Private Equity's Health-Care Role Draws Spotlight

April 19, 2021 PIonline.com $16 an issue / $350 a year

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Alternatives Dave Cutler Dave Private equity’s health-care role draws spotlight Congress hears about studies on detrimental effects for patients

By ARLEEN JACOBIUS

Health care is too large a part of SPECIAL REPORT CRYPOTOCURRENCY AND DIGITAL ASSETS the economy for private equity investors to ignore, but a burning spotlight on how managers run some hospitals and nursing homes is Investors inching closer to joining the fray prompting a few asset owners that generally prefer to quietly engage Market infrastructure MORE ON CRYPTOCURRECY Fidelity Digital Assets, which was with general partners to speak up. launched in late 2018 by Fidelity Demand for health care is rising: DIFFERENT RESULT: Sabrina T. Howell improvements drive n 2 Virginia funds warm up to Investments as the first major In the U.S., health-care spending said private equity’s positives in other cryptocurrency growth blockchain investments. Page 14 firm in institutional asset servic- grew 4.6% to $3.8 trillion in 2019, industries don’t translate to health care. n Central bank digital currency ing to offer cryptocurrency custody amounting to 17.7% of gross domes- idea gaining traction. Page 15 By BRIAN CROCE and trade execution operations. tic product, according to the Centers Private equity health-care funds n NFTs loom as next digital asset Mr. Jessop said his company for Medicare & Medicaid Services. outperformed the internal rate of If digital assets were a dance class frontier. Page 16 noticed an uptick in interest In an attempt to ride the wave of return of all private equity for funds floor, institutional investors have around the start of the COVID-19 this growth, private equity invest- raised between 2006 and 2017, been mainly sipping punch on the “We continue to see more de- lockdowns in March 2020. The ment in health care has grown, to PitchBook data shows. The median gym bleachers for the last decade. mand, we continue to see diversi- previous fall, Fidelity Digital As- $120.1 billion in 874 deals in 2019 IRR for health-care fund vintages But now, more institutional in- fication of demand across institu- sets was granted a charter from and $95.6 billion in 938 transactions 2006 through 2008 was 10.3% com- vestors are putting on their danc- tional client segments, which is the New York State Department of in 2020, from $58.2 billion in 2007, pared with a 9% IRR for all funds of ing shoes and getting off the bleach- also a healthy indicator of where Financial Services to operate as a according to PitchBook Data Inc. the same vintages. Health-care ers, or at least thinking about tying the industry is going,” said Tom Jes- limited liability trust company. At the end of the first quarter, funds raised from 2015 to 2017 their laces, sources said. sop, New York-based president of CONTINUED ON PAGE 14 private equity firms had invested earned a 16.8% median IRR, out- $20.2 billion in 182 deals. SEE HEALTH CARE ON PAGE 22

Tyler Mallory ESG Regulation Move to link exec pay to Labor Department ESG integration growing clarifies its priorities

By HAZEL BRADFORD on investment advice

Now in the second year of the COVID-19 pandemic, inves- By BRIAN CROCE tors are raising expectations about companies’ responses to highlighted ESG issues such as diversity and, increasingly, New guidance from the Department of Labor further clari- connecting that to executive compensation. fies that bolstering oversight of rollover recommendations and “Compensation is the ultimate governance mechanism that mitigating financial institutions’ conflicts of interest are top we have to make sure (that) companies are doing things right,” priorities. said Peter Reali, New York-based managing director and head The two pieces of guidance issued April 13 relate to the La- of engagement, responsible investing for Nuveen, with $1.2 bor Department’s investment-advice exemption that took ef- trillion in assets under management. fect in February. The exemption permits investment-advice “ESG issues are making their way into compensation con- fiduciaries to receive compensation for more types of guid- versations because shareholder proponents want it integrated ance, including advice to roll over assets to an individual re- into executive compensation design, to create accountability tirement account from a retirement plan. for executing on ESG commitments” and companies’ respons- While the first piece of guidance details questions a retirees to COVID-19, Mr. Reali said. SHIFTING ADVICE TARGET: Jennifer Eller thinks the potential for ment investor might ask potential investment advice provid- Robin Ferracone is CEO of | SEE EXEC PAY ON PAGE 21 additional guidance could cause confusion regarding compliance. ers, the second piece is directed | SEE ADVICE ON PAGE 26 SOUND BITE Focus on human rights a challenge in China ICGN’S GEORGE S. DALLAS: ‘It is PRI’s focus on human rights regulatory schizophrenia — they want comes just as that topic has left to give investors power, but not real global retailers facing a back- power.’ Page 2 lash in China’s fast-growing consumer market. Page 2 2 | April 19, 2021 Pensions & Investments

IN THIS ISSUE Markets

VOLUME 49, NUMBER 8 Defined contribution Debate over changes to listing rules roils U.K. Improving financial wellness programs for smaller defined contribution plans is a top Review looks to maintain to U.K. “premium” listings — companies that have the potential to be priority this year. Page 25 governance standards included in the FTSE 100 and FTSE ESG 250 — moving away from the one and still attract capital share, one vote model of what Michael Walter/Troika Although lower-level roles within money sources said was a “gold standard” management firms are the most diverse in By SOPHIE BAKER among global markets. terms of race and gender, board members “At a high level, there’s this real and those with equity ownership stakes are Money managers and market tension,” said Ashley Hamilton the least diverse. Page 4 players are split on whether rec- Claxton, London-based head of re- ommendations to amend U.K. list- sponsible investment at Royal Lon- Exchange-traded funds ing rules are a good idea from a don Asset Management. “We’re big The category-defying, trend-chasing genre of governance point of view and the advocates of good governance … thematic ETFs has taken off this year, with right way to attract more capital to (but) there’s this tension about be- inflows matching 2020 already.Page 13 London. ing able to attract capital to list in The U.K. Listings Review, pub- London” — particularly technology Hedge funds lished last month and chaired by businesses that tend to go to the U.S. Lord Jonathan Hill, was launched or Hong Kong where there might be Bridgewater Associates launched a by the U.K. chancellor of the exche- lower listing standards, she said. sustainable investing group overseen quer in November to ensure the Under dual-class structures, a by Karen Karniol-Tambour and Carsten U.K. could stand up to “stiff compe- company will typically have two Stendevad. Page 6 tition as a financial centre” from the classes of shares — one with the U.S., Asia and elsewhere in Europe, right to one vote per share, while the Money management a document of the review said. Mr. other has a high or “super” vote, usu- Ameriprise Financial and Amundi made Hill is a former European Commis- ally carrying 10 or 20 votes per share. moves earlier this month to bolster their sioner, financial stability, financial In the U.K., premium-listed com- European capabilities. Page 6 services and Capital Markets Union. panies are prevented by the Finan- BALANCING ACT: Ashley Hamilton Claxton said there is tension between One of the suggestions is to in- cial Conduct Authority’s principles Private equity wanting good governance and attracting listings to London exchanges. troduce dual-class share structures SEE LISTING ON PAGE 26 Investors like health care because it’s resilient, but there are risks, such as ESG headline risk, to consider. Page 23 Regulation SEC examiners are seeing unsubstantiated Focus on human rights a challenge in China and “potentially misleading” statements and questionable processes from ESG Retailers highlighting issue products and services, according to a risk of forced labor face backlash alert. Page 4 from Chinese consumers Departments At deadline ��24 ETFs ��13 By DOUGLAS APPELL By the numbers ��17 Frontlines ��8 Changes ahead ��27 Hirings ��18 Human rights could be poised to chal- Classified ��20 Letters to the editor ��11 lenge climate change’s lock on the hearts Corrections ��4 Other views ��10 DC roundup ��12 RFPs ��20 and minds of ESG investors even as that Editorial ��10 topic has left some global retailers under pressure this year in the world’s fast- Money manager survey est-growing consumer market. Over the past month, name-brand global overdue retailers such as Hennes & Mauritz AB, Pensions & Investments is still accepting Stockholm (H&M), and Nike Inc., Beaverton, late responses to the annual money Ore., have faced a backlash in China’s huge manager survey. Firms managing U.S. consumer market after eschewing cotton institutional, tax-exempt assets are grown in that country’s Xinjiang province eligible. Results will run May 31. over concerns about forced labor involving members of China’s Uyghur minority. To request a survey or obtain further Against that backdrop, Principles for Re- information, please contact Anthony sponsible Investment, the London-based Scuderi at [email protected] or organization that’s helped make environ- 212-210-0140, or visit www.pionline. mental, social and governance concerns a com/section/surveys. focus for institutional investors over the EVOLVING: Fiona Reynolds thinks human rights will start to be included in reporting among PRI signatories. past five years, announced April 12 that hu- Entire contents ©2021 Crain Communications Inc. All rights man rights will become a priority area for CEO, said in an interview that over the com- which number nearly 4,000 and oversee reserved. Pensions & Investments (ISSN 1050-4974) is published the organization in coming years — joining ing five years, human rights-related ques- more than half of institutionally managed biweekly by Crain Communications Inc., 150 N. Michigan Ave., Chi- cago, Ill. 60601-7593. Periodicals postage paid at Chicago, Ill. and climate change as a focus for the high-pro- tions will be added — on a voluntary basis at assets globally. at additional mailing offices. Postmaster: Send address changes file responsible investment forum. first but later mandatory — to the reporting A growing number of policymakers and to Pensions & Investments, Circulation Dept., 1155 Gratiot Avenue, Fiona Reynolds, PRI’s London-based framework agreed to by PRI’s signatories, SEE HUMAN ON PAGE 22 Detroit, Mich. 48207-2912. $16 per issue; $350 per year in the U.S.; $375 per year in Canada; all other countries $475. ‘‘Canadian Post International Publications Mail Product (Canadian Distribution) Sales Agreement No. 0293539’’ GST #136760444. Printed in U.S.A. Leadership

CRAIN COMMUNICATIONS INC P&I appoints data editor and chief content editor Keith E. Crain, Chairman Mary Kay Crain, Vice Chairman Pensions & Investments named a data worked at Acuris as a credit analyst and KC Crain, CEO editor and a chief content editor. associate editor. He is based in New York Chris Crain, Senior Executive Vice President Larry Rothman was named data editor and can be reached at larry.rothman@ Lexie Crain Armstrong, Secretary at Pensions & Investments. Mr. Rothman pionline.com. Bob Recchia, Chief Financial Officer will identify and use pertinent datasets to Colette Jordan, copy editor, was pro- G.D. Crain Jr., Founder (1885-1973) discern meaningful trends in various mar- moted to chief content editor, replacing Mrs. G.D. Crain Jr., Chairman (1911-1996) kets and sectors for both print and digital Peter J. Retzbach, who retired as copy Published every other Monday by Crain Communications Inc. content, as well as develop accompanying desk chief in March. Ms. Jordan will be Boston: 101 Federal St., Suite 1615A, 02110; Chicago: 150 N. Michigan Ave., 19th Floor, and stand-alone charts and graphics. editing stories for P&I’s daily newsletter 60601; London: 11 Ironmonger Lane, EC2V 8EY; El Segundo, Calif.: 400 Continental Blvd., 6th He is a CFA charterholder who has and for the website, as well as playing a 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. worked as an analyst for sell-side, buy- Larry Rothman Colette Jordan crucial role in producing and editing pag- Address all subscription correspondence to Pensions & Investments, 1155 Gratiot Ave., Detroit, side and media organizations. In this ca- es for print. Mich. 48207-2912 or email [email protected]. pacity, he has covered diverse industries ous publications such as The Motley Fool Ms. Jordan joined P&I in 2008, is based Member of Business Publications Audit of Circulation across the capital structure. and Management CV analyzing equities in Chicago and can be reached at cjordan@ www.pionline.com Most recently, he has worked for vari- and management teams. Before that, he pionline.com. n Pensions & Investments April 19, 2021 | 3

Money Management EXPANDING SCOPE: Rene Martel said plan sponsors also are looking to offer participants more services, BlackRock tops such as retirement $9 trillion on income products. record inflows First-quarter results show big turnaround from year-earlier pandemic-affected period

