News briefs: Singapore to hike emerging markets investment

SINGAPORE — Government of Singapore Investment Corp., which manages a sovereign wealth fund with more than $100 billion in assets, plans to increase its emerging markets exposure, possibly through private equity funds, confirmed spokeswoman Jennifer Lewis.

An annual report issued by the fund Sept. 23 said 10% of assets were in emerging market equities as of March 31. A target allocation for emerging markets was not available, according to Ms. Lewis.

Overall, the fund had 44% in listed equities, 26% in bonds, 23% in alternative assets and 7% in cash. Of the alternatives portfolio, real estate accounted for 10 percentage points, with eight percentage points in private equity, three percentage points in hedge funds and two percentage points in natural resources, according to the “Report on the Management of the Government’s Portfolio for the Year 2007/08.”

“The portfolio is still substantially invested in the developed economies,” Ng Kok Song, group chief investment officer, wrote in the report. “However, in the last 10 years, we have increased our investments in the Asian region and also in many emerging economies.”

The fund recorded a 5.8% annualized rate of return for the past 20 years in U.S. dollar terms, according to the report. Accounting for global inflation, the fund returned an annualized 4.5% over the same period. The return for the year ended March 31 was not available, Ms. Lewis said. Overall, about one-third of the fund is managed externally, according to the report. It was not known if the fund will search for new managers as a result of the planned increase in emerging markets equities.

“Looking ahead, we see a more challenging investment environment than what we have experienced since GIC’s formation in 1981,” said Mr. Ng. “The powerful trend of disinflation that propelled the global capital markets over 25 years seems to have ended.

“There are positive countervailing forces such as rising productivity and the potentially large domestic demand from the emerging economies, particularly China, India, Brazil and Russia.”

“With the release of this document, it is hoped that the global community will also appreciate the context and circumstances in which GIC operates, and be assured that GIC has and will always invest for only one purpose — to achieve sustainable financial returns for the government’s assets,” Tony Tan Keng Yam, GIC’s deputy chairman and executive director, said at a media conference, according to Ms. Lewis.

LONDON — Lloyds TSB Group’s announced agreement on Sept. 18 to acquire HBOS PLC will create one of the largest active asset managers in the U.K., with combined assets under management of £202 billion ($367 billion), according to data as of June 30.

Scottish Widows Investment Partnership, a Lloyds subsidiary, had £90 billion in assets. The fund manager is likely to be merged with Insight Investment Management, a division of HBOS with £112 billion. Details of how the two firms might be integrated if the merger is finalized were not available at press time.

“It’s far too early to talk about the shape of the (combined) group … and the future of the different parts of the business,” said Emile Abu-Shakra, spokesman for Lloyds.

Long-only equity strategies dominate SWIP’s business, making up about half of total assets under management. Both firms overlap in the fixed-income sector, while Insight also has made inroads in managing liability-led investing strategies for pension funds.

Lloyd’s acquisition of HBOS was partly brokered by the U.K. government to save HBOS as shares in the bank plummeted by about 50% in a week. The deal valued HBOS at £12.2 billion based on Lloyds’ closing share price on Sept. 17 of 279.75 pence, according to a Lloyds news release.

NEW YORK — AIG Investments’ AIG Global Emerging Markets Fund II made an equity investment in a new joint venture, Blue Intercontinental Micro Finance Bank, a Nigerian-based microfinance institution, an AIG spokeswoman said. The deal closed Sept. 17, she said.

AIG Investments owns 10% of the joint venture; Blue Financial Services owns 55%; and Intercontinental Bank owns 35%. AIG Investments is a shareholder in Blue Financial and Intercontinental Bank. Terms of the deal were not available.

Separately, Michael Chae joined AIG Investments as director of alternative investments, Japan, said an AIG spokeswoman. It is a new position.

Mr. Chae reports to Stewart Homler, managing director of alternative investments, Japan, who joined the firm a year ago. Mr. Chae was a director in Nikko Citigroup’s fixed-income group.

Virginia Retirement System, Richmond, committed $150 million to TPG Partners IV, $40 million to Austin Ventures X and $25 million to Great Hill Partners IV, all private equity funds, said Elaine Jones, a spokeswoman for the $55 billion system.

Also, Oaktree Capital Management was hired to run an as-yet-undetermined amount in opportunistic credit strategies, Ms. Jones said.

JPMorgan Securities analysts lowered their earnings estimates for six money managers, reflecting poor equity returns, particularly in September.

Analysts lowered the estimates of Eaton Vance to $1.65 per share from $1.69; Federated Investors to $2.14 from $2.23; and Franklin Resources to $6.89 from $6.91.

