The pay-to-play private placement scandal was the top institutional investment story of the year, Pensions & Investments' editors say.
In a year in which the flood of big news never seemed to ease, the scandal that engulfed pension funds across the country — including the $201.1 billion California Public Employees' Retirement System and the $126 billion New York State Common Retirement Fund — led the pack in a poll of P&I editors.
As several placement agents were charged with getting kickbacks from money managers in return for getting them mandates from big pension funds, the whole manager hiring structure came under heavy scrutiny from regulators and legislators alike. The Securities and Exchange Commission even got involved. Clearly, this story is not over.
Second on the editors' Top 10 list is BlackRock Inc.'s $13.5 billion acquisition of index titan Barclays Global Investors, the world's largest money manager, with more than $3 trillion in assets under management. The deal was unprecedented in both scale and scope.
The fallout from the discovery of Bernard Madoff's $50 billion hedge fund Ponzi scheme is third because it affected most of the community we cover, from pension funds and endowments to consultants to managers and funds of funds. After pleading guilty to securities fraud and other charges in March, Mr. Madoff was sentenced — and is now serving — the maximum 150 years in federal prison.
Fourth place is the decision by Labor Department officials to scrap the Bush administration's proposed advice rule for defined contribution plan participants. The move had been anticipated by some in the DC business, but when the department's Employee Benefits Security Administration formally announced the action in November, it changed the game for DC plan executives and managers.
Equity indexed pools — supposedly some of pension funds' safest investments — took a big hit last year when cash collateral from their securities-lending portfolios ran into severe valuation problems. Up to 90% of U.S. pension funds and many defined contribution plans were affected, leading to some lawsuits against index fund providers, according to a scoop by senior reporter Christine Williamson. This story ranks fifth on our list.
Ranked sixth: After three decades of figuring out their asset allocation in basically the same way, some leading institutions — including the $30.2 billion Alaska Permanent Fund Corp., CalPERS and the $127.5 billion California State Teachers' Retirement System — began thinking about asset allocation in terms of risk factors, such as corporate exposure, inflation, volatility, liquidity and interest rates underlying traditional asset classes. What investors are trying to do is get better diversification.
A series of stories tracking CalPERS' trials and tribulations is seventh on P&I's list. The fund took some hard licks in its real estate, private equity and hedge fund portfolios. The fund's real estate portfolio alone lost nearly half its value during the one-year period ended Sept. 30. And it doesn't look like the pain is over.
Stable-value wrap coverage became increasingly hard to find for defined contribution plan executives in 2008, as the credit crisis forced insurance companies to shore up their balance sheets. As the P&I story — No. 8 on the top 10 list — explained, the lack of coverage created a huge problem for these popular defined contribution plan options.
PIMCO's plan to move into active equities placed ninth. Thao Hua, P&I's London bureau chief, broke this story, which rattled money managers everywhere — possibly including some of parent Allianz Global Investors, a multi-boutique money manager with active equity capability.
Rounding out the top 10 is the failure of the much ballyhooed “Yale model” of investing, with its heavy focus on alternative investments, after both the Yale and Harvard endowments took big portfolio hits over the last couple of years. What's more, lack of liquidity in these portfolios caused huge problems for many colleges and universities across the country, which desperately needed cash to pay for operations and construction programs.