By CHRISTINE WILLIAMSON

BlackRock Inc.’s assets under management hit a new high — $9.01 trillion — in the quarter ended March 31, another milestone in the long growth trajectory of the world’s largest money manager. Defined Contribution Earnings data released April 15 showed that BlackRock’s AUM rose 3.8% in the first quarter. The New York-based firm not only recovered from a 12.9% decline in AUM to $6.47 trillion in the first quarter of 2020, Interest rises in keeping retiree assets in-plan caused by the early impact of the outbreak of DC plan sponsors like lower fees, better said Rene Martel, head of retirement and a managing di- COVID-19 on markets, its rector in Newport Beach, Calif. assets rose 39.3% for the bargaining power, PIMCO survey finds “If you want to retain assets, offer them something,” Mr. year ended March 31. Martel said, noting that many respondents’ clients already “Like other money man- By ROBERT STEYER provide or plan to provide an assortment of inducements agers, BlackRock’s strong such as retirement income education tools, flexible distri- earnings results in the first Defined contribution plan sponsors have become more bution policies and personalized advice. quarter 2021 reflect the interested in encouraging participants to keep assets in The findings, released April 19, are part of the 15th an- tailwind after last year’s their plans after retirement, a survey of DC consultants by nual PIMCO survey covering institutional DC consultants COVID fallout with a the Pacific Investment Management Co. LLC revealed. representing clients with a total of $5.5 trillion in retire- growth in AUM of 39% over The reasons include the traditional desire to have more ment assets. The survey was conducted in January and the year ended March 31,” assets in a plan so sponsors have better bargaining power February. It contains responses from 29 consulting firms said Catherine Seifert, vice to secure lower prices with vendors as well as a growing with DC assets under advisement of $10 billion or more. president and equity ana- effort to offer retirement income products and services, SEE SURVEY ON PAGE 24 lyst, CFRA Research Inc., New York, in an interview. ‘VERY DIVERSE’: Laurence D. Fink BlackRock’s AUM to- Investing cited inflows into many strategies as taled $7.43 trillion in the adding to the firm’s growth in Q1. fourth quarter 2019 prior to the coronavirus outbreak. Archegos, GameStop events offer lessons on risk BlackRock executives were upbeat during their April 15 earnings call with analysts. By CHRISTINE WILLIAMSON late March offer lessons about risk they haven’t fielded many questions Laurence D. “Larry” Fink, chairman and CEO, told analysts management for institutional and other from clients about the two market on the call that the firm’s net inflows for the three-month The two market crises that dominat- investors, sources said. events. But several consulting firms and period were “very diverse,” coming from many strategies. ed the first quarter of 2021 offer import- “You need to pay attention to these hedge funds-of-funds managers said Gary S. Shedlin, senior managing director and BlackRock’s ant lessons about risk and changing kinds of issues because of implications while the Archegos debacle was a one- chief financial officer, noted on the call that the total net in- market dynamics, even if they don’t on market structure, but in cases like off event that didn’t affect many other vestment inflow of $171.6 billion in the first quarter was a new prompt changes in investments. these, you don’t need to spend six hours market participants, the way that retail high for a three-month period and was the fourth consecutive Both the high-volume retail trading down a rabbit hole researching them,” investors en masse engineered a short quarter of net inflows of more than $100 billion. in GameStop Corp. shares and other said Ian Toner, San Francisco-based squeeze on stocks some hedge funds Mr. Shedlin also cited the resilience of Aladdin, the firm’s meme stocks in January and the lever- chief investment officer of investment held, including GameStop, is of more portfolio management technology tool, as “a key differentiator age-induced meltdown of family office consultant Verus Advisory Inc. concern going forward. throughout the COVID crisis,” | SEE BLACKROCK ON PAGE 25 Archegos Capital Management LP in Consultants said for the most part SEE ANOMALIES ON PAGE 27

Invesco’s bid for performance gains Helped by two large acquisitions, Invesco’s AUM growth has been able to keep up with the asset management industry at large but has trailed better-performing peers BlackRock Inc. and T. Rowe Price Associates Inc. Questions remain whether activist investor Trian Fund Management LP’s recent involvement, which includes a 9.9% stake and two board seats, will lead to significantly better shareholder and financial performance.

Keeping pace: Invesco had $1.4 trillion in Acquisitions help: Strategic Slower growth: Invesco’s revenue and Lagging peers: Invesco’s AUM at the end of 2020. Including acquisitions, its acquisitions of ETF assets and large profitability have grown at a much more 5.4% equity return from 2005 average annual growth rate since 2005 was 13.4%. acquisitions of OppenheimerFunds and modest pace than its overall AUM. Its profit through 2020 trailed rivals T. The manager’s U.S. DC asset growth kept pace with Morgan Stanley’s retail asset margin in 2022 is forecast to be less than Rowe Price and BlackRock, with the industry, but trailed leaders such as Vanguard. management business have boosted half of BlackRock and T. Rowe Price, even 13.2% and 17.7%, respectively. However, asset growth surpassed that of Fidelity overall AUM by more than $400 billion. after cutting $200 million in costs. Invesco’s return also lagged the Investments, the third-largest U.S. DC manager. Trian is lobbying Invesco to continue Dow Jones U.S. Asset Managers Revenue (millions) looking for merger targets. index and the S&P 500. Asset growth rates, 2005-2020 Manager 2010 2020 2021E 2022E 32% Select acquisitions (dollar Invesco $3,487.7 $6,145.6 $7,080.3 $7,043.5 Annualized total return, amounts are in millions) 2005-2020 28% Total assets T. Rowe Price $2,367.2 $6,206.7 $7,365.9 $7,708.5 Acquired company AUM Price paid Announced Invesco U.S. DC assets 24% BlackRock $8,462.0 $16,205.0 $18,199.5 $19,696.6 October 5.4% OppenheimerFunds $246,000 $5,715 2018 T. Rowe Price 20% Franklin $5,853.0 $5,566.5 $7,958.1 $7,964.6 Resources* ETF business September 13.2% 16% of Guggenheim $36,700 $1,200 Investments 2017 Net income (millions) BlackRock 12% 17.7% Source $18,000 N/A April 2017 Manager 2010 2020 2021E 2022E 8% Franklin Resources Religare Asset September Invesco $465.7 $761.6 $1,027.6 $1,055.7 $2,600 N/A 3.3% 4% Mgmt. 2012 T. Rowe Price $672.2 $2,372.7 $2,801.0 $2,885.9 Morgan Stanley’s S&P 500 0% BlackRock $2,063.0 $4,932.0 $5,594.1 $6,280.6 retail asset mgmt. October 9.6% business, incl. $119,000 $1,500 -4% 2009 Franklin Dow Jones U.S. Asset Managers index Invesco BlackRock T. Rowe Franklin All Van Kampen $1,445.7 $798.9 $1,494.7 $1,567.2 Price Templeton managers Investments Resources* 6.4%

*Fiscal year ended Sept. 30. Sources: Pensions & Investments, Bloomberg LP Compiled and designed by Larry Rothman and Gregg A. Runburg 4 | April 19, 2021 Pensions & Investments

ESG Diversity in asset management lacking at top – Meketa By JAMES COMTOIS tistics for decision-making positions However, across all categories, tions. Many smaller firms that rank menting a variety of DE&I-focused such as boards of directors, equity Veteran and disabled employee high for diversity statistics do not initiatives such as diversifying Although lower-level roles with- owners and senior management. representation was less than 1%. have specific policies in place due boards, expanding ownership, es- in money management firms are For example, 232 firms chose to “While we are pleased with the to lack of resources. tablishing mentorship opportuni- the most diverse in terms of race report diversity statistics for their response to our first annual Diver- Of the firms surveyed, only 28% ties for staff, and partnering with and gender, board members and firm, but only 128 firms chose to re- sity, Equity & Inclusion Question- have a plan to expand equity own- MWDBE service providers,” Mr. those with equity ownership stakes port diversity statistics for their naire, we do expect to see progress ership to women or minorities. Woolley added. “Such efforts will in an organization are the least di- boards, with 125 providing those in DE&I efforts and even greater Very few companies extend further advance our industry and verse, according to the results of a figures for equity ownership. questionnaire participation over DE&I efforts to service providers, lead to more informed evaluation survey from investment consultant Meanwhile, respondents with the time,” said Peter Woolley, co-CEO of with only 18% including DE&I poli- and decision making in the years Meketa Investment Group. highest percentage of minority and Meketa Investment Group, in a cy reviews in their evaluation of ahead.” Meketa’s first annual Diversity, female employees, revealed that op- news release announcing the re- providers, and 29% partnering with The results of Meketa’s ques- Equity & Inclusion Questionnaire, erations functions were 48% mi- sults of the survey. minority, women and disadvan- tionnaire will be used in its manag- which surveyed 283 money manag- nority and 57% female. Administra- The questionnaire results also taged business enterprise service er evaluation and selection process. ers in January, found that though tive positions among respondents revealed that larger investment providers. The questionnaire will also be in- most managers answered questions with the highest percentage of mi- firms have more robust policies and “Moving forward, we believe included in all the firm’s RFPs and on policies and initiatives, many ab- nority and female employees were dedicate more resources to DE&I vestment managers can further dif- due diligence questionnaires for stained from reporting diversity sta- 56% minority and 100% female. initiatives than smaller organiza- ferentiate themselves by imple- managers going forward. n

Regulation Marketing Opportunity SEC issues risk alert about ESG investing

By HAZEL BRADFORD

SEC examiners are seeing unsubstantiated and “potentially misleading” statements and questionable processes from some investment advisers, investment companies and private funds offering ESG products and services, according to a risk alert. The Division of Examinations Risk Alert said April 9 that rapid growth in demand and an increasing number of ESG products and services, combined with a lack of standardized ESG definitions “present certain risks.” The always highly anticipated P&I special report on the Some of the most noticeable mis- Pensions & Investments’ Annual Largest Money Managers will feature data on the U.S. and steps were related to misleading worldwide activities of investment management firms. statements about ESG processes Special Report and Ranking and adherence to global ESG frameworks. New this year SEC examiners found portfolio We’ve begun collecting data on minorities and women in management practices inconsistent with how firms disclosed their ESG Largest the money managers’ workforce and will include analysis of approaches to clients, including the trends in this area for the first time. claiming to follow global ESG frameworks. In other cases, fund holdings featured issuers with low Our readers rely on this global report as the source of ESG scores, despite a firm’s stated Money institutional finance news and data and for invaluable infor- approach. mation on their incumbent asset managers as well as their Some firms claimed to have for- prospective managers. mal processes in place but did not have policies and procedures, did Managers SEE RISK ALERT ON PAGE 27 Your messaging will be heard and received by the decision makers in HR, finance and investments at the largest retirement funds who oversee and control over $11.3 trillion CORRECTIONS & Issue Date: May 31 in tax-exempt assets. CLARIFICATIONS Ad Close: May 19 ■ Incorrect information about Allow us to help you. BlackRock’s AUM was included Contact Julie Parten, sales director, at 952.495.0422 or in a page 23 story in the April 5 [email protected] today for more details on how issue, “BlackRock CEO Larry Fink best to put the power of P&I to work for you. sees 18% pay rise.” BlackRock managed $8.68 trillion as of Dec. 31. ■ A page one story in the April 5 issue, “Investors hungry for industrial properties,” mischarac- terized comments by Jim Costello View the full P&I media kit online at pionline.com/mediakit of Real Capital Analytics: Banks are not forcing properties into NEW YORK CITY 212.210.0114 BOSTON 978.317.5032 CHICAGO 312.485.3480 SAN FRANCISCO 415.299.1117 LONDON 44 (0)7710 128 464 | [email protected] default based on technical breaches of lending agreements. ěÝ{Ý¸ĩÃÇĩČ ĀȈɁȶǉǉɨȈȶǼȈȶ

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¶ӝĄɁƹǉɨɽěʍɨȶǉɨ Ǎǒƭǅ/ɠƭƟɃȻǒɚƭǅ˴ƟƭȦӹ »ɃȦǵƭȦSǳȣƃƟȻ ƃȣǒȻƃǪ Toigo’s mission is to transform the performance of forward-thinking organizations through education and strategies that drive greater inclusion and the ongoing development and promotion of exceptional diverse leaders. The Robert Toigo Foundation is a 501c(3) non-proﬁ t.

