Secondary Market Likely to Be Aided by GP-Led Deals

December 28, 2020 PIonline.com $16 an issue / $350 a year

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Alternatives GETTING OUT: Jill Shaw said the secondary market gives Secondary market likely limited partners a chance to leave longtime to be aided by GP-led deals funds or investors a Big increase in deals seen COVID-19 pandemic. reasons. Firstly, the pandemic has cer- way to part GP-led transactions involving sin- tainly delayed GPs’ exit plans — IPOs, with as industry adjusts after gle assets or portfolios are not just for trade sales, etc.,” said Larry Abraham- managers troubled funds. Alternative invest- Ajayi, Toronto-based vice president at that don’t fit COVID-19 disruptions ment managers with some of the secondary market broker Setter Capi- in their most sought-after assets in sectors tal Inc. “Accordingly, GPs have tapped portfolio By ARLEEN JACOBIUS such as health care and software are the secondary market to speed up li- anymore. recapitalizing on the secondary mar- quidity for their LPs while staying on Alternative investment general kets to give them more time and cap- to manage assets for longer.” partner-led secondary market trans- ital to accelerate growth of the port- Second, Setter Capital executives actions are expected to increase in folio companies in the funds, industry have seen a “stronger buyer appetite 2021, giving managers additional experts say. for GP-led transactions” from man- exit options and relieving the pres- “We’ve recently seen an upsurge in agers that invest on the alternative sure of selling companies during the GP-led transactions for a couple of SEE SECONDARIES ON PAGE 22

Investing SPECIAL REPORT THE TOP 10 STORIES OF 2020 A most unusual year chronicled by P&I Value managers Virus dominates welcome uptick the news, with ESG and Washington in performance d3sign/Getty Images action close behind November surge hoped to be only the beginning of sustained trend By ROB KOZLOWSKI By SOPHIE BAKER The wide-ranging ripple effects of a once-in-a-century Value managers are once again hoping that global pandemic dominated recent outperformance of their picks will stick headlines this year, but an around, potentially marking the start of a rota- evolving approach to ESG in- tion out of growth vesting, a contentious U.S. pres- stocks. idential election and a flurry of Executives are sure regulatory activity were also that this rally could among the notable themes in have the legs to run Pensions & Investments’ top 10 through 2021. stories of 2020. Value stocks made The top story this year — cho- huge gains in Novem- sen by P&I’s editors — will sur- ber, reversing years of prise no one. The COVID-19 underperformance vs. pandemic has wreaked havoc the broader market with the lives of nearly everyone EASILY NO. 1: The many stories surrounding COVID-19 were deemed the most important by editors at P&I. and growth stocks. No- EXECUTIVE PUSH? Ian on the planet in a seemingly in- vember’s surge in val- Butler said value has finite number of ways. For one, ID-19 on the retirement indus- ue stocks vs. growth in outperformed after the the editorial staff of the newspa- try specifically after passage of The biggest stories of 2020 terms of performance past six U.S. elections. per you’re reading hasn’t seen the CARES Act, the impact of the was likened by sourc- each other in person for more pandemic and the summer ra- ϐ COVID-19 and markets ϐ New SEC rules, CAT es to gains in April 2009, when value stocks ral- than nine months. cial injustice protests on ESG ϐ COVID-19 and retire- ϐ CalPERS’ CIO resigns lied as markets emerged from the global finan- However, among all the seis- investing, the election of Joe ment cial crisis. mic events the pandemic has Biden as U.S. president, new ϐ Manager, consultant The MSCI World Value index gained 15.07% elicited, it is the economic im- regulatory moves by the SEC ϐ ESG after COVID-19, consolidation in dollar terms in November, vs. 12.83% for the pact that has led P&I’s coverage and DOL and the surprising res- protests ϐ Significant ERISA MSCI World and 10.9% for the MSCI World in 2020. ignation of Yu “Ben” Meng as Growth index. That followed years of under- ϐ President-elect Biden lawsuit rulings Other big stories of the year CalPERS’ chief investment offi- performance for the value index vs. both the included the impact of COV- CONTINUED ON PAGE 14 ϐ The DOL’s new rules ϐ U.S.-China tensions world and growth indexes. In 2019, value gained 22.74% vs. 28.4% for the world index and 34.14% SEE VALUE ON PAGE 26 SOUND BITE Industry pondering the future of SSGA GROOM LAW GROUP’S JOSH SHAPIRO: State Street Chairman and ‘I believe that variable plans will lead CEO Ronald P. O’Hanley to a resurgence of defined benefit looks to have something in pension programs.’ Page 2 mind for his money management subsidiary. Page 3 2 | December 28, 2020 Pensions & Investments

IN THIS ISSUE Pension Funds

VOLUME 48, NUMBER 26 Defined contribution Market opening up for more variable plans Target-date managers see greater opportunities for lifetime income products Agreement between grocers, plans that combine defined “I think we’re seeing in DC plans. Page 25 benefit and defined contri- more variable plans than we union sparks new interest as bution features to share ever have before, and more Endowments multiemployer reform fades more investment risk with variations of them. ... They Smith College announced plans to seek its plan participants. certainly come up in con- first CIO and manage its $2 billion portfolio “After the dust settles on versation,” even among cor- By HAZEL BRADFORD 2020, it will provide support porate plan sponsors, said in-house after working with an OCIO. Page 6 for arguments we often Mr. Cadenhead, chief actu- Exchange-traded funds The aftereffects of the COVID-19 pan- make for defined benefit ary for Mercer’s global and ETFs are on track for a record-breaking year demic on retirement plans and Congress’ plans — the asset allocation U.S. wealth businesses in recent failure to achieve multiemployer and investment manage- New York. of net new flows in 2020.Page 13 pension reform could mean a boost for vari- ment advantages” that have The basic premise of a Investing able pension plans, pension experts say. historically averaged higher variable defined benefit or Singapore’s GIC will establish a $750 The concept gained more visibility this net returns than defined EVERYBODY’S TALKIN’: Bruce variable annuity pension year with a new variable annuity pension contribution plans, said Cadenhead said the topic of plan is that the plan adjusts million joint venture with ESR to develop plan agreement between three major gro- Bruce Cadenhead, chairman variable plans has come up benefits up or down based and acquire industrial and logistics assets cery companies and the United Food and of the American Academy of more than ever before. on investment returns. An in India. Page 16 Commercial Workers International Union, Actuaries’ pension commit- assumed rate of return called Pension risk transfer Washington. tee. He notes that some defined contribu- the hurdle rate, typically between 4% and And while congressional negotiations to tion plan participants were spooked enough 6%, determines whether benefits for all par- Pension funds transferred $14.5 billion reform multiemployer pension funds broke by market volatility caused by the pandemic ticipants, including retirees, go up or down in liabilities through deals announced in down in December, the incoming 117th to withdraw some assets, missing out on on a plan year basis. Some variable plans December. Page 4 Congress could revive the one area of bipar- gains realized by professionally managed have floors limiting how low benefits can Pension risk transfer premiums fell in tisan agreement allowing for composite defined benefit assets. SEE VARIABLE ON PAGE 26 November as decreases were seen in discount and annuity purchase rates, Defined Contribution Milliman said. Page 23 Regulation The SEC will broaden the focus of its Sponsors returning Regulation Best Interest compliance

examinations in 2021. Page 24 MacGregor/Bloomberg Luke Washington to questions about Leveraged lending is not posing a major risk to U.S. financial stability but financial in-plan annuities regulators are still cautious. Page 16 Departments Issues surrounding lifetime income options At deadline ��24 Frontlines ��8 surface again after virus took precedence By the numbers ��17 Hirings ��18 Changes ahead ��27 News roundup ��21 Classified ��20 Other views ��11 By ROBERT STEYER ESG roundup ��12 RFPs ��20 ETFs ��13 Year in cartoons ��10 One year after the SECURE Act addressed a major road- block to defined contribution executives offering in-plan an- Last call for for responses nuities, some sponsors — as they try to recover from the im- to P&I’s sponsor survey pact of the coronavirus pandemic — are trying to regain the momentum of investigating if these options make sense for A final reminder, Pensions & Investments their participants. is still accepting late responses to The coronavirus played a major role in diverting execu- the annual survey of the largest U.S. tives’ attention from an already-complex plan design con- retirement funds. Sponsors with cept. Some recent research suggests that in-plan lifetime combined U.S. pension and defined income options remain a tough sell to sponsors and to par- contribution plan assets of $1.3 billion ticipants. Other surveys cite some interest, but they cannot or more are eligible. Results will run tell if the intensity of the interest — ranging from “very” to Feb. 8. “somewhat” — would fore- NO EXTRA COSTS: Sonja Laud thinks clients now expect ESG integration in any To request a survey or obtain further cast action. investment, and a fee premium for that integration ‘might not be sustainable.’ The SECURE Act “isn’t an- information, please contact Anthony swering all of the questions ESG Scuderi at [email protected] or and it’s not solving all of the 212-210-0140, or visit www.pionline. problems” for the use of in- com/section/surveys. plan annuities within DC Fees for ESG investments in plans, said Shawn O’Brien, Entire contents ©2020 Crain Communications Inc. All rights senior analyst for Cerulli As- reserved. Pensions & Investments (ISSN 1050-4974) is published sociates, Boston. “It is taking a Europe moving downward biweekly by Crain Communications Inc., 150 N. Michigan Ave., Chi- cago, Ill. 60601-7593. Periodicals postage paid at Chicago, Ill. and while for certain product pro- at additional mailing offices. Postmaster: Send address changes viders and sponsors to get Managers being forced ed average fee for all ESG funds — to Pensions & Investments, Circulation Dept., 1155 Gratiot Avenue, more comfortable.” defined by having ESG language in Detroit, Mich. 48207-2912. $16 per issue; $350 per year in the U.S.; $375 per year in Canada; all other countries $475. ‘‘Canadian Signed by President Don- to absorb costs to keep the fund description — was 0.57% Post International Publications Mail Product (Canadian Distribution) HALTED: David Ireland said all ald Trump in December 2019, vs. 0.71% for non-ESG funds, ac- Sales Agreement No. 0293539’’ GST #136760444. Printed in U.S.A. talk of in-plan annuities the Setting Every Community up in competitive field cording to Morningstar figures — a stopped in March, in the wake Up for Retirement Enhance- mix of institutional and retail data. CRAIN COMMUNICATIONS INC of the pandemic. ment Act provided a fiduciary By PAULINA PIELICHATA The equal-weighted fee for ESG Keith E. Crain, Chairman safe harbor for DC plans that funds was 0.93% vs. 1.21% for non- Mary Kay Crain, Vice Chairman offer in-plan annuities if an annuity provider were to fail. Money managers racing to gath- ESG funds. KC Crain, CEO Among other things, the law protects sponsors if they ob- er environmental, social and gover- In the asset-weighted category, Chris Crain, Senior Executive Vice President tain “written representations” from an insurer or other pro- nance assets as European asset the average fee for ESG funds has Lexie Crain Armstrong, Secretary vider affirming their financial health. owners shift to all-ESG portfolios fallen by 42% and by 29.6% for Bob Recchia, Chief Financial Officer Sponsors aren’t required to conduct their own evaluations will have to absorb the cost of inte- non-ESG funds since 2013. In G.D. Crain Jr., Founder (1885-1973) of an annuity provider’s financial health. The law allows grating specialist data if they want equal-weighted terms, the average Mrs. G.D. Crain Jr., Chairman (1911-1996) sponsors to use many criteria in selecting a provider and it to remain competitive on fees, fee for ESG funds dropped by 29% Published every other Monday by Crain Communications Inc. doesn’t require them to choose the lowest-cost provider. which in Europe are already lower and for non-ESG by 17% over the Boston: 101 Federal St., Suite 1615A, 02110; Chicago: 150 N. Michigan Ave., 19th Floor, “We saw a lot of activity in January and February but then than for non-ESG investments. same period. 60601; London: 11 Ironmonger Lane, EC2V 8EY; El Segundo, Calif.: 400 Continental Blvd., 6th everything froze,” said Michael Kreps, a principal at Groom A European fee study by Morn- Sources said that new European Floor, 90245-5074; New York: 685 Third Ave., 10017; San Francisco: 71 Stevenson St., Suite 400, 94105; Washington D.C.: 601 13th St. NW, Suite 800 South, 20005. Law Group, Washington, describing discussions with clients ingstar Inc. published Dec. 7 disclosure rules such as the Sus- Address all subscription correspondence to Pensions & Investments, 1155 Gratiot Ave., Detroit, about in-plan retirement income options. showed that fees have fallen more tainable Finance Disclosure Regu- Mich. 48207-2912 or email [email protected]. Although the SECURE Act addressed insurance credit for all ESG strategies compared lation, effective in March 2021, will Member of Business Publications Audit of Circulation risk, sponsors still must wrestle with issues such as cost and with their non-ESG counterparts push investors to further align their www.pionline.com type of products to be offered. “It takes a while to clear all the over the last seven years. portfolios with carbon reduction hurdles,” such as whether the | SEE SECURE ON PAGE 24 As of October, the asset-weight- SEE ESG FEES ON PAGE 23 Pensions & Investments December 28, 2020 | 3

Money Management

State Street looks William B. Plowman/NBC at merger or sale options for SSGA REUTERS/Mike Blake Goldman Sachs said to be shopping manager to big names in industry

By CHRISTINE WILLIAMSON

State Street Corp., Boston, is seeking to expand the investment management capabilities of State UNHAPPY CAMPER: Sen. Patty Murray said President Trump is just ‘jamming through another attack on workers and retirees.’ Street Global Advisors or possibly sell the asset management unit, Regulation which as of Sept. 30 reported $3.15 trillion in assets under management. Critics bristle at timing of DOL actions Industry sources who spoke on ALL TOGETHER: One source said condition of anonymity confirmed Chairman and CEO Ronald P. O’Hanley is that Goldman Sachs Group Inc.’s ‘in a great position to be a consolidator.’ on proxy voting and investment advice New York-based investment banking unit has been discussing SSGA O’Hanley might be considering. By BRIAN CROCE pants and beneficiaries. The proxy rule” because it would likely result with potential acquirers, merger “It’s still a guessing game as we rule will go into effect Jan. 15, five in an annual effect on the econo- partners or collaborators, including don’t really know what they’re con- The Department of Labor in days before the Biden administra- my of $100 million or more, which Invesco Ltd., UBS Group AG and templating. It could be an outright just five days this month finalized tion takes office. means the exemption can’t go into The Vanguard Group Inc. sale where (State Street) complete- two distinct yet controversial rule- On Dec. 15, the Labor Depart- effect until 60 days after publica- Edward Patterson, a State Street ly monetizes (SSGA) and moves making actions as the Trump ad- ment issued a final prohibited tion in the Federal Register. The spokesman, said in an email: “We away; it could be a merger with a ministration’s time in office nears transaction exemption permitting exemption’s effective date is Feb. are not commenting on … rumor or rebranding; or it could be (that) its end. investment-advice fiduciaries to 16. Since the new administration speculation” in response to a re- they retain some ownership,” said The first rule, unveiled Dec. 11, receive compensation for more will be in office at that time, it quest for information. Brian R. Lauzon, managing director stipulated that fiduciaries gov- types of guidance, including ad- could halt and review any rule- Spokesmen for UBS, Vanguard at InCap Group Inc., a Philadel- erned by the Employee Retire- vice to roll over assets from a re- making effort that is not in effect, and Goldman Sachs declined to phia-based investment bank. ment Income Security Act can en- tirement plan to an individual re- meaning that the exemption has comment and Invesco representa- He noted that “rebranding would gage in proxy voting decisions tirement account. an uncertain fate. tives did not respond to an email be really interesting. They could only when it’s in the interest and During the exemption’s review Opponents of the proxy rule request for comment. change the name at the top, but not for the exclusive purpose of pro- process, the Office of Management and investment-advice exemption It’s not clear what State Street the products as (SSGA) really has viding plan benefits to partici- and Budget designated it a “major SEE LABOR ON PAGE 24 Chairman and CEO Ronald P. SEE STATE STREET ON PAGE 27

Christie’s Images Sotheby’s Smithsonian American Art Museum Christie’s Images

Among female artists, Ruth Asawa’s ‘Untitled (S.387, Hanging Three Separate Layers of Impressionist master Claude Monet’s ‘Meules,’ Three-Lobed Forms),’ at left, sold above, sold for $110.7 million at auction in Among Black artists, Barkley L. Hendricks’ ‘Yocks,’ left, sold for $4.1 million in 2019, realizing 2019, more than 44 times its 1986 sale price for $3.7 million in 2019 after selling for $900,000 in 2017. a 51.5% CAGR since 2011. Works of $2.53 million. Among postwar artists, the Works by artists such as Jean-Michel Basquiat, ‘Olive Oil,’ by Marie Laurencin ‘Les jeunes largest sale in 2019 was Jeff Koons’ ‘Rabbit,’ center, and Alma Thomas, ‘White Roses Sing and Sing,’ filles (Jeune Femmes, Young Girls),’ right, which sold for $91.1 million. right, are in high demand among collectors. above, are also in high demand. A picture is worth … Art should be considered as an investment for institutional portfolios from both a return standpoint and as a way to achieve social goals, such as diversity and inclusion, that are often part of an ESG framework. Historically, wealthy families and individuals have been the biggest buyers of art, for its aesthetic, cultural and social value. More recently, art has started to morph into a financial asset in its own right.

Opportunity: Although Annual art market turnover (billions) Investing in change: Sotheby’s Mei Moses indexes, relative to 2009 small by financial market $78 Works by postwar male 550 standards, the art market $72 artists sell for $100 million- 500 has significant turnover that $66 plus, far outstripping original 450 Postwar & Contemporary Art index would allow small- and $60 purchase prices. However, midsize institutional equivalent pricing has eluded 400 Contemporary Female Artists index $54 African-American Artists index investors to diversify $48 female and minority artists 350 portfolios. Over the past — even as the art world has $42 300 decade, art has averaged recognized their talent. about $60 billion in annual $36 Through investments in 250 $30 turnover, similar to the level diverse artists, institutional 200 of money raised by venture $24 investors could help rectify 150 capital funds. $18 that imbalance while earning 100 $12 returns. $6 50

$0 0 2019201820172016201520142013201220112010 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Sources: Art Basel/UBS, Sotheby’s Compiled and designed by Aaron M. Cunningham and Gregg A. Runburg 4 | December 28, 2020 Pensions & Investments

Pension Risk Transfer Companies end year by shipping off pension liabilities

GE enters into buyout Most of the action took place monthly payments being made to lump sums totaling $2.65 billion to fund protected participant benefits with U.K.-based plans, but in the participants and will not affect the former employees who accepted an from the impact of an unexpected while U.K. funds close U.S., General Electric Co., Boston, plan’s funded status. offer made in October 2019. increase in the life expectancy of announced it transferred $1.7 bil- This transaction follows GE’s an- current retirees. on big longevity swaps lion of its U.S. GE Pension Plan ob- nouncement earlier this month that Longevity swaps “In addition to the material re- ligations to retirement services firm it had voluntarily prefunded $2.5 Two longevity swaps were an- duction of deficit revealed at the By SOPHIE BAKER, JAMES Athene Holding Ltd. through an billion of estimated minimum nounced this month covering more 2019 actuarial valuation, the lon- COMTOIS and PAULINA annuity buyout. ERISA GE Pension Plan funding than $10 billion in pension liabili- gevity swap is another significant PIELICHATA As part of the transfer, Athene requirements for 2021, 2022 and ties. step in our derisking journey for will provide payments to roughly into 2023. ■ Barclays Bank U.K. Retire- the UKRF, improving benefit secu- Pension funds on both sides of 70,000 plan participants receiving GE had $56.4 billion in U.S. pen- ment Fund, Redhill, England, in- rity for all members,” Peter Gos- the Atlantic offloaded $14.5 billion less than $360 per month through sion fund assets as of Sept. 30. The sured £5 billion ($6.6 billion) in lia- hawk, chairman of the fund’s trust- in liabilities through pension risk one of the firm’s subsidiaries, a company’s U.S. plan for salaried bilities through a longevity swap ees, said in a news release. transfer deals this month alone, in- news release said. employees will be frozen effective with Reinsurance Group of Ameri- The deficit as of Sept. 30, 2019, cluding two huge longevity swap The pension risk transfer will Jan. 1, as previously announced. ca Inc., a Barclays spokesman said. was £2.3 billion. The plan’s defined announcements. not change the amount of the Last December, GE distributed In its first longevity swap, the benefit assets were £34 billion. Barclays also sponsors a defined contribution section with £2.1 billion in assets. Consultant Aon and law firm Linklaters served as advisers on the deal to the trustee. ■ BBC Pension Scheme, Lon- don, completed a £3 billion ($4 billion) longevity swap with Zurich and Canada Life Reinsurance. The deal provides the pension fund and sponsoring employer British Broadcasting Corp. “with more certainty over future funding costs, and improves the security of all members’ benefits,” a notice posted on the pension fund’s website said. The fund had £17.3 billion in assets as of June 30. The deal covers about a third of retiree liabilities, the notice said. “The trustee is pleased to have been able to take this important step in our risk management strategy and significantly reduce one of the key risks that all pension schemes face, namely the uncertainty in relation to how long members will live, and pensions will have to be paid for,” Catherine Claydon, chairwoman of the trustee board, said in a Zurich news release. A spokeswoman for the BBC Pension Trust confirmed the longevity swap transaction, which was agreed on Dec. 11.

