P&I's top stories of 2024: This year, we go to 11

The year 2024 was extraordinary, with a convergence of mammoth news for readers of Pensions & Investments, including the oneset of a new Federal Reserve interest rate cutting cycle, a Supreme Court decision that could significantly affect the SEC, a U.S. presidential election and the uncanny coincidence of new CIOs at the two largest U.S. pension funds beginning their new jobs in the very same month.

The No. 1 story this year as ranked by P&I's editors was the Federal Reserve starting its rate-cutting cycle after a yearlong pause, a seeming declaration of victory over inflation even as the Fed faces threats to its independence following Donald Trump’s return to the Oval Office.

Other big stories this year were an Ohio public pension fund experiencing a traumatic year following a successful social media campaign by reformers eager to rattle its investment executives; a major fixed-income manager facing fraud charges after an SEC and Justice Department investigation; and a battle in Oklahoma over an anti-ESG law that seems set to go all the way to the state's Supreme Court.

After more than a year of holding the federal funds rate to a range of 5.25% to 5.5%, the Federal Open Market Committee on Sept. 18 approved a rate cut of 50 basis points, on Nov. 7 approved a further 25 basis point rate cut to a range of 4.5% to 4.75%, and finally on Dec. 18 approved one more 25 basis point cut to a range of 4.25% to 4.5%.

Following the second rate cut, Federal Reserve Chair Jerome H. Powell said at a news conference: “We continue to be confident that with an appropriate recalibration of our policy stance, strength in the labor market and economy can be maintained with inflation moving sustainably down to 2%.”

News of the second rate cut broke just days after Donald Trump won the presidential election, and questions about the central bank’s continued independence arose, as Trump has long signaled a desire to take a more hands-on approach to Fed policy.

On Dec. 4 at the DealBook Summit in New York, Powell expressed confidence that the central bank will maintain its independence. Asked if he would step down, Powell answered "no."

Fed independence gives “us the ability to make these decisions for the benefit of all Americans, at all times, not for any political party or political outcome,” Powell said. “We’re supposed to achieve maximum employment and price stability for the benefit of all Americans and keep out of politics completely.”

“I’m not concerned that there’s some risk that we would lose our statutory independence, because I do think that those … ideas are strongly believed by people” in both parties, Powell said.

The second top story was the June 28 ruling by the Supreme Court to overturn the Chevron deference, a standard set by the court in 1984 that said judges should defer to regulators when laws are ambiguous and unclear.

The decisions on two cases under federal law will significantly weaken agencies including the SEC, Internal Revenue Service, Department of Labor, Pension Benefit Guaranty Corp. and Environmental Protection Agency, and their ability to interpret federal laws on their own.

Writing for the majority, which consisted of all six Republican-appointed justices, Chief Justice John Roberts wrote that “courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority."

He further wrote that the Chevron deference “was a judicial invention that required judges to disregard their statutory duties,” referring to the 1984 Supreme Court ruling in Chevron U.S.A. Inc. et al. vs. Natural Resources Defense Council Inc. et al.

When laws delegate authority to an agency “consistent with constitutional limits, courts must respect that delegation,” he wrote. “But courts need not and under the APA (Administrative Procedures Act) may not defer to an agency interpretation of the law simply because a statute is ambiguous.”

The court's ruling put regulation under the microscope of 94 federal District Courts and 13 federal courts of appeals, and critics worry that judges lack regulators’ expertise and that a single judge in a one judicial district could topple federal rules covering the whole country.

In November, the SEC’s Office of Inspector General issued a report saying the agency should prepare for an increased number of legal challenges.

“With heightened judicial scrutiny, agencies, including the SEC, must continue to develop a thorough administrative record, including meaningful opportunity for public participation and reasoned responses to public submissions,” the report said. “The SEC already invests considerable resources toward these ends, but should be prepared for additional litigation, as industry and public interest groups may take opportunities to challenge regulations.”

With the return of Donald Trump to the Oval Office following his victory on Nov. 5 over Kamala Harris, change is coming to the SEC and other regulatory agencies.

On Nov. 21, SEC Chair Gary Gensler announced he will leave the agency on Jan. 20, the same day as Trump's inauguration. While Trump had pledged to fire Gensler if re-elected, it is typical practice for SEC chairs to step down when a new party takes over the presidency. Gensler took office in April 2021 after being nominated by President Joe Biden.

Under a second Trump administration, the SEC is likely to see a revision of its rulemaking agenda, a step back from cryptocurrency enforcement, and the possible death of SEC rules being challenged in court, sources said.