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Hedge Funds Money Management Bridgewater’s new sustainable investing unit gets co-CIOs Ameriprise, Amundi add By ROB KOZLOWSKI ments with clients pursuing sus- “Sustainable investing is a stra- tainability goals alongside their tegic priority for Bridgewater and Bridgewater Associates LP financial targets, Bridgewater for our clients,” said David Mc- launched a sustainable investing spokeswoman Ryan FitzGibbon Cormick, Bridgewater’s CEO, in to their European rosters group overseen by Karen Karni- said. Mr. Stendevad was previous- the news release. “Understanding ol-Tambour and Carsten Sten- ly CEO of the 960 billion Danish the economic impact of environ- Firms target EMEA, definitive agreement to acquire devad, both newly named co- kroner ($152 billion) ATP pension mental, social, and governance BMO Financial Group’s EMEA chief investment officers for fund, leaving in 2016. issues has always been crucial to ETF expansions in new money management business in a sustainability at the world’s larg- Ms. Karniol-Tambour and Mr. our study of how economies and £615 million ($850 million) all-cash est hedge fund. Stendevad will also serve as co- markets operate, and it is an in- deals with BMO, Lyxor deal, while Amundi announced it is Ms. Karniol-Tambour, previ- chairs of Bridgewater’s new sus- creasing priority for our clients to in exclusive negotiations with Lyx- ously Bridgewater’s head of in- tainable investing committee. achieve financial goals as well as By SOPHIE BAKER or Asset Management’s parent vestment research, and Mr. Sten- The news release notes the have environmental and social company to acquire the European devad, a Bridgewater senior new group will embed sustain- impacts in their portfolios.” Ameriprise Financial Inc. and exchange-traded funds specialist in investment executive, will lead ability considerations into the Bridgewater Associates has Amundi made moves earlier this an €825 million ($970 million) deal. efforts on the design and imple- firm’s investment processes when about $150 billion in assets under month to bolster their European The Ameriprise agreement will mentation of sustainable invest- appropriate. management. n capabilities. add $124 billion in European assets Ameriprise Financial signed a under management and is set to complete in the fourth quarter, subject to regulatory approvals. The acquisition will complement Ameriprise-owned Columbia Threadneedle Investments’ core business and global growth strategy, adding a substantial presence in the European institutional mar- Private Markets Virtual Series ket, an Ameriprise news release said. Columbia Threadneedle’s June 15-17, 2021 AUM will increase to $671 billion and push EMEA AUM to 40% of its Attendees will have the opportunity to learn directly from and interact with peers at P&I’s Private Markets Virtual Series. total assets. Join us to hear from a variety of allocators including University of Illinois, Southern Co. and NYC Board of Education Ameriprise and BMO also struck Retirement System, among others. They will be sharing their experiences approaching private markets from a variety of a separate deal for U.S. clients, giv- liability and investment focused perspectives. ing certain BMO money management clients the opportunity to Panel discussions include: move to Columbia Threadneedle • ESG in private markets Investments. Terms of the U.S. deal How can a comprehensive ESG strategy benefit an investor in this space? were not disclosed, a separate news • Portfolio construction release by BMO said. Where do these strategies sit in an institutional portfolio vs. more traditional assets and how are they benchmarked? The deal allows BMO to focus on • Secondary markets long-term profitability as a North What benefits do they bring, and can they be a first point of entry for allocators? American bank and wealth manag- Participants will be guided through these panel discussion and more by our event chairs Michelle Davidson and David Fann er “and enables us to focus our re- at Aksia. We hope to see you in June! sources where we have a competitive advantage and are well-positioned to deliver growth and accretive returns,” Joanna CONFERENCE CHAIR: CONFERENCE CHAIR: Rotenberg, group head, BMO Michelle Davidson David Fann Wealth Management, said in the Aksia Aksia BMO release. “We will continue to invest in our diversified North American wealth businesses, including our Canadian asset management business, to provide an ASSET OWNER SPEAKERS INCLUDE: unrivaled experience for our clients as their needs change.” Under the acquisition, BMO Wealth Management also established a strategic relationship with Ameriprise to give its North Ameri- ca-based wealth management clients access to Columbia Thread- needle strategies. “Adding BMO’s EMEA asset Sarah D. Capozzo Edward B. Creedon Terrance Davis Brad J. Gates, CFA management business is an excep- Knights of Columbus University of Illinois Foundation Florida SBA Southern Company tional growth opportunity,” Ted Truscott, CEO at Columbia Thread- needle, said in the Ameriprise release. “The transaction advances our strategy and enhances our geo- graphic and asset class diversification, enabling us to serve more clients and meet more of their needs.” It is anticipated that the majority of BMO’s more than 800 staff in Brian Neale Tara Mason Juan Prieto Antonio Rodriguez EMEA will join Columbia Thread- University of Nebraska Health Care Service Corporation Mutual of Omaha NYC Board of Education needle including some of the senior Foundation Retirement System team, a spokeswoman for CTI said. “For those teams and capabilities COMPLIMENTARY REGISTRATION AT PIONLINE.COM/PM2021* that are new to Columbia Thread- needle we don’t envisage major SPONSORS: change and it will be largely business as usual as we welcome new teams to Columbia Threadneedle. Where we have established teams we will look to enhance our existing capabilities by bringing together Questions? For more details please contact Elayne Glick at (212) 210-0247 or [email protected]. talent and expertise from both or- *Only asset owners and a limited number of consultants are invited to attend. All registration requests are subject to verification. ganizations,” she added. P&I reserves the right to refuse any registrations not meeting our qualifications. The agenda for Private Markets Virtual Series is not created, written or produced by the editors Meanwhile, Amundi is looking to of Pensions & Investments and does not represent the views or opinions of the publication or its parent company, Crain Communications Inc. create a €142 billion ETFs manager, SEE ACQUISITIONS ON PAGE 23 People, culture, benefits.... Does your company oer great benefits? Provide ample opportunities for employee development — and a great culture to boot?

Work has changed since the start of the pandemic. Many ﬁrms are reviewing plans for bringing people back together in their oces in 2021. But companies with a strong culture, talent base and support network will always be great places to work — regardless of where the work gets done. Tell us what makes your ﬁrm stand out from the others. Register for the 2021 Best Places to Work in Money Management today.

Rankings will be announced in the Dec. 13 issue. Take the ﬁrst step and register your ﬁrm today!

Go to pionline.com/bptw2021 and discover: • How to register and how the registration process works • Answers to frequently asked questions • Sample employer questionnaire • Sample employee questionnaire

Organizations self-nominate through the registration process. To register, please go to www.pionline.com/bptw2021

Take the ﬁrst step. Register your ﬁrm by June 11.

If you have any questions about Pensions & Investments’ Best Places to Work in Money Management, please contact Julie Tatge at (312) 649-5442 or [email protected].

BP2W.pdf RunDate: 04/19/21 FULL PAGE Color: 4/C 8 | April 19, 2021 Pensions & Investments FRONTLINES

LOOKING INTO THE FUTURE DUAL PURPOSE Dystopian tales Ares wants to do good explore altered – and profit – retirement reality with fund Ever wondered what the future of retirement might look like if the investment Ares Management Corp.’s latest industry just stopped caring about its deci- credit offering, the $3.7 billion Ares sions? A series of dystopian-style stories from Pathfinder Fund, may be a new name RisCura explores what this alternate reality for a loan origination strategy the firm might look like. has pursued since 2011, but Pathfinder Investment adviser and service provider is the first Ares fund to also donate to RisCura Holdings (Pty.) Ltd. last month global health and education charities. released an anthology of stories named “Upshot.” The seven stories, written by Ares created its alternative credit well-known authors and curated by business in 2011 when it acquired award-winning author Lauren Beukes, Indicus Advisors LLP, a European address topics including longevity and work leveraged finance and global structured to convey the need to make responsible corporate credit management firm. investment decisions. Pathfinder lends to owners of large, “It’s less relevant in a first-world country SHIFTING GOALS: In ‘According to Plan,’ a woman experiences frustrations with her financial-planning AI. diversified portfolios of assets with where the wheels are going to turn … but contracted cash flows. when it’s a third-world country, that really quite hard-hitting and a bit dystopian as well, about preparing for retirement, while Sam One of the fund’s most unique matters, it really counts,” said Malcolm Fair, (and) make you think ‘is this how it’s going to Beckbessinger’s “Undercurrency” — a story of features is its chartable tie-in through managing director in Cape Town, South Africa. be for me?’” global warming, kelp as the new commodity “These are fun stories written by acclaimed RisCura’s investment staff came up with the and love — addresses the idea that climate the donation of at science-fiction writers. It’s been two years in concepts, which were then turned into stories change will change everything. least 10% of the the making — some of the stories were written and podcasts. The stories are available via RisCura’s fund’s share of pre-COVID and are quite prescient given The stories are entertaining as well as website in written and podcast form. profits to support what’s now taken place. Some of them are meaningful: Angela Makholwa’s “Last Shot” is — SOPHIE BAKER global health and education, according NOVEL OPPORTUNITY to a December 2020 report by consultant RVK Inc. to the $5.4 Resmark sees niche in buying, leasing model homes billion North Dakota Joel Holsinger Resmark Equity Partners LLC considerable amount of money in Board of University has created a novel real estate the model homes used to show and School Lands, Bismarck. strategy — buying model homes of potential buyers. When the tract Ares will focus on donating to U.S. homebuilders and leasing the homes are sold, the homebuilder non-profit organizations with track homes back to them. then will sell the model homes. records of delivering high value per “This is a unique strategy,” said Model homes are a “mis- charitable dollar contributed, the firm Ziv Cohen, Los Angeles-based sion-critical asset” for large said in a news release. CIO of Resmark, in an email. He homebuilders, Mr. Cohen said. Joel Holsinger, partner and co-head added that the strategy was not The Resmark program gives driven by a hot housing market developers the option to the sell of alternative credit, said in the release Benjamin C Tankersley/The Washington Post Washington Benjamin C Tankersley/The but by homebuilders’ needs in any the homes while retaining their that the team was pleased with market condition. “In fact, it may use through a lease-back. When investors’ support for Ares’ commit- be more valuable in a down the model homes are ultimately ment to “help save lives and drive market when a builder needs sold, the homebuilder shares in greater equity” with its expected more cash to sustain a longer any appreciation in the value of donations. selling period,” Mr. Cohen said. the home, Mr. Cohen said. “Pathfinder’s dual purpose seeks to Resmark launched the strategy, “The initial commitment to the provide compelling risk-adjusted dubbed the Resmark Model Home venture will allow us to purchase investment returns, while also deliver- Sale-Leaseback Venture, with an over $600 million of model homes, ing resources to global charities as they initial $220 million commitment which we project will expand from domestic and international rapidly,” said Scott Miller, partner work to have a real impact on the lives clients of real estate consultant at Townsend Group, in a written of people who live in extreme poverty,” Townsend Group. statement. Mr. Holsinger said in the news release. ALL GOOD: Ziv Cohen thinks the strategy will work in up and down markets. Typically, a large developer has a — ARLEEN JACOBIUS — ARLEEN JACOBIUS