Buy-in deals A 50YEAR HERTIAGE OF ALTERNATIVES There were also two buy-in deals in the U.K. covering another $2 billion-plus in pension liabilities. INVESTMENT MANAGEMENT ■ Maersk Retirement Benefit Scheme, Ware, England, insured DWS is one of the world’s leading duciary alternatives managers. Our integrated £1.1 billion ($1.5 billion) in liabili- platform and network of investment professionals around the world opens a universe ties through a full plan buy-in of public and private equity and debt solutions including real estate, infrastructure and with Legal & General Assurance Society, said a spokeswoman at liquid real assets; sustainable investments; and private equity strategies. Willis Towers Watson PLC, adviser on the deal. Long-standing relationships often give us access to a wide range of investment In its first buy-in deal, the £1.1 opportunities. An integrated top-down and bottom-up approach provides unique billion ($1.5 billion) plan for shipping company Maersk secured the market perspectives. Learn more at dws.com/institutional-access benefits of around 1,900 participants that are yet to retire and The Alphabet of Asset Management 3,000 retirees. Law firm Travers Smith also advised the trustees. “After many years of careful management and derisking, we have now secured our members’ benefits through a buy-in with Le- gal & General. We were impressed with the flexibility and profession- alism shown by Legal & General, alongside our advisers, to complete the transaction at a challenging time,” Nigel Pusey, chairman of the All investments involve risks, including possible loss of principal. Certain DWS products and services may not be available in every region or country for legal or other reasons, trustees, said in a news release and information about these products or services is not directed to those investors residing or located in any such region or country. The brand DWS represents DWS Group GmbH & Co. KGaA and any of its subsidiaries, such as DWS Distributors, Inc., which oers investment products, or DWS Investment Management Americas, Inc. and RREEF Dec. 16. America L.L.C., which oer advisory services. © 2020 DWS Group GmbH & Co. KGaA. All rights reserved. ALT2011456 (11/20) R-079380-1 ■ Aon Retirement Plan, Farn- borough, England, insured £510 SEE PRT ON PAGE 23 Thank Y As we close the last issue of 2020, we wanted to thank our readers, conference attendees, online registrants, digital product subscribers and our marketing partners for your loyalty and dedication to, and support of, our publication this year.

We look forward to delivering the latest industry news, research, and data to you, and hope we will have the opportunity to see you at one of our many educational events in 2021 and beyond.

Wishing you a very happy, healthy and prosperous New Year!

www.pionline.com

20pi0283.pdf RunDate: 12/28/20 Full Page Color: 4/C 6 | December 28, 2020 Pensions & Investments

Endowments

Smith College Smith College parts with OCIO, will manage its assets in-house

By JAMES COMTOIS trustees “has decided to establish lege’s vice president for finance its own in-house investment office” and administration. Smith College plans to hire its after having “outsourced the man- “It has been an honor to partner first chief investment officer and agement of its endowment to Inves- with Smith College for so many manage its $2 billion endowment ture” since 2004. The decision was years. Investure was founded on internally after using outsourced made “following more than a year the premise of serving non-profit CIO Investure LLC for 16 years. of deliberation.” institutions, with the goal of gener- An open letter to students, staff, As Smith College winds down ating excellent long-term invest- faculty and alumni signed by Smith its portfolio with Investure, the ment performance,” said Bruce College President Kathleen Mc- school will continue to work with Miller, CEO of Investure, in a news Cartney and board Chairwoman the firm over the next few years to release issued by Smith College. Alison Overseth said the Northamp- ensure a smooth transition, con- “We are proud of our role in helping BRING IT ON HOME: Smith College will hire internal staff to manage its endowment. ton, Mass.-based school’s board of firmed David DeSwert, Smith Col- Smith successfully grow their endowment, and we look forward to supporting Smith in the coming years in this next phase.” The endowment has more than doubled from around $900 million Marketing Opportunity when Investure was hired. Investure Chief Operating Offi- cer Puja Seam said in an email the firm had no additional comment beyond Mr. Miller’s statement. Size appears to be the main rea- Reach the pinnacle son the school is making this change. Simply put, the board feels the endowment is big enough to manage the portfolio itself. of institutional assets “Given the current size of our endowment, Smith has become an outlier among higher education in- The industry’s highly-anticipated indispensable resource on the state of the pensions industry stitutions that outsource their endowment management,” the letter — The P&I 1,000: Largest U.S. Retirement Funds — is publishing on Feb. 8. stated, adding that establishing its internal investment office will al- The P&I 1,000 issue remains the industry’s source for data and news on $13 trillion in low the school to “further customize (its) investment strategies to institutional assets and continues to be a highly sought after advertising opportunity for you. Smith’s specific needs and exercise greater direct control over (its) The issue features rankings of the top 1,000 funds and page after page of useful charts and largest financial asset.” As of June 30, the endowment data which of course are all available online in an expanded and customizable format. had a 34% allocation to global equities, 31% private partners, 27% al- Don’t miss the opportunity to place your ad in one of the most important ternative equities, 6% fixed income, Pensions & Investments’ print issues of the year. and 2% cash and miscellaneous. Executive recruiting firm David Barrett Partners will assist the school in seeking its first-ever CIO. Once hired, the new CIO will be re- To reserve your ad, contact Julie Parten, sales director, sponsible for establishing and at 952.495.0422 or [email protected]. staffing an investment management office to run the endowment. A Smith College spokeswoman said that the school has not yet announced a time frame for hiring its new investment staff. Smith College is joining the ranks of other large endowments looking to manage their assets themselves. According to the 2019 NACUBO-TIAA Study of Endow- ments released in January, roughly 75% of schools with endowments exceeding $1 billion had an internal investment office.

Greater control Speaking generally about large college endowments, Kenneth E. Redd, senior director, research and policy analysis at the National As- , sociation of College and University P&I 1000 Business Officers, Washington, ex- LARGEST U.S. RETIREMENT FUNDS plained that one advantage these endowments have in using inter- Issue: February 8 | Closing: January 27 nal staff to manage their assets is greater control of hiring and firing managers and access to more firms, particularly those that manage private equity and other alternative strategies. Charles A. Skorina, founder of San Francisco-based executive search firm Charles A. Skorina & Co., which specializes in the hiring www.pionline.com of CIOs, said in a phone interview SEE SMITH ON PAGE 27 INTERESTED IN SUSTAINABLE INVESTING?

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20pi0279.pdf RunDate: 12/28/20 Full Page Color: 4/C 8 | December 28, 2020 Pensions & Investments FRONTLINES

HOLIDAY HIGH JINKS Blackstone would like to show you how things are done around the office Blackstone Group President Jon contest, in which we see Joseph All display infinite patience Gray has channeled his inner Baratta, global head of private with their overenthusiastic Michael Scott in the latest of the equity, astonishing the easily president. And for the holidays, Mr. alternative giant’s annual holiday fooled Mr. Sunshine with a clearly Sunshine does a Secret Santa gift videos. photoshopped portrait of him with exchange in which he’s the Santa Mr. Gray is billed as “Mr. his arm around his pet tiger, and for everyone, dispensing spectacu- Sunshine” in the nine-minute Wayne Berman, senior managing larly awful gifts like a CVS receipt, video on YouTube, modeled after director and head of global a broken snow globe, and an episode of the NBC sitcom government affairs, posing proudly 8-month-old sourdough starter, “The Office.” with his extraordinarily kitschy among others. Blackstone employees in the needlepoint. The video ends with employees humorous video relate their Even Stephen A. Schwarzman, lip-syncing “Walking on Sunshine” experiences dealing with Mr. co-founder, chairman and CEO, and offering heartfelt thanks to Sunshine’s desperate attempts to gets into the act, revealing to the first responders, essential workers boost morale over the past year of audience he has simply propped and teachers. Zoom meetings. up a cardboard cutout of himself The video is available on You- Those attempts include the for every Zoom meeting and Mr. Tube. WORLD’S BEST BOSS: Jon Gray as ‘Mr. Sunshine’ gives a thumbs-up during the video. weekly Blackstone Group photo Sunshine hasn’t even noticed. — ROB KOZLOWSKI

INAUGURAL AWARD

Roger Schillerstrom Building research earns honor from Aquila Capital

Galina Churkina, a guest senior scientist at the Potsdam Institute for Climate Impact Research in Germany, has won the inaugural Aquila Capital Transformation Award. The €20,000 ($24,221) award, given by European real asset manager Aquila Capital Investment GmbH, Hamburg, Germany, is intended to support research for mitigating climate change. Ms. Churkina’s research paper “Buildings as a Global Carbon Sink” was selected as the winning entry, according to a Dec. 17 news release. The award was open to younger scientists worldwide whose work relates to sustainability, climate change and the transformation of energy systems, with a particular geographic emphasis on Europe. BIG MILESTONE The theme of the inaugural award was “Accelerating Decarbonization DECARBONIZATION: in Europe.” Galina Churkina Vanguard stock fund surpasses $1 trillion Ms. Churkina holds a doctorate Vanguard Group can now boast it manages the first $1 basis points above the index. from the W.A. Franke College of Forestry & Conservation at trillion stock fund. Since inception, the Vanguard Total Stock Market Index the University of Montana in Missoula. The Vanguard Total Stock Market Index Fund had $1 Fund returned a cumulative 567.8% as of Nov. 30. “The conclusions of Dr. Churkina’s paper match Aquila Capital’s philosophy very well,” said Roman Rosslenbroich, trillion in assets as of Nov. 30, according to company data. Vanguard Group said in a statement: “We take very co-founder and CEO of Aquila Capital, in the news release. Launched in 1992, the index fund provides access to seriously our responsibility as stewards of our clients’ “They present a practical application of research and address the entire U.S. equity market, encompassing small-cap, investments and are grateful that investors continue to two of our firm’s investment themes, timber and real estate. In midcap and large-cap growth and value stocks. At the end entrust their assets to Vanguard. At Vanguard, growth is its first year, the award has already been very well received of that year, the fund had $512 million in assets. an outcome, not a goal. We are pleased that Vanguard with numerous excellent and valuable submissions. We at The fund has been benchmarked to the CRSP U.S. Total Stock Market Index Fund’s combination of low costs, Aquila Capital want to make an active contribution to combat Total Market index since June 2013 when the bench- broad diversification, low turnover, tax-efficiency and climate change — be it directly through our investments in mark changed from the MSCI U.S. Broad Market index simplicity has brought value to investors worldwide.” renewable energy or by promoting academic research.” and returned 19.16% for the year ended Nov. 30, 2 — ROB KOZLOWSKI Aquila Capital intends to give the award biennially. An Aquila Capital spokesman could not immediately provide further information. — ROB KOZLOWSKI

BUILDING AN EQUITABLE WORLD “We are thrilled to be partnering with Big Society Capital and others in supporting the Women in Safe MacArthur Foundation invests Homes fund and its innovative model for meeting the critical housing needs of women and in women’s safe housing fund children who are survivors of domestic abuse, have been John D. and Catherine T. release from the two firms Dec. 17, involved in the criminal justice MacArthur Foundation, Chicago, the fund was created “as a solution system, or are experiencing invested $5 million in Women in to the lack of affordable, safe and homelessness,” said Debra Safe Homes, a U.K.-based social secure homes for women who are Schwartz, managing director of impact property fund, spokes- experiencing homelessness, have impact investments at MacArthur woman Maria Speiser confirmed been involved with the criminal Foundation, in the release. “As part in an email. justice system, are survivors of WORKING TOGETHER: Preston Road Women’s Centre in Hull, England, was the of a select portfolio of investments The $7.2 billion foundation is domestic abuse or have other first organization to partner with the Women in Safe Homes social impact fund. we have been building through our one of the initial investors in the complex needs.” Catalytic Capital Consortium new fund managed by U.K. real The fund will purchase proper- according to the news release. the release. Other investors include initiative, this fund clearly demon- estate manager Patron Capital ties and lease them to women’s The fundraising target is £100 U.K. social impact investor Big strates the power of catalytic Partners and social impact organizations and homelessness million ($132 million), and it Society Capital and Keith Breslau- capital to help build a more just, investment company Resonance. charities, and the goal is to provide launched with an initial invest- er, managing director and senior equitable and resilient world.” According to a joint news up to 650 affordable homes, ment of £15.5 million, according to partner of Patron Capital. — ROB KOZLOWSKI REGISTER NOW DC Investment Lineup Virtual Series April 19-22 | 2021

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20pi0281.pdf RunDate: 12/28/20 Full Page Color: 4/C 10 | December 28, 2020 Pensions & Investments OPINION Cartoons depict a year like no other Pensions & Investments is revisiting the challenging year that was 2020 through the eyes of its cartoonist, Roger Schillerstrom. His efforts were largely focused on the COVID-19 pandemic, starting in the early days of spring when a plunging stock market and the dangers of COVID-19 were forcing everyone to take dire, unprecedented actions. Summer included an industry forced to take a hard look at itself in the wake of nationwide racial strife. Other issues included the Department of Labor redefining ESG investing and proxy reform, and a promise of expanded retirement coverage through pooled employer plans. And of course, there are the challenges facing a new presidential administration and the hope it brings.

 In the Feb. 24 cartoon, money managers were urged to complete an SEC survey that sought to measure diversity at their firms.

Our Nov. 16 selection highlighted the economic challenges that will be facing Joe Biden and Kamala Harris after their victory in the presidential election.   With our March 23 cartoon showing the market in shambles, P&I switched gears to give readers more virus news.

 The Sept. 7 offering showed disappointment with how the DOL was walking back many practices that investors cheered as innovations. The July 13 cartoon illustrat-  Our Oct. 19 cartoon applauded ed how P&I believed the DOL pooled employer plans and the expand- was on the wrong side of the ed retirement coverage they will bring. ESG investment debate. 

 The Aug. 24 cartoon illustrated the predicament facing public funds looking at a rising market in the face of plunging state revenues. Pensions & Investments December 28, 2020 | 11 OPINION

Christopher J. Battaglia VP/Group publisher

OTHER VIEWS ADAM WATEROUS EDITORIAL Amy B. Resnick Editor (212) 210-0751 Julie Tatge Executive editor (312) 649-5442 Institutions urged to act now Kevin Olsen Managing editor (312) 649-5223 David Schepp News editor Sophie Baker International news editor on opportunities created by Peter J. Retzbach Copy desk chief Colette Jordan Copy editor Patrick Roth Web producer current global oil disruption Trilbe Wynne Editorial assistant REPORTERS Douglas Appell International s the world awaits broad Adam Waterous is Hazel Bradford Washington availability of various founder and manag- James Comtois General assignment COVID-19 vaccines, the ing partner of Margarida Correia Defined contribution consequences of a severely Calgary, Alberta- weakened U.S. oil industry Brian Croce Washington based Waterous Arleen Jacobius Private equity/real estate Aare flying under the radar. Energy Fund, a deep With continued lockdown measures Rob Kozlowski General assignment value, special Paulina Pielichata International and the West Texas Intermediate oil situations investor Robert Steyer Defined contribution price hovering in the $40s, a growing in established North chorus believes that U.S. shale oil American oil and Danielle Walker Money management production has peaked. Indeed, gas assets. Christine Williamson Money management institutional investors expect industry ART  The June 15 cartoon consolidation to continue and global Gregg A. Runburg Art director was a message to energy organizations predict U.S. oil 2030. Shell, Total and Repsol have all Roger Schillerstrom Editorial cartoonist institutions to do more production to continue to decline committed to net-zero emissions by than just promise (current U.S. oil production has already 2050 and have identified renewables as DATA/RESEARCH change in the wake of declined to about 10.7 million barrels the key growth driver of their go-for- Aaron M. Cunningham Director of research and of oil per day, from a high of 13 million ward business plans. analytics protests following the earlier this year). The industry has 3. Global oil demand will continue to Anthony Scuderi Directory manager death of George Floyd. experienced a wave of defensive, grow (post-COVID-19 vaccine) due to Valerie Ge Research analyst all-stock merger activity to cut costs global GDP growth. Much of the and survive this downturn. developing world lives in energy SALES & MARKETING  The April 20 cartoon As capital continues to flee the oil poverty, consuming a fraction of the per Nikki Pirrello Associate group publisher, stressed the roadblocks sector in favor of energy transition capital oil consumed in North America, conferences and marketing services facing participants as technologies, we are beginning and based on historical trends, Julie Parten Head of sales the COVID-19 mael- another tectonic shift — the global oil economic development will drive oil Lauren DeRiggi Digital specialist/account strom was just becom- industry will be increasingly domi- demand growth in those countries. executive ing apparent and how nated by autocratic governments, not Shrinking investor-controlled REGIONAL SALES MANAGERS free enterprises in North America. supply coupled with resilient global oil innovation would help. Rich Kiesel West This is “peak investible oil,” a global demand means only one thing: the Paul Kissane Midwest challenge but also an opportunity for share of future global production Anna Koules New York long-term investors. controlled by OPEC nations and other Peak investible oil differs from nationally owned oil companies will Steve Middleton EMEA +44-(0)77-1012-8464 “peak oil demand,” which has become grow. In turn, U.S. energy indepen- Hideo Nakayama Asia (Tokyo) +81-3-3479-6131; [email protected] a hot topic along with the “electrifica- dence will dwindle. In a peak invest- Eduardo de Alcantara Machado Sao Paulo, tion of everything” following Tesla’s ible oil world, the price of oil will Brazil +55-11-3167-0821; [email protected] rocketing share price and BP’s increasingly be set by Riyadh, Moscow Patricia Ghazvini Sales assistant prediction of peaking oil demand and Tehran and less by the marginal peaking in the next decade. Peak drilling economics of North American CONFERENCES/MARKETING investible oil is a supply-side theory producers. The implications are vast Kimberly Jackson Director of conference sales that investor-controlled oil production and far-reaching: reduced North Diane Pastore Director of conference programming has peaked, and that OPEC nations, American energy security; a growing Joshua Scott Director of conference programming Russia and other countries’ national oil U.S. trade deficit; less industry Kathleen Stevens Investor relations director companies will have an increasing transparency; and eroding ESG Gerry O’Hara Investor relations manager market share of global oil production standards. At the same time, the Michelle DeMarco Director, relationship marketing in the future. For context, in 2019, transfer of market share to OPEC Assel Chanlatte Conference marketing manager roughly 27 million barrels of oil per states and other nationally owned oil Mirjam Guldemond Conference manager, day (27% of total global output of 100 companies translates into a global tax WorldPensionSummit +31-6-2333-2464 million) was controlled by the free on all consumers. Kristal Santos Client services project manager market, or companies controlled by Investors should not simply pass on Ashley Perrucci Associate manager, client investors. The rest was owned by this asset class based on depressed oil partnerships governments, many of which do not prices and poor recent returns. Higher Rachel Lopez Conference administrative assistant  The Oct. 5 cartoon tackled the issue of governance, and rank well when it comes to rule of law, oil prices combined with the acceler- CUSTOM CONTENT/CLIENT SOLUTIONS how pension funds must work to get it right if they expect individual rights, environmental ated issuance of U.S. federal debt to Greg Crawford Director of content solutions to maintain good performance for their participants. stewardship or general transparency. levels last seen during World War II Corina Lewis Client solutions senior program We believe that global investor-con- could create inflationary pressures not manager trolled oil production will decline to seen since the 1970s. Direct ownership David Joseph Research analyst roughly 20% by 2030. This is the ESG of hard assets, such as oil, has histori- Tetyana Saucedo Digital campaign manager story that is not being discussed. cally been an effective inflation hedge, Deanna Speziale Senior marketing associate and the investible universe of oil assets Three primary facts support peak is only shrinking. An opportunity exists SUBSCRIPTIONS/SITE LICENSES investable oil: today to buy low-cost producing assets Elayne Glick Director, strategy & business, site 1. U.S. shale oil production will at a fraction of replacement cost by license subscriptions continue to decline. Over the past six pursuing them through distressed and David Bomberger Director, enterprise licensing years, shale producers raised an complex situations. Ed Gorman Director, EMEA/international site incredible amount of capital but While the negative implications of licensing +44-(0)20-3823-9891 earned abysmal returns. Shale is some peak investible oil are apparent, RFP/RECRUITMENT of the highest cost, steepest decline higher prices post COVID-19 vaccine Erin Smith Sales manager production in the world, and only will certainly benefit those few significantly higher prices will bring investors left owning the lowest cost, REPRINTS capital back. Investors eschewed lowest greenhouse gas-emitting Laura Picariello Sales manager producing fields with low-cost barrels of oil in North America. These ADVERTISING PRODUCTION conventional production, which investor-owned entities will manage Robert T. Hedrick Media services manager generate profits at today’s oil prices. top-decile assets with optionality to 312-649-7836; [email protected] 2. Major European oil companies’ grow with higher oil prices, emerge Subscription information - single copy elevated focus on energy transition with stronger, more liquid balance sales: 877-812-1586

will reduce their share of oil production sheets and right-sized operating costs. TO CONTACT A P&I STAFFER over the next decade, with BP alone They also provide uncorrelated Unless otherwise noted above, email us at targeting a 1 million barrel per day returns which may surprise even the [email protected] or find reduction (40%) in oil production by most ardent skeptics. n phone numbers at pionline.com/staff. 12 | December 28, 2020 Pensions & Investments ESG ROUNDUP

