Bullies and DB plans
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Coller Capital collects $9 billion with latest secondaries fund
      Directional signs respresenting types of traditional and alternative investments
      Setter: Alternative secondary deals drop 27.7% in 2020
      Kennedy Lewis raises $2.1 billion for latest opportunistic credit fund
      Emma Davies
      Octopus Ventures chooses co-CEO
    • Jason Schwarz, chief operating officer of Wilshire,
      New owners have big plans for future of Wilshire
      Amy Hsiang
      Meketa picks new public markets manager research director
      Will Martindale
      Cardano Group chooses group head of sustainability
      Meketa hires first chief marketing officer
    • Steve Foresti
      Despite a truly frightening March, funds ended year in great shape
      Mexico manages breakthrough in virus-marred year
      Coronavirus throwing retirement systems into a deepening hole
      COVID-19 hinders emerging Europe's hopes for DC boost
    • Jan Jacobson
      High-court ruling thwarts ERISA stock-drop lawsuits
      Joni Tibbetts
      Principal counts on advisers to get word out on PEPs
      Kenneth J. Munro III
      Empower names new national sales director
      Fidelity cuts target-date asset threshold for lower fees
    • Shannon O'Leary
      Resisting diversity could lead to termination
      Ontario Teachers commit to net zero emissions by 2050
      LaSalle Investment Management taps 2 for new ESG roles
      Sovereign credit ratings vulnerable to ESG risks — Moody’s
    • Ryan Tedder
      Strike up the band: KKR fund takes majority stake in Ryan Tedder catalog
      Helen Dean
      NEST’s Helen Dean earns U.K. recognition for service
      Hawk's Nest dam
      Brookfield donates golf course for firefighter training center
      Gifford Fong
      Old ties help bring local version of JOIM to mainland China
    • Shanghai skyline
      Global hedge funds struggle even in a more open China market
      The Sun Hung Kai Properties Ltd. logo is displayed on the Sun Hung Kai Centre building in Hong Kong on Sept. 13, 2018
      SHK spins out East Point Asset Management
      Man holding a business card with Hedge Fund written on it
      Hedge funds chalk up decade’s best returns in 2020 – HFR
      New hedge fund launches surpass liquidations in third quarter
    • Investors ready for change as Democrats take control
      George Antonopoulos
      SPAC launches leap, but institutions are wary
      Inflation fears are good news for ETFs targeting TIPS
    • State Street, Northern Trust both prepare for layoffs
      Marques Benton
      Loomis Sayles chooses first chief diversity officer
      Standard Life Aberdeen CEO Stephen Bird
      Standard Life Aberdeen CEO: Some staff won’t get bonuses
      Nuveen sells holdings in sanctioned Chinese stocks
    • Marcie Frost
      California pension funds learning from experience
      A sign outside California Public Employees' Retirement System headquarters in Sacramento
      CalPERS expecting to announce new CIO this quarter
      The Great Seal of the State of New Mexico in the House of Representatives chamber within the New Mexico State Capitol in Santa Fe
      New Mexico PERA executive director taking new position
      ABP calls for clarity over funding ratio rules
    • The Great Seal of the State of New Mexico in the House of Representatives chamber within the New Mexico State Capitol in Santa Fe
      New Mexico PERA executive director taking new position
      Marques Benton
      Loomis Sayles chooses first chief diversity officer
      Charles Wu
      State Super appoints chief investment officer
      Kenneth J. Munro III
      Empower names new national sales director
    • Pension funds continue private equity investing spree
      Big jump in private equity AUM expected over next 5 years
      Thoma Bravo takes in $22.8 billion for 3 funds
      Jason Thomas
      Data, technology become new prized possessions
    • Chiang Ling Ng
      Hines hires first head of Asia-Pacific real estate investments
      Brand new apartment building on sunny day in spring with blooming trees
      Real estate returns forecast to trend lower – report
      Ivanhoe Cambridge Inc. signage is displayed outside the company's office near Bay Street in Toronto on Aug. 29, 2011
      Ivanhoe Cambridge, PAG announce joint venture for Japan logistics investments
      Residential buildings in Hong Kong on Feb. 20, 2020
      KKR closes first Asia-Pacific real estate fund at $1.7 billion
    • Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
      David Ireland
      Sponsors returning to questions about in-plan annuities
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
    • Retirement in emerging markets
      Outlook 2021
      The top 10 stories of 2020
      The best places to work in money management
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Houston Firefighters puts $180 million into 3 funds
      LACERA allocates up to $442 million with 6 managers
      BBC Pension Scheme re-signs HSBC as global custodian
      Stanislaus County Employees earmarks $20 million to buyout fund
    • Houston Firefighters puts $180 million into 3 funds
      LACERA allocates up to $442 million with 6 managers
      BBC Pension Scheme re-signs HSBC as global custodian
      Stanislaus County Employees earmarks $20 million to buyout fund
    • International Small Cap Manager Services
      Financial Expertise
      Passive Index Manager Services
      Emerging Markets Equity Investment Management Services
    • Taiwan Semiconductor’s No. 1 in the emerging markets book
      U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Infrastructure cartoon
      You must go big on infrastructure, Mr. President
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      view gallery
      25 photos
      2020 in editorial Cartoons
      view gallery
      25 photos
      Cartoons depict a year like no other
    • GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
      Gold Outlook 2021
      Bond ETFs show maturity during Covid market mayhem
      2021 Outlook: A rousing recovery
    • Charles E.F. MIllard
      Commentary: It’s time to make 401(k) plans into real pension plans
      Michael McNally
      Commentary: New ‘investment-plus’ test poses risks to private equity investors
      Adam Waterous
      Commentary: Institutions urged to act now on opportunities created by current global oil disruption
      Ron Lagnado
      Commentary: Straw man critiques don’t hold up in face of real world success
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • Sponsored Content By MassMutual
      Leveraging Data to Manage Risk
      Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
      Sponsored Content By Aberdeen Standard Investments
      Taking a passive approach to the hedge-fund universe
      Sponsored Content By World Gold Council
      Gold: the most effective commodity investment
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:24
      U.S. stocks were 2020’s comeback kid
      watch video
      1:23
      Outlook 2021
      watch video
      1:52
      Buy gold's pullback?
      Coronavirus and the S&P 500: 2020
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      Lessons From 2020: OCIO Model Passes Major Test of Governance
      What might a Biden DOL and SEC mean for retirement plans?
      Staying on target with target-date funds
    • POLL: Retirement issues in 2021
      POLL: Money managers' priority in Asia-Pacific region
      POLL: Retirement issues in the presidential election
      POLL: The S&P 500 in the third quarter
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • Riskwatch for Q4 2020
      Graphic: A look at hiring activity in 2020
      Taiwan Semiconductor’s No. 1 in the emerging markets book
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      Lessons From 2020: OCIO Model Passes Major Test of Governance
      What might a Biden DOL and SEC mean for retirement plans?
      Staying on target with target-date funds
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. ASSET OWNERS
May 13, 2013 01:00 AM

