7 funds lose on WaMu failure

At least seven pension funds lost their private equity investments in Washington Mutual, following its failure and subsequent purchase by JPMorgan Chase, according to a source.

At least six pension funds had invested in TPG Capital VI, which, in turn invested in Olympic Partners. Olympic, a special situations fund sponsored by private equity firm TPG Capital, lost its $2 billion investment in WaMu.

Investors in the $19.8 billion TPG VI include CalPERS, New York State Common Retirement Fund, Illinois Teachers' Retirement System, Washington State Investment Board, Los Angeles City Employees Retirement System and the San Francisco City & County Retirement System.

CalPERS committed $950 million to TPG Partners VI, which closed in February, said Clark McKinley, spokesman at the $223 billion system. He wouldn't answer any other questions.

And at least two pension funds — CalPERS and the New York State Teachers' Retirement System — invested in TPG IV, which also invested in Olympic.

Separately, Harris Associates' Oakmark Funds lost big on Washington Mutual, according to sister publication Crain's Chicago Business. Three Oakmark Funds added nearly 12 million WaMu shares in the second quarter, boosting holdings 29% to 39.5 million. The shares lost all value on Sept. 26.

Lawmakers continued efforts to hammer out a compromise legislative package to bail out the nation's financial institutions as Pensions & Investments went to press on Sept. 26, with the hope of passing a bill before the financial markets open Sept. 29.

“I think it's fair to say we're making progress,” Senate Majority Leader Harry Reid, D-Nev., said in a briefing with reporters . In another briefing, Senate Banking Committee Chairman Christopher Dodd, D-Conn., said the “non-negotiable” principles that Democrats would insist be addressed would limit pay of executives for companies bailed out, protect taxpayers and account for the money spent on the bailout.

House Republican Leader John Boehner, R-Ohio, on Sept. 26 wrote a letter to House Speaker Nancy Pelosi, D-Calif., saying “serious consideration” would have to be given to a Republican proposal to fund a bailout with insurance premiums paid by the financial institutions holding mortgage-backed securities. Another Republican proposal on the table would encourage the injection of private capital into the market “by removing burdensome regulatory and tax barriers that are currently blocking private capital formation,” according to Mr. Boehner's letter.

“If such consideration is not given, a large majority of Republicans cannot — and will not — support (Treasury Secretary Henry) Paulson's plan,” Mr. Boehner said in his letter.

Key lawmakers vowed to stay in Washington until a package is agreed upon.

A new deal between Delphi and General Motors was approved by a U.S. Bankruptcy Court judge in New York on Sept. 25, increasing the amount of pension liability GM will assume for Delphi's hourly workers' plan to $3.4 billion, up from $1.5 billion.

U.S. Bankruptcy Court Judge Robert D. Drain also approved a new agreement in which GM would be among the first creditors to be repaid when Delphi emerges from Chapter 11 bankruptcy protection. GM will share with unsecured creditors a portion of a $2 billion stock and/or cash grant from Delphi.

If Delphi does not come out of bankruptcy, GM will receive a priority $2 billion claim, but will share 50% of those proceeds up to $300 million with other unsecured creditors.

On Sept. 23, Mr. Drain gave Delphi permission to freeze its U.S hourly and salaried defined benefit plans, which total $15 billion, on Sept. 30.

Delphi spokesman Lindsey Williams said the company would replace them with cash balance or defined contribution plans, a salaried retirement and equalization savings program, and a supplemental executive retirement plan.

The $42 billion New York City Employees' Retirement System approved a 3% allocation to hedge fund of funds, its first hedge fund investment.

The NYCERS board made the move Sept. 23 “in an effort to reduce volatility in (the) portfolio and enhance (the) risk-adjusted return,” according to an e-mail from Laura Rivera, press officer for William C. Thompson Jr., New York comptroller whose office oversees the five New York City retirement systems.

Trustees charged the system's consultant, Callan Associates, with developing recommendations for filling the mandate, including a possible search for at least one fixed-income hedge fund-of-funds manager.

The funding source for the new hedge fund allocation could not be learned.

FASB postponed for a year requiring more detailed disclosure of pension fund investment allocation and risk concentration.

The requirement for more detail would amend the Financial Accounting Standards Board's Statement 132(R) — Employers' Disclosures about Pensions and Other Postretirement Benefits. It would now take effect for corporate fiscal years ending after Dec. 15, 2009, instead of Dec. 15, 2008. The disclosure would continue to appear in notes to corporate 10-K reports.

The defined benefit pension plans of Lehman Brothers Holdings, Fannie Mae, Freddie Mac, IndyMac Bancorp and American International Group are underfunded by a total of about $400 million, PBGC Director Charles E.F. Millard told the House Ways and Means Committee oversight subcommittee.

But the PBGC would be responsible for only $100 million if the pension plans were to be terminated, said Jeffrey Speicher, PBGC spokesman. He added the funded status of financial sector pension plans typically is better than those of companies in other sectors.

The $11.2 billion Illinois State Board of Investment hired LSV Asset Management to run $200 million in active international small-cap equities.

The board didn't assign a style bias to the portfolio, said William R. Atwood, executive director of the $11.2 billion ISBI. Funding will come from a $200 million MSCI ACWI ex-U.S. index fund managed by SSgA, where the assets had been parked.

Marquette Associates assisted.