GPIF chooses MSCI, Morningstar for ESG-themed indexes Government Pension Invest- Fed joins central banks ment Fund, Tokyo, has allocated and begun passively investing a to- fighting climate change Only small differences in ESG investing tal of ¥1.3 trillion ($12.5 billion) The Federal Reserve board of Passively investing in ESG leaders in various sectors has led to almost identical returns as the MSCI ACWI against two ESG-themed bench- governors on Dec. 15 announced it index over the short and long term. However, investors that have moved to a fossil-fuel-free investment marks run by MSCI and Morning- is a member of the Network of Cen- strategy have clearly bene ted, especially in 2020. The correlation of the three indexes over the past three star. tral Banks and Supervisors for years is almost 1. Looking to future returns, price-to-earnings ratios are almost identical, with the MSCI The world’s biggest pension fund Greening the Financial System. ACWI index at 24.65, slightly lower than the MSCI ACWI ESG Leaders index’s 25.71. said in a document on its website it The Fed board began participat- had added the MSCI ACWI ex-Ja- ing in NGFS discussions and activi- Index returns pan ex-China A ESG Universal ties more than a year ago, it said in 17.23% with Special Taxes index and the a statement. MSCI ACWI index MSCI ACWI ESG MSCI ACWI ex-Fossil Leaders index Fuels index Morningstar Developed Markets With more than 80 members, (ex-Japan) Gender Diversity index the NGFS brings central banks 15.10% to its roster following a due dili- and supervisory authorities from 14.19% gence process. around the world together to sup- 13.03% 12.64% The ¥167.5 trillion pension fund port the exchange of ideas, re- 12.10% benchmarked ¥1 trillion to the search and best practices on the 11.36% MSCI index and the remaining development of environmental 10.55% 10.36% 10.06% ¥300 billion to the Morningstar in- and climate risk management for 9.28% dex. Executives expect the invest- the financial sector. 8.86% ments benchmarked to these two “As we develop our understand- indexes “to improve long-term re- ing of how best to assess the impact turns by promoting the sustainable of climate change on the financial growth of individual investee com- system, we look forward to continu- panies and the market as a whole,” ing and deepening our discussions the document said. with our NGFS colleagues from “By selecting a new general ESG around the world,” said Federal Re- index for foreign equities, GPIF serve Board Chairman Jerome H. has embarked on passive equity Powell in a statement. investment that incorporates all The Fed in its semiannual Fi- Year-to-date returns Three-year returns Five-year returns 10-year returns elements of ESG in both our do- nancial Stability Report released 10-year data are through Nov. 30. All other periods are through Nov. 16. Source: Bloomberg LP mestic and foreign portfolios,” said in November recognized climate Masataka Miyazono, president, in a change as a key risk to U.S. finan- news release. cial stability. sition to net-zero emissions. them think that a diverse board can factors in considerations like cor- “Furthermore, a significant body The first progress report issued a help better represent plan partici- porate governance practices, labor of empirical research indicates that Greater diversity needed year ago found that among the 161 pants’ interests and that 91% think and human rights compliance, and strong gender diversity has the po- focus companies, 70% had set long- it can improve decision-making. environmental risks. tential to boost corporate perfor- at work, Vanguard believes term emissions reduction targets, Greater diversity and inclusion in The bills are unlikely to move in mance. We consider these two in- Vanguard Group called upon but only 9% were in line with mini- the retirement industry can also at- the remaining days of the congres- dexes to be firmly in line with our companies to have more diverse mum goals of the Paris Agreement, tract and retain talented trustees, sional session and will have to be objective of improving long-term boards and staff, according to two and 77% had defined board level survey respondents said. reintroduced next Congress. returns through enhanced sustain- commentaries posted on the com- responsibility for climate change. Respondents’ views were divided ability of individual issuers and the pany’s website. Anne Simpson, a Climate Action on the current state of diversity of Biden chooses Obama market as a whole,” he added. Beginning next year, the compa- 100 Plus global steering committee trustee boards. Less than a third, The pension fund is prohibited ny “may vote against directors at member and managing investment 28%, believed it was good, but 31% EPA chief as climate czar from investing in equities directly companies where progress on director of board governance and admitted it was poor, while 35% said Gina McCarthy, former EPA ad- by law so these assets are out- board diversity falls behind market sustainability for the $430.5 billion it was average. ministrator, was picked to fill the sourced to external managers, a norms and expectations” and “may California Public Employees’ Re- Currently, trustees of different new position of White House cli- spokeswoman for GPIF said. hold nominating committee chairs tirement System, Sacramento, de- age, gender and social backgrounds mate policy coordinator for the She declined to name the man- or other relevant directors account- scribed the drive to net zero as be- are seen to be better represented Biden administration. agers. able,” according to a commentary ing “in the foothills of a long climb.” than those with disabilities or of The domestic climate czar will titled “A continued call for board- “Tackling the world’s systemical- different ethnicities, the PLSA said. work with special presidential en- Rockefeller Foundation to room diversity.” ly important carbon emitters is am- The survey also found that 48% voy for climate John Kerry, who will The firm is also calling upon bitious and necessary. It requires of trustees said they have no spe- focus on international issues. The quit fossil-fuel investments companies to publish their employ- partnership from all sides: inves- cific strategic objectives for diver- two positions are part of President- The Rockefeller Foundation ee recruitment, retention and in- tors, companies, policymakers, and sity and or inclusion. Among those elect Joe Biden’s commitment to plans to divest from fossil fuels. clusion policies and disclose their civil society,” Ms. Simpson said in with no plans in place, the vast per- dealing with climate change The $5 billion New York-based workforce diversity measures in the release. centage do not know when they will throughout the government. foundation, which was originally terms of gender, race and ethnicity “The results from Climate Action put a plan in place, PLSA said. Ms. McCarthy, who ran the Envi- funded from proceeds of oil pro- “at the executive, non-executive, 100 Plus show what can be “Our survey shows that the pen- ronmental Protection Agency un- duction, announced in a news re- and overall workforce levels,” ac- achieved, and what still lies ahead, sions industry recognizes that it der President Barack Obama, be- lease on Dec. 18 that it would divest cording to its “Diversity in the for us to drive the transition to net needs to do much more to improve came president and CEO of the from its current fossil-fuel holdings workplace” commentary. zero by 2050,” Ms. Simpson added. diversity and inclusion and are Natural Resources Defense Council and refrain from investing in the Vanguard has not called for any A separate report released Dec. positive about the benefits for in January. sector going forward. specific quotas or figures it expects 17 by Farient Advisors, an indepen- schemes and members of doing so Ceres President and CEO Mindy Roughly 2% of the foundation’s from companies. dent compensation and corporate — but there’s a long way still to go,” Lubber welcomed the appointment assets are currently in fossil-fuel governance consulting firm, found PLSA CEO Julian Mund said in a of Ms. McCarthy, who serves on Ce- holdings. It will cut this allocation Companies committing that 2 out of 3 companies globally news release. res’ board of directors. “With Gina down to less than 1% “in the near to net-zero emissions tied executive compensation to McCarthy as the next climate czar future,” according to the release. A stakeholders’ ESG interests in 2020. House Democrats float and domestic counterpart to John foundation spokeswoman de- Nearly half of the companies It found that 67% of companies Kerry, the federal government is clined to comment on a specific engaging with investors through worldwide now apply ESG in their sustainable investing bills now well positioned to support ef- time frame or how these funds will Climate Action 100 Plus have com- incentive plans, with those in Aus- A group of House Democrats in- forts at home and abroad to tackle be reallocated within the overall mitted to reaching net-zero emis- tralia leading the trend at 81% and troduced two bills that would re- the climate crisis while also pro- portfolio. sions no later than 2050, the orga- the U.S. at the lowest level at 56%. quire retirement plan fiduciaries tecting human health and the envi- “The endowment’s total private nization said in a progress report and investment advisers to take ronment,” Ms. Lubber said in a fossil fuel exposure declined in re- released Dec. 17. Diverse boards represent into account and explain how they statement. cent years in part because of global The Climate Action 100 Plus ini- consider ESG factors when making According to Ceres, more than energy transition trends and tiative has 545 investor signatories participants better – PLSA investment decisions. 125 environmental rules and regu- heightened sustainability risks in with a collective $52 trillion in as- Sixty-five percent of retirement The Sustainable Investment lations were rolled back by the the sector, but also because we ac- sets under management. fund trustees believe trustee boards Policies Act, which would amend Trump administration, including tively narrowed the resources port- The progress report looks at the should be more diverse, according the Investment Advisers Act, and standards supported by investors folio to less than a handful of man- sector level of 167 companies en- to a survey conducted by the Pen- the Retirees Sustainable Invest- and companies for tackling the cli- agers who place strong focus on gaged by investors through Climate sions and Lifetime Savings Associ- ment Policies Act, which would mate crisis such as rules to curb ESG integration and avoided dedi- Action 100 Plus, including 100 of ation published Dec. 16. amend ERISA, stipulate that in- methane emissions and carbon cated investments in the heaviest the world’s largest corporate green- In survey of 57 trustees and vestment advisers and retirement emissions from coal and gas-fired emitting fossil fuels,” said CIO Chun house gas emitters and others that trustee representatives, the Lon- plan fiduciaries must establish a plants and vehicle fuel efficiency Lai in the release. are critical to accelerating the tran- don-based PLSA found that 84% of sustainable investing policy that standards Pensions & Investments December 28, 2020 | 13 EXCHANGE-TRADED FUNDS A flourishing ETF industry flexes its muscles in 2020 By ARI I. WEINBERG in aggregate assets under manage- $163 billion, according to Mr. Nadig. The rush of assets into low-cost vestment bank PJT Partners, Inc., ment. U.S. equity ETFs attracted “High conviction, high active beta ETFs, primarily from Black- expects the continued dominance The U.S. exchange-traded fund $187 billion in net new assets on share equity ETFs are getting at- Rock Inc. and The Vanguard of passive flows to put additional market had an extraordinary 2020. their way to more than $3.1 trillion tention, regardless of structure,” he Group, will also continue to be a pressure on active managers in Topping $5 trillion in assets under in assets under management. said, observing the $8 billion in net driving force behind the reshaping 2021. “Those that are not large management, the ETF business Such phenomenal ETF flows sit new flows into the ARK Innovation of the asset management and enough to drive meaningful scale benefited from a confluence of ex- in stark contrast to the $489 billion ETF, as well as several wealth management efficiencies or sufficiently differen- pected and unexpected events. that exited traditional mutual funds hundred million dol- industries. tiated to command a premium val- The U.S. Securities and Ex- through Dec. 9, according to the In- lars of flows to new “Bulk beta is a mas- ue proposition will continue to change Commission’s ETF Rule, vestment Company Institute, with active products from T. sive scale game, offer- struggle,” he said. which went into effect at the end of 52% of those net outflows from Rowe Price Group, Fi- ing some combination Further down the value chain, 2019, made it simpler to launch in- fixed-income mutual funds in delity Investments, of price that appeals to McKinsey’s Mr. Kwek sees more dex-tracking and fully transparent March alone. Net new ETF flows and American Centu- retail investors and li- room for issuers specializing in active ETFs. Like other central have now outpaced traditional fund ry Investments. quidity for institutional smart beta and thematic investing, banks before it, the Federal Reserve flows for eight years in a row, de- The pandemic also buyers,” said Ju-Hon including active products, though finally accepted ETFs into its mon- spite long-term mutual funds sit- reinvigorated interest Kwek, partner at McK- the “structure of the thematic mar- etary toolbox and now holds nearly ting on nearly $17.5 trillion. in ETFs tied to envi- insey & Co in New ket will require more dexterity as is- $9 billion across 16 corporate bond While launches, closures, new ronmental, social, and York. To continue to suers try not to be a one-hit wonder.” ETFs as part of its Secondary Mar- entrants, and innovative structures governance factors lead in this market, Mr. Bulge-bracket firms are also ket Corporate Credit Facility. And, grab headlines, David Nadig, direc- pushing aggregate as- Kwek observed that looking past one-size-fits-all pas- lastly, a wide swath of ETF issuers tor of research at ETF Trends and sets under manage- A SHIFT: Dave Nadig sees asset managers need sive products with recently an- welcomed growth and experimen- ETF Database, says he’s observed a ment to nearly $67.5 an ‘anything but beta’ to view “price cuts as nounced acquisitions to add custom tation in active ETFs, including the notable shift in how some investors billion with roughly 30 trend emerging, focused investments in growth” index capabilities and bring direct approval and launch of several are approaching the ETF market. new ETFs launched on active strategies. and also be able to indexing to high net worth clients. ETFs that give investment advisers “The lion’s share of flows will under the rubric. Con- “weave ETFs/passive In October, Morgan Stanley re- more leeway in how frequently continue to go into cheap beta, but versely, Mr. Nadig expects limited products into a broader suite of cli- vealed plans to buy Eaton Vance, their positions are disclosed. an ‘anything but beta’ trend has interest in the conversion of tradi- ent engagement and solutions.” which owns custom indexer Para- Combined, these factors helped emerged of investors looking more tional mutual funds to ETFs, de- Competition at the top of the metric Portfolio Associates LLC. In to push ETFs toward a record- at active management and themat- spite a November announcement market has attracted activist inves- November, BlackRock announced breaking year of net new flows, ic funds,” said Mr. Nadig, in light of by Dimensional Fund Advisors that tors to the stocks of public asset plans to buy Aperio Group LLC. pulling in $514 billion through Dec. a K-shaped recovery coming out of it will convert six mutual funds with managers, while rumors continue The specter of direct indexing 18, according to FactSet Research the pandemic that could make tra- roughly $20 billion of assets into to swirl about the fate of State also adds to the pressure on index Systems and ETF Database. ditional cap-weighted index in- ETFs. “The best candidates that Street Global Advisors, the third- firms and the benchmark building U.S. fixed-income ETFs, in par- vesting more compromised. In fact, could seamlessly convert are tax- largest issuer of ETFs in the U.S., business, as a wave of consolidation ticular, surged in March and April, active equity and fixed-income managed funds that have limited according to an early December rein the financial data market contin- bringing in $179 billion in net new ETF products attracted more than exposure to defined contribution port by Bloomberg News. ues with the announced purchase flows while approaching $1 trillion $52 billion in net new flows to top plans,” he said. Andrew Shapiro, director at in- of IHS Market by S&P Global. n

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Like us Follow us Follow us pionline.com/facebook pionline.com/linkedin @pensionsnews 14 | December 28, 2020 Pensions & Investments Special Report THE TOP STORIES OF 2020 A most unusual year as told in P&I pages

CONTINUED FROM PAGE 1 day, those in industries hit particularly hard by the economic impact of the pandemic de- cer, whose hiring was one of P&I’s top 10 layed their contributions to free up cash. One stories of 2019. such company was Fort Worth, Texas-based Here’s a look back at the headlines that American Airlines Inc., which announced on drove Pensions & Investments’ coverage this April 30 it would defer its minimum required year: pension plan contributions for 2020, totaling $196 million, until Jan. 1. The COVID-19 pandemic’s The pandemic also forced some compa- 1 | nies to freeze or postpone matching contri- impact on markets butions to their 401(k) plans, with larger It took less than three months after the be- rms making those moves more often than ginning of a new coronavirus outbreak in smaller rms. The Plan Sponsor Council of Wuhan, China, at the end of 2019 to shake the America said 11.6% of rms surveyed in June global economy to its foundations and be- with more than 5,000 employees made come the biggest story of the 21st century, changes to employer contributions. outstripping the global nancial crisis in Joy M. Napier-Joyce, an employee bene ts speed and scope as a global calamity. attorney at Jackson Lewis PC, said in a March In March, the situation appeared dire. The interview: “The idea is that because it’s pretty S&P 500 and MSCI ACWI fell 8.8% and 12.4%, clear there’s going to be a rocky road ahead, respectively, during the week of March 9. A employers and plan sponsors are trying to cut credit crisis dwar ng that of the Great Reces- off any spending that they absolutely don’t sion appeared imminent. But the lessons have to make right now and see where things from the 2008 crisis would eventually pay develop and then revisit as the path forward dividends, and responses that mirrored those starts to clear.” made 12 years earlier swiftly followed. The Federal Reserve Open Market Com- ESG investing post COVID-19 mittee slashed the target range for the fed- 3 | eral funds rate to zero to 0.25% on March 14, and racial injustice protests from the range of 1% to 1.25% it had set just 11 The emergence of COVID-19 and the im- days earlier. Then the Fed created two corpo- pact of worldwide protests following the kill- rate credit facilities to ensure credit would be ing of George Floyd by police in Minneapolis available to large employers: The Primary on May 25 have led to an evolution of institu- Market Corporate Credit Facility, providing tional investors’ environmental, social and new bond and loan issuance; and the Second- governance priorities. ary Market Corporate Credit Facility, provid- While ESG investing has historically fo- Carolyn Cole / Los Angeles Times ing liquidity for outstanding corporate bonds. cused primarily on environmental issues, Other central banks around the world “the pandemic forced us to shift, and forced made moves intended to curb the effects of owners of capital to think about the other let- the pandemic. On March 18, the European ters in ESG,” said Nathan S. Shetty, Chicago- Central Bank’s governance council an- based head of multiasset portfolio manage- nounced a €750 billion ($846.7 billion) Pan- ment for Nuveen LLC, the money demic Emergency Purchase Program, a tem- management arm of TIAA-CREF, in an Au- porary asset purchase program of private gust interview. and listed securities intended to provide The months since the pandemic and the stimulus to the European economy. By Dec. death of Mr. Floyd highlighted deep social in- 10, the ECB had increased the program to equities, evidence of investors’ growing appe- €1.85 trillion and extended it until at least the tite to address those issues came in the form end of March 2022 in the face of the pan- of calling on companies to address their hu- demic’s second wave. man capital management, as well as the sale While markets would experience extraor- of social bonds intended to raising money for dinary volatility and the signi cant negative projects like affordable housing, health care impact of shutdowns on certain travel, leisure and education. According to S&P Global, so- and retail sectors including high unemploy- cial bond issuance totaled $71.9 billion by ment, a global depression at the levels not Oct. 31, well eclipsing 2019’s total of $16.7 bil- seen in nearly a century seems — to date — to lion. The bonds, which accounted for just 5% have been averted. of global bonds at the end of 2019, grew to account for 30% by the end of August, accord- The COVID-19 pandemic’s ing to AXA Investment Managers. 2 | Adam Gillett, head of sustainable invest- past century. While it was a signi cant victo- Democrats in a sweep.” impact on retirement ment at Willis Towers Watson PLC in London, ry for Mr. Biden and the Democratic Party, Jeffrey Schulze, an investment strategist The in ection point for the second-ranked noted in an August interview: “COVID has not the balance of the U.S. Senate remains in ux with ClearBridge Investments LLC in New story of 2020 was President Donald Trump xed our climate crisis, the biodiversity crisis, as two runoff elections in Georgia on Jan. 5 York, noted in a November interview that Mr. signing the Coronavirus Aid, Relief, and Eco- or other social issues, but it has shown that will determine whether Republicans will Biden will be in somewhat familiar waters nomic Security Act on March 27. The $2 tril- we can make pretty drastic changes to per- maintain their majority. Observers believe beginning his presidency in a COVID-rav- lion-plus economic stimulus package includ- sonal behavior if we see something we can maintaining the status quo will be good for aged environment. ed a one-year holiday for de ned bene t do. I think it has shown what is possible.” the markets. “As vice president, Biden took of ce in the plan sponsors from making 2020 minimum Markets seemed to support that view in midst of the global nancial crisis and helped required contributions, as well as relief for The election of Joe Biden to November as the S&P 500 and MSCI ACWI steer the economy back into an expansion de ned contribution plan participants from 4 | had extraordinary returns of 10.8% and characterized by steady but slow economic rules on taking required minimum distribu- the U.S. presidency 12.2%, respectively, for the month. Stephen growth,” he said at the time. tions and limits on hardship loans. The former vice president’s victory in the Auth, Federated Hermes Inc. CIO of equi- While Mr. Biden may not be able to undo While the majority of corporate de ned presidential election in November was the ties, said in a client note: “We should still get all recent changes by the administration of bene t plan sponsors did not take up the fourth top story of 2020. It was only the fth a substantial scal package, but avoid Mr. Trump, some of them may be vulnerable. government’s offer of the contribution holi- defeat of an incumbent U.S. president in the growth-killing tax hikes planned by the “It’s pretty commonplace for an adminis- Pensions & Investments December 28, 2020 | 15