Bullies and DB plans

  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Roger Schillerstrom

    The American Federation of Teachers has generated a lot of heat but not much light in naming investment managers purportedly opposed to defined benefit plans.

    The AFT aims to pressure public fund fiduciaries to, in effect, blacklist those supposedly misbehaving managers, but it takes no active, constructive role in fixing problems with defined benefit plans, or asking the right questions about plan oversight.

    AFT has a “gotcha” moment for sure. The list serves as an implied threat that the managers who speak out about the problems with defined benefit plans should not receive business from teacher, or other public, pension funds.

    The intimidation already has humbled some powerful investment management firms, such as Dimensional Funds Advisors LP, Kohlberg Kravis Roberts & Co. LP and AQR Capital Management LLC. But the AFT should be addressing the changes needed to ensure the long-term sustainability of defined benefit plans.

    The questions the AFT should ask are not whether managers are spending money on advocacy, but whether they are contributing to meeting pension fund investment objectives and, thus, the retirement security of beneficiaries, and are offering services at a reasonable cost.

    The AFT singled out a number of hedge funds for criticism for their alleged advocacy, but did not single out any for issues of performance in meeting plan objectives.

    The AFT wants to force managers to withdraw from participating in any discussion about the future of defined benefit plans, and the shape of future retirement provision and retirement income sustainability. But that attempt to silence managers will not contribute to strengthening pension plans.

    Many public policymakers as well as money managers have been concerned about the decline of defined benefit plans for a long time.

    Indeed, it is unlikely those managers speaking out would like to see defined benefit plans disappear since most focus on defined benefit plan assets, and only those firms with extensive mutual fund products would benefit from a total transition to defined contribution plans. Surely it would not benefit KKR if defined benefit plans ceased to grow or exist and were replaced by defined contribution plans. DC plans are unlikely to soon invest significant amounts in private equity.