JOINING GWI’S MISSION to the sponsorship.” “Similar to the other GWI partner firms, we will join in MetLife plans 3 internships GWI’s mission of creating a diverse pipeline of talented young women in the asset management for Girls Who Invest scholars industry,” Ms. Moreau said. “We look forward to working with GWI MetLife Investment Manage- management, research analysis to also participate in their ment is partnering with Girls and trading via placement with mentorship program and speak- Who Invest, the non-profit private capital, real estate and ing engagements in the future.” organization formed to get more public fixed-income teams, said GWI scholars cover 50 distinct female leaders into money Beth Moreau, director, fixed undergraduate majors and the management. income, in an email. young women who participated in Through the partnership, the Ms. Moreau said the manager’s 2020’s summer program represent money manager, which had $659.6 internal Women’s Investment 60 public and private colleges. billion in assets under manage- Network has sponsored various Since its founding, more than 800 ment as of Dec. 31, will offer three women’s groups in the past. scholars have participated in Girls Who Invest scholars an “Our internal Women’s GWI’s summer and online opportunity to join the firm’s Investment Network identified intensive programs. internship program this summer. the organization as one that we IN SYNC: MetLife’s Beth Moreau said Girls Who Invest ‘aligned well with our values.’ More information on Girls Who Two scholars based in Whippa- felt aligned well with our values Invest is available on the organi- ny, N.J., and one based in Phila- and approach to expanding Ms. Moreau, a member of the multiple conversations with the zation’s website. delphia, will focus on portfolio diversity within the industry,” said network. “As such, we had organization ahead of committing — ROB KOZLOWSKI ;^YjX^Vgn :H< BVcV\ZbZci EZch^dcGZ[dgb 9ZXjbjaVi^dc

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NEW Flexpass: TOPICS: € 500.00 (+ option to book for LIVE)* • Retirement reimagined: the future of work * Secure your access to networking and summit content • Is China making the ﬁ nancial world go around and how are you accessing the next largest economy? items today for P&I WorldPensionSummit for a virtual • You’re in charge of global pension regulation for one day – what do you do? delegate pass for only 500 Euro and pay only € 1000 • Alternatives and private markets – transitioning to Main St? extra for the LIVE event in The Hague. • Stress-test your investment strategy – how to build resilience • Emerging from the worst of the pandemic: how our economy has fundamentally changed Register with discount code: • Crypto assets: time for institutional investors to look? FLEX2021WPS

Keynote speakers:

Richard Curtis Dr. Beata Javorcik Writer, Director, Co-Founder of Red Nose Day Chief Economist and UN Sustainable Development Goals Advocate EUROPEAN BANK FOR RECONSTRUCTION & DEVELOPMENT MAKE MY MONEY MATTER

Meet our speaker faculty:

Cheryl Alston Victoria Barron Ole Buhl Executive Director & CIO Head of Sustainable Investment Senior Vice President, Environment Social Governance EMPLOYEES’ RETIREMENT FUND BTPSM OF THE CITY OF DALLAS, TEXAS ATP

Ignacio Calle Teresa Ghilarducci Alex Lee CEO Bernard L. and Irene Schwartz Professor CIO of Economics Director, SCEPA SURA AM DELOITTE LLP THE NEW SCHOOL FOR SOCIAL RESEARCH

Wei Sun Kari Vatanen Marcus Wilhelm Associate Professor CIO Chairman of the Board, Head of Group Pensions SCHOOL OF FINANCE, VERITAS PENSION RENMIN UNIVERSITY OF CHINA INSURANCE COMPANY AIRBUS GROUP PENSION TRUST E.V.

Dave Zellner Monique van der Poel Jaap van Dam CIO Boardmember and Pensions Rep FME, Member Principal Director Pension Committee VNO-NCW MKB Nederland of Investment Strategy WESPATH BENEFITS AND INVESTMENTS PENSIOENFONDS PME PGGM

View full conference details and register at pionline.com/wps2021

WPS.pdf RunDate: 04/19/21 Full Page Color: 4/C 10 | April 19, 2021 Pensions & Investments OPINION

Christopher J. Battaglia President and publisher, Pensions & Investments

EDITORIAL Amy B. Resnick Editor (212) 210-0751 Julie Tatge Executive editor (312) 649-5442 Kevin Olsen Managing editor (312) 649-5223 David Schepp News editor Sophie Baker International news editor Meaghan Offerman Associate editor [email protected] Colette Jordan Chief content editor Patrick Roth Web producer Trilbe Wynne Editorial assistant

REPORTERS Douglas Appell International Hazel Bradford Washington James Comtois General assignment Margarida Correia Defined contribution Brian Croce Washington Arleen Jacobius Private equity/real estate Rob Kozlowski General assignment Paulina Pielichata International Robert Steyer Defined contribution Christine Williamson Money management

ART Gregg A. Runburg Art director Roger Schillerstrom Editorial cartoonist

DATA/RESEARCH Aaron M. Cunningham Director of research and analytics Larry Rothman Data editor [email protected] Anthony Scuderi Directory manager Valerie Ge Research analyst

EDITOR’S NOTE SALES & MARKETING Nikki Pirrello Chief operating officer Julie Parten Head of sales [email protected] Lauren DeRiggi Digital specialist/account executive [email protected]

P&I’s Best Places to Work marking a milestone REGIONAL SALES MANAGERS Rich Kiesel West ensions & Investments is opening registration for its Companies Group, an independent Paul Kissane Midwest annual look at money managers with the best corporate research firm. Anna Koules New York cultures — its Best Places to Work in Money Manage- In the first part, employers complete a Steve Middleton EMEA +44-(0)77-1012-8464 ment program. questionnaire; in part two, employees Hideo Nakayama Asia (Tokyo) +81-3-3479-6131; [email protected] This year will mark the 10th anniversary of the pro- complete a survey. Eduardo de Alcantara Machado Sao Paulo, Pgram, which has grown more than sixfold since its launch in 2012. To register, go to pionline.com/ Brazil +55-11-3167-0821; [email protected] From the inaugural list of 15 employers in 2012, P&I recognized a bptw2021. You’ll find a variety of resourc- CONFERENCES/MARKETING record 94 money managers in 2020 — even as the COVID-19 crisis es on the page, including a list of FAQs, Usha James Group director of conferences [email protected] forced a massive shift to working from home. Throughout the years, program timeline and sample surveys. If Kimberly Jackson Director of conference sales we’ve learned a lot about what the top companies do to attract top you’d like more information, contact Diane Pastore Director of conference talent and build an enduring culture. Executive Editor Julie Tatge at 312-649- programming 2021 Joshua Scott Director of conference programming The small number of companies recognized in each of the past 5442 or by email at [email protected]. Kathleen Stevens Investor relations director nine years, and that we hope will make the list for the 10th consecu- To reach Best Companies Group, Gerry O’Hara Investor relations manager tive year, will be part of our special anniversary coverage for 2021. Harrisburg, Pa., call 877-455-2159. [email protected] Michelle DeMarco Director of relationship Deadline for registration is June 11. Results will be published For a look at last year’s winners, visit pionline.com/bptw2020. marketing online and in the Dec. 13 issue of P&I, and will include profiles and We hope that if your firm participated in the past, you’ll take part Assel Chanlatte Conference marketing manager photos of top-ranked organizations. Participation in the program is again in 2021. And if your firm has never have participated, we Mirjam Guldemond Conference manager, WorldPensionSummit +31-6-2333-2464 free. encourage you to take the plunge this year. Kristal Santos Client services project manager A simple yet thorough two-step company assessment determines Be a part of P&I’s special report on a decade of workplace Ashley Perrucci Associate manager, client partnerships company rankings in the program, managed by P&I partner Best excellence. n Rachel Lopez Conference administrative assistant

CUSTOM CONTENT/CLIENT SOLUTIONS Gauri Goyal Director of content solutions OTHER VIEWS GREG SHEA AND STEVEN KINDRED Corina Lewis Client solutions senior program manager David Joseph Research analyst [email protected] Tetyana Saucedo Digital campaign manager Solution for yield seekers may be hiding in plain sight Deanna Speziale Senior marketing associate [email protected] n mid-March 2020, the yield on the strategies. The assets tracked by this index SUBSCRIPTIONS/SITE LICENSES 10-year Treasury dipped below 1%. The soared by 254% during the past 10 years, more Elayne Glick Director of audience marketing and acquisition benchmark rate hasn’t exceeded 3% for than quintupling the growth of the high-yield David Bomberger Director, enterprise licensing more than two years and is likely to stay market. However, when it comes to total Ed Gorman Director, EMEA/international site low for the foreseeable future after return, income, credit risk and liquidity, real licensing +44-(0)20-3823-9891 Federal Reserve Chairman Jerome Powell estate and levered loans may not turn out to I RFP/RECRUITMENT effectively ruled out hikes until at least 2023. be the best choice. This persistent downward pressure on rates Measuring throughout a full economic Erin Smith Sales manager has led institutional investors to increase cycle, from before the global financial crisis REPRINTS allocations to income-generating assets such through 2020, the total return generated by Laura Picariello Sales manager

as levered loans and real estate to achieve the high-yield bonds was 7.31%, outperforming ADVERTISING PRODUCTION returns needed to meet long-term obligations, Greg Shea is a senior portfolio manager for the real estate by two percentage points and Robert T. Hedrick Media services manager typically about 7% annually. quality high-yield strategy and Steven Kindred is levered loans by nearly three percentage 312-649-7836; [email protected] Though the dollar value of the high-yield a senior fixed-income analyst at Segall Bryant & points. Real estate prices rebounded strongly Subscription information - single copy market rose by 48% over the past decade, Hamill. Both are based in Denver. from the 2008-2009 downturn during the past sales: 877-812-1586

levered loans grew nearly three times faster decade, driving overall strong returns in the TO CONTACT A P&I STAFFER at 140%. And while growth in institutional real tants, is net assets in the NFI-ODCE index, a sector. Yet, over the past five years, high yield Unless otherwise noted above, email us at estate investment is more difficult to measure, compilation of 26 open-end commingled has again outperformed the other two asset [email protected] or find phone numbers at pionline.com/staff. a good proxy, according to industry consul- funds pursuing core, U.S.-based real estate SEE SHEA-KINDRED ON NEXT PAGE Pensions & Investments April 19, 2021 | 11 OPINION

OTHER VIEWS JAKE REMLEY Protect against inflation’s effects on bond market with proper positioning nflation, the archnemesis 28, while trillions of dollars in Inflation is heady macro conditions proved to be the right toxic brew of the bond market, is additional fiscal spending have to unhinge aggregate prices in hindsight. rattling the kettle’s lid. expanded the federal deficit to territory. It is the nexus of But, no one had a crystal ball back then, But fixed-income inves- 16.5% of GDP as of Feb. 28. The many economic factors and and no one does now. tors can protect their magnitude of this intervention Iportfolios with proper posi- may have yet-to-be-seen crosscurrents. It left deep or bond investors, the fulcrum of tioning and patience. inflationary consequences, psychological wounds two inflation risk rests on market expecta- Investors have endured especially if our winter of F tions. The availability of Treasury numerous inflationary head economic discontent is followed generations ago. . . . But, inflation-protected securities was not fakes over the past decade. In by a summer of economic love in no one had a crystal ball enjoyed by 1970s’ bond managers. TIPS not the years immediately follow- travel, dining and leisure. only convey market estimates for long-term ing the global financial crisis, At the heart of the inflation back then, and no one inflation, they offer a liquid insurance Jake Remley is a year-over-year consumer price debate is the idea that the Fed is policy against the risk of expectations rising senior portfolio does now. index reached a peak of 3.9%. playing a game of chicken with a from here. manager at Income However, above-trend inflation rapidly expanding monetary Currently, TIPS breakevens, or the Research & Manage- proved temporal as counter- base. So far, the savings rate has the coming months simply due to the price average CPI required to match the yields on ment in Boston. vailing shocks — the European jumped, and the velocity of trough from last spring’s lockdowns. Yet, comparable maturity Treasuries, imply a sovereign debt crisis, the money has plummeted. Howev- Fed Chairman Jerome Powell has down- 2.3% annual inflation rate during the next downgrade of the United States’ credit er, 60% of the consumer price index is tied to played this rise as “small and transient” — a decade. This expectation is within the range rating and corrections in commodity service-based expenses. This part of the dovish gesture for now. of historical 10-year breakevens, suggesting markets — repeatedly arrested momentum. economy has been hit hard by the pandemic Inflation is heady macro territory. It is the TIPS valuations are presently fair as an U.S. inflation remained below 3% for the but insulated from foreign wage competition. nexus of many economic factors and inflation hedge in today’s bond market. remainder of the decade, averaging a If demand-pull inflation ignites, general crosscurrents. It left deep psychological However, TIPS yields are entrenched in sanguine 1.8% from 2010 to 2019. price levels could rise quickly, and the Fed’s wounds two generations ago. President negative territory. The notion of paying the But the ’20s began with a bang. The response would be key to rate moves. Richard Nixon’s abandonment of the gold federal government for protection against deflationary shock of the coronavirus The doves argue that the Phillips curve is standard in 1971 allowed volatile petrodol- its inflationary policies rings ironic in pandemic has been met with unprecedented broken, recent housing strength is offset by lars to gain a chokehold on an ener- today’s interest rate environment. Yet, monetary and fiscal stimulus. The additional urban rent weakness and technology is gy-starved economy. Demand from the simply parking cash in money markets quantitative easing has effectively doubled supplanting labor across a variety of baby-boomer generation fueled years of yielding effectively zero misses the point. the Federal Reserve’s balance sheet to more service-related industries. Even so, year- rapid credit expansion. Labor unions Such a decision may avoid mark-to-market than 36% of gross domestic product as of Feb. over-year CPI is likely to shoot toward 3% in wielded powerful political influences. Those SEE REMLEY ON PAGE 21