Cryptocurrency in particular will likely garner a great deal of attention. Many in the crypto industry have bashed the agency’s enforcement actions against several major crypto firms and exchanges under Gensler’s leadership. At an American Bar Association Conference on Dec. 5, emboldened Republican SEC Commissioner Mark Uyeda criticized the agency’s rule-makings and cryptocurrency approach under Gensler.

Many of the SEC’s rulemakings over the past four years have “added significantly to the burdens” faced by public companies, and enforcement cases have not helped, Uyeda said at the conference in Washington.

Also expected is a potential repeat of Trump's first administration 2018 decision not to fight court challenges to the previous Democratic administration's Department of Labor fiduciary rule.

In April, under the Biden administration, the Labor Department finalized the Retirement Security Rule, which changed the five-part test so that one-time advice, such as rollovers to IRAs or annuity purchases, must be in an investor’s best interest. DOL officials have said the rule is needed to protect retirement savers.

The rule is more narrowly tailored than the 2016 Obama-era rule that was eventually killed when the Trump administration in 2018 elected not to challenge court decisions striking it down.

Insurance and annuity groups disagree and have challenged the new rule in two separate lawsuits. Two District Court judges in July each favored the plaintiffs’ arguments and stopped implementation of the rule.

Marcia S. Wagner, founder and managing partner of The Wagner Law Group, said in an October interview that a Trump election would mean “it is entirely possible that there would be a repeat of what occurred in 2018.”

In July, the two largest U.S. pension funds both welcomed new investment leadership under notably different circumstances.

At the California Public Employees' Retirement System, Stephen Gilmore arrived following five years as CIO of the NZ$73 billion ($42.5 billion) New Zealand Superannuation Fund, Auckland. The two previous CIOs — Yu "Ben" Meng and Nicole Musicco — each lasted in the position only 18 months.

Gilmore has already taken steps to move the $534.1 billion Sacramento-based pension fund’s board to a total portfolio management strategy from its strategic asset allocation approach.

In an October interview with P&I, Gilmore said of his decision to join CalPERS: “Of course, it's a storied institution. It's also got the scale, it can have influence. I also looked at things like its Sustainable Investment 2030 strategy, (which includes investing $100 billion in climate solutions over the next six years) — the ambition and the engagement. And so those things were quite interesting to me.”

Also in July, Scott Chan took the helm as CIO of the $346.5 billion California State Teachers’ Retirement System, West Sacramento, following the retirement of Christopher Ailman after nearly 24 years overseeing the investment management of the nation’s second largest pension fund.

Chan, who had served as deputy CIO at CalSTRS for six years, said in an interview in October that his team and the board will spend 2025 crafting a shared vision on creating more value alongside its existing collaborative model, net-zero plans and diversity programs.

On July 1, his very first day on the job, Chan established a new division called total fund management to make the pension fund more “resilient, flexible and dynamic,” and promoted June Kim, formerly director of global equity, to lead the division as senior investment director.

Ohio State Teachers’ Retirement System, Columbus, experienced nonstop turmoil in 2024 after a group of reform-minded trustees gained a majority share of the $97.1 billion pension fund’s board in April.

That turmoil led to a lawsuit by Ohio’s attorney general against two of the reform-minded trustees; the departures of the pension fund’s executive director, the acting executive director and the chief investment officer; and the resignation of governance consultant Aon — news that was highly visible and controversial for a public pension fund.

The 6-5 majority followed a yearslong social media-driven campaign by retirees angry over reduced or eliminated cost-of-living adjustments, after the 2012 passage of a pension reform law that ended an annual 3% COLA and moved responsibility for establishing COLAs to the board. From 2017 to 2022, that COLA was zero.

Angry retirees, led in part by advocacy organization the Ohio Retirement for Teachers Association, mounted aggressive campaigns over the past several years to elect like-minded trustees who would prioritize restoring the 3% COLA by reducing expenses such as staff bonuses, eliminating alternative investments and moving to index funds, thereby eliminating most investment staff.

Even with a majority, however, the board has hit many roadblocks in its goals, because the pension reform law limits the board's ability to take actions only if approved by its actuarial consultant — currently Cheiron — provided they do not materially harm the fiscal integrity of the retirement system. And Cheiron has determined restoration of an annual, compounding 3% COLA would do so.

The pension fund opens the new year with searches for an executive director and chief investment officer, as well as an ongoing asset-liability study by investment consultant Meketa Investment Group that will give the reform-majority board the opportunity to make significant changes to the asset allocation — provided they meet fiduciary requirement standards.

It started with the Aug. 21 announcement by Western Asset Management’s parent company Franklin Templeton that the SEC had issued a Wells notice to Ken Leech, WAMCO's co-CIO, identifying him as a target of an investigation focusing on “past trade allocations involving Treasury derivatives." Leech stepped down as co-CIO and fellow co-CIO Mike Buchanan took on sole CIO responsibilities.