Invesco’s earnings estimate was lowered to $1.48 from $1.54; Janus Capital’s to $1.10 from $1.15; and T. Rowe Price’s, $2.25 from $2.34.

“The significant deterioration of (assets under management) could threaten EPS growth in 2009 as market returns are only normal going forward, leading us to believe that valuation contraction is likely,” analysts Kenneth Worthington and Timothy Shea wrote in their report to JPMorgan clients.

The analysts are still bullish on Invesco, noting that “cross-selling is starting to bear fruit” and that expanded third-party distribution has increased sales.

Alaska Permanent Fund reported a -3.6% return on investments for fiscal year 2008 ended June 30, with stocks taking the biggest hit in the $37.4 billion fund’s portfolio, according to Mike Burns, executive director.

Among specific sectors, U.S. stocks returned -1.7%; non-U.S. stocks, -5.5%; and global stocks, -10.2%. U.S. bonds returned 6.1% and non-U.S. bonds, 10.9%. Real estate returned 0.5% and absolute return was up 1%.

Mr. Burns said trustees at their annual meeting Sept. 22 and 23 discussed the financial criris but “reaffirmed … we are a long-term investor and have long-term goals, and our asset allocation seems to be correct.”

The fund has target allocations of 26% in U.S. equities, 19% in U.S. bonds, 14% in global equities, 13% in international equities, 10% in real estate, 6% each in private equity and absolute return, and 3% each in international bonds and infrastructure.

Stanford pool nets 6.2%

Stanford University $20.4 billion Merged Pool, which includes the university’s $17.2 billion endowment, returned 6.2% for the year ended June 30, according to a news release. For the 10-year period, the pool returned an annualized 14.2%.

The pool is managed by Stanford Management. As of June 30, 2007, the most recent information available on Stanford Management’s website, the pool had target allocations of 37% to public equities, 18% to absolute returns, 16% to real estate, 12% to private equity, 10% to fixed income and 7% to natural resources.

The endowments of Harvard University, Stanford University and 13 other colleges received an A-minus — the highest grade awarded — in an evaluation of their asset management and campus operations on sustainability issues, according to a Sustainable Endowments Institute report issued Sept. 24.

The annual College Sustainability Report Card evaluated the endowments of 300 universities and colleges in the U.S. and Canada, representing an aggregate $380 billion in assets. Evaluation categories included transparency, proxy voting and environmental and renewal energy investment.

Aside from the $36.9 billion Harvard endowment and $17.2 billion Stanford endowment, the other top largest endowments and their grades are B-plus for the $23.5 billion fund at Yale University; B for the $15.7 billion Princeton University fund; and C-plus for the $15.6 billion fund of the University of Texas at Austin.

The report is accessible at http://www.GreenReportCard.org.

The institute promotes research and education to advance sustainability in endowment practices and campus operations.

Denver Employees Retirement Plan will have newly hired general investment consultant Summit Strategies Group handle real estate advising as well, in an effort by the $2 billion plan to save on fees, confirmed Steven Hutt, executive director.

Townsend Group, the plan’s specialist real estate consultant, will be terminated Dec. 31. “Townsend has all this real estate expertise, but it’s more than we need,” he said. “I think we’ll be well served by Summit’s real estate team.”

Mr. Hutt said the board will save about $100,000 a year in fees by transferring the real estate work to Summit.

The board hired Summit over 15-year incumbent Callan Associates at its Sept. 3 meeting. At a board meeting Tuesday, Summit and Townsend each made their case for the real estate consulting business, Mr. Hutt said.

The system has about $216 million or 11% of total assets in real estate, with a 60-40 mix between core and non-core, Mr. Hutt said. “We don’t do any direct purchase of property, and we have very little international real estate exposure,” he said.

In addition to its real estate holdings, the system had $786 million in domestic equities, $512 million in fixed income, $310 million in international equities, and $120 million in alternatives and cash, Mr. Hutt said.

A mutual fund specifically designed for cash-balance plans has been launched as a joint venture between Payden & Rygel and Louis Kravitz & Associates, a designer and administrator of cash-balance pension plans, said Dan Kravitz, the president of Louis Kravitz.

Kravitz is moving the assets of some of its existing 250 cash-balance plan clients into the new fund, which aims to deliver a net rate of return, after fees and expenses, equivalent to the yield on 30-year Treasury bonds.

MSCI Barra on Sept. 24 launched GEM2, a new Barra Global Equity Model to help managers “better construct and manage risk-adjusted portfolios across developed and emerging markets,” according to a news release.