    Most likely those managers are pointing out that consistently underfunded defined benefit plans cannot long exist, and something must be changed. They are pointing out that the emperor's clothes, while not quite like the fairy tale, are in tatters. For this they are being punished.

    The larger question is: Who is ruining defined benefit pension plans?

    Money managers are not. If anyone is, it is the plans' public-sector sponsors, primarily state and municipal governments. They have provided in many instances unaffordable benefits and then underfunded plans. Oversight of plans has also come under scrutiny for alleged abuses. Alan G. Hevesi, former New York state comptroller, was sentenced in 2011 to one to four years in prison for his role in the improper influencing of investment business with the $152.9 billion New York State Common Retirement Fund, Albany, which he oversaw as sole trustee. In Illinois, sweeping pension reform legislation enacted in 2009, required trustees of all the state retirement systems to be replaced or reappointed.

    The AFT should be seeking disclosure about conflicts of interests of money managers, investment consulting firms and others involved in the investment process, the costs of which been detrimental to pension funds, and which have been quantified in an estimate by the Government Accountability Office.

    The AFT should, to take a recent page from the playbook of the $258.3 billion California Public Employees' Retirement System, be focusing on fees.

    “Hedge funds have not made enough concessions; they haven't gone far enough,” Egidio “Ed” Robertiello, senior portfolio manager, absolute-return strategies for CalPERS, said at a Milken Institute conference, according to a Pensions & Investments report. He suggested pension fund executives pressure hedge fund managers to “create a pension fund share class at 1% and 10%,” rather than the usual compensation of a 2% management fee and 20% performance fee.

    But the AFT has resorted to trivialities rather than offering constructive criticism addressing the challenges of meeting pension plan objectives or offering constructive solutions for funding, instead putting managers in the “penalty box” for not being all-in on defined benefit plans.

    The AFT report represents only the newest footprint on a path cut by other union groups and pension funds over the years to intimidate managers to toe a party line in discussing retirement income programs.

    In 2005, the AFL-CIO composed a list of managers considered hostile to defined benefit plans as well as Social Security.

    The same year, the board of the Vermont State Teachers' Retirement System, Montpelier, asked finalists in a search for international large-cap equities, about their positions on the Bush administration's proposal for individual Social Security investment accounts.

    The board, noted in a resolution, it would “carefully consider the activities and involvement of investment firms in efforts to promote privatization during the selection and retention process of such firms,” adding Social Security privatization was not in the best interests of pension plan participants.

    The issue had no relevance to international equity.

    Jeb Spaulding, then Vermont state treasurer, defended the action, saying at the time that the Vermont plan “is designed to provide a benefit that, in conjunction with Social Security and other savings, (to) make possible a secure retirement for our members. To the extent we believe one of the legs of the retirement security stool for our members will be weakened, we do have a legitimate interest in the debate and our members' interests at heart.”

    The AFT should put together a list of legislators and governors, exposing those who speak out endorsing defined benefit plans but vote against properly funding their retirement systems on an actuarial basis.

    Some managers, unfortunately, caved to the AFT rather than clearly communicate their positions and prescriptions for strengthening the retirement system, including defined benefit plans.

    If it must put out its list of politically incorrect managers, the AFT ought to supplement it by naming pension funds that have followed through with it, showing the performance and benchmarks of both managers dropped and replacements selected, and the funds.

    The AFT isn't a fiduciary. If it were a fiduciary it would have to demonstrate how its actions contribute to meeting a plan's investment objectives.

    Trustees don't need a distraction from overseeing assets in complex and volatile markets, and overseeing liabilities in an environment of very low and unfavorable interest rates. The AFT needs to go back to school on pension funds.

    Related Articles
    Teachers group names managers seen as opposing DB plans
    Some money managers backpedal after AFT report
    Recommended for You
    Asset owners focus more on stewardship despite obstacles – survey
    Asset owners focus more on stewardship despite obstacles – survey
    Retirement adequacy and sustainability suffer in coronavirus pandemic - report
    Retirement adequacy and sustainability suffer in coronavirus pandemic - report
    University of Toronto’s $7 billion fund makes bet on ESG debt
    University of Toronto’s $7 billion fund makes bet on ESG debt
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management
    sponsored
    Events
     
     
    Sponsored
    White Papers
    GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
    Gold Outlook 2021
    Bond ETFs show maturity during Covid market mayhem
    Global gold-backed ETFs: A popular gateway to the gold market
    2021 Outlook: A rousing recovery
    Climate change and emerging markets after Covid-19
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center