The number of searches during the third quarter of 2023 decreased to 102 from 109 in the prior quarter, with 49% for service providers, followed by 29% for traditional managers and 16% for alternatives. The number of alternatives searches decreased to 16 from 17 in the prior quarter, and included LD Pensions’s $303 million search for alternatives manager to invest in listed alternatives with underlying exposure to private market assets. The mandate represents 4.4% of total plan assets, with the goal of outperforming private market returns over the whole market cycle.
The number of traditional searches decreased to 30 from 40 in the prior quarter. There were 50 service provider searches this quarter — 24 for consultants, 14 for record keepers, and the other 12 for legal, custodian, actuarial, proxy and governance professionals.
Notable activity for the quarter included Oklahoma Public Employees Retirement System’s three searches totaling $7.2 billion. BlackRock is blacklisted by Oklahoma Treasurer Todd Russ’s energy boycott regulation, and the retirement system is seeking multiple traditional managers to potentially replace BlackRock for its $4.9 billion passively managed U.S. equity, non-U.S. equity and fixed-income portfolios. Separately, another RFP is issued to replace BlackRock for its $1.7 billion U.S. constrained core fixed-income portfolio. Due to Oklahoma’s Energy Discrimination Elimination Act of 2022, Oklahoma Public Employees Retirement System also seeks to hire a new manager to replace State Street Global Advisors for its $621 million U.S. large-cap stock enhance index portfolio. At the August’s board meeting, with a 9-1 vote, the board determined that divestment of BlackRock and State Street funds is inconsistent with fiduciary responsibility.
Indiana Public Retirement System issued a $2.6 billion equity manager search for its strategic allocation to an ACWI ex-U.S. ex-China strategy, which will be benchmarked against MSCI ACWI index and represents 6.2% of total plan assets. Illinois Teachers’ Retirement System issued a $1.1 billion search for one or more active fixed-income managers to manage 5%-10% of its $15 billion global income portfolio. Managers are anticipated to generate greater risk-adjusted returns when compared to the Bloomberg U.S. Aggregate Bond index.
Illinois Police Officers’ Pension Investment Fund is reallocating 8% of its plan assets by conducting a $300 million search for a bank loan strategy and two $225 million searches each for active international and global, small-cap and smidcap strategies. New equity strategies are funded by passive portfolios, with a 5% target allocation to international small-cap equities.
All information is based on transactions reported by Pensions & Investments’ global reporting staff and RFP advertisements.
Hiring activity increased to $77.4 billion from $58.4 billion in the previous quarter, due to a massive $29.2 billion OCIO awarded to Goldman Sachs Asset Management by BAE Systems. The traditional hires declined to $6.8 billion from $15.2 billion in the prior quarter, followed by a 7% decline in alternatives hires. Real estate hires decreased 105% to $5.8 billion from $11.4 billion, followed by a 2% decrease in private equity. The overall number of hires decreased 11% for the quarter to 451 from 500, mostly driven by declining alternatives and traditional hires, respectively. The number of defined contribution hires increased dramatically to 55 from 32, while private equity hires dropped 34% to 153 from the prior quarter.
BAE Systems hired Goldman Sachs Asset Management as OCIO fiduciary provider to manage its $29.2 billion U.K. portfolio. After flipping funding level from deficit to surplus, the entire in-house investment team of 49 would be transferred and fully integrated into GSAM. Kier Group hired Schroders as an OCIO provider to manage its $1.5 billion portfolio following Schroders’ successful gilt, liability-driven strategies in 2022.
Nebraska Investment Council hired Northern Trust Asset Management to manage 17.75% of its $20.2 billion in overall assets in passive U.S. equity. It was funded by reducing BlackRock’s U.S. equity portfolio to 6% of plan assets. BlackRock previously managed the entire 24% U.S. equity and 11.5% ex-U.S. equity allocation.
Railways Pension Scheme hired Neuberger Berman to manage a $2.6 billion liquid credit portfolio, which includes investment-grade and non-investment-grade bonds. This hire reflects Railways Pensions’ tactical allocation shift within its growth portfolio as a result of market repricing, which ultimately resulted in a secular rotation out of listed equity assets and cash to multiasset credit strategies. Mubadala Investment Co. committed $1 billion to Blue Owl Capital’s technology lending strategy, one of the largest mandates received for the firm since the strategy inception in 2018. Mubadala intends to invest in high-growth tech businesses and capitalize on the rapidly growing Asia-Pacific credit market.
Blackstone was awarded five mandates totaling $1.9 billion, including a $1.5 billion commitment from CalPERS for its Blackstone Real Estate Debt Strategies V-C fund. Brookfield Asset Management received six mandates totaling $1.5 billion, including a $750 million commitment from CalPERS for its Brookfield Infrastructure Fund V.
There were 88 terminations during the third quarter, with 68 for defined contribution, 11 for traditional mandates and four for alternatives. Fidelity Investments’ 17 index funds are no longer included in Virginia Tech University’s DC investment lineup, followed by 12 Vanguard funds terminated by Colgate-Palmolive Co. and Chevron Corp. due to DC plan review. Morgan Stanley no longer manages New York State Common Retirement Fund’s $573 million active emerging market portfolio. Separately, New York State Common Retirement Fund liquidated $2.1 billion of investments in Franklin Templeton’s global equity fund and $566 million investments in fund-of-funds Rock Creek Adirondack Emerging Markets Fund. Virginia Retirement System terminated Beach Point Capital Management’s $628 million credit strategy that invests in syndicated bank loans.