redemptions in (its) largest mutual fund, which existed at the time of the IPO. The subsequent disclosure of these facts three weeks later resulted in the price of the companys common stock declining.
William L. Lipsey, a managing principal at Pzena, did not return a call seeking comment.
Denver Employees to replace actuary
The $2.1 billion Denver Employees Retirement Plan is expected to hire a new actuary at a board meeting in December or January, said Steven Hutt, executive director. The fund searched in November for a firm to replace Towers Perrin, which was terminated after it reached a settlement over mistakes the firm allegedly made in its 2006 valuation report.
The most salient error involved misstated DROP balances, which created an overstatement of funded status, Mr. Hutt said. The actuarial report was never published, and Towers Perrin found the errors while working on the 2007 report, he said, adding, Fortunately there was no harm done to the plan. Towers Perrin agreed to return 97% of the fee paid for the 2006 report as a credit toward fees due this year.
Towers Perrin spokesman Joseph Conway could not be reached for comment.
Separately, the plan hired Randy Baum as CIO to replace Janney Sims, who will retire in August. Mr. Baum, former manager of cash and investments at Catholic Health Initiatives in Denver, started Nov. 19 and will take over as CIO Sept. 1.
Funded status rises at Ohio School Employees
The $11.6 billion Ohio School Employees Retirement System announced that its pension plan was 80% funded as of June 30, up from 76% the year before. The funded status was calculated recently by actuary Buck Consultants.
South Miami files claim against Merrill Lynch
The $19 million City of South Miami Pension Plan trustees filed an arbitration claim against their former investment consultant, Merrill Lynch, alleging the firm caused roughly $1.5 million in damages due to undisclosed conflicts of interest. The claim states Merrill Lynch failed to properly explain how it was paid and compensated for services it provided to the fund and urged the adoption of a soft-dollar arrangement that caused the fund to pay higher commissions and fees to Merrill. The claim also alleges Merrill used improper methods and tactics to gain control over the plans retirement funds, which resulted in higher fees and lower investment returns.
Bradley Cassel, chairman of the pension plan, said Merrill has up to 45 days to respond to the claim, which was filed Nov. 27 with the Financial Industry Regulatory Authority.
A statement from spokesman Mark Herr on behalf of Merrill Lynch said: This suit, coming from a client whose relationship with us we terminated last year, is not unexpected. Equally anticipated is the medley of false allegations they make. The inarguable facts are these: we met with this client regularly and we made disclosures to them regularly.
Last month, P&I Daily reported that Merrill Lynch Consulting Services asked Michael Callaway, a senior vice president at the firm, to take a leave of absence following an SEC probe of potential conflicts of interest in the business. The SEC recently informed Merrill that some practices the firm and Mr. Callaway engaged in violate certain regulatory prohibitions, according to a letter Merrill sent to pension clients.
Arkansas Public Employees drops Goldman Sachs
The $6 billion Arkansas Public Employees Retirement System dropped Goldman Sachs Asset Management as a manager of a $200 million domestic-stock portfolio because of poor performance, according to minutes of the trustees Nov. 21 meeting. Calls to Gail Stone, the systems executive director, and Goldman Sachs media office were not returned.
Kansas City Police tops custom benchmark
The $874 million Kansas City Police Employees Retirement System returned 2.5% for the quarter ended Sept. 30, beating its custom benchmark by 90 basis points, said Jim Pyle, pension systems manager. Active domestic large-cap growth manager RCM, which has $93 million, and active international growth manager GE Asset Management, with $61 million, led the way with returns of 7.7% and 7.5%, respectively, while a $59 million active domestic small-cap value portfolio run by Systematic Financial Management had the biggest loss, returning -3.4% for the quarter. For the year ended Sept. 30, the fund earned 16%, outperforming its benchmark by 320 basis points.
SGI to hire growth team from Nationwide unit
Security Global Investors will hire the growth equity team from Nationwide Separate Accounts, a subsidiary of NWD Investments, confirmed Richard Goldman, SGI president. The nine-person team, which includes lead portfolio managers Mark Bronzo, Daniel Portanova and Joseph OConnor, manages $475 million across several growth strategies for NWD. The new team will join SGI in February and manage close to $1 billion of SGIs existing growth assets in addition to each of the portfolios now managed for Nationwide. Mr. Goldman said SGIs equity operation is focused on value investing, and the new hires will round out the firms overall equity capabilities.
Nationwide has sold several of its investment subsidiaries over the last year, most recently selling its active asset management business to Aberdeen Asset Management in September. Katie Cowley, spokeswoman for Nationwide, was not immediately available for further details.
Retirees getting less from PBGC, report says
The PBGC paid full benefits in 2006 to 84% of retirees in retirement plans it had taken over, down from 94% in 1999, according to the 2006 edition of the agencys Pension Insurance Data Book. The PBGC examined 125 plans that it acquired from 1990 to 2005, and the average reduction in benefits for the 525,700 participants studied was 28%. The increase was not unexpected, largely due to the characteristics of the large airline and steel-company plans the agency has taken in since 2001, according to a news release.
Most of the reductions were due to federal limits on the amount the PBGC can guarantee when it takes over a failed pension plan. Also, several airline and steel plans were affected by limits on supplemental payments and recent benefit increases.
The data book is available online at www.pbgc.gov/docs/2006databook.pdf.
TUCS median plan returns drop in quarter
The median U.S. pension plan returned 2.01% for the quarter ended Sept. 30, compared with 4.21% for the previous quarter, according to the Wilshire Trust Universe Comparison Service. The median corporate plan return was 2.04%, while the median public plan return was 2.16%. Annualized median returns for the one-, three- and five-year periods ended Sept. 30 were 14.29%, 12.38% and 13.26%, respectively.