LETTER TO THE EDITOR FIGURE 1 Annualized total returns availability and, unlike high-yield Shea-Kindred Prior to GFC Last 10 Last 5 and levered loans, to Q4 2020 years years are ultimately at the CalPERS: Urgency CONTINUED FROM OPPOSITE PAGE manager’s discre- classes on a total-return basis. Bloomberg Barclays 2% 7.31% 6.79% 8.57% tion. This can create underscores all And dating back to before the global Capped (high yield) a queue for financial crisis, high yield’s trailing withdrawals — a NFI-ODCE index (real estate) 5.28% 9.88% 6.21% areas of providing annualized income return — the coupons potential frustration paid from the underlying high-yield bonds S&P LSTA index (levered 4.38% 4.32% 5.24% for allocators keen retirement security and levered loans in their respective loans) to put capital to indices — has consistently outperformed Note: Prior to GFGC to Q4 2020 = June 30, 2007-Dec. 31, 2020; last 10 years = Dec. 31, work elsewhere. alPERS is focused on thoughtfully levered loans and real estate, where 2010-Dec. 31, 2020; last 5 years = Dec. 31, 2015-Dec. 31, 2020 So, while assets selecting the right person to guide income return for the NFI-ODCE index is such as real estate calculated as property-level income less billion of high-yield bonds are traded each and levered loans may initially seem our $450 billion global portfolio C expenses, divided by property value. month, about five times the total for compelling to allocators scouring the and lead the highly skilled professionals This underperformance by real estate levered loans, according to the Loan Syndi- investment universe for yield, in the in our investment office. As we go and levered loans comes against a back- cations and Trading Association and the current environment they can offer an forward, our No. 1 priority is executing drop of deteriorating credit quality for both Trade Reporting and Compliance Engine. unattractive combination of lower total on our long-term investment strategy. asset classes. In addition, settling trades can be chal- returns, lower income, lower quality, lower This has been successfully achieved in “BB” is the highest quality rating in the lenging. It takes one to three days to settle trading volume and increased trade recent months by our interim CIO, and high-yield universe, and while the number a high-yield trade vs. an average of seven settlement costs. A more attractive our investment returns have topped of bond issuers with a rating of BB or better days for a loan, which can stretch to 20 proposition may therefore be thoughtfully many of our industry peers in both the climbed to 54% of the ICE BofA U.S. High days for distressed issuers. chosen investments in high-yield bonds. n Liquidity in the real estate sector is even last fiscal year and calendar year time Yield index by Dec. 31, 2020, from about 42% a decade prior, the proportion of levered more problematic. NFI-ODCE funds accept This content represents the views of the authors. It periods. loan issuers with BB or better ratings slid to redemption requests on at least a quarterly was submitted and edited under P&I guidelines but is Throughout the rest of 2021, we’ll be about 30% from about 47% over the same basis. Payouts are subject to capital not a product of P&I’s editorial team. conducting a comprehensive review of period, according to the S&P/LTSA Lever- our assets and liabilities, an important aged Loan index. Moreover, the coronavirus analysis we undertake every four years. has exposed duress in real-estate sectors FIGURE 2 Trailing annual income returns by We’ll carefully examine capital market including commercial office space, which assumptions from financial experts as may be adversely impacted by a permanent asset class increase in work-from-home trends; retail, well as the results of an actuarial study 12% detailing demographic changes in the which is struggling as a fundamental shift to workplace and in our members’ lives. At online shopping accelerates; and hotels, 11% Bloomberg Barclays 2% Capped (high yield) which could feel the impact of a potential the end, we’ll decide an appropriate NFI-ODCE index (real estate) reduction in business travel. 10% level of risk and an asset allocation mix S&P LSTA index (levered loans) Another emerging sign of stress in real 9% that will strengthen the financial estate is a rise in commercial mort- foundation we’ve been steadily building gage-backed securities delinquency rates. 8% for the past few years. After staying consistently below 1% for at 7% The “urgency” you mention (Editorial, least seven years pre-pandemic, the rate April 5, “Urgency underscores CalPERS’ surged to as high as 9.4% in June 2020 and 6% search for a CIO”) is the hard work we do remained above 7% at the end of the fourth 5% every day to provide retirement security quarter, according to Trepp, a commercial 4% to our 2 million members. Our next chief real estate data provider. To compound the differences between investment officer will certainly be 3% the three asset classes, market liquidity critical to helping us deliver on that also favors high-yield bonds. It is one thing 2% promise. to accept less liquidity for higher returns 1% Marcie Frost or higher-quality assets, but as noted CalPERS chief executive officer above, neither of those attributes is present 0% in levered loans nor real estate. About $300 ’07 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 12 | April 19, 2021 Pensions & Investments DC ROUNDUP