Michael M. Santiago/Getty Images Erin Schaff/The New York Times porting. Years in the making, the CAT is a single database for all equity and options trades executed on U.S. exchanges allowing regulators to track all orders throughout their life cycle. It is intended to offer a way to quickly determine what caused large, sudden losses in trading value by tracking illegal or manipulative trades. CalPERS’ CIO Yu ‘Ben’ Meng 7 | resigns On Aug. 5, Yu “Ben” Meng, the CIO of the now-$430.5 billion California Public Employ- ees’ Retirement System, Sacramento, re- signed just 18 months after succeeding Theo- dore “Ted” Eliopoulos as the investment chief of the largest U.S. pension plan. His resignation came after a state watch- dog had launched an investigation into two complaints filed against Mr. Meng that claimed he had failed to properly disclose certain personal investments and sales of stocks and other holdings. Mr. Meng had disclosed in a statement of Emory Ensign economic interest form filed with CalPERS that he personally invested in stocks of three private equity firms, The Carlyle Group Inc., Blackstone Group Inc. and Ares Management Corp.’s business development company, Ares Capital Corp. CalPERS’ board quickly made significant changes to the governance of the pension fund to make the hiring, evaluating and ter- minating of the CIO a shared responsibility between the board and the CEO; the CEO previously had sole responsibility for hiring, firing and managing the CIO. The board also returned the investment committee to a committee of the whole that included all 13 board Among the Top 10 stories of 2020 were, members, giving it final authority that the clockwise from top, the protests following the nine-member panel lacked. death of George Floyd and how it caused the Dan Bienvenue, deputy chief investment institutional community to put a bigger focus officer, total portfolio, was named interim around social issues; President Trump signing CIO. CalPERS has since hired recruiting firm Korn Ferry to assemble a candidate pool for a the CARES Act on March 27, which offered permanent successor. relief to those ravaged economically by the severity of the COVID-19 crisis; CalPERS CIO Manager and consultant Yu ‘Ben’ Meng abruptly resigning after an 8 | consolidation continues ethics investigation into his investments; and the victory of Joe Biden and Kamala Harris, The ongoing trend in manager and consul- which will have far-reaching implications for tant consolidation continued in 2020, beginning with a blockbuster deal in February the financial industry and the future of when Franklin Resources Inc. announced it retirement. planned to acquire Legg Mason in a $4.5 billion deal. tration that comes in to essentially ... put a for considering ESG risks. to an individual retirement account from a The combined firm, which became Frank- hold on any regulations that aren’t final and The final rule in October walked back the retirement plan. lin Templeton upon the deal’s closing on July effective,” Michael P. Kreps, Washington- ESG-specific language, instead articulating 31, created a money manager with $1.42 tril- based principal at Groom Law Group, said in the requirement that ERISA plan fiduciaries SEC’s new rules on proxy lion in assets under management as of Sept. an October interview. must select investments based on pecuniary 6 | 30, catapulting it into the upper echelon of The Congressional Review Act could be factors, described as any factor that a fidu- voting and other issues U.S. money managers. used to undo recently enacted regulations, ciary prudently determines is expected to Ranked sixth were the actions taken by As of Dec. 31, 2019, Legg Mason and Frank- but it would require a Democratic majority in have a material effect on the risk and return the Securities and Exchange Commission lin Templeton had ranked 22nd and 24th, re- both the House and Senate. The CRA allows based on appropriate investment guidelines. during the year. spectively, in P&I’s latest money manager di- Congress to disapprove a final rule issued by Also in June, the DOL provided guidance Perhaps the most controversial was the rectory and their combined AUM at that time federal agency if not in effect for more than that DC plan sponsors can include certain July 22 vote to approve sweeping changes to would have ranked the firm 12th. 60 legislative days. private equity strategies in target-date funds rules governing proxy advisory firms. That was followed soon afterward by an- and other diversified investment options. Commissioners voted 3-1 to approve the other announcement on March 9 that shook The DOL’s new rules on ESG The DOL specified that plans must evaluate rule amendments, which include a clear defi- the institutional investing industry: Aon PLC 5 | the risks and benefits associated with the in- nition that proxy voting advice generally con- planned to close a purchase in the first half of and private equity investing vestment alternative. It did not authorize stitutes a solicitation, the requirement of 2021 of rival Willis Towers Watson PLC in an The DOL’s moves to rein in ESG and em- making private equity investments available proxy advisory firms to disclose conflicts of all-stock deal worth $30 billion. brace private equity in 401(k) plan invest- for direct investment. interests to clients; and obliges proxy adviso- It is a union between institutional investment lineups were ranked by P&I’s editors as In December, the DOL unveiled two more ry firms to provide clients with access to any ment consulting and outsourced manager gi- the fifth top story of 2020. In June, Labor Sec- final rules to take effect shortly before the response the company provides to the voting ants. Aon and WTW had $3.44 trillion and retary Eugene Scalia unveiled the depart- Biden administration takes office Jan. 20. advice before the clients vote. $2.6 trillion in institutional assets under ad- ment’s ESG proposal by stating “private em- First was a rule establishing a framework for Earlier in the year, on June 5, the SEC’s visement as of June 30, respectively, accord- ployer-sponsored retirement plans are not ERISA-governed fiduciaries to follow when standards-of-conduct package, commonly ing to P&I’s latest consultant survey. The vehicles for furthering social goals or policy they vote proxies and select and monitor known as Reg BI, was approved. The package combined firm, which will rank second be- objectives that are not in the financial inter- proxy advisory firms, and next was a prohib- features a best-interest standard that com- hind only Mercer, may end up supplanting est of the plan.” ited transaction exemption for investment- pels brokers to put clients’ financial interests that firm as the largest outsourced CIO man- The retirement community quickly criti- advice fiduciaries. ahead of their own and requires them to mit- ager. In recent P&I data, the firms combined cized the proposal. Many claimed the DOL That exemption allows fiduciaries to re- igate financial conflicts. for $330 billion in OCIO assets under man- did not justify the reasoning behind it and ceive compensation for more types of their The year also saw the SEC’s consolidated agement as of June 30. Mercer had $306 bil- expressed concerns it would create barriers guidance, including advice to roll over assets audit trail going live for broker-dealer re- SEE TOP 10 STORIES ON PAGE 16 16 | December 28, 2020 THE TOP STORIES OF 2020 Pensions & Investments

Top 10 stories Richard Sharrocks

CONTINUED FROM PAGE 15 sure, asset write-down and subsequent sale of a money-losing microelectronics unit. lion as of that date. On the state level, another signi cant rul- On Oct. 8, Morgan Stanley announced its ing came from the California Supreme Court intention to acquire Eaton Vance, creating a in 2020. That court on July 30 ruled that pub- money management rm with nearly $1.2 lic employers and pension systems are not trillion in assets under management. The barred from reducing or eliminating certain deal for an equity value of about $7 billion is extra pay practices that resulted in increasing expected to be completed in the second quar- employees’ total compensation for pension ter of 2021. purposes. The practices known as “pension And looking ahead, the consolidation trend spiking” had been permissible before the shows no signs of abating as news reports in state’s 2012 pension reforms ended them. December said State Street Corp. was explor- The year also saw a heavy volume of ing options for State Street Global Advisors, ERISA cases in general. For example, during its asset management business which has the second quarter alone Pensions & Invest- more than $3 trillion in AUM. ments tracked 43 ERISA actions ranging from new lings and settlements to dismiss- Signi cant ERISA duciary als and appeals. 9 | breach lawsuit rulings U.S.-China tensions affect This year saw a number of signi cant U.S. 10 | Supreme Court rulings that shaped the fu- investment opportunities ture of ERISA duciary breach litigation. In The last top story of the year was the con- February, the court ruled against Intel Corp.’s tinuing tensions between U.S. and China. investment policy committee, which had On May 13, after months of pressure from sought to enforce a three-year deadline for Capitol Hill, the Federal Retirement Thrift In- ling ERISA claims in response to a lawsuit vestment Board, Washington, voted unani- by Christopher Sulyma, a participant in two mously to pause its implementation of plans Intel DC plans. to shift its $54.3 billion I Fund benchmark to Stefani Reynolds/CNP That limit applies to lawsuits if the plaintiff the MSCI ACWI ex-U.S. Investible Market in- has actual knowledge of the limit, while a six- dex, which includes Chinese companies, from year limit applies to those who do not. Re- the MSCI EAFE index. The board adminis- ceiving retirement plan disclosures and hav- ters the $644 billion Thrift Savings Plan. ing “actual knowledge” of the information The board cited the COVID-19 pandemic included in them are not the same thing, the and newly nominated board members in the Supreme Court said in the ruling. vote. Nine days earlier, Mr. Trump had nomi- Later, on June 1, the court ruled in Thole vs. nated three people to the ve-member board U.S. Bank that participants in fully funded that, upon Senate con rmation, could lead to plans do not have the standing to sue plan a new majority. Then, on May 11, two letters duciaries for mismanagement. were sent to the DOL’s Mr. Scalia from admin- Finally, on Nov. 9, the court declined to re- istration of cials referencing “national secu- view a request by duciaries of an IBM 401(k) rity and humanitarian concerns” regarding plan seeking to overturn a pro-participant the I Fund shift. ruling by a federal appeals court in Retire- Then, in November, Mr. Trump signed an ment Plans Committee of IBM et al. vs. Larry executive order that Americans beginning W. Jander et al. Jan. 11, 2021, will no longer be able to invest The appeals court had ruled against IBM in 31 Chinese companies that the White duciaries in June 2020 in the suit, in which House has identi ed as helpful to China’s participants alleged duciaries should have People’s Liberation Army. In response to that taken corrective action because 401(k) plan order, FTSE Russell announced Dec. 4 it 2020 saw the Supreme Court rule on several different facets of ERISA duciary breach investors in company stock were harmed would remove eight Chinese companies from litigation brought by participants, top, and Labor Secretary Eugene Scalia’s unveiling of new when the stock fell following IBM’s disclo- its global and China A indexes.  rules surrounding ESG investment and private equity investing by retirement plans.

Investing Washington GIC creates joint venture GAO cautiously claims leveraged for opportunities in India lending is not a risk to economy By SOPHIE BAKER in the same release: “Continued e- By HAZEL BRADFORD signi cant threats to nancial chairman, the secretary of the commerce growth in India over stability, the report said. Treasury, conduct crisis scenario GIC, Singapore, will establish a the long term, reinforced by rising Leveraged lending is not posing In contrast to the previous - exercises. Also, Congress should $750 million joint venture with internet penetration, is expected a major risk to U.S. nancial stabil- nancial crisis, CLO securities ap- consider legislative changes to en- ESR to develop and acquire indus- to drive strong demand for indus- ity but nancial regulators are still pear to pose less of a risk with bet- hance FSOC authority, actions that trial and logistics assets in India, trial and logistics assets. This is cautious, according to a GAO re- ter investor protections, more FSOC of cials said they would the sovereign wealth fund said in a further supported by the empha- port released Dec. 16. insulation from market swings, take if necessary. news release Dec. 22. sis on infrastructure development, Noting comparisons by regula- and fewer ties to other risky, com- According to the report, the GIC will own 80% of the ven- changing supply chains and low tors and other to the pre-2008 sub- plex instruments, the report said. market for institutional leveraged ture. ESR is a $26.5 billion logistics vacancy levels.” prime mortgage market, the GAO “Based on regulators’ assess- loans — corporate loans made to real estate platform focusing on He added: “This joint venture is report looked at whether loan orig- ments, leveraged lending activities businesses with high levels of debt Asia-Paci c. well-positioned to bene t from ination and securitization could had not contributed signi cantly — grew to $1.2 trillion in 2019 from The joint venture will develop these tailwinds, bring institution- spread similar risk, particularly to the distress of any large nan- an estimated $500 billion in 2010, and own institutional-grade, state- al-grade assets into this market during the COVID-19 pandemic. cial entity whose failure could fueled largely by investor demand of-the-art industrial and logistics and generate resilient returns.” Before the pandemic, the Fi- threaten nancial stability. Large for CLO securities offering a high- facilities. It will also acquire core The deal is subject to regulatory nancial Stability Oversight Coun- banks’ strong capital positions er rate of return. assets, focusing on tier 1 and tier 2 approvals. cil and other regulators found have allowed them to manage Drew Maloney, president and cities in India. GIC does not disclose the size of that riskier borrower pro les and their leveraged lending exposures, CEO of private equity advocacy “GIC has been investing in India its investment portfolio, but ana- looser underwriting standards and the exposure of insurers and group American Investment Coun- for more than a decade, and this lysts estimate its value at more left leveraged lending market other investors also appeared cil, said the GAO report highlights investment is a testament to our than $400 billion. participants vulnerable to losses manageable,” the report said, and the role of the private credit mar- con dence in the long-term po- The fund had a 7% allocation to in the event of a downturn. After mutual funds experiencing re- ket. “Throughout the COVID-19 tential of this market,” Lee Kok real estate as of March 31, with 19% March 2020, loans suffered re- demptions by investors were able crisis, we have seen how compa- Sun, CIO of real estate at GIC, said of assets invested in Asia ex-Japan. cord downgrades and increased to meet them, in part, by selling nies of all sizes across the country in the release. A spokeswoman for GIC could defaults, but the highest-rated leveraged loan holdings. have relied on private credit to Kishore Gotety, GIC co-head not immediately be reached for CLO securities remained resilient The report recommended the keep their doors open and their (Asia ex-China) of real estate, said comment.  and, as of September, leveraged FSOC “better prepare against workers employed,” Mr. Maloney lending was not found to present threats to stability” by having its said in an emailed statement.  Pensions & Investments December 28, 2020 | 17 BY THE NUMBERS

PENSION RISK TRANSFER ACTIVITY MONTHLY CORPORATE FUNDING RATIO Annual volume by category (billions) Most recent transactions (millions) 100% $80 Type Sponsor Date Assets Nov. 2020: 88.7% Total no. of Other ■ General Electric Dec. 16 $1,700 Total no. of transactions: 95% $70 transactions: 79 Maersk Retirement Bene t Dec. 16 ■ $1,500 54 Scheme Lump-sum 90% $60 acceptance ■ BBC Pension Scheme Dec. 15 $4,000 ■ Aon Retirement Plan Dec. 15 $675 85% $50 Lump-sum ■ Barclays Bank Dec. 14 $6,600 offer Northern Gas Networks Dec. 10 Total no. of ■ $512 transactions: Pension Scheme 80% $40 49 Longevity ■ Trinity Industries Dec. 7 N/A Total no. of swap ■ Aviva Nov. 27 $1,200 75% $30 transactions: 49 Prudential Staff Pension Nov. 11 ■ $4,800 Scheme Buyout $20 70% ■ Marks and Spencer Nov. 4 $971 ■ Kemper Nov. 3 N/A $10 Buy-in 65% ■ Kemper Nov. 3 N/A

$0 For details on all recent pension risk transfers, go to pionline. 60% 2017 2018 2019 2020 com/pension-risk-transfer. 2009 2010 2011 2012 201520142013 2016 2017 20192018 2020

TRAILING 12-MONTH RETURNS BY ASSET CLASS 2018 2019 2020 December January February March April May June July August September October November December January February March April May June July August September October November

Real Real Real Real Real BB U.S. Real Real BB U.S. BB U.S. BB U.S. BB U.S. Cash Estate Estate Estate S&P 500 Estate S&P 500 Estate Agg Estate Estate S&P 500 S&P 500 S&P 500 Agg Agg Agg S&P 500 Agg S&P 500 S&P 500 S&P 500 S&P 500 S&P 500 1.9% 3.4% 10.5% 12.4% 13.5% 7.1% 10.4% 8.3% 10.2% 13.7% 21.7% 16.1% 31.5% 21.7% 11.7% 8.9% 10.8% 12.8% 8.7% 12.0% 21.9% 15.1% 9.7% 17.5%

BB U.S. BB U.S. Russell Real BB U.S. Real BB U.S. Real BB U.S. Real Global ex- BB U.S. BB U.S. BB U.S. Agg Agg 2000 S&P 500 Estate Agg Estate Agg Estate Agg S&P 500 Estate MSCI EM MSCI EM S&P 500 Cash U.S. xed Agg S&P 500 Agg MSCI EM MSCI EM Agg MSCI EM 9.5% 14.3% 26.6% 16.0% 8.2% 2.3% income 7.5% 16.5% 10.4% 15.0% 0.0% 2.3% 5.6% 9.2% 6.4% 9.0% 8.1% 8.4% 10.3% 15.6% 2.6% 9.4% 10.1% 6.2%

BB U.S. Russell Real Global ex- MSCI ACWI BB U.S. Global ex- Russell High Yield Cash S&P 500 High Yield High Yield High Yield Agg S&P 500 High Yield High Yield MSCI EM MSCI EM 2000 Estate High Yield U.S. xed Cash MSCI EM MSCI EM MSCI EM ex-U.S. Agg U.S. xed 2000 -2.1% 2.0% 4.7% 5.9% 6.7% 5.5% 8.0% 6.6% 6.4% 12.6% 13.7% 6.1% income 2.1% 5.4% 2.1% 7.2% income 7.9% 25.5% 11.1% 0.7% 8.3% 7.0% 5.0% 13.6%

Global ex- BB U.S. BB U.S. Global ex- Global ex- BB U.S. MSCI ACWI Real MSCI ACWI Global ex- Global ex- Global ex- BB U.S. Global ex- MSCI ACWI U.S. xed High Yield High Yield Agg Agg S&P 500 High Yield High Yield U.S. xed U.S. xed Agg ex-U.S. Estate ex-U.S. U.S. xed High Yield S&P 500 U.S. xed Cash U.S. xed Agg U.S. xed MSCI EM ex-U.S. income 1.7% 4.3% 3.8% 7.5% 6.9% income income % income -6.9% 1.8% income 1.7% income income 4.9% -2.1% 4.5% 5.3% 5.7% 5.3% 11.5% 11.2% 23.6% 9.9 4.8% 2.7% 5.9% 6.5% 5.5% 9.5%

BB U.S. Global ex- MSCI ACWI BB U.S. MSCI ACWI BB U.S. Global ex- Russell Global ex- S&P 500 S&P 500 Agg MSCI EM MSCI EM Cash MSCI EM U.S. xed S&P 500 S&P 500 ex-U.S. Agg ex-U.S. Agg MSCI EM S&P 500 MSCI EM Cash U.S. xed High Yield 2000 High Yield High Yield U.S. xed -4.4% -2.3% 2.6% 5.1% 2.3% 5.7% income 2.9% 4.3% 3.9% -7.0% -4.3% 1.9% income 4.1% 3.3% 3.5% income 3.2% 3.7% 11.3% 10.8% 21.5% 9.6% 0.7% 6.0% 8.9%

Real Global ex- Russell Global ex- Global ex- Real MSCI ACWI BB U.S. Estate U.S. xed Cash Cash 2000 U.S. xed U.S. xed MSCI EM Cash Cash High Yield High Yield High Yield High Yield Estate MSCI EM High Yield High Yield High Yield Cash High Yield ex-U.S. Cash Agg income 2.1% 2.1% income income 2.9% 2.4% 2.4% 8.4% 9.7% 14.3% 9.4% -11.3% -4.5% 1.3% 0.0% 1.5% 4.7% 0.9% -5.5% -3.3% 4.6% 0.4% 4.1% 3.1% 3.0% 7.3%

Global ex- Russell Russell Russell BB U.S. Russell MSCI ACWI MSCI ACWI MSCI ACWI MSCI ACWI MSCI ACWI Global ex- Russell MSCI EM 2000 MSCI EM 2000 Cash MSCI EM Cash Cash MSCI EM MSCI EM U.S. xed Cash U.S. xed Cash High Yield income 2000 Agg 2000 ex-U.S. ex-U.S. ex-U.S. ex-U.S. ex-U.S. income 2000 -9.4% -3.5% -0.8% 2.0% 2.2% -1.3% 2.3% 2.4% -0.3% 1.4% 2.2% - 1.1% 7.2% 7.8% 7.5% 8.7% 9.2% -15.6% -11.2% 3.4% -4.8% 0.7% 4.6% -0.1%

Russell Global ex- Global ex- Global ex- MSCI ACWI MSCI ACWI MSCI ACWI MSCI ACWI MSCI ACWI Russell Global ex- Global ex- Global ex- MSCI ACWI Real Russell Russell Russell Russell Russell MSCI ACWI 2000 MSCI EM U.S. xed U.S. xed U.S. xed ex-U.S. ex-U.S. ex-U.S. ex-U.S. ex-U.S. 2000 U.S. xed U.S. xed U.S. xed ex-U.S. Estate 2000 2000 2000 2000 Cash 2000 ex-U.S. Cash -7.5% income income income income income income 1.3% 0.8% -11.0% -3.4% -4.1% -2.5% -6.3% 1.3% -2.3% -3.3% -1.2% 4.9% 6.3% 5.1% 3.9% -0.7% -23.0% -13.2% -3.4% -6.6% -4.6% 0.4% -2.6%

MSCI ACWI MSCI ACWI MSCI ACWI MSCI ACWI MSCI ACWI Russell Russell Russell Russell Russell Russell Russell Real Real Real Real Real Real Real Real ex-U.S. ex-U.S. ex-U.S. ex-U.S. ex-U.S. 2000 2000 2000 2000 2000 Cash Cash Cash Cash 2000 2000 Estate Estate Estate Estate Estate Estate Estate Estate -14.2% -12.6% -6.5% -4.2% -3.2% -9.0% -3.3% -4.4% -12.9% -8.9% 2.4% 2.4% 2.3% 2.2% -4.9% -24.0% -16.4% -16.1% -15.5% -13.2% -12.0% -16.6% -21.5% -10.5%

THE AIR TRAVEL INDUSTRY’S LONG ROAD BACK Airline and airport stocks U.S. carriers revenue passenger miles (millions) Airbus new commercial aircraft deliveries**

200 75 900

70 850 180 800 65 750 160 60 700

55 650 140 50 600 550 120 45 500 40 Domestic 100 450 35 400

80 30 350

25 300 60 GLIO Airports Sector 250 index (U.S. dollar) 20 Bloomberg World 200 40 Airlines index 15 150 10 International (U.S. domestic carriers) 100 20 5 50

0 0 0 2014 2015 2016 2017 2018 2019 *2020* 2014 2015 2016 2017 2018 2019 **2020** ’06’05’04’03’02’01’00 ’07 ’09’08 ’16’15’14’13’12’11’10 ’17 ’19’18 ’20

*2020 data are as of Nov. 30. **2020 data are as of Sept. 30. Sources: P&I Research Center; NISA Investment Advisors; Bloomberg LP 18 | December 28, 2020 Pensions & Investments HIRINGS

