Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Innovation Investing Conference
    • 2022 Defined Contribution East Conference
    • 2022 ESG Investing Conference
    • 2022 DC Investment Lineup Conference
    • 2022 Alternatives Investing Conference
Breadcrumb
  1. Home
  2. ASSET OWNERS
May 27, 2013 01:00 AM

UPS gets best of both worlds with fund-of-funds platform

Christine Williamson
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Bloomberg

    United Parcel Service Inc. combined investment insourcing with operational outsourcing in building its fledgling opportunistic hedge fund of funds for its U.S. defined benefit plans.

    Built to pump up returns for the four U.S. plans, which total $27 billion, the new fund matches the expertise of Leo R. Svoboda, portfolio manager-absolute return at UPS, and HedgeMark International LLC, which provided the operational infrastructure, hedge fund risk monitoring and performance, and managed account know-how.

    The 1907 Partners Fund is named for the year of UPS' founding as a bike and foot messenger service. But its investment premise is thoroughly rooted in the 21st century.

    “We kept coming across investment opportunities that didn't meet the criteria of traditional asset classes,” Mr. Svoboda said in a telephone interview from the company's Atlanta headquarters.

    “We passed up intriguing investment opportunities not because we didn't understand them, but because we didn't have a place to put them.”

    About a year ago, UPS' investment staff decided that to meet the pension plans' steep 8.75% assumed rate of return, overall portfolio returns could be boosted by investing even more outside of traditional asset classes and vehicles, Brook Scardina, director of compliance and operations for the UPS pension department, said in a telephone interview.

    High discount rate

    The high assumed return rate is needed because UPS' 2012 blended discount rate across all of its pension plans is 4.42%, said Brian H. Pellegrino, chief investment officer of the UPS Group Trust, in an e-mailed response to questions.

    UPS' current investment structure provides flexibility to change the plans' asset allocation when their funded status improves or when discount rates rise back to 2010 or 2011 levels, which were 5.98% and 5.64%, respectively, for UPS, Mr. Pellegrino said in the e-mail. “100 basis points is a big deal,” when it comes to discount rate changes, he added.

    The UPS defined benefit plans were 78.3% funded as of Dec. 31, according to Pensions & Investments' analysis of the company's most recent annual report.

    But as Mr. Pellegrino explained during a presentation at the Milken Institute Global Conference in Beverly Hills, Calif., in April, “the length of time” pension executives have to “meet liabilities makes a huge difference” in the way they can manage the fund.

    UPS has a young employee population and with long-term liabilities not due for 20 to 30 years; “it means you can take more risk and tolerate more volatility,” Mr. Pellegrino said during his speech.

    The UPS pension staff took that institutional tolerance for risk and began moving to a less-traditional investment approach in 2007, well before taking on the 1907 Fund project. At the end of 2012, the defined benefit plans' asset allocation was 38.8% equities, 32.5% fixed income, 11.1% hedge funds, 5.6% private equity, 4.9% real estate, 0.9% cash, 0.8% structured products and 5.4% other (including global tactical asset allocation).

    Beginning this year, UPS eliminated its target asset allocations and moved to investment ranges to “provide increased trading flexibilities in support of plan objectives,” Mr. Pellegrino said in a telephone interview.

    The broad asset ranges are 25% to 55% global equity, 15% to 40% fixed income, 8% to 20% liquid alternatives, 3% to 10% real assets, 3% to 10% private equity and 1% to 10% cash.

    That flexible approach extends to the 1907 Fund, which is designed to allow the investment team to take advantage of fast-moving market opportunities created by market dislocations globally.

    While the investment team possessed the investment skills necessary to make decisions about the opportunistic credit and fixed-income relative value deals coming UPS' way, it became apparent UPS needed to outsource the investment platform and infrastructure, Mr. Scardina said.

    Because there wasn't an off-the-shelf operational infrastructure product available, Mr. Scardina said New York-based HedgeMark International was hired to build a customized investment platform that provides separate accounts managed exclusively for UPS.

    UPS in control

    It was important to Messrs. Svoboda, Pellegrino and Scardina that UPS design and control the fund's structure, rather than relying on a single hedge fund partner's design. The HedgeMark platform puts UPS — not the underlying money manager — in control of the assets, but allows the manager to invest according to the guidelines of the investment management agreement. It also provides position-level transparency and independent pricing and validation.

    “The platform has really allowed us to expand the investment opportunity set without having to rely on the ... infrastructure of a particular manager, which may be less than desirable from ... an operational and compliance perspective,” Mr. Scardina said.

    Mr. Svoboda's assessment from an investment perspective was more enthusiastic: “The value of the platform is that we can go anywhere and do anything.”

    UPS has earmarked the trust's $1.5 billion risk-parity portfolio as the source of assets for the 1907 Fund, Mr. Svoboda said. Profits from the opportunistic fund will be reinvested or returned to the risk-parity portfolio.

    The platform was launched last September. To date, $400 million has been committed to three managers. Mr. Svoboda wouldn't name the managers.

    Of the three, one hedge fund manager is investing in dislocations in the global financial system, while a fundamental global macro manager and a fixed-income relative-value hedge fund manager each is managing alpha-oriented strategies as well as those that hedge exposures elsewhere in the portfolio, Mr. Svoboda said.

    When asked about the 1907 Fund's performance, Mr. Svoboda would say only that it has “significantly exceeded return expectations.”

    Like most investors, UPS was “typical in being underweighted” to Japanese long-only equities, around 15%. But through a separate account investment made on the HedgeMark platform for the 1907 Fund, UPS was able to get exposure to the yen through macro-traded themes and options on the currency that “the manager could not have done in a commingled fund,” Mr. Svoboda said.

    “We got significantly more leverage for significantly less risk,” he added.

    Mr. Svoboda said he is not seeking new deals with managers not already managing assets for UPS, preferring to “examine opportunities with companies we already have a relationship with.”

    Related Articles
    UPS to leave New England fund, strikes new funding deal
    UPS, Teamsters wrap up liability withdrawal agreement
    'Insourcing' trend growing among big institutional investors
    Institutions taking divergent paths in revamping hedge fund portfolios
    Hedge fund managed accounts get serious attention
    AlphaMetrix owes $600,000 in fee rebates
    UPS absolute-return portfolio manager to join Penso Advisors
    Recommended for You
    ONLINE_190329864_AR_0_YBKZZQSSKIZH.jpg
    IMCO returns 9.6% in 2021, outperforming its benchmark
    SLIDESHOW2_824009999_PH_7_HOEACWCAWVKF.jpg
    Northern Trust plan universe returns 0.2% in Q3
    Northern Trust: Institutional asset owners post 6% gain in Q2
    Northern Trust: Institutional asset owners post 6% gain in Q2
    OCIO, Anchor in Rough Seas
    Sponsored Content: OCIO, Anchor in Rough Seas

    Reader Poll

    May 23, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Crossroads: Politics, Inflation, & Bonds
    Credit Indices: Closing the Fixed Income Evolutionary Gap
    Forever in Style: Benchmarking with the Morningstar® Broad Style Indexes℠
    Q2 2022 Credit Outlook: Carry On
    Leverage does not equal risk
    Is there a mid-cap gap in your DC plan?
    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
    May 23, 2022 page one

    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.

    About Us

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

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    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 © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Innovation Investing Conference
      • 2022 Defined Contribution East Conference
      • 2022 ESG Investing Conference
      • 2022 DC Investment Lineup Conference
      • 2022 Alternatives Investing Conference