Minnesota board to shift asset allocation

Minnesota State Board of Investment, St. Paul, with a combined $42 billion in retirement assets, will slightly reduce domestic bonds and increase alternatives for retirees under a new asset mix that will be established June 30, 2009, said Howard J. Bicker, executive director.

A state law passed last year requires that the retiree fund merge with the active employees' retirement fund if the retiree plan funding ratio falls below 80%. As of June 30, the retiree plan ratio fell to 79.7%. Because the asset allocation for the retiree and active employees' funds are so similar, no manager terminations or additions are expected, Mr. Bicker said.

Under the new asset mix, the combined funds will have target allocations to U.S. equity of 45%; alternatives, 20%; U.S. bonds, 18%; international equities, 15%; and cash, 2%.

For the retirees, U.S. bonds will be cut from 25% and alternatives will be increased from 12%. Also, cash will shrink from 3%. For the active employees, domestic bonds will decrease one percentage point, alternatives will remain stable, and cash will increase by one percentage point.

The Minnesota board managed a total of $53.6 billion of retirement and state investment assets as of Sept. 30, according to Mr. Bicker.

FedEx Corp., Memphis, filed a lawsuit on behalf of its employees' pension plan against the plan's trustee, Northern Trust, over its securities lending program.

The lawsuit, filed in U.S. District Court for the Western District of Tennessee in Memphis, claims that contrary to the requirements of the trust agreement, the plan's investment guidelines and “specific instructions from plan fiduciaries to avoid securities lending of the plan's assets,” Northern Trust performed “substantial securities lending” of plan assets, according to the court filing.

In a statement, Northern Trust said it will “vigorously defend” itself in regard to the lawsuit.

“Like other securities lenders, Northern Trust has put in place safeguards designed to treat all participants equitably during extraordinary market conditions,” the statement said. “Northern Trust did so in its role as trustee of the collective funds so that all participants are treated equitably. Until the liquidity crisis eases and unrealized negative effects on portfolios are reduced, Northern Trust will continue to work to protect the interests of all clients.”

Steve Barber, a spokesman with FedEx, said the company does not comment on pending litigation.

FedEx's defined benefit plan had an estimated $11.5 billion in assets as of Sept. 30, 2007, according to Pensions & Investments.

Pontiac (Mich.) General Employees' Retirement System filed a shareholder lawsuit against CBS Corp. and its executives, claiming they made “materially false and misleading statements” about the company's financial condition before announcing a $14 billion charge in October.

The lawsuit, filed Friday in U.S. District Court in New York, is seeking class-action status. The suit alleges that New York-based CBS failed to disclose that “adverse market conditions” had impaired the value of its intangible assets, including goodwill.

The company announced Oct. 10 that it would take the $14 billion non-cash impairment charge to reduce the carrying value of goodwill, intangible assets related to FCC licenses and investments. CBS common stock fell from $10.14 to $8.10 the day after the announcement; in late-afternoon trading Monday, the stock was at $7.50.

Further information was not available. Ellen Zimmermann, system administrator for the $500 million pension fund, and a representative at the fund's attorney, Coughlin Stoia Geller Rudman & Robbins, did not immediately return calls. A CBS media representative also did not immediately return a call.

New Jersey Division of Investment, Trenton, could be required to issue quarterly reports comparing the investment returns of the $62 billion system's internally and externally managed portfolios with recommendations on whether the external managers should be retained.

The requirement is part of a bill from state Assemblyman Reed Gusciora, who said in an interview he's concerned about the alternative investment strategy established in 2005 that has been run by external money managers.

He said the monthly report now submitted by the division does not provide enough information about how well external money managers are performing compared to those employed by the state. Existing law requires monthly and annual reports from the division, but they do not compare internal and external portfolio performance.

“We're not tracking and comparing the two,” Mr. Gusciora said. “If private money managers do better, then I can't see why we can't find that out. If they are doing worse, then we should know that, too.”

As of Oct. 31, about 17.2% or $10.7 billion, of the division's assets were invested in alternatives, said New Jersey Department of Treasury spokesman Tom Bell.

The division, which oversees state pension assets, has seen its value drop by 20% from Jan. 31 through Oct. 31.

William Clark, division director, could not be reached for comment.

Oregon Investment Council, Salem, which manages the $48 billion Oregon Public Employees' Retirement Fund, Tigard, created a new $500 million internally managed S&P 500 and S&P 400 equity index program, said Ron Schmitz, chief investment officer.

Funding will come from cash. Staff proposed the program as a way to gain better insight into trading and market activity as well as to get better control over securities lending, Mr. Schmitz said. Michael Viteri, investment officer, public equities, who joined the council this year from the $19.3 billion Arizona State Retirement System, Phoenix, will manage the new program.

Separately, the council expects to conduct an asset/liability study in the second half of 2009. Usually, the council conducts these studies every two to three years but may conduct an asset/liability study next year due to the drastic changes in the capital markets and the increasing number of beneficiaries nearing retirement, Mr. Schmitz said. The council could use existing consultants or launch a search for a consultant to conduct the study, he said.

Florida State Board of Administration, Tallahassee, on Dec. 9 voted to maintain the $95.7 billion Florida Retirement System's target asset allocation next year.

The board accepted the recommendation of consultant Ennis Knupp to keep the 2008 allocation targets of 38% domestic equity, 28% fixed income, 20% international equity, 7% real estate, 4% private equity, 2% high yield and 1% cash. However, the board set the top target private equity limit to 7%, from 5%, to avoid forced liquidation of assets. The low end of the private equity target range remains at zero.

Strategic investments, a dynamic asset class, was given no specific allocation weighting; it is funded on an opportunistic basis by a pro-rata reduction in the other asset allocations.

The actual allocation as of Oct. 31 was 34.9% domestic equity, 27% fixed income, 16.9% international equity, 9.5% real estate, 4.4% private equity, 4.1% strategic investments, 2.3% high yield, and 0.9% cash, according to a report by the board.

The Florida SBA's total assets were estimated at $121.1 billion as of Nov. 30.

Milwaukee City Employees' Retirement System hired L.R. Wechsler Ltd. to conduct a comprehensive organizational evaluation of the $4.1 billion system's compensation structure and staffing needs, said Bernard J. Allen, executive director.

It will include comparisons with peer organizations. The board expects the evaluation to be completed before June 30.

Wechsler is a consulting firm focusing on management and information technology consulting for public pension funds.

The 100 largest defined benefit pension plans of publicly traded companies lost $95 billion in value in November, putting pension funding at 84.7%, a 20% drop in funding levels since the beginning of the year, according to the Milliman 100 Pension Funding Index.

“In the last few months, asset losses have been tempered by liability gains, but that was not the case in November,” John Ehrhardt, co-author of the index, said in a news release. “The losses suffered in November are the highest so far this year and will result in a $60 billion hit to earnings in 2009.”

Moody's Investors Service downgraded Nuveen Investments on Dec. 15 due to an anticipated revenue decline stemming from reduction in its assets under management because of the equity market drop.

Nuveen's corporate family rating dropped to B2 from B1, its senior secured bank facility rating to B1 from Ba3, and its senior unsecured notes was dropped to Caa1 from B3.

Nuveen spokeswoman Kathleen Cardoza said that given current market conditions facing money management firms, the company is not surprised by the downgrade and understands “the concern over the challenges facing the financial services industry.”

“Our liquidity remains strong, with nearly $300 million in cash at the end of the third quarter,” Ms. Cardoza said, adding that Nuveen continues to generate strong operating cash flow.

The company had $134 billion in assets under management as of Sept. 30.