Labor Department unveils list of cybersecurity best practices

The Department of Labor re- open it up to advisers from outside leased a set of guidance detailing The 401(k) Plan Company, accord- best practices for maintaining cy- ing to Mr. Zimmerman. DC participants making more trades bersecurity for plan sponsors, plan Sixteen advisers from multiple Trading activity in self-directed brokerage accounts has increased markedly over the past several duciaries, record keepers and plan broker-dealers and registered in- years. In the last quarter of 2020, participants made an average of 13.9 trades per account, up from vestment adviser rms across the participants. 3.7 in the fourth quarter of 2015. Trading spiked in the first quarter of 2020 to 13.4 vs. 7.2 in the The guidance, released April 14, country are already in the process has three distinct pieces, the rst of of bringing existing 401(k) plans fourth quarter of 2019. However, while equity markets recovered and volatility dropped, the average which includes tips for plan spon- into Pentegra’s pooled plan, Mr. number of trades stayed elevated, ranging from 13.4 to 14. sors and duciaries on how to se- Zimmerman said. Average account balances reached about $332,000 at the end of 2020, 71% higher than at the end lect a service provider with strong Pentegra serves as the pooled of 2015. Overall DC assets reached $9.6 trillion at year-end 2020, up from $6.5 trillion in 2015, cybersecurity practices and how to plan provider as well as the 3(16) according to Investment Company Institute. This represents about 27.5% of the $34.9 trillion of U.S. monitor their activities. The tips in- plan administrator, while 401(k) retirement assets, which has been relatively constant throughout the years. clude asking whether the service LLC, serves as the 3(38) investment provider has experienced past se- manager. Average balance and trade activity of DC participants curity breaches, what happened $375 15 and how the service provider re- Oregon, California $350 Average account balance 14 sponded, and making sure any con- plans hit milestones (thousands; left axis) tract with a service provider re- $325 Number of trades (right axis) 13 quires ongoing compliance with Oregon Retirement Savings Plan $300 12 cybersecurity and information se- now has $100 million in assets. curity standards. The rst state-sponsored pri- $275 11 The second piece of guidance is a vate-sector retirement program in $250 10 list of 12 cybersecurity program the country, known as OregonSaves, $225 9 best practices for plan sponsors Tigard, also is the rst to reach this and record keepers, such as having milestone, spokesman James Sinks $200 8 a reliable annual third-party audit con rmed in an email. The program $175 7 of security controls, and ensuring reached $100 million on April 2, less $150 6 that any assets or data stored in a than four years after launching. cloud or managed by a third-party The program, launched in No- $125 5 service provider are subject to ap- vember 2017, offers a retirement $100 4 propriate security reviews and in- plan to Oregon workers who don’t $75 3 dependent security assessments. have an employer-sponsored sav- The nal piece is a set of online ings plan, including the self-em- $50 2 security tips for participants and ployed, gig economy workers and $25 1 bene ciaries when accessing a re- employees in the cannabis industry. $0 0 tirement account. Most recently, the program also Q4 2015 Q4 2016 Q4 2017 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 The guidance marks the rst welcomed SEIU-represented home- Source: Charles Schwab & Co. time the EBSA has issued cyberse- care workers in November 2020, curity guidance. and the state’s smallest businesses are set to join the program in 2022, most new hires starting June 30, reducing plaintiffs’ and plan partic- retirement plan consulting rm. In Columbia University settles according to the news release. 2022 and automatically enroll them ipants’ retirement savings.” Wells March, it also snapped up the as- Separately, the California trea- in the Florida Retirement System Fargo was the record keeper during sets of Ohio-based Bene t Strate- ERISA suit days before trial surer’s of ce announced in a news Investment Plan, the state’s $15.3 this period; it is not a defendant. gies Agency and its af liate Finan- Columbia University, New York, release that more than 10,000 pri- billion 401(a) plan. The plaintiffs also alleged that cial Strategies Agency, two agreed to settle allegations of ERI- vate-sector employers have regis- New hires currently have the op- plan executives failed to select low- employee bene ts, retirement and SA violations in two retirement tered with California’s state-run tion of joining either plan when er-cost mutual shares when they nancial planning rms, following plans less than a week before a trial retirement savings program. they become state employees. “Spe- were available vs. the same funds in its acquisition of Boston-based reg- was scheduled to start. Most private-sector employers cial risk” employees in areas such the plan lineup. istered investment adviser rm Al- An attorney representing the that do not offer their workers a re- as criminal detention, emergency A company representative did not pha Pension Group on Dec. 31. university’s trustees and plan du- tirement plan are required to make medical care, re ghting and law respond to a request for comment. Hub has been acquiring retire- ciaries sent a joint letter with an at- the CalSavers Retirement Savings enforcement would still have that The Wesco Distribution Inc. Re- ment-focused rms since 2017 in a torney representing current and Program available to their work- option under the terms of the bill. tirement Savings Plan had assets of push to bulk up its retirement plan former plan participants to U.S. forces. The program is structured as John Kuczwanski, spokesman of $762 million as of Dec. 31, 2019. and wealth management business. District Court Judge George B. Dan- an automatic-enrollment, pay- the Florida State Board of Adminis- iels on April 7 announcing a tenta- roll-deduction individual retire- tration, Tallahassee, which oversees Hub International Pa. rm faces ERISA suit tive agreement. ment account. the money management of the pen- Terms weren’t disclosed. A de- Since its launch in July 2019, the sion fund and 401(a) plan, said Ex- buying spree continues over plan management tailed report of the agreement will program has amassed more than ecutive Director and Chief Invest- Insurance broker Hub Interna- Former employees of ICON Clin- be led with the judge by May 24, $57 million in retirement savings, ment Of cer Ash Williams would tional announced two more deals ical Research LLC, North Wales, Pa., the attorneys wrote. according to the April 7 release. be speaking with trustees April 10 this month. sued the company and duciaries Columbia University and du- Some 134,000 participants are con- about the bill. It acquired the assets of retire- alleging mismanagement of a com- ciaries were sued in August 2016 in tributing an average of $131 a The bill will go to the House of ment plan consulting rm Plan pany 401(k) plan violated their du- two separate complaints alleging a month with another roughly Representatives next week with Sponsor Consultants and acquired ties under ERISA. series of ERISA violations, includ- 187,000 participants yet to fund uncertain prospects and the House retirement plan consulting rm “The plan had substantial baring charging “unreasonable” re- their accounts, said Katie Selenski, will decide whether to take on the IBG Financial Partners. gaining power regarding the fees cord-keeping fees and retaining CalSavers’ executive director, in an Senate bill or put together its own Terms of the deal were not dis- and expenses that were charged poor performing investments. email. committee bill. closed. against participants’ investments,” The two plans had a combined Still, the program has fallen The bill has been opposed by or- The acquisition of the Atlan- said the March 26 complaint led in $7 billion in assets as of Dec. 31, short of registering the total esti- ganizations such as the Florida Re- ta-based Plan Sponsor Consultants U.S. District Court in Philadelphia. 2019. mated employers required to join tired Educators Association. added 184 plan sponsor clients with “Defendants, however, did not try the program, according to data on $2.4 billion in assets under man- to reduce the plan’s expenses or ex- Pentegra launches CalSavers’ website. As of March 31, Wesco 401(k) participants agement to Hub’s client roster, a ercise appropriate judgment to scru- 70% of the estimated 8,481 employ- Hub spokeswoman said. tinize each investment option that pooled employer plan ers with more than 100 employees le suit over excessive fees The addition also builds on Hub’s was offered in the plan to ensure it Pentegra launched a pooled em- that were required to register with Participants in a 401(k) plan of- expansion in the Gulf South region was prudent,” said the complaint. ployer plan that it is marketing CalSavers by Sept. 30, 2020, had ei- fered by Wesco Distribution Inc., and strengthens its retirement ca- The plaintiffs, who are seeking through advisers, the record keeper ther registered or responded to the Pittsburgh, Pa., sued the company pabilities, Shaun Norris, president class-action status, attacked the - said in a news release. state’s request to do so. and plan duciaries alleging viola- of Hub Gulf South, said in a Hub duciaries’ monitoring of re- The PEP — called A Better tions of their ERISA duties. news release April 6. cord-keeping expenses. 401(k) Plan — is being sold primar- Florida bill seeks to close They alleged the plan executives The acquisition of Foxborough, ICON Clinical Research LLC is a ily through retirement-focused ad- allowed “unreasonable and exces- Mass.-based IBG added 70 plan subsidiary of ICON PLC, Dublin, visers who are members of the as- plan to most new hires sive” record-keeping fees, accord- sponsor clients with roughly $1.6 Ireland. A spokesman for the par- sociation formed by The 401(k) Florida’s Senate approved a bill ing to the complaint led March 26. billion in assets under advisement ent company did not respond to a Plan Company at the end of 2020, that would close the $183.1 billion The lawsuit, which seeks to Hub’s client roster, a Hub spokes- request for comment. Pentegra spokesman Kevin Zim- Florida Retirement System Pension class-action status, said the ERISA woman said. The ICON Clinical Research, merman said. Plan to most new hires. violations took place between 2015 The acquisition follows Hub’s LLC 401(k) Plan had assets of Pentegra launched the PEP on The bill, approved April 8, would and 2019 causing “lower net re- purchase on April 2 of Plan Spon- $523.9 million as of Dec. 31, 2019, Jan. 1 and recently began efforts to close the de ned bene t plan to turns, eating into and substantially sor Consultants, an Atlanta-based according to the lawsuit. Pensions & Investments April 19, 2021 | 13 EXCHANGE-TRADED FUNDS Investors seeking out a thematic investing ride in ETFs By ARI I. WEINBERG without having too wide a berth. more than $300 million in assets more flexibility to the manager, lentless within thematic ETFs. “I (ARK’s flagship product, the $23.7 are tracking thematic model portfo- particularly in buying new issues,” believe investors will pay slightly Spurred by a rush of assets into billion ARK Innovation ETF, for ex- lios published by Global X. Mr. Magoon said. “You don’t want to more for this specialized take in several exchange-traded funds run ample, is categorized by FactSet as a According to 13F filings, institu- be caught in an indexed approach the equity markets,” she said, “and by ARK Investment Management “multithemed” ETF.) tional owners of thematic ETFs in- where you might have to rewrite it’s still lower than traditional ac- LLC, the category-defying, Some of the more popular clude the C$475.7 billion ($378 bil- the rules every time a new use case tive management.” trend-chasing genre of thematic themes focus on specific emerging lion) Canada Pension emerges or a company Scanning the names of some of ETFs has taken off. or disruptive technologies, sectors Plan Investment Board, enters the market for the thematic funds, it may seem like Through April 6, thematic ETFs and industries affected by chang- The Workers Social In- that particular innova- the Wild West, but U.S. Securities attracted $26.4 billion in net new ing demographics and consumer surance Fund, $30.9 tion,” he said. “You also and Exchange Commission rules flows across 113 funds, compared attitudes, and shifts in regulation. billion Employees Re- don’t want to have to help to serve as guardrails. First, with $26.1 billion for all last year. Water, clean energy and infrastruc- tirement System of wait for the next index funds have to test for diversification Aggregate assets now stand at $99 ture funds were among the earliest Texas and Clal Insur- reconstitution.” among holdings or state that they billion, according to FactSet Re- to launch, more than a decade ago, ance Enterprises Hold- “As an issuer, the may not be diversified. Second, the search Systems Inc., following a but now themes have exploded. ings Ltd. worst thing you can do funds must comply with the SEC’s year in which nine of the 12 largest Among the funds gathering the with a thematic product names rule that requires at least thematic products experienced re- most assets this year include ARK Passive vs. active is have it lack purity,” 80% of a fund’s assets be aligned turns of more than 100%. Genomic Revolution with $3 bil- One of the biggest FLEXIBILITY: Christian Mr. Magoon said. with the objective stated in its name. Though such products have gen- lion, ARK Fintech Innovation at challenges for ETF is- Magoon said thematic Despite the competi- Amplify’s Mr. Magoon said that erally been the domain of retail in- $2.3 billion, and iShares Global suers looking at the- ETFs might need active tion in many areas of generally means a stock holding vestors and financial intermediar- Clean Energy at $2.1 billion. matic fund develop- management to achieve thematics — cannabis, must derive at least 50% of its reve- ies, 29 thematic ETFs now top $1 “We look at themes compared to ment is determining the exposure required. clean energy, infrastruc- nue from the stated theme or be at billion in assets and many of those the traditional GICS (Global Indus- when a theme can be ture, water, blockchain the top in market share. This ex- are making their way into more in- try Classification Standard) sectors indexed vs. when the theme would — the products are generally priced plains why large-cap technology stitutional portfolios. they are disrupting,” said Jon Maier, benefit from active management, significantly higher than plain-va- companies are not as prominent as “There’s been a lot of attention to chief investment officer at Global X said Christian Magoon, founder nilla index funds or even smart beta small and midcap pure plays in themes because they align with Management Co. LLC, a unit of Mi- and CEO of Amplify Investments ETFs. They are competing with, or some innovation-focused ETFs, he some investors’ beliefs and give rae Asset Global Investments Co. LLC. Amplify manages $4.8 billion are, actively managed funds and said. them something to connect with,” Ltd. Global X manages 73 U.S.-list- in 11 ETFs. may have a more expensive subad- For example, Amazon is only said Lois Gregson, senior analyst for ed ETFs with more than $26 billion “Can you really create a set of viser or index fee. The median ex- 1.8% of Amplify’s Online Retail ETF analytics at FactSet, “but bring- in aggregate assets under manage- rules and constraints that deliver pense ratio for thematics tracked by ETF, compared with 4% of Global ing out an ETF requires that there ment, including thematics focused the exposures that the theme re- FactSet is 0.6%, compared with less X’s EBIZ. And, as with most ETFs are enough stocks, with enough lion battery tech, artificial intelli- quires?” Mr. Magoon asked. than 0.1% for several of the largest beyond the larger, staid index quidity, to make it investible.” gence and more. It also publishes For example, Amplify chose a traditional index products. products, composition and concen- According to Ms. Gregson, theme several model ETF portfolios that fully transparent active ETF struc- FactSet’s Ms. Gregson doesn’t tration can vary significantly products must cross multiple sec- weight themes by forward earnings ture for its cannabis and block- see the fee war that has rocked tra- across thematics with similar tors, often focusing on a megatrend, growth. Mr. Maier estimates that chain-related offerings, “giving ditional index funds being as re- sounding names. n

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CONTINUED FROM PAGE 1 topher Levell, partner at consultant NEPC LLC in Boston. “It’s relatively

A spokeswoman declined to pro- easy to make the case that bitcoin Hagen Kevin vide Fidelity’s assets under custody could be $1 million or it could be but said its client base quadrupled zero. It’s got a ton of convexity.” to more than 100 in December 2020 TOBAM, a Paris-based asset from the year prior. Fidelity’s insti- manager with $10.2 billion in AUM, tutional clients include hedge launched a bitcoin fund in 2017. funds, family of ces, registered in- Yves Choueifaty, TOBAM’s presi- vestment advisers, pension funds, dent and chief investment of cer, endowments, foundations and cor- said bitcoin, the biggest digital cur- porate treasury departments, the rency, can be a precarious invest- spokeswoman added. ment on its own, but the risk of an “It went from something that asset should determine the size of people may have tiptoed (around) the investment, not the investment or been fearful of, to something that case itself. He compared bitcoin to people felt that there was no more chlorine: As a “combat gas, it’s very career risk associated with being dangerous, but if you put a drop of involved in digital assets,” said Mi- chlorine in water, it’s drinkable.” If chael Sonnenshein, New York- an investor puts 1% of bitcoin in a based CEO at Grayscale Invest- 60%/40% portfolio, its volatility ments LLC, which touts itself as the won’t be felt, he said. world’s largest digital asset manag- Akbar Thobhani, CEO and er with $50.6 billion in assets under co-founder of San Francisco-based management as of April 14 and 14 cryptocurrency prime broker-deal- cryptocurrency investment prod- er SFOX Inc., which offers clients ucts for institutional and accredited cryptocurrency trading and custody investors, six of which trade public- options, said the learning curve for ly and are available to all investors. institutional investors has been In 2020, Grayscale brought in steep. “When you’re investing in the more than four times the assets it traditional markets, the infrastruc- had cumulatively raised in the prior ture is there, the rules and regula- six years, according to Mr. Sonnen- tions are in place, and when you shein. The additional in ows and come to crypto, it’s like a whole new huge price gains in bitcoin have led world,” he said. to a surge in Grayscale’s AUM. In Whereas in years past institu- February 2020, Grayscale had $2.6 tions were merely asking questions billion in AUM. trying to gure out what digital as- Interest from institutional inves- sets were, more are now interested tors, paced still by hedge funds and in learning the best ways to incor- family of ces, is on the rise among porate these assets in their portfoli- all institutional segments, Mr. Son- os, sources said. “If you’re a ducia- GROWTH: Michael Sonnenshein believes digital assets have evolved enough to eliminate the career risk associated with them. nenshein added. ry, you cannot ignore the reality that the highest-performing asset of the tect and manage the assets you into the space attracts more liquidi- improved in 2020, with 58% of U.S. Overcoming hurdles last decade has been bitcoin,” said have under management and make ty, which increases the size of the investors expressing a neutral or Historically, institutions have kept Matthew Le Merle, San Francis- them grow.” liquidity pool, which attracts more positive perception, up from 43% in their distance from digital assets for co-based managing partner of As the digital-asset market con- traditional investors, and that’s all 2019, according to a Fidelity Digital a variety of reasons, including a lack Blockchain Coinvestors, a block- tinues to mature, the hurdles pre- been very healthy,” he said. Assets survey released in June. of custody capabilities, and liquidity chain fund of funds. “You could ar- venting institutions from getting Earlier this month , the cryptocur- And sources expect that percep- and volatility concerns. gue that it’s not sustainable or in- involved have dissipated, Mr. Jessop rency market capitalization topped tion to continue to warm after re- “Institutional investors have an trinsically not appropriate, but at said, including prior liquidity con- $2 trillion for the rst time, accord- cent developments in the space. understanding that this is a more the end of the day your goal is to try cerns. “I think it’s a self-ful lling ing to market tracker CoinGecko. The price of bitcoin has surged speculative investment,” said Chris- and in a disciplined way both pro- prophecy, more investors coming The perception of digital assets over $63,000, up from about $8,000