On Nov. 25 an SEC indictment alleged that between January 2021 and October 2023, Leech often waited until late in the trading day before allocating Treasury futures and options trades conducted on behalf of multiple strategies to specific accounts. Leech, who was granted bail on a $10 million bond on Dec. 16, pleaded not guilty to the charges.

The impact on WAMCO has been significant, both in terms of the leadership of the firm and its assets under management.

On Dec. 3, just a week after Leech's indictment, Thomas J. Gahan was named president and chief executive officer of WAMCO, succeeding Jim Hirschmann, who assumed the role as chair of fellow Franklin Templeton subsidiary Benefit Street Partners.

Since the August announcement of the SEC’s investigation of Leech, Western Asset Management has lost in excess of $50 billion in client assets under management, which includes a number of public pension funds that terminated the manager due to the regulatory and legal cloud over the firm.

The largest termination yet occurred on Nov. 22 when the $56.4 billion Illinois Municipal Retirement Fund, Oak Brook, voted to redeem its $973 million investment in a WAMCO active domestic core-plus fixed-income portfolio. IMRF had been a client since 2001, and even though the portfolio was not connected to Leech, CIO Angela Miller-May and investment staff recommended the move due to client redemptions, recent weak investment results and overall headline risk.

Other pension funds have made similar moves, with more potentially to come.

After several quiet years of money manager mergers and acquisitions, activity roared back in 2024, driven by the hunger among large managers to enter the booming private credit sector as well as other private markets.

At the epicenter of deal activity was BlackRock, the world’s largest money manager, which announced two blockbuster deals to expand its presence in alternative investments.

First, in January, the manager announced a $12.5 billion deal to acquire Global Infrastructure Partners, creating an infrastructure platform with more than $150 billion in assets.

The firm bookended the year with its announcement in December that it will acquire global credit manager HPS Investment Partners in a $12 billion deal, which will increase the money manager giant’s private credit assets to about $220 billion.

In a Dec. 3 investor call, CEO Larry Fink expounded on the firm’s enthusiasm for private credit following the announcement of the HPS deal.

“We view private credit as the most dynamic frontier in the evolution and evolving of financing in the capital markets. The shift of financing activity towards a capital market presents a durable investment and diversification opportunity for all our clients,” Fink said during the call, noting that the two firms are “highly complementary.”

Further reflecting BlackRock’s enthusiasm for private markets, the manager announced in July its plan to acquire U.K.-based private markets data firm Preqin in a $3.2 billion cash deal to expand its Aladdin technology and data platform capabilities.

Other notable private credit deals in 2024 were Brookfield Asset Management agreeing to acquire a majority stake in asset-based private credit manager Castlelake; Janus Henderson Group agreeing to acquire a majority stake in global private credit manager Victory Park Capital Advisors; Clearlake Capital Group agreeing to acquire pan-European private credit specialist MV Credit from Natixis Investment Managers; and Blue Owl Capital agreeing to acquire alternative credit manager Atalaya Capital Management

Other managers, such as Lazard Asset Management, are eager to enter the fray.

After years of talk, 2024 represented a possible turning point into action from both retirement plan sponsors and money managers regarding offering private markets investments.

In May, alternatives giant KKR & Co. signed a deal with Capital Group, as part of its attempt to break into the mass retail investor market and offer public-private markets investments in DC plans. KKR spokeswoman Kristi Huller said while the partnership does not initially involve supplying products for DC plans, “the partnership will evolve over time.”

In October, KKR executives said in an earnings call they see a significant opportunity in managing capital in 401(k) plans, and anticipate entering that market via target-date funds.

Marc Rowan, a co-founder and CEO of Apollo Global Management, has made clear that the firm has set its sights on investing for the defined contribution markets.

“The opportunity now exists for an entire next generation of products to serve retirees, whether they are in the traditional insurance sector or they are in the vast pool of 401(k), which heretofore has been off-limits to most alternative assets providers,” Rowan said during Apollo’s second-quarter earnings call on Aug. 1.

During Ares Management’s second-quarter earnings call Aug. 2, Michael Arougheti, a co-founder, CEO and president, said the firm has “dedicated teams and efforts underway here to make sure that our product is ready for that (401(k)) market when it opens. ... I think some of those logical channel partners are open and hoping to see the DC market open to privates and alternatives."

It remains to be seen how these plans will become concrete. The regulatory environment is moving in a more accommodating direction for the large private markets managers, especially after the Biden administration in December 2021 kept in place Trump-era Department of Labor guidance that confirmed plan fiduciaries can offer certain private equity strategies in diversified investment options. Firms such as KKR have tried to enter the DC plan market since at least 2006 with little traction.

