Updated with correction
A report saying some money management executives have backed groups that advocate the end of defined benefit plans prompted one executive to resign as a firm director and others to defend their support of DB plans.
The most dramatic reaction to the American Federation of Teachers report was the resignation last week of Dimensional Fund Advisors LP co-founder Rex Sinquefield as a firm director.
Executives at KKR & Co. and AQR Capital Management LLC wrote letters to their pension plan investors detailing their support for defined benefit plans. As a result of its letter, KKR was removed from the AFT list, said Randi Weingarten, president of the American Federation of Teachers, Washington.
The AFT report lists 33 money management firms whose executives — the union claims — have contributed to or sit on boards of organizations that advocate for replacing defined benefit plans with defined contribution plans or cash balance plans. Of the named managers, there are 12 that have public pension plan investors. Dimensional, KKR and AQR were the only ones that responded to requests for comment.
Other firms are Eagle Capital Management LLC, Elliott Management Corp., K2 Advisors LLC, Kingdon Capital Management LLC, Mason Capital Management LLC, Pennant Capital Management LLC, Third Point Capital LLC, Tiger Management and Tudor Investment Corp.
Since the list was published April 18, a number of institutional investors and investment consultants have contacted managers named in the report. At least two, the Illinois State Board of Investment, which oversees $12.4 billion in defined benefit assets, and Marco Consulting Group, both based in Chicago, asked funds-of-funds managers whose portfolios include one or more of the named managers what they plan to do about it. (Marco Consulting serves mostly union and other jointly trusteed plans.)
Firms on the AFT list had executives supporting one or more of three non-profit organizations the union says have attacked defined benefit plans: Students First, the Show-Me Institute and the Manhattan Institute.
Jack Ehnes, CEO of the $165.5 billion California State Teachers' Retirement System, West Sacramento, sent the report to members of CalSTRS' investment committee, and he expects staff will be contacting firms on the list with which CalSTRS does business. It will be up to the trustees what steps, if any, CalSTRS will take.
Still, CalSTRS is not unfamiliar with the non-profit organizations cited in the report. These so-called not-for-profits have been on our radar for some time,” Mr. Ehnes said. “We certainly have seen the growing strident tone of their advocacy.”
William R. Atwood, executive director of the Illinois State Board of Investment, said he wrote to the board's hedge fund-of-funds manager, Entrust Capital, which has Third Point in its fund of funds, as a result of an April 11 article in Rolling Stone magazine. Published before the AFT paper was released, the article was about an exchange between Third Point founder Daniel Loeb and Ms. Weingarten on the issue.
Mr. Atwood noted in his letter that Entrust Capital has a duty of loyalty to ISBI and its participants. “It would be troubling and embarrassing to now find that one of the firms retained by Entrust on ISBI's behalf is using the fees paid by ISBI participants to actively work against their interests,” Mr. Atwood wrote.
Entrust Capital Managing Partner Greg Hymowitz responded to Mr. Atwood in an April 19 letter: “In the approximate seven years EnTrust has been investing with Third Point, I have personally never heard or heard of Mr. Loeb stating his support for the positions he is accused of supporting, nor am I aware of any activity by Mr. Loeb or any of our other underlying managers to work against the interests of ISBI or any other public plan.”
Jack Marco, chairman of Marco Consulting Group, sent a letter to funds-of-funds management firm Summit Private Investments Inc. regarding its investment in AFT-listed firm Pennant Capital Management. Mr. Marco asked for Summit's “position on these assertions and how you plan to address concerns that the firm you have selected for investment are operated by individuals” who have negative views on defined benefit plans.