to invest in cryptocurrency only,” said Katherine Molnar, CIO of the Two Virginia pension funds warm up Fairfax police fund. “What we liked about Morgan Creek is we thought of it as a multistrategy approach to to blockchain technology investments this space — providing exposure to both venture capital direct equity Being the rst to do something In 2018, the employees’ fund times and Fund II was 3.4 times, investments as well as liquid can be dif cult, especially with the committed $10 million and the according to Mark W. Yusko, cryptocurrency.” weight of duciary responsibility police fund committed $11 million founder, CEO and CIO of Morgan But convincing her board of always looming. to the Morgan Creek Blockchain Creek , and managing partner of trustees that investing in block- But roughly three years after two Opportunities Fund, managed by Morgan Creek Digital Assets. chain technology and cryptocurren- public pension funds in northern Morgan Creek Digital Assets, a The funds, which Mr. Yusko cies was the right decision proved Virginia — the $4.8 billion Fairfax subsidiary of Chapel Hill, N.C.- describes as venture capital, are challenging. County Employees’ Retirement based Morgan Creek Capital geared about 80% to direct “I manage a police of cers’ System and the $1.6 billion Fairfax Management LLC. investments in infrastructure retirement system, and I can tell County Police Of cers Retirement The following year, the employ- involving blockchain technology and you that there were some concerns System — became the rst known ees fund committed $30 million about 20% in cryptocurrencies. The like, ‘Are we going to invest in a asset owners to commit to a and the police fund committed $22 rst fund raised $41 million and fund that facilitates money dedicated fund that invests million to Morgan Creek’s second the second raised just shy of $100 laundering?’” MULTISTRATEGY: Katherine Molnar said primarily in blockchain technology iteration of the fund. million, Mr. Yusko said. She added, “This is a strategy the blockchain fund provided broader rms, the results have been As of March 31, Fund I had a “We were not trying to invest in that people didn’t know very much exposure than just cryptocurrency. reaf rming. return on invested capital of 4.4 bitcoin only, we were not even trying about, and if they did know anything Pensions & Investments April 19, 2021 | 15

last April, and digital currency ex- tional Settlements and a group of change Coinbase Global Inc. had a successful initial public offering on seven central banks that includes April 14, with a market valuation of Idea of central bank digital currency the Fed. One of the report’s three $86 billion. Also, Tesla Inc. an- key principles is that “a CBDC nounced in a February Securities needs to coexist with cash and and Exchange Commission filing gains traction among more countries other types of money in a flexible that it had bought $1.5 billion and innovative payment system,” worth of bitcoin. Central banks in more than 50 partnership in 2020 with the Mr. Powell said, according to a Also in February, Bank of New countries are at least in the early Digital Currency Initiative at the transcript posted on the Fed’s York Mellon Corp. announced the stages of studying or developing a Massachusetts Institute of website. formation of a digital assets unit Technology to perform technical As with conventional cryptocur- and is developing a multiasset dig- central bank digital currency, ital custody and administration including in the U.S., according to research related to a central bank rencies like bitcoin, a central bank platform for traditional and digital John Kiff, former senior financial digital currency. digital currency is stored on distrib- assets. sector expert at the International The Boston Fed and MIT have uted ledger technology, like And Goldman Sachs Group Inc. Monetary Fund. structured the research collabora- blockchain. “In an institutional is relaunching its cryptocurrency A central bank digital currency is tion into work phases that extend setting, that might mean faster trading desk, Matthew McDermott, a widely used digital representa- over two to three years. The first settlement for certain types of global head of digital assets for tion of a country’s sovereign phase involves jointly building and transactions,” said Tom Jessop, Goldman Sachs’ global markets di- currency issued by and as a testing a hypothetical central bank New York-based president of vision, said on a company podcast liability of a jurisdiction’s central digital currency for wide-scale, Fidelity Digital Assets. in March. general purpose use. The objective Some stakeholders have raised “There’s a virtuous cycle here bank or other monetary authority, where these problems are solving explained Mr. Kiff, who retired from in this phase is to determine how privacy concerns with respect to themselves because of the market the IMF last month and is based in to build a scalable, accessible central bank digital currencies Round Hill, Va., in an interview cryptographic platform to meet the because the transactions would demand,” Mr. Jessop said. SIGN OF TIMES: John Kiff said the rising prior to his retirement. use of pay apps and falling use of cash is needs of a theoretical U.S. dollar all be tracked, Mr. Kiff said. On New SEC chairman The reasons for adopting a increasing interest in digital currencies. central bank digital currency, the flip side, “If you made it totally Gary Gensler, whom the Senate central bank digital currency vary including stringent design anonymous, it becomes a confirmed in a 53-45 vote on April depending on the maturity of a 2020 launched pilot projects of its requirements for speed, security, financial integrity nightmare for 14, is the first SEC chairman with country’s financial system, the digital yuan in a few cities. privacy and resiliency, according to money laundering and tax an extensive knowledge of digital percentage of its population with The declining use of cash, a Boston Fed statement. evasion,” he added. assets. The former chairman of the especially in China where a In later phases, researchers will Also, there are cybersecurity Commodity Futures Trading Com- access to a bank account and the mission, and more recently a pro- number of financial transactions majority of transactions are assess technology trade-offs by concerns. “The risk of failure of a fessor at the MIT Sloan School of that are already virtual, but central completed via apps like WeChat coding and testing various CBDC would be like the ultimate Management, has taught classes banks in both large and small Pay and Alipay, has motivated architectures to see how they counterfeiting operation if and testified before Congress on countries are leading the way on central banks to explore digital cur- impact the central bank digital someone cracked the code or digital currencies and blockchain implementation. rencies, Mr. Kiff said. currency’s design goals, the something,” Mr. Kiff added. technology. The Central Bank of the “Declining cash usage reduces Boston Fed added. Those concerns are why central Cryptocurrency stakeholders say Bahamas started a pilot version of somewhat the central bank’s In discussing central bank banks across the globe are taking Mr. Gensler’s background is a posi- the sand dollar, a digital version of ability to conduct monetary policy digital currencies in a speech last years to study the topic. But more tive for the industry. the Bahamian dollar, in 2019 and because people aren’t actually month at a virtual Basel Commit- central bank digital currencies are “For someone to do a good job in using the central bank’s money to tee on Banking Supervision on the way. “It’s more about this space they have to understand officially launched the sand dollar the past, and they have to under- in October. And in China, which has transact,” he added. conference, Federal Reserve getting it right than being first,” stand the future and they have to be been working on a digital currency In the U.S., the Federal Reserve Chairman Jerome Powell cited a Mr. Kiff said. able to move regulation in the right since 2014, its central bank in Bank of Boston announced a report from the Bank for Interna- — BRIAN CROCE direction, and Gensler is clearly very qualified on both of those di- mensions,” said Blockchain Coin- currency assets with Mr. Gensler at bitcoin and ethereum — to be secu- for cryptocurrency firms interested change-traded fund, though sever- vestors’ Mr. Le Merle. the helm. rities, but there is less certainty re- in offering tokens so they “could fa- al applications for approval of such SEC Commissioner Hester M. There are currently questions garding smaller cryptocurrencies. cilitate participation in and the de- funds are currently pending. Peirce, during a January webinar about how digital assets should be In a February 2020 speech, Ms. velopment of a functional or decen- “Although well-intentioned, our hosted by the U.S. Chamber of stored and whether a given crypto- Peirce, who is often called “Crypto tralized network, exempted from wariness with regard to crypto de- Commerce, said she is optimistic currency should be treated as a se- Mom” for her longtime advocacy of the registration provisions of the prives investors of access to prod- the agency will provide clarity for curity. The SEC does not consider these assets, outlined a proposal to federal securities laws,” as long as ucts and services that they want,” stakeholders interested in crypto- the two biggest cryptocurrencies — establish a three-year safe harbor certain conditions were met. Ms. Peirce said during a speech at a On April 13, Ms. Peirce unveiled British Blockchain Association con- an updated version of her proposal ference in March, according to a about it, what they heard probably “We have real concerns about venture capital firm Blockchain that would require semiannual up- transcript posted on the SEC’s web- wasn’t particularly positive.” our ability to still meet 7.25% every Capital, which invests in the dates and an exit report require- site. “Moreover, caution-motivated So, she brought several board year with just the returns from the blockchain technology industry, ment at the end of the three-year delay makes it more difficult for us members and Jeff Weiler, Fairfax public markets alone,” Ms. Molnar Ms. Molnar said in an email. grace period. The exit report would to change course should we decide Country Retirement Systems’ said. “We have increasingly been Mr. Yusko said he expects more include either an analysis by out- to do that. If we have said no to one executive director, to Chapel Hill, taking money out of public markets pension funds and other institu- side counsel explaining why the product sponsor, how can we say where the manager was based, to and into private markets.” tions to get involved in this space. network is decentralized or func- yes to another seeking to offer a have their questions answered After some initial blowback from “I really believe that five years tional, or an announcement that the similar product? Meanwhile, the tokens will be registered under the market engineers around our deni- directly. participant groups, Mr. Weiler from now we’ll look back and it will Securities Exchange Act of 1934. als by creating substitutes that do be deemed fiduciarily inappropriate Mr. Yusko and his team fielded posted a Q&A on the systems’ “Now, as a new chairman is not require SEC approval.” questions and explained the basics website explaining the allocations to have zero exposure to digital coming into the SEC with a new Firms like VanEck Associates of blockchain technology and its and how they were vetted. assets,” he said. agenda, is the perfect time for the Corp., New York Digital Investment potential uses during a lengthy Since then, the Fairfax funds “This is an evolution of securi- commission to consider afresh Group LLC, Valkyrie Digital Assets meeting in 2018. have gotten more comfortable with ties: we had analog securities, how our rules can be modified to and WisdomTree Investments Inc. Viewing the commitment as an blockchain and crypto funds. At its physical pieces of paper; then we accommodate this new technology have bitcoin ETF proposals before innovation allocation with strong April 14 board meeting, the police went to electronic securities; and in a responsible manner,” Ms. the SEC. growth potential helped the more fund made two $16 million now we’re going to have true digital Peirce said in a statement posted Both VanEck and WisdomTree skeptical board members come commitments. The first was to ownership where every stock, every on the SEC’s website. intend to list shares of their ETFs on the Cboe’s BZX Exchange. Cboe around to the idea, Ms. Molnar Morgan Creek’s third iteration of bond, every commodity, every piece Bitcoin ETFs made filings to the SEC in support said. the fund — which has been of real estate, every everything is More recently, Ms. Peirce said the of both proposals. Also, the Fairfax funds have re-branded as Morgan Creek Digital going to be digitized and will trade SEC has moved too slowly in ap- “We believe (ETFs are) a better assumed rates of return of 7.25%, Fund III — and the second was to in this 24/7 global marketplace.” proving investment products that wrapper than other options where which is always top of mind. Blockchain Capital V, managed by — BRIAN CROCE incorporate bitcoin. To date, the investors are obtaining exposure to SEC has not approved a bitcoin ex- SEE CRYPTO ON PAGE 16 16 | April 19, 2021 CRYPTOCURRENCY AND DIGITAL ASSETS Pensions & Investments