Controversy over state-led "anti-ESG” laws continued in 2024, particularly in Oklahoma where an ugly court fight ensued over the state’s Energy Discrimination and Elimination Act, a 2022 law that requires the state treasurer to identify financial companies taking actions "intended to penalize, inflict economic harm on, or limit commercial relations with a company because of its stance on fossil fuels and ESG criteria."

The law required the state’s pension funds to divest from money managers deemed by Oklahoma State Treasurer Todd Russ to be entities boycotting energy companies, which included money management giants BlackRock and State Street Global Advisors. The pension funds’ boards pushed back and a lawsuit was filed in late 2023 by Don Keenan, a retiree who challenged the constitutionality of the law, arguing that it was vague and violated the state constitution’s “exclusive benefit” rule requiring state pension systems to operate solely for the benefit of state pensioners.

In July, Oklahoma District Court Judge Sheila Stinson issued a permanent injunction against the enforcement of the law. In November, Oklahoma Attorney General Gentner Drummond filed an appeal with the Oklahoma Supreme Court.

Other state anti-environmental, social and governance actions have not been challenged as fiercely as in Oklahoma. In May, Aaron Kinsey, chairman of the Texas board of education, announced the $52.3 billion Texas Permanent School Fund, Austin, terminated BlackRock from approximately $8.5 billion in active international equity and emerging markets equity portfolios because of the manager’s ESG activities. However, Robert Borden, the endowment’s CEO/CIO, said the termination was due to the board’s decision to eliminate the target allocation to emerging markets and reduce the target to international equities.

In Indiana, Treasurer Daniel Elliott placed BlackRock on a watchlist, saying the asset management giant’s ESG-related investments raised concerns about its fiduciary duty. In December, the board of the Indiana Public Retirement System voted to replace BlackRock as manager of an $850 million customized passive fixed-income portfolio.

The board will select from finalists Northern Trust Asset Management, State Street Global Advisors and UBS Asset Management, saying each manager’s performance is comparable to the BlackRock strategy’s performance.

All are members of the Net Zero Asset Managers Initiative, one of the reasons Elliott said he placed BlackRock on the watchlist. Neither he nor other officials in the Treasurer’s office responded to requests for comment.

In November, U.K. Chancellor of the Exchequer Rachel Reeves and the new Labour government released details of reforms for U.K. defined benefit and defined contribution retirement plans, covering both public and private sectors, all with an eye on fueling growth and domestic investment.

Intended to model plans in Australia and Canada, the U.K. government wants to consolidate more than 60 multiemployer DC arrangements; push more consolidation among England and Wales’ 86 local government pension schemes, which have been busy combining about £360 billion ($458.5 billion) in assets across eight pools; and spur greater investment in U.K. assets and local communities.

The announcement of the overhaul represented the completion of the first phase of a landmark pensions review.

Reeves has since delayed the second phase, which would have determined areas such as the rates of monthly contribution to pension savings. That is currently 8% — 5% of which is the employer contribution and 3% of which is the employee contribution — below the 12% contribution (from July onwards) of the Australian system, which Reeves has said she and the government have long cited as ripe for imitation.

The craving for outsourced investment management services continues to grow, reflected by enormous deals in the outsourced CIO market, led by Atlanta-based United Parcel Service’s May announcement it had hired Goldman Sachs Asset Management to oversee the investment management delivery company’s more than $40 billion in U.S. and Canadian defined benefit assets.

In the third quarter, UPS’s investment team — including CIO Ernie Caballero — moved to GSAM to continue to oversee the assets.

It reflects some U.S. corporations’ desire to leave the oversight of their pension funds to others, whether through OCIO deals or pension buyouts in which liabilities are transferred to insurance companies.

"As part of our continued focus on our core business and the things that drive value for our customers, we have made a strategic decision to shift the management of some UPS pension funds to Goldman Sachs,” a UPS spokesperson said at the time.

Another blockbuster deal was announced in September when Stichting Shell Pensioenfonds, The Hague, Netherlands hired BlackRock as its OCIO, covering about €27 billion ($28.5 billion) in defined benefit plan assets and more than 30,000 participants.

"In light of the developments regarding the Future Pensions Act and the request from our social partners to transition, the board has decided, after a careful selection process, to appoint BlackRock as fiduciary manager for SSPF,” Kenan Yildirim, director at the Shell pension fund, said in a news release. BlackRock is expected to take over the investment management of the assets in mid-2025.

Another large deal completed in 2024 was Nokia of America Corp., Murray Hill, N.J., hiring Mercer to provide outsourced chief investment officer services for its $14 billion U.S. defined benefit plan. Jeanmarie Grisi, head of global pensions at Nokia, who oversees more than $38 billion in assets for the company, plans to retire in March.