American Beacon Advisors Asset Management to manage its Prudential With-Profits strategy. It was hired Man AHL as subadviser of the £400 million ($529 million) fossil-fuel- hired due to an increase in the overall American Beacon AHL TargetRisk Core free allocation to passive equity, WISCONSIN TAPS PRIVATE EQUITY FIRMS allocation to Chinese equities, the Fund, which was launched Dec. 16, according to a spokeswoman at the State of Wisconsin Investment Board, Madison, disclosed private spokeswoman said. All the strategy’s according to an American Beacon fund’s adviser, Hymans Robertson. equity commitments during the third quarter totaling $514 million, assets had been managed internally. news release. The £4 billion pension fund invests according to materials for its board meeting Dec. 15-16. M&G’s overall exposure to Chinese The long-only dynamic risk managed half of its 40% listed equity allocation The board, which manages $132.1 billion in assets, including the equities is more than £2 billion, with strategy has a core balanced portfolio with a ESG focus, said the spokes- the remainder still managed internally. $109.7 billion Wisconsin Retirement System, committed $100 allocation. woman. Ten percent of the ESG equity million to Resolute Fund V, a buyout fund managed by The Jordan Co., Memphis Light, Gas & Water Arizona Public Safety Person- allocation will be in the Storebrand and made a follow-on commitment of $100 million to TSSP Adjacent Division, Memphis, Tenn., hired nel Retirement System, Phoenix, Global ESG Plus fund. Opportunities Partners, an evergreen opportunistic multiasset class Sands Capital Management to run $70 disclosed new commitments totaling Funding came from the termination alternative investment fund. SWIB originally committed $75 million to million in active domestic large-cap $155 million, spokesman Christian of UBS Climate Aware fund following a the latter fund in 2018. growth equities. Palmer said in an email. review, the spokeswoman confirmed. The board also committed $83 million to Clearlake Flagship Plus The $1.5 billion pension fund’s The $11.5 billion pension fund “Investing in generic passive board approved the hiring at its Nov. Partners, a fund that invests alongside manager Clearlake Capital committed $75 million to Fundamental indexes, while a perfectly acceptable 23 meeting. Group’s private equity and credit opportunities strategies, as well as Partners IV, a special situations fund part of any pension strategy, tends to The hiring is the result of the board managed by Fundamental Advisors. weight exposure to older and often investments on its own in other tactical or special situations on Sept. 16 approving a move of its The pension fund also committed more carbon-intensive incumbents opportunities. domestic large-cap equity portfolio to $50 million to Charlesbank Equity over which no investor due diligence Also, the board committed €50 million ($61 million) to DPE an active manager from the current Fund X, a middle-market private equity has taken place. Such an approach Deutschland IV Fund, a European private equity fund managed by passive manager, the name of which fund; and $30 million to Charlesbank sits less well with heightened due DPE Deutsche Private Equity seeking investment opportunities in was not available. Equity Overage Fund, both managed by diligence around ESG risks. ESPF is Germany, Austria and Switzerland; $50 million each to mezzanine Charlesbank Capital very pleased to partner National Employment Savings fund Harvest Partners Structured Capital Fund III and buyout fund Partners. HAVE SOME NEWS? with Storebrand as a Trust, London, selected Northern part of its strategy to Yellow Wood Capital Partners III, managed by Yellow Wood Partners; Trust Asset Management to run an Chicago Munici- Please submit news of address these and $35 million each to health care-focused private equity fund Coun- additional £450 million ($595 million) pal Employees’ changes to David challenges,” Gerard cil Capital IV and lower middle-market buyout fund Seaside Equity allocation to emerging market equities, Annuity and Benefit Schepp, news editor, at Fox, East Sussex Partners I. a spokesman confirmed. Fund hired Acadian [email protected] councillor and pension The defined contribution multiem- Asset Management and fund chairman, said ployer plan will increase its £480 Kayne Anderson Rudnick to run about in a news release. fund Staple Street Capital Partners III Street Bank and Trust. million exposure to emerging market $75 million each in active international and $5 million to buyout fund Carousel equities, also managed by Northern small-cap equities, said Steve Yoon, Illinois Municipal Retirement Capital Partners VI, according to a Los Angeles Fire & Police Trust Asset Management, to £930 investment officer. Fund, Oak Brook, committed up to transaction report. Pensions committed $22 million million by February 2021. NEST will The $3.4 billion pension fund $30 million to Harpoon Venture Fund each to Charlesbank Equity Fund X, a also extend its “climate-aware” issued an RFP in September to III. The $48.3 billion pension fund’s Kimball Electronics Inc., middle-market buyout fund, and a strategy — which was announced in increase its exposure to international board approved the commitment to Jasper, Ind., added the J.P. Morgan related fund, Charlesbank Equity July for its developed markets portfolio small-cap equities and move to active the venture capital fund at its Large Cap Growth Fund to the Overage Fund X. — to its emerging markets allocation. from passive management. Partial meeting Dec. 18, according to a news investment lineup of its 401(k) plan. The $27 billion pension fund also The plan is strengthening its engage- funding came from a $50 million release. The plan added the active domestic committed up to $10 million to Avante ment efforts by requiring portfolio passive international small-cap equity large-cap growth equity fund during the Capital Partners SBIC III, a lower companies to phase out activities portfolio managed by Northern Trust IM Global Partner hired Dynamic plan’s fiscal year ended June 30, middle-market private credit and linked to thermal coal, oil sands and Asset Management. Beta Investments as the sole according to the company’s 11-K filing structured equity fund. arctic drilling by 2025 or create a clear subadviser on its OYSTER Stable with the SEC on Dec. 17. plan to phase them out by 2030. Chicago Policemen’s Annuity Return SICAV fund. The J.P. Morgan fund had $5 million Los Angeles Water & Power This move will take NEST’s & Benefit Fund hired Ariel The UCITS-compliant liquid in plan assets as of June 30, Employees’ Retirement Plan “climate-aware” investments to nearly Investments to manage about $78 alternative fund aims to deliver hedge according to the filing. committed $45 million to Stellex £8 billion of its £14.5 billion in total million in active U.S. smidcap value fund-like returns to institutional and As of June 30, the Kimball Capital Partners II on behalf of its assets. equities, confirmed Thomas A. Beyna, other clients, a news release by iM Electronics Inc. Retirement Plan had a defined benefit plan. NEST will invest in clean technology board president and chairman of the Global Partner said. The fund had $32 total of $107 million in assets. The $16.3 billion retirement plan and renewable energy companies in $2.6 billion plan’s investment million in assets as of Nov. 30, a disclosed the commitment to the emerging markets, while reducing committee. A search was prompted by spokesman for iM Global Partner said. Los Angeles County Employ- special situations buyout fund investment in companies with large oil the closure earlier this year of the The strategy was previously ees Retirement Association, managed by Stellex Capital Manage- or gas reserves and those with a high strategy’s previous manager, Chicago managed by SYZ Asset Management. Pasadena, Calif., committed $70 ment in a Dec. 2 memo from CIO carbon intensity, it said in a news Equity Partners. million to a continuation fund managed Jeremy Wolfson. release Dec. 15. The plan will score Jackson County (Mich.) by Ampersand Capital Partners The plan also committed $5 million companies on progress toward energy District of Columbia Retire- Employees’ Retirement System containing three of its portfolio to Stellex Capital Partners II on behalf efficiency, alternative energy, and ment Board hired Wellington hired Aristotle Capital Management to companies. LACERA was not an of its retiree health benefits fund. building sustainability. Management to run $180 million in run active international value equities. investor in the original fund, said active blended currency emerging Funding came from a similar style Jonathan Grabel, CIO of the $60 billion Lubbock (Texas) Fire Pension New Hampshire Retirement markets debt. portfolio managed by Brandes pension fund. According to a Novem- Fund committed $5 million to System, Concord, committed $50 Funding comes from reducing the Investment Partners, which was ber news release, Ampersand closed Greenspring Global Partners X, a million to Monroe Capital Private Credit portfolio managed by Stone Harbor terminated at the Dec. 10 meeting. As the $670 million continuation fund venture capital fund of funds managed Fund IV. Investment Partners, which had been of Dec. 31, 2019, Brandes managed formed to acquire three portfolio by Greenspring Associates, recently The $9.4 billion fund’s independent the $8.5 billion pension fund’s sole $13 million for the $248 million plan, companies held by multiple mature released minutes show. investment committee approved the emerging markets debt manager, with the most recent data available. The Ampersand funds. Existing investors The $202 million pension fund’s commitment to the middle-market $356 million in plan assets as of Sept. current size of the portfolio was not were given the option of reinvesting board approved the commitment at its private credit fund at its meeting Dec. 30 in a local currency strategy. immediately available. their proceeds or receiving full or Dec. 9 board meeting. 18, spokesman Marty Karlon said. Separately, the board at the Nov. 19 partial liquidity. The fund also admitted meeting approved a commitment of up University of Kentucky, new limited partners such as LACERA. M&G hired Value Partners Group to Oklahoma Firefighters to $50 million to Centerbridge Partners Lexington, disclosed two new private The board also approved establish- subadvise more than £500 million Pension & Retirement System, Real Estate Fund II. equity commitments totaling $15 ing a bench of three transition ($661 million) in Chinese equities, a Oklahoma City, committed $50 million million for its $1.6 billion endowment. management service providers: spokeswoman confirmed. to the Mesirow Financial Real Estate East Sussex Pension Fund, Investment staff committed $10 BlackRock Institutional Trust Co., Value Partners will subadvise on a Value Fund IV, a value-added fund. Lewes, England, hired Storebrand million to middle-market private equity Citigroup Global Markets, and State portion of M&G’s £136 billion The board of the Oklahoma

Here’sHeree’s what yoyou missed since Sept. 1, 2019. GET ACCESS TODAY. SEARCHES HIRES TERMINATIONS $26.7B $99.7B $24.1B Access to the P&I Searches and Hires Database is 214 Manager and 881 Managers and 121 Managers and only available with a P&I Daily Enterprise License. Contact Elayne Glick at [email protected] Service Provider searches Service Providers hired Service Providers terminated or 212.210-.0247 for details. Pensions & Investments December 28, 2020 | 19 HIRINGS

firefighters’ $3.2 billion pension fund at the council’s Nov. 19 meeting. private credit commitments totaling Management, and Torchlight Debt meeting, recently released meeting approved the commitment at a The council has previously $40 million. Opportunity Fund VII, a real estate minutes show. meeting Dec. 18, according to Troy committed to other Starwood funds. The $469 million pension fund’s debt fund managed by Torchlight Brown, executive director at AndCo Of the $150 million commitment board on Oct. 8 approved commit- Investors, CIO Dan Gallagher said. Washington State Investment Consulting, the pension fund’s limit, up to $134.4 million was made ments of $20 million each to Entrust Board, Olympia, committed up to investment consultant. on behalf of the $12.3 billion South Global Recovery Fund and Marathon University of Vermont and $150 million to Luminate Capital Dakota Retirement System. Also, up to Distressed Credit Fund, managed by State Agricultural College, Partners III. Orange County Employees $6.9 million comes from the $631 Marathon Asset Management, said Burlington, made a manager hire and The board, which oversees $152.6 Retirement System, Santa Ana, million Education Enhancement Trust Janell Manley, administrative director. direct hedge fund investment totaling billion including $117.8 billion in Calif., committed $255 million to three Fund, up to $3.5 million from the $334 $35 million for its $568 million defined benefit assets, approved the alternative investment funds. million Dakota Cement Trust Fund, up Ventura County (Calif.) endowment pool. commitment to the middle-market The $17.7 billion pension fund to $3.7 million from the $328 million Employees’ Retirement Asso- The university’s investment buyout fund at its meeting Dec. 17, invested $140 million to Alpstone School & Public Lands Fund and up to ciation made two new private debt subcommittee approved the hiring of said Tish Day, spokeswoman. Global Macro Fund, managed by $1.5 million from the $151 million commitments totaling $50 million. Ownership Capital to manage $25 The board’s investment staff also Alpstone Capital, that will focus on Healthcare Trust Fund. The $6.7 billion pension fund’s million in active global equities and made a follow-on commitment of $500 discretionary global macro and relative board on Dec. 14 approved commit- also approved a direct hedge fund million to Aevitas Property Partners, a value trading strategies. Springfield (Mo.) Police ments of $25 million each to Crayhill investment of $10 million in Charles- real estate manager based in OCERS also committed $75 million Officers’ & Firefighters’ Principal Strategies Fund II, a private Lim Asia Global Fund, managed by Amsterdam. This will be the sixth to Digital Colony Partners II, an Retirement System made two new credit fund managed by Crayhill Capital Charles-Lim Capital, at its Nov. 18 investment with Aevitas. infrastructure fund that would invest in data centers, cell towers and digital billboards, among other investments. The fund also committed $40 million to CVI Credit Value Fund V, a North American and European distressed credit fund managed by CarVal Investors.

St. Louis Firefighters’ Retirement Plan hired Argent We’ll help you get Capital Management, Copeland Capital Management and Kayne Anderson Rudnick as active domestic equity managers. The $108 million pension fund hired qualiﬁed candidates Argent Capital and Kayne Anderson Rudnick to run midcap portfolios and Copeland Capital to run a small-cap portfolio, according to Oct. 29 board meeting minutes. Sizes of the in the door. portfolios were not available.

San Jose (Calif.) Federated City Employees Retirement Your next career candidate is reading Pensions & Investments. In fact, we reach the largest pool System committed $8 million to HPS Special Situations Opportunity Fund. of institutional investment industry leaders while they are making important business decisions. The $2.5 billion fund’s commitment And we oer them the most robust array of executive and c-suite career opportunities in the to the distressed debt fund managed by HPS Investment Partners was investment community. disclosed in a memo included with Dec. 17 board meeting materials.

San Mateo County Employ- ees’ Retirement Association, Have a position you need to ﬁll? Redwood City, Calif., committed a total of $35 million to two alternatives Contact Erin Smith at 212.210.0719 or [email protected] funds and made a follow-on commitment to a direct lending fund, said an announcement on the $4.4 billion pension fund’s website. At its Dec. 8 meeting, the board Search job opportunities approved a $20 commitment to Endeavour Capital Fund VIII, a lower Go to www.pionline.com/careers middle-market private equity fund. It also agreed to commit $15 million to Canvas Venture Partners 3, a venture capital fund managed by Canvas Ventures. The board also approved a follow-on commitment of $10 million to BlackRock Direct Lending Fund IX, a middle-market fund. The pension fund had $5 million in a BlackRock connected feeder fund as of Sept. 30.

Santa Barbara County (Calif.) Employees’ Retirement System committed $50 million to AG Direct Lending Fund IV. The $3.3 billion pension fund’s board approved the commitment to the private credit fund managed by Angelo Gordon & Co. at its Dec. 9 meeting, said Lauren Thompson, assistant CEO.

South Dakota Investment Council, Pierre, committed up to $150 million to Starwood Distressed CAREERS Opportunity Fund XII, confirmed Tammy Otten, assistant investment officer. EXCLUSIVE ACCESS TO TOP TALENT The commitment to the opportunistic real estate fund managed by Starwood Capital Group was approved 20 | December 28, 2020 Pensions & Investments

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P020_PI_20201228.indd 28 12/22/20 4:54 PM Pensions & Investments December 28, 2020 | 21 NEWS ROUNDUP

Survey says 70% of managers see better economy in 2021

Investor sentiment remains bull- supervision rules, in relation to 10 The $9.5 billion pension fund’s ish as COVID-19 vaccinations be- MySuper funds. board approved the new asset mix gin, according to Bank of America’s APRA will issue notices requir- PBGC’S RIGHTS TO ASSETS UPHELD at its Dec. 9 meeting, CEO Gail December Global Fund Manager ing information from those trustees A federal appeals court in Florida has backed the Pension Benefit Strohl said in an email. Survey, with 7 in 10 managers ex- in relation to the underperfor- Guaranty Corp. in its legal bid to go after the owner of a company The pension fund’s target alloca- pecting the global economy to im- mance of some of their funds and that took more than two decades to shut down its pension plan. tion is categorized by growth, li- prove in the first half of 2021. the actions being taken to address “From the confluence of bankruptcy, employee benefits and quidity and diversifying portfolios. When asked when the COV- it. The regulator will then deter- The overall growth portfolio tar- corporations law comes this most unusual case,” wrote Judge ID-19 vaccine will start positively mine what further action it will get increased to 76% from 67%. Richard C. Tallman for the 11th Circuit U.S. Court of Appeals in impacting the economy, 42% of sur- take. Within that portfolio, only the tar- veyed fund managers said it would Other findings by the heat map Miami in the Nov. 24 order upholding a U.S. District Court’s 2019 gets to value-added real estate and begin in the second quarter, while include that super funds have judgment for the PBGC. infrastructure remain unchanged 28% said the first quarter and 19% achieved A$408 million in fees. The PBGC filed the case in July 2018 to collect unfunded benefit at 5% and 3%, respectively, of total said the third quarter. “The MySuper product heat map liabilities it was owed when the Liberty Lighting Co. Inc. Pension Plan plan assets. A net 89% of fund managers sur- shines a light on those trustees who for IBEW Employees, Chicago, was terminated and taken over by the Also within growth, the pension veyed expect stronger growth in are failing their members by charg- agency, and for premiums owed to PBGC because of the termination. fund increased targets to private 2021, while a record 87% expect ing high fees and not delivering The lawsuit also sought to recover any property fraudulently trans- equity to 15% of total pension fund higher long-term yields. good long-run returns,”Helen Row- assets from 8%, private credit to 13% ferred while Liberty and other companies owned by Joseph Wortley COVID-19 continues to be the ell, deputy chairwoman, said in a from 12%, domestic large-cap equi- were winding down. biggest tail risk, with 30% of re- news release accompanying the ties to 10% from 5%, and opportu- spondents putting it at the top of heat map. According to the PBGC, Liberty Lighting never notified the agency nistic real estate to 5% from 4%. their list this month, but that’s11 that the plan was at risk for termination, while the remaining CCCERA also added a newly-creat- percentage points less than No- 2019 a banner year for companies said in court documents that “nobody ... knows if this is ed 3% target of domestic small-cap vember due to vaccine expecta- actually true; too much time has passed.” equities. tions. The other top tail risks are 401(k) participation Liberty Lighting became sponsor and administrator of the plan in Also in the growth portfolio, the fears of inflation (24%) and fiscal The percentage of employees 1989 but by 1991 was forced into bankruptcy and in 1992 it was pension fund reduced international policy drag (18%). contributing to their 401(k) plans administratively dissolved by the state of Illinois. Mr.Wortley later developed markets equities to 10% Although 2020 was dominated by hit a record high in 2019, according filed for personal bankruptcy. of total pension fund assets from the global recession sparked by the to the Plan Sponsor Council of 13%, emerging markets equities to According to court documents, the pension plan has assets of global COVID-19 outbreak, manag- America’s 63rd annual survey re- 8% from 11%, and risk parity to 3% ers’ recovery expectations sur- leased Dec. 17. $4.56 million and accrued liabilities of $3.54 million as of Jan. 1, from 5%. CCCERA eliminated its 1% passed previous recessions both in The survey showed 87.3% of par- 2002, the last 5500 filed. Pension benefits were paid until plan target to real estate investment terms of speed and magnitude, sur- ticipants made contributions to assets were depleted, and the plan was terminated in July 2012 trusts. vey results showed. their retirement plans last year, up when the PBGC became aware of the situation. For its overall liquidity portfolio, Seventy percent of fund manag- from 84.2% in 2018 and higher than “PBGC’s theory of the case under ERISA is simple: with Liberty the pension fund reduced that ers said the global economy is in an the record 84.9% hit in both 2017 unable to meet its ERISA obligations to its former employees, (Mr.) overall target to 17% from 23%. early cycle phase, the highest per- and 2016. Wortley’s other companies must foot the bill,” Mr. Tallman said in Within that portfolio, CCCERA cre- centage reported since January Also, more than 90% had an ac- the ruling, citing federal law that dictates that other companies ated a new 3% target of total pen- 2010. Meanwhile, only 12% said it is count balance, an improvement sion assets to cash and reduced the owned by Liberty’s owner may be held liable for the unfunded in a recession. from 89.3% the previous year. target to short-term credit to 14% of Thirty-four percent of fund Average employee contributions, liability. “In the unusual circumstances of this case, Liberty still the overall pension fund assets managers believe in a W-shaped however, retreated slightly to 7.6% existed in 2012 sufficiently to act as the plan’s sponsor under from 23%. recovery, 29% a U-shaped recovery of pay, from 7.7% the year before. ERISA,” said Mr. Tallman. For its diversifying portfolio, the and 26% a V-shaped one. The slight decrease in employee Officials at the PBGC could not be immediately reached for pension fund reduced the overall Cash levels among surveyed contributions was offset with an in- comment. target to 7% from 10%. money managers fell to 4% from crease in employer contributions, Hedge funds were reduced to 3% 4.1%, making investors under- which rose to 5.3% from 5.2% in of total pension fund assets from weight cash for the first time since 2018. was raised, the 6% target to hedged sion funds said in a letter to the 7%, a U.S. Treasuries target of 3% May 2013, indicative of an early All told, the combined average long/short equities was eliminated. Treasury Department’s Office of was eliminated, and the pension stage recovery like recoveries after employee and employer contribu- Private credit and public credit tar- Foreign Assets Control. fund created a new 4% target to the global financial crisis and the tions totaled 12.9%, unchanged gets were reduced to 4% and 2%, re- That office is responsible for car- core fixed income. dot-com bubble. from the record combined contri- spectively, from a respective 5% and rying out the Nov. 12 executive or- Investment consultant Verus Ad- A record net 76% of investors butions made in 2018. 4%, and public real assets were re- der by providing a list of the sanc- visory assisted. said they’re expecting a steeper The availability of mobile tech- duced to 3% from 6%. tioned entities, but “it is challenging yield curve in 2021, higher than the nology and managed accounts to Also, the target to diversifying for investors to use” and the dead- Shareholder class-action 2008 Lehman Brothers bankruptcy, participants, in contrast, jumped strategies was increased to 20% line “is just weeks away,” said the the Federal Reserve “taper tan- significantly. Nearly 60% of plans from 15%. The new investment pol- letter sent Dec. 13. threshold under review trum” in 2013 and the U.S. election now offer plan access via mobile icy moves hedged long/short equity The letter was signed by CII Ex- The Supreme Court agreed on in 2016. technology, up from 47.5% in 2018, and fixed income funds, previously ecutive Director Amy Borrus and Dec. 11 to review a petition by Gold- Bank of America surveyed 190 while 40% offer a professionally categorized under global equities officials with the $428.4 billion Cal- man Sachs Group challenging a fund managers overseeing a total of managed investment alternative to and public credit, to the diversify- ifornia Public Employees’ Retire- class-action suit led by the $17.6 $534 billion in assets. participants, up from 36.3% in 2018. ing strategies category. ment System; the $254.7 billion billion Arkansas Teacher Retire- The survey reflects 2019 plan- Targets that remain unchanged California State Teachers’ Retire- ment System over misrepresenta- Australian regulator eyes year data for 602 401(k) and profit- are 20% private equity, 11% private ment System; the $211 billion New tions made to investors during the sharing plans. real assets and 7% high-quality/rate York City Retirement Systems; subprime mortgage crisis, and super fund performance sensitive fixed income. Florida State Board of Administra- questioning whether shareholders The Australian Prudential Regu- University of Kentucky As of Oct. 31, the endowment’s tion, which oversees a total of have too much power to pursue lation Authority has increased actual allocation was 19.2% private $216.9 billion; and $97.5 billion such class-action alliances. scrutiny of the performance of the boosts global equities equity, 15.5% domestic equities, Ohio Public Employees Retirement Other plaintiffs in the suit in- country’s superannuation funds. University of Kentucky’s invest- 15.4% international equities, 14.1% System. clude the $16 billion West Virginia APRA has refreshed its MySuper ment committee approved a new diversifying strategies, 10.3% pri- The investors are asking OFAC Investment Management Board, product heat map, which was first target allocation for its $1.6 billion vate real assets, 6.3% high-quality/ to publish commonly used invest- Charleston, and the $6.2 million published last December, to inten- endowment, including an increase rate sensitive fixed income, 5.7% ment identifiers like tickers “so that Plumbers and Pipefitters National sify supervision of underperform- in the target to global public equi- hedged equity, 5.2% public credit, investors have the information they Pension Fund, Alexandria, Va. ing super funds. Superannuation ties to 33% from 26%. 5.1% public real assets, 3% private need to comply swiftly and com- The 2011 lawsuit stemmed from fund assets totaled A$2.9 trillion The Lexington-based universi- credit and 0.2% cash. pletely with the order” before the Goldman Sachs’ Abacus collateral- ($2.06 trillion) as of Sept. 30, ac- ty’s investment committee ap- Investment consultant Fund Jan. 11 effective date for the restric- ized debt obligation, a subprime cording to the Association of Super- proved the targets as part of chang- Evaluation Group assisted with the tions, the letter said. mortgage-based financial instru- annuation Funds of Australia. es to the endowment’s investment asset allocation study. ment assembled with the help of The December update by APRA policy at its remote meeting Dec. 14. Alternatives targets shifted hedge fund Paulson & Co. Its con- said 11 of the MySuper products The moves followed an asset allo- CII, funds look for help trary bet against the CDO was not that underperformed the invest- cation study. by Contra Costa County disclosed to investors, leading in ment benchmarks have exited the Todd Shupp, chief investment of- with Chinese stock ban Contra Costa County Employees’ 2010 to Goldman Sachs’ $550 mil- industry over the last 12 months. ficer, said in the meeting the new A White House order that pre- Retirement Association, Concord, lion settlement with the Securities The association is also now re- targets are intended to be modest vents U.S. investors from buying Calif., nearly doubled its target to and Exchange Commission. viewing whether eight trustees may and changes to the endowment’s al- stock of Chinese public companies private equity and decreased its The shareholders’ suit was held have failed in their obligations to location will be incremental in na- with military ties is proving chal- target to hedge funds by more than up in appeals by Goldman Sachs participants, including possible ture. lenging, the Council of Institutional half following the completion of an until April following a ruling to pro- breaches of the market’s industry While the global public equities Investors and several member pen- asset-liability study. ceed by a federal court in New York. 22 | December 28, 2020 Pensions & Investments