The new model uses the new Global Industry Classification Standard, also created by MSCI Barra, as the basis of industry factor analysis. The first model is still being used, a spokesman said.

GEM2 adds four new risk factors, reformulates existing factors and has a new stock-specific risk model. It also provides improved accuracy of risk forecast, and model cover has been extended to Gulf Cooperation Council countries and China A securities, the release said.

Two-thirds of investment professionals support the federal bailout plan as “the best alternative to the serious crisis facing the U.S. economy,” according to a CFA Institute e-mail survey of its membership. Of the 3,130 investment professionals who responded to the institute’s poll on Sept. 25, 34% did not support the initiative.

Sixty percent agreed with creating a $700 billion pool that would buy illiquid and troubled securities from ailing financial companies and 75% said executive compensation should be limited for companies tapping the pool. Also, 74% of CFAI members said the federal government should pay fair value for distressed and illiquid securities, rather than par, from the liquidity pool.

The imposition of a temporary suspension of short selling in certain financial stocks got a thumbs-down from survey respondents, with 55% against the move. Reinstituting the short-selling uptick rule would be a better solution to short-selling impacts on the market, said 63% of those surveyed.

HSBC Global Asset Management executives decided to close and liquidate three smaller U.S. fixed-income strategies run by subsidiary Halbis Capital Management following a general review of its businesses, said spokeswoman Jenne Mannion.

Halbis will close its U.S. core-plus strategy, which had $1.3 billion in client assets as of June 30, according to eVestment Alliance; the U.S. high yield fixed-income strategy, with $482 million; and the U.S. core strategy. No asset figure was available for the U.S. core strategy.

Management of the HSBC group’s global fixed-income accounts will be moved to London from New York. Emerging market debt and distressed debt will continue to be managed from New York.

College of Pension Actuaries members voted more than 80% in favor of merging with the American Society of Pension Professionals & Actuaries, confirmed Mike Preston, COPA president, and Chris Robichaux, ASPPA director of media relations.

As a result of the vote, a new component will be formed within ASPPA, called the ASPPA College of Pension Actuaries. The new entity will have COPA’s 250 members, who are actuaries, and ASPPA’s 800 actuaries.

The transition will take place as soon as possible, said Mr. Preston, who will become president of ASPPA COPA.

COPA sought the merger to gain the administrative strength of ASPPA, which has 6,400 members, who are professionals involved in retirement plan services, Mr. Preston said in an interview. Aside from actuaries, ASPPA members include attorneys, accountants, insurance professionals, financial planners and human resource managers.

BATON ROUGE, La. — Louisiana Teachers’ Retirement System, Baton Rouge, early next month will interview Stone Harbor Investment Partners and incumbents Shenkman Capital Management and Fountain Capital Management, finalists to run high-yield fixed income for the $14.5 billion system, said CIO Bob Leggett.

The four current high-yield managers currently run a total of about $100 million. An RFP was issued in July. The system’s board decided to do the searches because it had been about five years since it last searched for high-yield fixed-income managers and because the board wants only one high-yield manager.

The system’s other high-yield fixed-income managers, Nicholas-Applegate Capital Management and Seix Investment Advisors, were invited to rebid but were not chosen as finalists.

The board will interview the three finalists Oct. 6-7.

RICHMOND, Va. — The Virginia Retirement System reported assets fell 4.4% to $55 billion for the fiscal year ended June 30, according to a news release.

Investments in public equities were down 10.4% to $30.5 billion, while its credit strategies program fell 4.7% to $4 billion, the release said.

Private equity investments rose 15.5% to $4.5 billion, while fixed income rose 6.3% to $11.2 billion, the news release said. Real estate investments generated a 4.1% return, to $4.1 billion.

“While the portfolio outperformed its policy benchmarks, absolute returns suffered due to stress in the housing and credit markets and general economic weakness,” CIO Charles W. Grant said in the release. “In this environment, risk premiums increased, resulting in lower market prices for equities and other risk assets. The fund maintains a strong liquidity position, which will enable us to make attractive new investments during this period of market dislocation. We continue to expect the fund to earn a reasonable return of 7% to 8% over the long term.”

CHICAGO — State government pension plans have a 50% percent chance of being underfunded by more than $750 billion and a 25% chance of being underfunded by at least $1.75 trillion over the next 15 years, according to a study by two professors from the University of Chicago Graduate School of Business.

The study, “The Intergenerational Transfer of Public Pension Promises,” by Robert Novy-Marx and Joshua D. Rauh says the extent of the underfunding has been masked by accounting rules that “allow pension liabilities to be discounted at expected rates of return on pension assets.”

