WASHINGTON — The Pension Benefit Guaranty Corp. issued an RFP on July 31 seeking to develop strategic partnerships with two to three money management firms to invest up to $2.5 billion total in private equity and real estate.
Charles E.F. Millard, PBGC director, said the search follows an asset allocation policy adopted in February that permits the agency to invest up to 10% of the $55 billion it has available for investment in private equity and real estate. Both are new asset classes for the PBGC.
The new asset allocation is designed to help close the PBGC's $14 billion deficit over the next 10 to 20 years. Under the new policy, 45% of assets will be in equities, 45% in fixed income and 10% in alternatives. Previously, 75% to 85% was in fixed income in a strategy designed to better match assets with liabilities. The remainder of the portfolio was invested in stocks.
Mr. Millard said in an interview the PBGC intends to finish funding the allocations established by the new policy within the next five months. “We will be fully allocated to this (new) policy by the end of the year,” Mr. Millard said in the interview.
The agency already has launched requests for proposals for fixed-income and equity index managers. Those searches, which were not announced publicly, are closed and hirings are expected this fall, he said.
The fixed-income RFP seeks managers to run about $22 billion in assets, including core fixed income, high yield and emerging markets debt. (PBGC's existing fixed-income managers — Prudential Investment Management Inc., Wellington Management Co. LLP, Western Asset Management Co. and Pacific Investment Management Co.— were free to apply for the new fixed-income allocations, a PBGC spokesman said.)
Another RFP seeks one or more index fund managers to run $16 billion to $18 billion for the agency in emerging markets equities, international equities, U.S. equities and possibly real estate investment trusts. “We're not sure yet whether we want to use REITs but we're asking for bids on that,” he said.
Mr. Millard said additional RFPs might be issued next year to reallocate some of the index fund assets to active equity managers.
“We want to walk before we run,” Mr. Millard said.
In addition, the PBGC has launched a search for a chief investment officer, a new position, and hired executive recruiter Russell Reynolds Associates to assist. A decision is expected later this month.
“The size of the portfolio is significantly larger than it was just a few years ago, and we're allocating to five new asset classes we have not allocated to in the past,” Mr. Millard said. Besides private equity and real estate, emerging-market debt, high-yield bonds and emerging-market equity are new asset classes. “With all these new needs, we needed more leadership at the senior level.”