er than contributions and that ven- tinuation funds) is the recognition UPCOMING WEBINARS | REGISTER TODAY ture capital distributions will that some companies will need sig- Secondaries exceed contributions in 2020. nificantly more fund life to generate the value they want,” Ms. Shaw CONTINUED FROM PAGE 1 Jumping in said. investment secondary market, Some of the largest alternative A few managers are using GP- “particularly single-asset continua- managers are taking advantage of led transactions to give limited tion funds for resilient companies the strategy. partners the ability to liquidate with good growth trajectories,” he Blackstone Group Inc. is in the stakes in long-lived funds, she said. said. midst of recapitalizing a real estate Long-lived funds can throw a Despite the pandemic, secondary fund, selling a portfolio to a new wrench into investors’ portfolio What might a Biden DOL and SEC mean for managers have been raising larger $7.4 billion continuation vehicle, construction. funds, with a couple of managers Blackstone BioMed Life Science Portfolio construction, including retirement plans? raising dedicated funds to invest in Real Estate LP, which is a perpetual pacing models, is more difficult for Heading into 2021, what impact will a Biden-led administration have on GP-led transactions. Direct second- open‐end fund with a four‐year ini- portfolios with “mismatched fund retirement legislation and regulatory developments? ary transactions, including GP-led tial lockup period, according to a lives,” meaning 20- or 25-year funds restructurings of existing funds, in- memo by its real estate consultant, combined with the more typical 10- A panel of experts discuss the general direction of the DOL and SEC creased as a proportion of all alter- The Townsend Group, to the $28.3 year funds, Ms. Shaw said. over the next four years as well as other top-of-mind issues for retire- native investment secondary mar- billion New Mexico State Invest- ment plan fiduciaries, including: ket activity to 38.7% in the six ment Council, Santa Fe, for its Nov. Increased acceptance months of 2020 ended June 30 from 24 meeting. The boost in GP-led restructur- • Shaping of Secure Act 2.0 37% in the first six months of 2019, The council committed up to $50 ing activity is, in part, the result of • Direction of ESG and proxy rules Setter data show. In December, Car- million to the new fund, composed increased acceptance of the strate- • Advancement of MEPS/PEPs lyle Group’s AlpInvest Partners of a portfolio of life science proper- gy by investors. Some 85% of limited • Implications for defined benefit plan reform unit closed its latest alternative in- ties in an earlier Blackstone fund, partners said that done well, GP- vestment secondary market fund, Blackstone Real Estate Partners led transactions are a “useful tool,” Replay Available: pionline.com/InvescoWebinar AlpInvest Secondaries Program VII, in which the council is an in- according to the latest biannual pri- VII, at its hard cap of $9 billion, ex- vestor. That fund, with co-investors, vate equity LP survey by secondary ceeding its $8 billion fundraising acquired the portfolio by taking pri- market manager Coller Capital Ltd., Sponsored by: target and 38% larger than its pre- vate real estate investment trust released on Dec. 7. The remaining decessor. In October, HarbourVest BioMed Realty Trust Inc. in 2016. 15% of 113 survey respondents said Partners closed its 10th secondaries At the meeting, Blackstone ex- that GP-led transactions are “a dis- fund, Dover Street X, at its $8.1 bil- ecutives told the council that life tortion of the private equity model,” lion hard cap. AlpInvest and Har- sciences is a sector in which Black- the results of the survey taken Sept. bourVest both invest in GP-led stone has a high conviction that it 14 through Oct. 16 show. transactions as well as in positions will outperform in the future, in “More LPs are bullish on private This webcast is intended only for Institutional Investors in the US. Invesco Advisors, Inc. in existing private eq- part due to increased equity and need capital freed up to uity funds through amounts of money ex- make more investments,” said Paul buying fund interests. pected to be spent for Lanna, a partner in Coller Capital’s The Institutionalization of Retail: A Webinar health care by the ba- New York office. Smaller portion by-boom generation. The main issue is the valuation Series from P&I Content Solutions and GP-led transactions “We worked through of the portfolio or asset being sold Chestnut Advisory Group are a smaller portion of the strategic plan, and between the old and new funds, he the secondary market earlier this year felt it said. than the sale of limited was time to explore an “In a GP-led recapitalization, if The Institutionalization of Retail, Part Two: partnership interests. exit,” Kathleen McCar- you are the GP, you are conflicted,” How to Partner with Retail Allocators Today But unlike LP interest thy, a senior managing Mr. Lanna said. “You are the selling As change ripples over the asset management business, marketing, sales, which fell by 56% MORE: Paul Lanna said director and global co- fund and the buying fund. You need business development and even distribution have become more com- to $28.6 billion in the many LPs like private head of real estate at to prove to the LPs of the selling plex. The key is to leverage those changes to drive better performance six months ended June equity and want capital Blackstone, told the fund and the buying fund ... that the if not transformation. It’s no longer just about investment products and 30 from the year-earlier for other deals. council. price is fair.” performance, it’s about the client’s experience and delivering solutions period, GP-led deals “Many of our LPs Alternative investment manag- within that framework. Our panel discussed: are expected to take up a somewhat were highly interested in gaining ers are not just using GP-led trans- larger share of the market. exposure to life sciences real estate actions to assist a struggling fund. • How to evolve market strategies “On the sell side, LPs are tired of and this company in particular” and Mr. Lanna said that Coller Capital • Shifting to a goals-oriented approach fund extensions and GPs are realiz- so, Blackstone decided to create a executives have seen GP-led deals • The importance of customization ing that one-year fund extensions continuation vehicle to allow inves- involving seemingly COVID-resil- • Communications models that work are not cutting it anymore. They tors continue to own the portfolio. ient health-care and software as- need more runway than that,” said There are a number of new wrin- sets “fairly frequently.” • The importance of data transparency and insights Jill Shaw, Boston-based managing kles in the fabric of GP-led transac- In health care, managers are re- Replay Available: director of private investments at tions that managers are laying out capitalizing these portfolios because consulting firm Cambridge Associ- for investors. Some managers are those managers see opportunities to pionline.com/PartTwo-InstitutionalizationofRetailWebinar ates LLC. “stapling” commitments to a brand merge companies such as dental or It gives limited partners that have new fund to the GP-led transactions. other medical practices together to Sponsored by: in partnership with been in funds for a long time and In such a “stapled” deal, limited part- create larger companies, he said. want to deploy capital elsewhere a ners will invest in the fund by buying Likewise, the software sector is way to get liquidity, Ms. Shaw said. It the old fund’s assets — sometimes at not necessarily challenged, he said. is also a way for limited partners to a discount — but also commit to an- “Many software companies are take managers they no longer wish other fund as part of the same deal. doing better than ever, but need to commit to in future funds off the At times the additional fund may be capital to accelerate growth through Carving out fresh opportunities: books, she said. a new strategy for the manager, such M&A, or investments in the busi- Don’t let cash drag you down For managers, the GP-led trans- as credit. Existing LPs in the fund ness,” Mr. Lanna said. action resets the timetable until that being recapitalized are offered the Cash allocations are often intentional and serve many purposes, includ- they have to exit the asset and “takes deal but don’t often buy in, Cam- New types of transactions ing meeting daily operating expenses, rebalancing, funding new invest- the pressure off,” Ms. Shaw said. bridge’s Ms. Shaw said. Managers are not only restruc- ments, or having private investment capital calls. Market volatility and GP-led transactions are one “If you’ve got a GP or a firm that turing older funds, they are creating persistent low yields continue to aect the optimization of cash, which more new route alternative invest- may be out of favor or is not a great new types of secondary market can directly aect overall portfolio performance. Join a panel of senior ment managers are taking to exit performer, and (there is) not a lot of transactions involving private spe- thought leaders from Wells Fargo Asset Management for a discussion existing investments. A combina- uptake in their new offerings, it gives cial purpose vehicles that can buy a on fresh opportunities that address cash drag and oer innovative tion of a robust initial public offer- them new life,” she said. And it helps single asset or a portfolio of assets, investment solutions as we look toward what lies ahead in the new year. ing market as well as publicly trad- the firm launch a new strategy. explained Jason Thomas, Washing- They explore: ed special purpose acquisition The attraction of stapled offer- ton-based managing director and • Overlooked and underused equity opportunities companies, and public market ings for newer investors is that they head of global research at The Car- • Challenges and strategies for global fixed income in a low-yield managers and hedge fund manag- are investing in assets possibly at a lyle Group Inc. environment ers acquiring private equity-backed discount, “generating value on day These private special purposes • A prudent approach to dry powder investing companies have led to more distri- one,” Ms. Shaw said. then can hold the businesses for a butions than expected, she said. One growth manager cherry- long period of time with expecta- “It’s been a surprisingly good picked assets across many of its tions of liquidity in three to five Replay Available: year distribution-wise,” Ms. Shaw funds and packaged them into a years or as long as 10 years, he said. pionline.com/WellsFargoWebinar said. “It’s been a little bit down from new 10-year vehicle offering, Ms. This industrywide strategy is “an the last year, but the last few years Shaw said. Limited partners in the alternative to selling a business to a Sponsored by: have been on fire with distribu- funds from which the assets were successor fund or selling it to a tions. It’s sort of shocking and not taken — which included some rela- sidecar fund,” Mr. Thomas said. what we would have expected given tively new funds — were given the “This is something that is very new. the first and second quarters.” option of participating in the new It’s a nascent market. Like every- For a full list of webinars, go to pionline.com/webinars Cambridge expects private equi- vehicle or being cashed out. thing else there’s a lot of experi- ty distributions will be slightly low- “Part of it (the need for the con- mentation with terms.” n Pensions & Investments December 28, 2020 | 23

specialism at Vanguard Asset Man- al counterparts because it is more agement Ltd. in London. Mr. expensive for managers to cover the European ESG funds a bargain ESG fees Fitzgerald noted that with a mix- cost of ESG indexes. Mr. Kutscher According to research by Morningstar Direct, average fees charged by ture of ESG approaches, ranging added that index providers will add CONTINUED FROM PAGE 2 European ESG funds are lower than most non-ESG funds. from exclusions to funds identify- additional charges if their efforts targets. In the new year, money ing leading ESG companies, man- take more work, for example, in de- Average fees for European ESG and non-ESG funds managers expect European inves- agers could still charge up to a 10 vising or executing a strategy to All funds tors to focus on largely buying basis points premium. measure carbon intensity or over- Non-ESG (asset weighted) Non-ESG (equal weighted) funds that are compliant with dis- “The fees on the larger (ESG) weighting companies with a specific ESG (asset weighted) ESG (equal weighted) closures under Article 8 and Article launches are competitive with carbon reduction target. 1.8% 9 of the SFDR that promote envi- mainstream products. There is a But even with the cost of data ronmental and social factors as well slight premium if you are (compar- pushing overall manager costs up, 1.6% as those aimed at having a sustain- ing an ESG product to) a large sta- managers are finding ways to profit. 1.4% able impact, respectively, rather ble mature index fund,” he said. Speaking about passive managers than traditional non-ESG funds. “If you go back a few years, there incorporating active approaches, 1.2% But to attract business to their were fewer products on offer, and Dimitar Boyadzhiev, senior analyst, 1.0% strategies, money managers will there was more differentiation be- passive strategies research Europe have to make some sacrifices when tween non-ESG products and ESG at Morningstar in London said: “It is 0.8% it comes to fees. products,” he added. a clever thing.” “What is ESG investing today While Vanguard expects to ben- “If you want to structure an ETF 0.6% will be the standard (in the future). efit from scale and lower its ESG you can still make a product that is 0.4% You cannot have higher fees,” said fund fees, currently at between very cheap and (incorporate) ESG Steffen Kutscher, senior advisor in- 0.14% and 0.2%, DWS doesn’t differ- on 20% of the portfolio actively us- 0.2% vestment and ESG advisory Eu- entiate fees for active ESG funds ing your own internal research and 0.0% rope, Middle East and offer a lower price this 2013 2014 2015 2016 2017 2018 2019 2020 Africa and Asia-Pacific way,” he said. in the product division “If you have two very Equal-weighted funds by investment style at DWS Group in strong data providers in Non-ESG active Non-ESG passive Frankfurt. He said that the market, they ESG active ESG passive investors at the very (would) try to charge 1.8% minimum want to buy more (for data),” he 1.6% Article 8 strategies said. But he added: “An from March 10, 2021. active implementation 1.4% “Every manager is in a allows you to stay com- horse race, trying to petitive.” 1.2% catch up,” he added. Luba Nikulina, glob- 1.0% “You can see that many al head of research at managers are trying to Willis Towers Watson 0.8% push out strategies PLC in London, said 0.6% with lower fees to catch that when managers al- more flows,” he said. locate more resources 0.4% and do additional work 0.2% ‘Extensive feature’ they can try to justify Sonja Laud, CIO of higher fees. But she 0.0% Legal and General In- said: “Considering 2013 2014 2015 2016 2017 2018 2019 2020 vestment Management ‘HORSE RACE’: Steffen Kutscher said many money managers are where managers’ mar- Ltd. in London, added: releasing strategies ‘with lower fees to catch more flows.’ gins are, there is still Asset-weighted funds by investment style “ESG integration is now room for fees to go Non-ESG active Non-ESG passive an extensive feature to any invest- and active non-ESG funds. down especially (...because) some ESG active ESG passive ment process.” On average, fees for active ESG larger managers get more scale 1.8% “Clients do expect that invest- funds in Europe are lower than which allows them to allocate the 1.6% ment decisions take (into) consid- those for active non-ESG funds, cost of data across a larger amount eration a broad set of ESG factors,” while fees for passive ESG funds of capital and hence bring down 1.4% she added. And because ESG in- are slightly higher than those for costs for themselves and decrease 1.2% vesting is becoming synonymous non-ESG passive funds, Morning- the fees.” with mainstream investing, she said star’s study also found. Asset- Investors can buy funds with a 1.0% a “fee premium might not be sus- weighted non-ESG passive funds broad integration of ESG for as lit- 0.8% tainable in your core product rang- charged a fee of 0.19% in 2020 com- tle as 7 basis points, Mr. Boyadzhiev es,” she said. pared with 0.25% charged by asset- said. Funds that utilize more ESG 0.6% Sources said that in addition to weighted ESG passive funds. research and climate tilts would the already-existing fee pressure However, non-ESG passive cost about 20 basis points, he added. 0.4% stemming from manager competi- equal-weighted funds charged on Mr. Boyadzhiev added that non- 0.2% tion, regulatory requirements have average fees of 0.32% in 2020, ESG ETFs such as strategic beta additionally forced managers to ab- whereas equal-weighted passive ETFs or multifactor ETFs are caus- 0.0% sorb the costs of integrating ESG ESG funds also charged 0.32%. ing the price of non-ESG strategies 2013 2014 2015 2016 2017 2018 2019 2020 data into their investment process to tick upward. Source: Morningstar Direct. Data for 2020 are as of Oct. 30. to offer appropriate funds for Euro- Justifying higher fees “The cheapest global equity in- pean investors. One example of the need to ab- come dividend ETF (costs) 29 basis “Now to be competitive, manag- sorb costs related to data integra- points whereas you can buy a glob- there are areas such as climate- Sustainable Development Goals ers have to be careful not to price tion, according to DWS’s Mr. al large cap tracker for 12 basis change-related funds or funds re- that could justify managers charg- themselves out of a market,” said Kutscher, is that ESG ETFs can be points,” he added. flecting on specific values stem- ing higher fees because they focus Mark Fitzgerald, head of product more expensive than their tradition- Still, LGIM’s Ms. Laud said that ming from the United Nations’ on capturing a specific risk. n