The study warns of the burden current pension policy puts on future generations, showing a probability of future shortfalls.

The study can be found at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1156477.

BOSTON — More attention needs to be paid by the investment community to the impact sovereign wealth funds have on global equity values, currencies, inflation and capital markets in general, according to a State Street Corp. report issued Sept. 17.

“While political issues relating to sovereign wealth funds have dominated the discussion, less attention has been paid to the actual nature of SWFs — their liabilities, their differing investment objectives and their likely impact on capital markets,” Jay Hooley, president and chief operating officer, said in a news release.

SWFs, with nearly $3 trillion in worldwide assets, are increasingly important to worldwide investors, and issues of accountability, transparency and the appropriateness of government control over investment decision-making are important concerns that need to be addressed, according to the report.

SSgA, through its official institutions group, manages more than $270 billion in assets for more than 70 sovereign wealth and supranational funds. SSgA is State Street Corp.’s investment management business.

The report was written by George R. Hoguet, SSgA managing director, senior portfolio manager and global investment strategist specializing in emerging markets; John Nugee, managing director, SSgA, and head of SSgA’s official institutions group; and Andrew Rozanov, head of sovereign advisory and managing director of State Street Global Markets.

The report is part of State Street Corp.’s Vision Series, which is intended to advance understanding of key themes and trends within the financial services industry.

PITTSBURGH — Federated Investors will acquire Clover Capital Management, a Rochester, N.Y.-based value equity boutique, said Federated spokeswoman Meghan McAndrew.

The deal, expected to close in the fourth quarter, calls for Federated to make an initial payment of roughly $36 million. Future payments — contingent on Clover’s AUM growth over the next five years — could lift the total purchase price to $57 million.

Clover’s $2.8 billion in assets under management are in separately managed accounts as well as common and collective portfolios. In addition to serving institutional and high-net-worth clients, the firm serves as a subadviser to several mutual funds.

After the deal closes, Clover will manage three new value equity mutual funds — large cap, midcap and small cap — to be introduced by Federated.

Michael E. Jones, chief executive officer and chief investment officer of Clover Capital, and other key employees have signed employment agreements with Federated. The Clover brand name will continue, but Clover will not be a separate corporate entity.

An IRS overhaul of regulations governing 403(b) retirement plans in 2007 spurred more changes in how health-care employers manage their plans than the Pension Protection Act of 2006, according to a new report by Diversified Investment Advisors and the American Hospital Association, Chicago.

According to the survey, called “Retirement Plan Trends in Today’s Health-care Market — 2008,” 19% of the 311 403(b) plan sponsors surveyed replaced their investment managers and 20% replaced record keepers because of the new IRS regulations. That’s more than double the 8% who said they did so because of the PPA, according to the survey.

The survey also shows 14% are reducing their plan management providers, up from 4% last year when the IRS regulations were put into place.

“As a result of both the new 403(b) regulations and PPA, health-care retirement plan sponsors are more aware of the costs associated with their plans, as well as areas for potential risk, which has prompted them to make administrative changes, as our survey confirms,” David Ray, DIA vice president, said in a news release.

Copies of the report can be requested at http://www.aha-solutions.org or by calling 800-242-4677.

NEW YORK — Standard & Poor’s launched the S&P Target Date Index Series, comprising nine multiasset-class indexes each corresponding to a target retirement date.

S&P said in a news release that the indexes will bring greater transparency and performance measurement to the target-date fund market.

“The target-date fund market is growing rapidly because of greater adoption within defined contribution plans and investors’ desire for one-stop retirement solution shopping,” Srikant Dash, head of research and design at S&P’s Index Services, said in the release. “However, differing asset class choices and exposures across the universe have created difficulty in benchmarking performance.”

The new S&P index series extends traditional indexing to target-date funds by establishing a mathematical way to define the consensus market price for each of the years. The weighting of the indexes is determined by surveying target-date products that are available on the market.

S&P also launched a companion Target Risk Index Series, comprising four multiasset-class indexes corresponding to levels of risk: conservative, moderate, growth and aggressive.

Matrix U.S.A. LLC and Lighthouse Financial Group LLC announced a strategic partnership to provide research and electronic trade execution to institutional investors, Rob Weinstein, Lighthouse senior managing director, said Sept. 25 in an interview.

Matrix’s computer-driven research system ranks all stocks in the Russell 3000, including “orphan” companies that do not receive any other analyst coverage, based on an economic value-added model. The stocks are ranked daily from strong buy to strong sell.

Lighthouse is a brokerage firm specializing in trade execution for institutional orders.