Hilarie C. Green, managing director and head of Wilshire Analytics performance reporting division, said larger plans had greater returns on investments because of higher allocations to alternative investments. The median quarterly return for master trusts with assets greater than $1 billion was 2.29%, beating the median for all trusts by 28 basis points.
The TUCS universe includes roughly 1,450 plans with a combined $3.12 trillion in assets.
Chicago Fed chief does not see weaker economy ahead
Federal Reserve Bank of Chicago President Charles Evans expects recent interest rate cuts to prevent further weakening of the U.S. economy.
While the risk is still present of notably weaker-than-expected overall economic activity, given the policy insurance we have put in place, I dont see this as likely, Mr. Evans said Nov. 27 at the Futures Industry Associations annual Expo conference in Chicago. Mr. Evans was referring to two recent cuts that brought the benchmark fed funds rate to 4.5%.
The Chicago Fed president did not signal further credit easing when policy-makers next meet on Dec. 11, but he acknowledged there is still a good deal of uncertainty over how events will play out.
The latest economic reports showed the Conference Boards consumer confidence index slumping in November to post-Hurricane Katrina levels while home values dropped 4.5% year over year in the third quarter, according to a Standard & Poors survey.
Managers mixed on corporate earnings outlook
Most U.S. and U.K. money managers expect corporate earnings in their respective regions to drop in the next 12 months, while Australian firms are generally bullish, and the Japanese are split down the middle, according to a new survey by AXA Rosenberg. Of the 196 investment professionals polled, 67% of U.S. managers believe the U.S. is late in its economic cycle; 65% expect weaker economic growth; and 43% characterized their equity market as overvalued. About 48% of managers in the U.K. think they are in the middle of their economic cycle, and an equal number believe they are late in the cycle. Most, though, anticipate weak growth going forward. In Australia, 69% of managers believe they are early or midway through their economic cycle, and 38% expect stronger earnings growth going forward. Of Japanese managers, 76% said they are in the middle to late phase of the economic cycle, and 70% expect modest to weak growth going forward, but 75% think their market is undervalued.
Despite the regional differences, most managers across the board expect the recent wave of market volatility to continue, AXA Rosenberg CEO Stephane Prunet said in an interview. They seem to be very realistic that we are facing a difficult environment. Long-term investors such as pension funds can afford to ride out the volatility while taking advantage of strategies that benefit from the current environment, like long-short equity strategies, he added.
Buy-write ETFs expected this month
PowerShares Capital Management plans to introduce the first buy-write ETFs this month, according to a news release. On Dec. 20, the firm will list the PowerShares DJIA BuyWrite and S&P BuyWrite portfolios on NYSE Arca and the Nasdaq-100 BuyWrite Portfolio on Nasdaq. The buy-write investment strategy is one in which the portfolio holds a basket of stocks and sells a succession of at-the-money call options with one month left to expiration, said Bruce Bond, president and CEO of PowerShares. This strategy is popular with asset managers, as it can provide additional income to a portfolio through call option premiums.
Volatile stocks lift options volume to record
U.S. options volume soared to a monthly record of 310.8 million contracts in November as stock-market volatility boosted interest in tools used to hedge long equity positions, according to the Options Industry Council. The prior monthly high was 294.8 million contracts in August also a month marked by high stock market volatility. Year-to-date options volume through November stands at 2.6 billion contracts, up 41.3% vs. January-November 2006. A record 2 billion options contracts were traded in all of 2006.
Johnson Asset employees take majority ownership
Johnson Asset Management employees acquired a majority stake in the company, confirmed CIO Wendell Perkins. Employees now own 70% of the firm, which will be renamed Optique Capital Management and will relocate to Milwaukee from Racine, probably in February.
The Johnson family, which owns S.C. Johnson & Son Inc., previously owned 65% of Johnson Asset.
As part of the deal, which closed Nov. 30, the Sheldon Lubar family of Milwaukee acquired the other 30% of the firm. Terms were not disclosed.
Lehman to become specialist at NYSE
Lehman Brothers will put a specialist unit on the New York Stock Exchange starting Dec. 10, after taking over the order book for 416 stocks from Van der Moolen Specialists USA, which last month announced its exit from the NYSE floor. NYSE Euronext CEO Duncan Niederauer said in a statement that Lehmans entry to the NYSE floor marks a new era for the NYSE specialist community.
Kellogg Specialist Group on Dec. 3 took over the books of SIG Specialists, another firm that exited the low-margin market-making business. With Lehman, there will be six specialists firms on the NYSE.
Shareholders approve GAMCO changes
GAMCO Investors Inc. shareholders overwhelming approved all three special meeting proposals before them, consisting of a revised employment agreement for Mario J. Gabelli, chairman, CEO and CIO-value portfolios; an end to GAMCOs dual-class stock structure; and a spinoff of subsidiary Gabelli Advisers to shareholders, said Douglas R. Jamieson, GAMCO president and COO. The board, which didnt take a position on the dual-stock structure, will take up the matter at its next board meeting; Mr. Jamieson didnt have a date for the meeting. Gabelli Advisors will be spun off as soon as practically possible, he added.
MSCI Barra designs new Asia index
MSCI Barra introduced the MSCI Asia APEX 50 index, according to a news release. The index will comprise the 50 largest capitalized stocks in Asia, excluding Japan, and will serve as the basis for ETFs and other derivatives. As the individual country markets across Asia have become more accessible, the demand for index-linked products based on the region has increased, Henry Fernandez, MSCI Barra chairman and CEO, said in the release. The firm also launched a family of benchmark indexes covering 19 frontier market countries in Central and Eastern Europe, Africa, the Middle East and Asia.
Calculation of the new indexes will begin at the Nov. 30 market close. Index levels and returns will be made available Dec. 18 at www.mscibarra.com.