pleted in a very short time frame in what has been a challenging year in Milliman sees premiums decline in November PRT financial markets, is another impor- Pension risk transfer premiums fell in November some plans in the market,” tant step in the plan’s derisking CONTINUED FROM PAGE 4 due to decreases in both discount rates and annuity said Mary Leong, Milliman journey,” Andy Kieran, chairman of consulting actuary and the million ($675 million) in liabilities trustees at the Aon Retirement Plan, purchase rates, a Milliman study said. for its Aon Bain Hogg Pension said in a news release. The estimated buyout cost as a percentage of study’s co-author, in a news Scheme section, through a buy-in The trustees were advised by accounting liabilities (accumulated benefit obliga- release. “While the buyout transaction with Scottish Widows, a Aon and law firm CMS Cameron tion) dropped to 101.8% as of Nov. 30, from 102.9% market softened in 2020 as spokeswoman said. McKenna Nabarro Olswang. Scot- a month earlier. a result of the COVID-19 The percentage of liabilities cov- tish Widows was advised by law The change was the result of average annuity pandemic, low competitive ered by the deal was not available. firm Herbert Smith Freehills. purchase rates decreasing by 9 basis points, rates may spur activity as The Aon Retirement Plan has £4 The overall Aon plan has now according to Milliman’s latest pension buyout index we close out the year and billion in assets, while the Aon Bain conducted four retiree buy-ins in study. Average accounting discount rates dropped 20 move into 2021.” Hogg Pension Scheme section has total, including two for the Aon POTENTIAL UPTICK: basis points in November. The Milliman Pension £1 billion. Bain Hogg Pension Scheme section. Mary Leong thinks low “The trustee has been working In 2016, the plan secured a £900 Average annuity purchase rates among the most rates could mean more Buyout index uses the FTSE with our advisers over a number of million buy-in with Pension Insur- competitive rates, meanwhile, fell by 11 basis activity into 2021. Above Median AA Curve and years to manage risk in the plan and ance Corp. The plan also conducted points. The index for competitive pricing dropped to insurers’ composite interest enhance the security of members’ a buy-in with Rothesay and a buy- 99.4% from 100.3% the previous month. rates to estimate the average cost of PRT transac- benefits. We are very happy to have in with Just Group. Further details “November’s record-low competitive buyout pricing tions. formed this partnership with Scot- of the previous transactions, in- rate, at 99.4%, reflects what we’ve been seeing for —ROB KOZLOWSKI tish Widows and this buy-in, com- cluding dates, were not disclosed. n 24 | December 28, 2020 Pensions & Investments AT DEADLINE fined contribution strategist. “There 4 (most likely), the statement “more might have been some momentum plans will offer in-plan annuities” SECURE prior to the pandemic.” scored 2.6 and the statement “more Siegel & Walmsley, $37 million. Ms. Latham said the word “annu- participants will use in-plan annui- Owl Rock, Dyal to merge CONTINUED FROM PAGE 2 The remaining assets from ity” still has a negative connotation. ties” scored 2.1, the lowest score Owl Rock Capital Group and the terminations will go to cost justifies the usage, Mr. Kreps She recalled a T. Rowe Price focus among seven choices. Neuberger Berman Group’s Dyal ■ rebalancing. said. group last year in which the partici- When given eight choices for Capital Partners announced Dec. “It’s tough to make plan improve- pants were asked if they preferred identifying factors that would influ- 23 that they have agreed to ments when you are dealing with a guaranteed income or a managed ence offering a qualified default in- merge in a deal valued at about Miss. axes manager furloughs or staying in business” payout. The results were about 50- vestment alternative, DC consul- $12.2 billion. The $28.2 billion Mississippi due to the economic impact of the 50. When the word “annuity” was tants said the choice of The two firms will combine with Public Employees’ Retirement coronavirus, he added. substituted for “guaranteed in- incorporating annuities, managed a special purpose acquisition System terminated Longview Larger plans will be more likely come,” the “managed payout” option payouts or other lifetime income to consider in-plan options, Mr. received the most votes. products in the QDIA ranked last. company, Altimar Acquisition Corp., Partners as one of its four global Kreps said. Another T. Rowe Price survey of ■ When asked what strategies equity managers. to form a publicly traded alternative “We were having a lot of robust DC consultants, published in No- sponsors should consider “to help investment firm, Blue Owl Capital The pension plan approved the conversations until March,” said participants through their retire- Inc., according to an SEC filing. termination at a board meeting on David Ireland, global head of de- ment,” adding an out-of-plan annu- Altimar is sponsored by Dec. 15, a spokeswoman said in fined contribution for State Street ity option ranked eighth of nine alternative investment firm HPS an email. Global Advisors, Boston. choices and adding an in-plan an- Investment Partners. Longview, which was put on “Then the focus shifted for all re- nuity option ranked last. The deal includes a combined watch in October, was terminated tirement plans away from future $1.5 billion commitment from due to a combination of invest- enhancements.” Even under the Lifetime income best circumstances, however, “it’s “We aren’t seeing a lot of adop- ICONIQ Capital, CH Investment ment team and executive team hard work to implement these tion of lifetime income solutions,” Partners, $6.8 billion Koch changes as well as performance, kinds of solutions,” he said. said Alison Borland, the San Fran- Companies Defined Benefit Master she said. cisco-based executive vice presi- Trust, Wichita, Kan, the Federated As of Sept. 30, Longview Hurdles to adoption dent of wealth solutions and strat- Hermes Kaufmann Funds and managed $756 million, or 20.8% Despite the safe harbor, sponsors egy at Alight Solutions, referring to Liberty Mutual Investments. of the pension fund’s $3.6 billion still have qualms about in-plan life- a survey of plan sponsors to be Blue Owl is expected to be total global equity allocation. The time income options. published in mid-January. Twelve listed on the NYSE under the new assets managed by Longview will In a survey to be published in late ALL IN HOW YOU SAY IT: Lorie Latham percent of respondents said they ticker OWL and have a post-trans- be moved into the Northern Trust January or February, T. Rowe Price said the word ‘annuity’ continues to already offered an in-plan annuity Group Inc., Baltimore, found that carry bad connotations for many. option, but the survey didn’t ask action market capitalization of Global Index Fund, managed by 61% of 122 sponsors said the SE- when they offered it. The survey re- about $12.5 billion. Northern Trust Asset Manage- CURE Act had not “helped motivate” vember with the Schaus Group ported that 3% said were “very in- The transaction is expected to ment, the spokeswoman said. It them to add or consider retirement LLC, a defined contribution con- terested” in offering in-plan annui- close in the first half of 2021. wasn’t known whether the income solutions, but 22.1% said the sulting firm, said in-plan annuities ties, while 49% were “moderately” pension fund would look for law’s safe harbor provision did help ranked low as appealing to spon- interested. Thirty-seven percent Ohio fund commits another global equity manager as motivate them to add or consider sors and participants. weren’t interested. these options. The survey was con- The survey polled 20 DC consul- The major reasons for not adopt- The $15 billion Ohio School a result of the termination. ducted in October. The biggest im- tants that represent more than ing annuities were “fiduciary con- Employees Retirement System Longview did not respond to an email seeking comment. pediments to action were litigation 5,500 plans. The survey took place cerns” (50% of respondents); opera- committed $100 million to Ares risk (33% of 128 respondents); lack from early January to mid-February tional or administrative concerns Private Credit Solutions II. of clarity as to what features or op- and again in April. When asked (47%); and participant utilization The pension fund’s board Cumulus suit dismissed tions are best for their participants what changes the SECURE Act was concerns (43%). Multiple responses approved the commitment to the A U.S. District Court judge in (32%); and concern about additional “most likely to bring about,” adop- were allowed. upper-middle-market junior capital Atlanta on Dec. 17 dismissed a costs (27%). tion of-in plan annuities by spon- The survey, conducted in the fall, lending strategy managed by Ares class-action ERISA fiduciary “Retirement income is going to sors and use by participants ranked was not restricted to Alight’s clients. be a phase-in process” for sponsors, low, said a survey report. It covered 116 employers with more Management at its Dec. 17 breach lawsuit against Cumulus said Lorie Latham, T. Rowe Price’s The report said: than 5.5 million workers. meeting, said Tim Barbour, SERS Media Inc. that alleged the Charlotte, N.C.-based senior de- ■ On a scale of 1 (least likely) to Despite the delays and setbacks, spokesman. company mismanaged the As of Oct. 31, the pension fund’s investment management of its actual allocation to global private 401(k) plan. credit was 1.6%; the target is 3%. The lawsuit, originally filed in SEC says it’s going to expand February, alleged Atlanta-based Labor Ohio Patrol picks 3 Cumulus breached its fiduciary CONTINUED FROM PAGE 3 Reg BI compliance testing The $970 million Ohio Highway duties under the Employee criticized the Labor Department for Retirement Income Security Act The Securities and Exchange examine whether broker-dealers Patrol Retirement System hired its timing, including Heather Commission will expand the have implemented effectively Baillie Gifford, Ninety One and of 1974 by not using the Slavkin Corzo, Washington-based Mondrian Investment Partners to lowest-cost share classes of head of U.S. policy for the Princi- scope of its Regulation Best their written policies and run about $78 million each in investment options offered in the ples for Responsible Investing, who Interest compliance examina- procedures.” active global equities, confirmed plan, according to the original said the proxy rule was rushed to tions starting in January. The statement provides Mike Press, chief investment court filings. get it done “right under the wire.” The SEC’s division of examina- broker-dealers and investment officer and general counsel. The plan switched to lower “They’re trying to get it done be- tions, formerly the office of advisers with advance informa- The three managers will run the share classes in 2019, but the fore the new president comes in compliance inspections and tion about the expected scope and make it as difficult as possible pension fund’s newly created 24% lawsuit said the changes were examinations, said in a state- and content of the expanded for the new administration to im- “too little, too late,” according to ment Dec. 21 it will focus next examinations for compliance target to global equities. Baillie plement new policies that will be year on specific requirements of with Reg BI. Gifford will run growth; Ninety One, the original court filing. more effective in trying to make Reg BI, including those that go The best-interest standard formerly Investec Asset Manage- Judge Thomas W. Thrash in his sure that investors are internalizing ment, core; and Mondrian, value. ruling granted the plaintiffs’ the realities of climate change and beyond suitability standards and was the centerpiece of a The pension fund also termi- motion to dismiss because the other ESG factors in the investment require broker-dealers to have a package designed to address nated five equity managers as a plan’s summary plan description actions,” Ms. Slavkin Corzo added reasonable basis to believe that the obligations of broker-dealers result of the pension fund distributed to participants says with respect to the proxy rule. recommendations are in retail and investment advisers when decreasing its targets to domestic they have 12 months to file a Sen. Patty Murray, D-Wash., customers’ best interests. they provide recommendations ranking member of the Senate equities and international lawsuit after exhausting claims The division also said it or investment advice to retail Health, Education, Labor and Pen- equities to 21% and 6%, respec- through the plan’s internal review intends to conduct enhanced investors. It was adopted in sions Committee, said in a state- transaction testing “designed to June 2019 and went into effect tively, from 30% and 18%. process. Because the lawsuit ment that the proxy rule will hurt The managers, all active, and was based on conduct before families’ financial futures by taking their assets in the plan as of Feb. 24, 2019, one year before away a key tool fiduciaries can use Nov. 30 are domestic large-cap the lawsuit was filed, without to fight for their clients’ interests. period that drew thousands of re- economic vs. non-economic impact growth manager Jennison exhausting those claims via “With the clock ticking on his presi- sponses. The final rule is more would be costly to implement. Associates, $76 million; internal review processes, Mr. dency and a pandemic raging principles-based than the proposal Moreover, it believes the core struc- domestic large-cap value Thrash wrote that the claims are across the country, President Trump and includes several changes, in- ture of the proposal that focused on and (Labor) Secretary (Eugene) cluding the removal of a require- “whether a fiduciary has a prudent manager LSV Asset Manage- time-barred and “dismissed for Scalia are spending valuable time ment for ERISA-governed fiducia- process for proxy voting and other ment, $52 million; international failure to state a claim.” and energy jamming through an- ries to cast proxy votes any time a exercises of shareholder rights is a growth manager William Blair & As of Dec. 31, the Cumulus other attack on workers and retir- matter up for a vote has an eco- more workable framework for Co., $51 million; international Media 401(k) Plan had $219 ees,” Ms. Murray said. nomic impact on their plans. achieving the objectives of the pro- manager Lazard Asset Manage- million in assets, according to the Based on the comments, the La- posal,” it stated in the final rule. ment, $41 million; and interna- company’s most recent Form Proxy voting bor Department said it was per- “The plan fiduciary must never tional value manager Thompson, 5500 filing. The proxy rule was proposed suaded that the complexity in- subordinate the interests of partici- Aug. 31 and had a 30-day comment volved in a determination of pants and beneficiaries in their re- Pensions & Investments December 28, 2020 | 25

some industry members said retirement income is back on the radar of sponsors, at least for explor- Annuities coming to target-date funds, but not right away ing options. The SECURE Act will provide a Boston-based research firm. “I see the momentum already greater opportunity for target-date Adoption will be affected by, shifting back,” SSGA’s Mr. Ireland among other things, the need for said. “Next year, we’ll be back to pre- providers to incorporate annuities pandemic” marketplace interest. and other guaranteed income record keepers to adjust their Some clients “are evaluating in- options into their products and find technology platforms to accommo- come options for their plans and amenable sponsors, although date annuities and other lifetime we’ve been asked to respond as a po- sponsor adoption will take some income options. tential service provider,” he added. time, according to Cerulli Associ- Educating plan sponsors and ates, Boston. participants on the mechanics, No tsunami, but small waves In one survey, 34% of DC asset costs and benefits of these options Despite the “retirement income managers said it was “highly likely” “will be key to increased adoption,” tsunami that never was” after pas- that the next generation of the report said. sage of the SECURE Act, “maybe Mr. O’Brien acknowledged that there are small waves,” said Robert target-date funds would incorpo- Melia, the Stamford, N.Y.-based ex- rate an annuity component, while the “negative stigma” attached to ecutive director of the Institutional 54% said it was “somewhat likely,” annuities remains a hurdle for Retirement Income Council, which according to a December report. gaining participants’ trust of provides information on best prac- The survey of 36 DC asset in-plan annuities. Making these tices, regulation and legislation to managers responsible for $4.5 products simple and low-cost will DC sponsors and consultants. Al- trillion in DCIO assets didn’t ask enhance the chances of participant A BIG MINUS: Shawn O’Brien said the negative stigma of annuities is a problem. though the coronavirus put retire- for a specific timeline; it only asked acceptance, he said. ment income “on the back burner” about “some point in the near In another Cerulli survey Mr. O’Brien said market that aren’t offering guaranteed for sponsors, “it will slowly pick up future.” The survey, conducted featured in the December report, downturns in general — not just in-plan options, the report said in 2021 and 2022,” he predicted. 63% of target-date fund providers the impact of the coronavirus — 64% cited lack of sponsor demand Annuities embedded in DC plans during the second quarter of 2020, will give participants a better op- also said 46% said it was “highly said recent market volatility will “could serve as a catalyst” for as the top reason among 11 portunity than individual retail an- likely” target-date funds would increase client demand for more target-date funds incorporat- choices. Lack of demand from nuities because “there is no com- incorporate a managed payout guaranteed income products, while ing a variety of guaranteed income advisors or consultants (32%) mission that the retail market has option and that 46% said such an 33% expected the demand to products. placed second and lack of built in,” he said. “The efficiency of option was “somewhat likely,” but remain the same. This survey, also Cerulli’s report recommended “sufficient” guidance from the the defined contribution market didn’t offer a timetable. conducted during the second that providers of lifetime income Department of Labor placed third drives down cost.” “This won’t be a sweeping quarter of 2020, contained products “leverage market (27%). However, 32% said they Mr. Melia said in-plan annuities change that happens over a short responses of 24 target-date fund downturns to illustrate their were “considering allocating to a in DC plans can be more attractive period of time,” said Shawn providers with $2.4 trillion in downside protection benefits.” guaranteed component.” than retail annuities in a low-inter- target-date assets. Among target-date managers — ROBERT STEYER est-rate environment. In DC plans, O’Brien, senior analyst for the participants will make investments over time, for example in a target- date fund, in a form of dollar-cost sify the risk in a low-interest-rate December 2020, the company said “A lot” of clients in the first quar- ed to in-plan annuities. “You want averaging so that “you are buying environment,” he said. 16% of respondents now offer these ter of 2020 were questioning to make the discussion as broad as income over different interest rate Willis Towers Watson PLC sees options, 2% are planning to offer whether they had the right QDIA possible,” she said. environments,” he said. some gradual improvement in them in 2021 and 13% are consider- for their participants, said Dana The SECURE Act “removed a Ongoing contributions in a DC plans’ approaches to in-plan life- ing them for 2022. Hildebrandt, the company’s New major issue,” said Ms. Hildebrandt, plan — opposed to a one-time pur- time income. Still, 69% had no interest among York-based investments director exhorting sponsors and providers chase of a retail-market annuity — In 2017, a company survey re- the 464 U.S. employers who were said. “This led to an expansion of to increase participant communi- “gives the defined contribution ported that 7% of respondents of- surveyed in September. The survey the discussion about lifetime in- cations “to make them more com- plans a leg up” and puts partici- fered or were interested in these didn’t ask when sponsors offered come solutions,” she said. fortable” about lifetime income op- pants in “a better position to diver- options. In a survey published in the options. The discussions weren’t restrict- tions. n

June 30. ■ The processes company dently determines. breakdown of support and criticism. ington-based co-chairman of the fi- In April, the SEC said initial personnel have used to make Thomas Quaadman, Washing- Currently, ERISA prohibits in- duciary governance group at Strad- examinations would be less recommendations to new custom- ton-based executive vice president vestment-advice fiduciaries from ley Ronon Stevens & Young LLP, onerous and focus on “good faith” ers. If a firm, for example, recom- of the U.S. Chamber of Commerce’s self-dealing, or taking actions that said the exemption is “intended to efforts because of the disruptions mended a rollover from an employ- Center for Capital Markets Com- would provide additional compen- be a fairly nimble, principles-based petitiveness, said in a statement sation from transactions for them- exemption that is holding firmly to caused by the COVID-19 pandemic. ee benefit plan, examiners will that the rule, along with actions selves, their affiliates or related en- the impartial conduct standards.” The division outlined a few of the assess what information was from the Securities and Exchange tities involving plans and individual areas that examinations may focus gathered from new customers, what Commission, “will ultimately help retirement accounts. The exemp- Up to Biden administration on in 2021: disclosures were made at the time, ensure proxy voting follows a trans- tion would allow registered invest- Whether the exemption goes ■ Company policies and how alternatives were considered parent and unconflict- ment advisers, broker- into effect will ultimately be up to procedures, including evaluating and what documentation was ed process.” In July, dealers, insurance the Biden administration. David specific processes for compliance retained. SEC commissioners companies and banks Meyer, Columbus, Ohio-based with Reg BI, and alterations to ■ The processes used to approved sweeping to receive compensa- president of the Public Investors product offerings, including the recommend complex products, changes to the rules tion for more types of Advocate Bar Association, said in a removal of higher cost products including what information was governing proxy advi- guidance as long as the statement that the exemption low- sory firms, including a parties using the ex- ers the current standard for retire- when lower cost products are available and used to consider requirement for those emption abide by the ment advice, and he urged the in- available. reasonably available alternatives. firms to disclose con- impartial conduct coming administration to “delay the ■ ■ How firms have considered The processes used to identify flicts of interests to cli- standards. Those stan- effectiveness of the rule-making costs in making an investment and address conflicts related to ents and allow compa- dards require fiducia- and to review the steps taken by recommendation, which may recommendations. nies that are the ries to adhere to basic DOL to push through this gift to include information available to firm With the statement, the division subject of voting ad- RUSH JOB: Heather fiduciary norms, like Wall Street.” personnel to identify relevant costs; said it’s attempting to be transpar- vice to be able to ac- Slavkin Corzo thinks acting in the best in- Upon proposing the exemption, how any such information has been ent so that broker-dealers can set cess that advice before timing on the proxy rule terest of customers, the Labor Department also issued a used; and any documentation of the their expectations accordingly. or at the same time as was a deliberate swipe at charging no more than final rule reinstating the five-part consideration of costs. — BRIAN CROCE the advice is dissemi- the Biden administration. reasonable compensa- test used to determine whether an nated to clients. tion and not making investment professional or financial On the other side of the proxy misleading statements. Fiduciaries institution is a fiduciary. It was in rule argument, Ms. Slavkin Corzo relying on the new exemption 2016 that the Labor Department un- tirement income to unrelated ob- ment refers to as safe harbors. One said the rule is “completely out of would have to provide advice in the der the Obama administration final- jectives, including promoting notes that ERISA plans’ voting re- touch and actually impairs ERISA best interest of retirement investors ized a rule, commonly known as the non-pecuniary goals or benefits,” sources will focus only on propos- fiduciaries from making decisions and give those investors basic in- fiduciary rule, that aimed to replace said Jeanne Klinefelter Wilson, act- als related to the corporation’s that are in the best interest of plan formation about conflicts of inter- the five-part test by broadening the ing assistant secretary of labor for business activities or on proposals participants by undermining their ests, said the EBSA’s Ms. Klinefelter definition on when a person or en- the Employee Benefits Security Ad- that are expected to have a material comfort with ESG integration.” Wilson during a Dec. 15 briefing tity is taking on fiduciary responsi- ministration, on a call with report- effect on the value of the plan’s in- call with reporters. bilities. The 2016 rule was struck ers Dec. 11. vestment. The other safe harbor is a Investment advice The exemption would be inter- down in federal court in 2018. In order to satisfy their responsi- policy of refraining from voting on The Labor Department’s invest- preted and applied consistent with In the exemption’s preamble, the bilities when deciding whether to proposals when the size of the ment-advice exemption, which was the SEC’s best-interest standard, Labor Department stipulated that vote proxies, the rule allows fidu- plan’s holdings in the stock subject proposed June 29 and received 106 known as Reg BI, which went into rollover advice is covered by the ciaries to adopt at least one of two to the vote are below quantitative written comments during a 30-day effect June 30. five-part test as long as each of the policies, which the Labor Depart- thresholds that the fiduciary pru- comment period, received a similar George Michael Gerstein, Wash- five prongs is met. n 26 | December 28, 2020 Pensions & Investments

had all led to value outperforming tion of interest November — performance is up a for the next six months, regardless rates,” Kasper Elm- little more than 6 percentage points, Value of the result, whether a change of green, Dublin-based but “if you look under the surface party or administration or a con- head of equities at that’s because our value stocks out- CONTINUED FROM PAGE 1 tinuation. That was something Amundi, said in performend the market by 7 (perfor growth. And in 2018, value lost which started the rally I think to emailed comments. centage points) and the go-go 10.09%, vs. a loss of 8.2% for the some extent,” Mr. Butler said. “I’m more in the first growth stocks on the other side out- world index and a 6.42% loss for Value does well in the U.S. after a camp where this performed the market by 1 (per- growth. presidential election in part be- could be a multiyear centage point). And the reason I However, November is just one cause the new administration reversal towards bring that up is because if the rota- month: the value index year-to- “(tends) to put in place fiscally value after a multi- tion is simply about value stocks date has lost 3.85%, vs. a gain of stimulatory policies. They spend year trend of growth doing better, then November was a 11.72% for the world index and a money. And spending money is an outperforming.” lovely example of yes, it is possible staggering 27.85% return for the inflationary policy,” said Damian The firm does not for value stocks to do better,” Mr. growth index, as these securities Handzy, Boston-based chief com- break down value Inker said. surged in the COVID-19 pandemic. mercial officer at analytics provider assets but has €243 But if it’s about some of the more The most recent time value out- Style Analytics Ltd. billion ($294.3 bil- extreme speculative names in the performed both growth and the He thinks value “has legs to out- lion) in equities as- growth index “having a bit of a world indexes was in 2016, with a perform through the middle of sets under manage- comeuppance, that comeuppance 13.23% gain vs. 8.15% for the world 2021,” citing the election as the ment. has absolutely not come up,” which and 3.21% for growth. main reason, with an expectation Others are less has been demonstrated by “buoy- There have been some short- that the policies put in place under convinced. “I wish I ant” initial public offerings, such as lived periods of outperformance, a Biden presidency will “improve cold tell you I was the DoorDash Inc. IPO on Dec. 9, but not an extended time besides the overall economy and benefit the confident that (No- according to Bloomberg. The Door- the calendar year 2016 for more overall economy – it’s more Main vember) marked the Dash IPO raised $3.4 billion and than a decade, sources said. Street than Wall Street.” beginning of the saw a stock pop of about 60%, giving The big catalyst, though, was great rotation — we a market capitalization of more A lot of attention news starting Nov. 4 that a viable have been waiting than $50 billion as of Dec. 18, November’s performance got a vaccine with efficacy of above 90% and positioned for it, Bloomberg noted. lot of attention from investors, with had been developed and has since NOT SOLD YET: Ben Inker said he isn’t so sure the ‘great more intensely posi- “The thing that has been most “quite a lot of incoming (inquiries) started to be deployed. rotation’ to value has started despite the November surge. tioned for it than we frustrating about this year was the from clients,” said Ian Butler, exec- “We hadn’t really had a concrete ever have been,” extent to which it seems as if secu- utive director and a portfolio man- catalyst before; the vaccine is po- There is a lot of pent-up demand said Ben Inker, Boston-based head rity analysis — of the traditional ager in London at J.P. Morgan Asset tentially the catalyst that may mark in terms of travel in particular, said of asset allocation at value manager sense of worrying about the future Management. “Typically clients the turning point for value and a Kevin Holt, CIO, U.S. value equities GMO LLC. cash flow of companies — just have been underweight value for style rotation,” JPMAM’s Mr. Butler at Invesco Ltd. in Houston. People “But I don’t know if it was. In didn’t seem to matter. And I’m not quite a long time — rightly so, it has said. returning to work, restaurants and particular, companies that had been yet seeing the evidence that that been a good trade.” The value team is a bit more con- going on holidays all “feed in favor hurt by the pandemic economy sort of analysis is driving things,” But this time feels a little differ- vinced that this rally could continue of value in 2021.” Invesco does not soared higher — completely rea- Mr. Inker added. ent. Believers in value have been in the medium term. J.P. Morgan As- break out its value assets under sonably — (and) you can now see As for the new strategy, there’s searching for the catalysts that set Management’s international eq- management. The firm ran $651.6 the end (of the pandemic), even if been plenty of interest but execu- might bring these unloved stocks uity group had $2.1 billion across billion in equities as of Nov. 30. we’re not as close to the end as one tives have only been talking to cli- back into the spotlight — some- international, Europe and U.K. val- might wish,” Mr. Inker said. ents about it for a few weeks. There thing that’s been particularly diffi- ue strategies as of Nov. 30. A great rotation? But looking at an actual rotation have been “plenty of calls from peo- cult in a year of coronavirus-in- The COVID-19 vaccines get ev- While managers are positive on out of growth and into value is less ple who want to know more,” Mr. duced uncertainty, lower-than-ever eryone back into the markets — value’s potential to outperform clear. “As we look at it, a lot of the … Inker said. GMO’s asset allocation interest rates and favorable condi- people will return to restaurants, through the middle of next year, secular growth names — the kinds team, led by Mr. Inker, managed $31 tions for growth stocks. holidays and leisure, sources said. they’re split on whether it could go of names that had been zooming billion across different strategies as And the U.S. presidential elec- “Value stocks traditionally do well longer. higher all year — certainly didn’t go of Oct. 31. tion and positive news on a number in recoveries and particularly when Executives question whether the down, and a lot of them outper- Whether or not the rotation will of COVID-19 vaccines may just there is healthy participation in the situation will be more similar to the formed,” he added. be a long-term phenomenon, value have provided the shot in the arm markets,” Mr. Handzy said. early 2000s, when, following the GMO launched a strategy in the spreads in the market, whether that value needed. Traditional value stocks, found in dot-com bubble burst, value out- fall “that is trying to explicitly get within or between sectors, “are still “We’d been talking a lot in sum- the financial, travel and energy sec- performance lasted several years; after this rotation — whenever it very, very extreme — they’re still at mer and early autumn about poten- tors, were the most affected areas of or like 2009 when outperformance happens — and we’re long value wider levels than we saw at the tech tial catalysts — the U.S. election was the market by the COVID-19 pan- was limited to a few months. stocks and short the most expen- bubble,” JPMAM’s Mr. Butler said. one. We’d looked back at history demic and subsequent lockdowns, “It really depends on the longer- sive growth stocks as we see them.” “That’s despite an almost record and seen the last six U.S. elections sources said. term growth outlook and the direc- That strategy made money in month for value.” n

adding a variable feature for future are fewer constraints in terms of gotiated through June 2028 with the officer in Cincinnati, said the com- service to an existing plan, and the rules to design these plans. You international union and 20 UFCW pany’s strong financial position en- Variable some clients are interested in start- can do much more creative things,” local unions. Retirement security abled it to modernize its retirement ing a brand-new plan,” Mr. Kurak he said. for grocery workers on the front benefits offering and make future CONTINUED FROM PAGE 2 said. The $107.9 billion Wisconsin Re- lines of the pandemic was critical, benefits more stable. Kroger has dip if markets drop, and some build In the corporate world, it is hard- tirement System, Madison, was said UFCW International President also spent more than $1 billion up reserves to augment benefit er to overcome the momentum to- built from the start in 1982 to adjust Marc Perrone in an emailed state- since March to reward associates drops in those cases. ward defined contribution, and employee contribution rates and ment on the deal. and implement COVID-19 safety One approach is to add variable variable plans are more complicat- annuity increases as needed. Since Stalled negotiations between Fe- measures, Kroger officials said. features to existing plans so that ed to administer, “but the big ad- then, more states, including Colo- dEx Corp. and its pilots’ union to Multiemployer pension funds benefits change going forward, vantage is that the overall financial rado, Iowa, South Dakota, Utah and switch to a variable plan may also were poised to get some more risk- while in other cases, sponsors start risk is reduced,” so it often becomes Maine, have implemented variable be revived, observers say. sharing options from Congress this a new variable plan and freeze the a matter of what employers want arrangements, along with the Ca- “The more people see these year, until negotiations over dra- existing legacy defined benefit for their employees, Mr. Cadenhead nadian province of New Brunswick. plans happening, the more interest matically different pension reform plan. said. The variable plan trend got more there is in them. They are going to proposals in the Senate and House For employers with unionized visibility in early December as keep getting talked about,” said broke down in December. employees whose international or Public plans eye potential three major grocery companies and Gene Kalwarski, CEO of actuarial A rare point of agreement be- even local unions are often the ones Variable plans are getting anoth- the United Food and Commercial consulting firm Cheiron Inc. in tween the measures was the con- raising the variable plan idea or er look in the public sector, which Workers International Union-In- McLean, Va. cept of composite plans combining companies that want to get out of a might have the most potential ap- dustry Pension Fund ratified an defined benefit and defined contri- multiemployer pension fund for a plication of either variable plans or agreement for the companies – Not simple to do bution features to share more in- variety of reasons, “it seems that some variable features to share Kroger Co., Stop & Shop Supermar- Still, actuaries caution, they can vestment risk with plan partici- variable annuity plans have be- risk, said Mr. Cadenhead, speaking ket Co. and Albertsons Cos. — to take years of planning, and the pants. That sliver of bipartisanship come a popular compromise,” Mr. for the actuaries’ group. Many states withdraw from the fund and set up costs of switching plans limits the could be revived when the next Cadenhead said. are bracing for reduced tax reve- a new variable annuity pension concept to well-funded employers. Congress convenes. While the concept is more preva- nues because of the pandemic plan. In Kroger’s case, the switch in- “The merit of variable approach- lent among multiemployer pension shutdown, and some have already The three firms were the largest volved the company paying a with- es is one of the few things that peo- funds, “we have seen some activity curtailed plans to shore up under- annual contributors to the $6.1 bil- drawal liability of $962 million to ple on both sides of the aisle agree from the single-employer side in funded public pension funds. lion UFCW International Union- the existing pension fund in several on right now,” said Josh Shapiro, se- establishing variable plans,” said Variable plans limit the risk to Industry Pension Fund, Mokena, installments and contributing $27 nior actuarial adviser with Groom Robert Kurak, vice president and the plan sponsor, and they are in- Ill., which as of June 30, 2019, its million to a transition reserve in the Law Group in Washington. consulting actuary with Segal Con- tended to allow the plan to stay bet- most recent filing, was 53.5% fund- new variable annuity pension plan. “I believe that variable plans will sulting in Minneapolis. Segal actu- ter funded, he said, which also can ed. On an after-tax basis, the two steps lead to a resurgence of defined aries implemented several over the address concerns over what future The employers will now contrib- amount to $760 million, Kroger es- benefit pension programs. It makes summer and fall and continue to taxpayers will have to pay. “It is also ute to the UFCW and Employer’s timated. sense, and sooner and later what see interest, he said. an area where defined benefit Variable Annuity Pension Plan for Gary Millerchip, Kroger senior makes sense will get done,” Mr. “We also continue to see a mix of plans are still popular, and there future benefits under a formula ne- vice president and chief financial Shapiro said. n Pensions & Investments December 28, 2020 | 27 CHANGES AHEAD Street’s profitability. SSGA may have lost some of its sheen Rajiv Bhatia, an equity analyst on the as a dominant ETF manager, but it is still State Street financials team at Chicago-based Morn- a top player in the investment industry, Somerville, Mass., is seeking for a third-party adminis- ingstar Inc., noted that money manage- especially in passive management, in- CONTINUED FROM PAGE 3 trator for the city’s 457(b) plans. There is currently no ment is experiencing a wave of consoli- dustry watchers said. third-party administrator for the three 457(b) plans with built a phenomenal franchise and brand dation, but said “it’s unlikely that State The opportunity to buy a top-three total assets of $78 million, confirmed Thupten D. Chukhat- on the product side.” Street Corp. would buy another money passive business should be “extremely sang, procurement analyst. The city intends to award a An observer who asked not to be manager to bolt onto SSGA because it attractive” to buyers or merger partners, three-year contract to the selected service provider, with an named said, “Ron O’Hanley is in a great wouldn’t improve the P/E ratio very said Domonkos L. Koltai, co-founder and option to renew for an additional two-year term. The RFP is position to be a consolidator, to be ac- much.” partner of merger and acquisition advi- available on the city’s website. Proposals are due 2 p.m. quisitive.” He stressed that the 15% of revenue sory firm PL Advisors, New York, noting EST on Dec. 30. The source said “big banks with deep SSGA contributes to the bank “isn’t par- that he doesn’t have inside knowledge balance sheets in a perpetual low inter- ticularly additive to State Street’s bottom about State Street’s intentions regarding HAVE SOME NEWS? Rhode Island Council on est-rate environment are really reaching line” and might not be attractive to an- SSGA. Postsecondary Education, for fee revenue. State Street, with a real- other money manager contemplating a “SSGA has been growing (more slow- Please submit news of Warwick, is searching for a ly smart strategist like Ron O’Hanley at purchase of SSGA. ly) than BlackRock and Vanguard, so in changes to David record keeper for the state’s the helm, would be a logical buyer.” That said, the contributions to reve- that sense they have underperformed. Schepp, news editor, at college retirement plans. The Another source who knows State nue of other banks’ asset managers are But an ETF/index business of that scale [email protected] council is considering Street well, but isn’t privy to inside infor- similar to State Street’s with New York- has incredible scarcity value. All of the consolidating the plans to a mation about the bank’s goals for SSGA, based The Bank of New York Mellon large asset managers with active busi- single record keeper, according to an RFP posted on the spoke on background, stressing that de- Corp.’s asset management unit contrib- nesses would love a chance to tilt their state’s procurement website. The current record keepers spite managing more than $3 trillion, uting 16% to the corpora- mix in one stroke of the are AIG Retirement Services, MetLife, TIAA-CREF and Voya mostly in passive strategies, SSGA needs tion’s revenue. Northern pen. It is going to be a very Financial. The Rhode Island Council on Postsecondary yet more scale. Trust Asset Management rare chance to do that if Education oversees the state’s public higher education “SSGA benefits greatly from being contributes about 18% to there is a deal to be had,” system, which consists of Rhode Island College and the part of State Street. About 35% of its parent company Northern Mr. Koltai said. Community College of Rhode Island. The RFP also includes AUM is from managing the cash and se- Trust Corp., Chicago, data A senior industry ana- the retirement plans of the University of Rhode Island. The curities-lending accounts for the bank’s provided by Mr. Bhatia lyst who asked not to be 401(a), 403(b) and 457 plans have combined assets of massive asset-servicing business. That showed. identified said Atlanta- more than $1.3 billion, according to the RFP. Proposals are business is extremely profitable, ac- SSGA’s total assets un- based Invesco is the only due at 2:30 p.m. EST on Jan. 15. counting for 85% of the bank’s revenues,” der management have ex- firm “known to be in the the source said. State Street’s ability to perienced growth in the game at present, based on San Antonio is seeking investment management, fund scale up the investment business is five years since Mr. substantially expanding advisory and consulting services for the city’s 457(b) “staggering. The link to the bank’s asset O’Hanley joined State their ETF business.” plans. It would be a new contract for the city. The search is servicing side and its extensive ecosys- Street as president and NOT IN THE CARDS: Rajiv Whether a deal can get being conducted because the San Antonio Deferred tem of asset servicing platforms means CEO of SSGA. Assets in- Bhatia doesn’t see State done is a key question. “I Compensation Advisory Committee wanted to add outside that any money management company it creased 43.1% to in the five Street acquiring another am a doubter. Index expo- fiduciary and advisory services to enhance monitoring and acquires can be smoothly and seamless- years ended Sept. 30, ac- firm ‘to bolt onto SSGA.’ sure is rapidly becoming a due diligence, confirmed Tony Aguilar, city procurement ly incorporated,” the source said. cording to the bank’s quar- give-away product thanks specialist, in an email. The city has two 457 plans with a terly earnings reports. to the ETF pricing at (Fidelity Invest- combined $612 million in assets. The RFP is available on Lacks investment strategies However, sources noted that SSGA’s ments Inc.), (Charles Schwab Invest- the city’s procurement website. Registration is required. SSGA, however, lacks investment gradual loss of dominance over the ETF ment Management Inc.) and BlackRock,” Proposals are due 11 a.m. CST on Jan. 20. strategies that are in demand by institu- industry as a likely factor in State Street’s the analyst said. tional investors and have higher fees, quest to rebuild or divest its asset man- A veteran industry observer who re- Sacramento Metropolitan Fire District, Rancho including actively managed traditional agement unit. quested anonymity disagreed. Cordova, Calif., is searching for a record keeper for its approaches, hedge funds, private equity, SSGA created the investment indus- “My guess is that Invesco buys the $112 million 457 plan. The district is seeking a firm to private credit and other alternative try’s first ETF in 1993 — the SPDR S&P business because Nelson Peltz has a seat provide full-service record-keeping and administrative strategies, the source said. 500 ETF Trust — which now is the on the board (of Invesco), owns … 10% of services for the plan, according to an RFP posted on the “Even at 2- to 3-basis-point fees for world’s largest ETF with $320 billion, the business and has been working for Public Purchase procurement website. Registration is trillions of passively managed strategies, Bloomberg reported. 10-plus years to get out in front of Black- required. Proposals are due at noon PST on Jan. 26. SSGA is making a lot of money, but SSGA lost market share over the years Rock.” would make even more actively manag- to ETF rival managers BlackRock Inc., Mr. Peltz is CEO and founding partner Florida Department of Financial Services is searching for ing alternative and traditional strategies New York, and Valley Forge, Pa.-based of activist hedge fund manager Trian record keepers for the $5 billion Florida Deferred with up to 10 basis points of fees,” the Vanguard, noted industry observers. Fund Management LP, New York, which Compensation Plan, Tallahassee. AIG Retirement source said. SSGA now is the third largest ETF/ acquired a 9.9% stake in Invesco in Octo- Services, Nationwide Financial and Voya Financial are the State Street could grow these busi- ETN manager with $732 billion invested ber (P&I, Oct. 2), noting in an SEC filing current record keepers. In October 2019, the department nesses organically, the person said, but worldwide as of June 30, behind Black- that the company is “undervalued and had elected not to renew contracts with Empower Retire- added “my bet is on merger, acquisition Rock in first place with $2.28 trillion in (represents) an attractive investment ment and T. Rowe Price Group in order to reduce the and collaboration.” ETFs and Vanguard with $1.18 trillion, opportunity.” n number of record keepers to three. The invitation to Some sources are skeptical about how according to data provided to Pensions & negotiate is posted on the department’s website. Propos- additive the acquisition of another mon- Investments for its annual survey of in- Sophie Baker and Danielle Walker contrib- als are due at 10 a.m. EST on Feb. 5. ey management firm would be to State dex and ETF managers (P&I, Nov. 16). uted to this story.

Four Italian retirement plans are searching for a private debt manager to manage a €195 million ($236 million) allocation, your business in-house. You can attract pay other setup expenses,” he said. according to Andrea Mariani, director at Fondo Pensione good people and custom tailor your (in- Mr. Redd added that schools with Pegaso, Rome. Fondo Gomma Plastica, Milan, Italy; Smith vestment management) program to the larger endowments typically pay more in Fondo Pensione Complementare per i dipendenti del needs of the school.” investment fees, not just because they CONTINUED FROM PAGE 6 Gruppo ENEL, Rome; Fondo Pensione Pegaso; and One headwind Smith College could face have more assets to invest in but also Previmoda Fondo Pensione, Milan, will allocate €20 that he found Smith College deciding to switching management of the endowment they tend to invest more of their assets million, €95 million, €40 million and €40 million, respec- begin managing its portfolio itself to be is extracting its existing positions within in private equity and other more expen- tively. The four funds have €6.5 billion in combined assets. “interesting” but “certainly not unexpect- private equity or venture capital invest- sive alternative strategies. In each portfolio private debt has a weight of between 3% ed,” given that “most non-profit institu- ments. But even given that potential logis- Citing data from NACUBO’s 2016 en- and 4%, Mr. Mariani said. The four funds have joined tions like to manage their assets in-house” tical challenge, Mr. Skorina said that “the dowment study, Mr. Redd noted that insti- together to share costs and jointly access more favorable once their portfolios reach $1 billion. benefits” to Smith College managing its tutions with more than $1 billion in assets, fees, according to a notice on Fondo Gomma Plastica’s “When you’re over $1 billion, and assets “outweigh the disadvantages.” “which tend to have more complex portfo- website. The funds expect to chose a manager in March. Smith is now over $2 billion, you want to NACUBO's Mr. Redd said another lios requiring a higher degree of active run things in-house because you can challenge that large endowments man- management,” paid an average of 74 basis For a comprehensive database of search and hiring activity, visit keep track of what you’re investing in,” aging their own portfolios face is cost. “If points in asset manager fees. Meanwhile, researchcenter.pionline.com/archive/piq. Mr. Skorina added. “When your program schools want to manage their own en- smaller endowments with less-diversified is $2 billion, it really is a good idea to run dowments, they have to hire staff and portfolios paid 44 basis points. n

P&I Events Calendar Mark your calendar and join us at these upcoming P&I events. &%'5RTKPI8KTVWCN5GTKGU &%+PXGUVOGPV.KPGWR8KTVWCN5GTKGU '5)+PXGUVKPI8KTVWCN5GTKGU

March 8-11 April 19-22 May 17-20

pionline.com/DCE2021 pionline.com/DCIL2021 pionline.com/ESG2021 East Coast Deﬁned Contribution Spring Virtual Series MARCH 8-11, 2021

DC East has a legacy of more than three decades as the premier educational program featuring the latest trends and best practices for managing a retirement plan. Gain insights on legislation, regulation, plan compliance, plan design, and the newest strategies and investment product solutions. Meet attendees through the Virtual Networking Carousel and One on One Meetings! This year, DC East is a multi-day, virtual series using a state-of-the-art, interactive platform that provides multiple networking opportunities. The dynamic panel and keynote sessions provide strategic insights on managing retirement plans for companies, both corporate and private, as well as local and state municipalities.

Topics covered will include: • The new administration’s impact on the retirement landscape • Missed contributions and delinquent funding- self-correcting processes to voluntary contributions • 2021 Legal & regulatory updates plan sponsors need to know • Annuitizing a 401(k) through systematic distributions • Helping participants take full advantage of a match for greater retirement savings • Fixed income in a low-rate environment • Alts in DC • Will 2021 be the year your participants get back on-track with retirement savings? • PEPs, MEPs and the SECURE Act – The impact on your retirement plan. • Engaging participants with communication tools that work • Conducting an effective record-keeper search • Managing plan conversions • Positive aspects of target-date funds vs. limitations • Plan sponsor “Rules of the Road” on financial guidance – guarding against potential liability • How America Saves ….a Post- COVID Look at Savings Behavior

SPECIAL THANK YOU TO OUR ADVISORY BOARD FOR THEIR INPUT ON THE AGENDA:

Christopher Bendlak Greg Bouleris Sharon Cavanaugh Carissa Dunaway Mary Ann Edwards Colin Hamilton Xerox Corporation GE St. Lukes Health Network Oak Ridge National JTEKT North America TJX Laboratory Corporation

Sharon Lukacs Eric Newman Amy Resnick Lauretta Siggers Julie Tatge Eric Viebrock NYS Deferred City of Stamford, CT Pensions & Investments Cambridge College Pensions & Investments Navistar International Corp. Compensation Plan

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