NFTs loom as the next digital asset grab Cryptocurrencies Modern graphics and rare trading garnering attention cards are starting to look a lot like a new asset class through digital non-fungible tokens, but institutional for many reasons investors — some of which have long Asia Quan Yajun/Sipa been attracted to ne art markets Investors are increasingly turning their attention to crypto- — are not sold on the concept yet. currencies, evident from various surveys and stories reported Non-fungible tokens, or NFTs, are by Pensions & Investments since the start of the year. To read non-interchangeable, digital signa- more, go to pionline.com/crypto21. ture-based collectible goods, which are stored in a digital format. NFTs Orange County eyeing cryptocurrency: Orange County exploded in the rst quarter of the Employees Retirement System, Santa Ana, Calif., is research- year on blockchain-run platforms ing blockchain and cryptocurrency, OCERS’ CIO Molly A. such as OpenSea. Murphy said at the $19.8 billion pension fund’s March 24 Modern artists or holders of investment committee meeting. “It’s not an investible idea at this point,” Ms. Murphy said. extremely rare sports cards put But the topic has stayed in everybody’s thoughts, she said, ownership status to their digital noting that Federal Reserve Chairman Jerome Powell had goods for buyers to trade. called it a speculative currency in recent congressional Sources said that digital tokens, testimony, she said. just like bitcoin did, could soon come NEW MARKET: Visitors enjoy an encryption art exhibition in Beijing. Artists such as Ms. Murphy added it’s good to know why people choose on the radar of institutional investors. Beeple, whose work is shown here, sell NFTs of their digital works for millions of dollars. cryptocurrency as an alternative to traditional currency and “It’s a bubble at the moment,” said what impact it will have on traditional currency. Anatoly Crachilov, founding partner portfolio return and Sharpe ratios, he long-term investors to be interested and CEO of Nickel Digital Asset said. “We need (a) far more liquid in investing. European investors expect to increase bitcoin exposure: Management in London, who market with $10 billion of trade Still, ne art investors — once Some 85% of European investors and managers with an existing bitcoin exposure plan to increase their investments compared NFTs’ rise to bitcoin volume a day,” he said. regulatory clarity and guidelines are over the next two years, according to a survey of 50 institutional bubbles seen in the last decade. The But other investors see challeng- given — would want to approach investors and 50 wealth managers with a combined $110 billion es, including yield-related obstacles NFTs, said Lawrence Wintermeyer, London-based digital assets rm has in assets, conducted in January by cryptoassets hedge fund rm around $200 million in assets under and market structure risks. executive co-chairman of Global Nickel Digital Asset Management. management. Thijs Knaap, Amsterdam-based Digital Finance in London, a member The survey didn’t note the breakdown of assets among “There is a stunning number of senior strategist at APG Asset association that advocates best institutional investors and wealth managers. All of the people who will invest and will see Management, the in-house manager practices for digital assets. investors and managers already had some allocation to the price collapse aggressively,” he of the €492 billion ($578.4 billion) Mr. Wintermeyer added that bitcoin, a Nickel spokesman said. said, noting that in the next two years Stichting Pensioenfonds ABP, Heerlen, investors also have to nd cryptocur- In terms of what makes bitcoin, the world’s largest crypto- the NFT space will be “uncomfortably Netherlands, said that NFTs are rency-ready custodians to store and currency, attractive, survey respondents said they anticipate growth in bitcoin’s valuation over the next two years. They also volatile” and could lead to 95% of closely comparable to art and transact for them. said bitcoin can provide a tail hedge against excess monetary today’s tokens to fall in value. collectibles markets. “Pension funds, if you exclude the supply and the risk of decline in the value of govern- But even though prices of progressive ones, are the most But the rest will “survive” and ment-backed currencies caused by the COVID-19 crisis. some will “make a killing,” he said. paintings and memorabilia some- conservative but … it is about Mr. Crachilov compared NFTs to times can go up, he added, there is institutions understanding the risk Most investors believe cryptocurrencies aren’t going an online, much more efficient no yield advantage because the only and assurance from the custody and away: Fifty-eight percent of investors surveyed by J.P. auction house, such as Christie’s source of return is capital apprecia- settlement system that they can Morgan Chase & Co. in January said they believe cryptocur- International SA. tion obtained through selling to a transact. Once they understand how rencies are “here to stay,” while another 21% identi ed His rm is also interested in higher bidder. APG doesn’t have to measure the risk, they would look cryptocurrencies as a “temporary fad,” and 14% said they are entering the market once the liquidity plans to invest in NFTs at present, at it as part of their own diversi ca- something to avoid. The remaining 7% of survey respondents said they believe crypotocurrencies will become “one of the improves as cryptocurrency assets Mr. Knaap said, adding that NFTs tion (efforts).” most important assets” for investors. are good diversi ers that can improve lack longevity that spans decades for — PAULINA PIELICHATA While the majority of survey respondents believe cryptocurrencies having staying power, only a small portion of

Tom Williams/CQ survey respondents (11%) reported that their rms invest in April 7, became the rst digital cur- or trade cryptocurrencies. Of the 89% of investors that said rency investment vehicle to attain the their rms do not invest in or trade cryptocurrencies, 22% Crypto status of an SEC-reporting company said they are likely to start. At the same time, 77% of inves- in January 2020. tors said they expect tighter regulations around cryptocur- CONTINUED FROM PAGE 15 Mr. Sonnenshein said it’s not a mat- rencies, with 97% believing fraud is somewhat or very bitcoin,” said Laura Morrison, New ter of whether a bitcoin ETF gets ap- prevalent. Between 200 to 300 investors were surveyed at a York-based senior vice president, proved in the U.S., but when. “While we J.P. Morgan conference in January . global head of listings at Cboe. “The believe the market has and continues ETF in general is typically less expen- to mature, it may be too early to know Investors expect digital-asset exposure to increase: sive, the management fees are typical- whether all of the dynamics in the Sixty-one percent of investors expect their digital-asset ly lower than say what you might be market that our regulators would like holdings to increase in the next 12 to 24 months, according to willing to spend on other options that to see mature have got to a place where a Goldman Sachs Group Inc . are available in the U.S. today, such as they’re ready to make that kind of ap- Goldman Sachs surveyed 280 of the rm’s clients in early trading in your Coinbase account or an proval,” he said of the current propos- March, which included pension funds and sovereign wealth OTC product, (where) they charge a JUST STARTING: Hester M. Peirce said there als before the SEC. “Over time we cer- funds, corporations, , insurance , macro funds, asset manag- hefty management fee.” needs to be regulatory clarity as more tainly believe that will be the case.” ers, hedge funds and banks, among others. The underlying liquidity of bitcoin institutions get active in cryptocurrency. On the whole, regulators should Among the survey’s total respondents, 40% reported has grown in recent years, which commit to providing regulatory clarity having exposure to cryptocurrencies. makes a bitcoin ETF more workable, so that traditional nancial market The survey also found that 34% of investors believe regula- Ms. Morrison said. “There are a num- Canadian approval participants can engage with crypto- tion/internal investment/mandate permissions are the greatest ber of data points that we plan to pres- Canadian regulators earlier this currency assets with con dence that hurdles to start allocating to digital assets, while 24% identi ed ent to the SEC in conjunction with our year approved the rst bitcoin ETF in they are complying with their regula- a lack of well-regulated, investible assets as the biggest hurdle. issuer to reinforce why this asset class North America, the Purpose Bitcoin tory obligations, Ms. Peirce said in her Additionally, 35% of respondents said they believe spot pricing is mature enough and is best offered ETF, which had C$1.2 billion ($950 March speech. and volumes data would be the most helpful to better evaluate within a regulated, on-exchange list- million) AUM as of April 7. Grayscale “Legacy nancial institutions and potential investments in cryptocurrencies. ing,” she added. in an April 5 blog post said it is com- traditional investors that have sat on FD Funds Management, a subsidi- mitted to converting its Grayscale Bit- the sidelines until now are likely to Cryptocurrency ETFs could be coming to the U.S.: Even ary of Fidelity, made an initial ling at coin Trust into an ETF. “Converting push us to allow them to play a more with cryptocurrency exchange-traded products already the SEC for a bitcoin ETF last month. Grayscale Bitcoin Trust to an ETF active role,” she said. “Meanwhile, available in Europe and Canada, a U.S.-listed product could Though separate from Fidelity Digital would enable a much larger pool of in- some crypto-native rms are now send a shock wave through the investing world. Assets, Mr. Jessop said a bitcoin ETF, vestors to access the bene ts of bit- large companies that are woven into “It will be the single most important force in driving down “Given that it’s an investment vehicle coin exposure in the form of a familiar the fabric of the broader economy and the cost of investing in cryptocurrency,” said Matt Hougan, that’s widely understood, it’s an invest- and regulated security,” Grayscale’s so also will command more regulatory chief investment of cer at Bitwise Asset Management. The ment vehicle that investors of all types Mr. Sonnenshein said. Grayscale Bit- attention. A nal regulatory lesson advent of a U.S. ETF and the associated investor protections are comfortable with, it can only be coin Trust, a publicly traded bitcoin then is that the regulatory work is only will ultimately “bring more liquidity, more utility and more positive for the industry.” fund with $37.2 billion in AUM as of just beginning.”  adoption to crypto,” Mr. Hougan said. Pensions & Investments April 19, 2021 | 17 BY THE NUMBERS

PENSION RISK TRANSFER ACTIVITY MONTHLY CORPORATE FUNDING RATIO Annual volume by category (billions) Most recent transactions (millions) 100% Type Sponsor Date Assets March 2021: 95.3% $80 Total trans- Other ■ General Motors of Canada April 7 $1,400 95% Total transactions: actions: 79 Association of British April 7 $36 $70 ■ 54 Insurers Pension & Lump-sum Assurance Scheme 90% acceptance $60 ■ J.C. Penney April 1 $2,800 ■ Vauxhall Associated March 25 $73 85% Lump-sum Companies Pension Fund $50 offer Total trans- ■ Centrus Energy March 19 $30 actions: 80% $40 49 ■ AXA March 18 $4,100 Longevity ■ Civil Aviation Authority March 10 $152 Total trans- swap 75% actions: Pension Scheme $30 49 Total trans- ■ Reach March 1 $168 actions: Buyout ■ Greif March 1 $100 70% $20 31 ■ Nexstar Media Group March 1 $96 Buy-in ■ Alexander & Baldwin Feb. 26 N/A 65% $10 ■ Alexander & Baldwin Feb. 26 N/A For details on all recent pension risk transfers, go to pionline. 60% $0 2017 2018 2019 2020 2021 com/pension-risk-transfer. 2010 2011 20132012 2014 2015 2016 2017 20192018 2020

TRAILING 12-MONTH RETURNS BY ASSET CLASS 2019 2020 2021 April May June July August September October November December January February March April May June July August September October November December January February March

Real Real BB U.S. Real Real BB U.S. BB U.S. BB U.S. BB U.S. Russell Russell Russell Russell 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 2000 2000 2000 2000 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% 20.0% 30.2% 51.0% 94.8%

Real BB U.S. Real BB U.S. Real BB U.S. Real Global ex- BB U.S. BB U.S. BB U.S. Estate Agg Estate Agg Estate Agg S&P 500 Estate MSCI EM MSCI EM S&P 500 Cash U.S. fixed Agg S&P 500 Agg MSCI EM MSCI EM Agg MSCI EM S&P 500 MSCI EM MSCI EM MSCI EM 14.3% 26.6% 16.0% 8.2% 2.3% income 7.5% 16.5% 10.4% 15.0% 18.4% 27.9% 36.0% 58.4% 9.2% 6.4% 9.0% 8.1% 8.4% 10.3% 15.6% 2.6% 9.4% 10.1% 6.2%

High High BB U.S. High High Russell Real High Global ex- MSCI ACWI BB U.S. Global ex- Russell Yield Yield Agg S&P 500 Yield Yield MSCI EM MSCI EM 2000 Estate Yield U.S. fixed Cash MSCI EM MSCI EM MSCI EM ex-U.S. Agg U.S. fixed 2000 MSCI EM S&P 500 S&P 500 S&P 500 8.0% 12.6% 13.7% income 2.1% 5.4% 2.1% 7.2% income 16.3% 17.2% 31.3% 56.4% 6.7% 5.5% 7.9% 6.6% 6.4% 25.5% 11.1% 6.1% 0.7% 8.3% 7.0% 5.0% 13.6%

BB U.S. High High Global ex- Global ex- BB U.S. MSCI ACWI Real MSCI ACWI Global ex- High Global ex- Global ex- BB U.S. Global ex- MSCI ACWI MSCI ACWI MSCI ACWI MSCI ACWI MSCI ACWI Agg S&P 500 Yield Yield U.S. fixed U.S. fixed Agg ex-U.S. Estate ex-U.S. U.S. fixed Yield S&P 500 U.S. fixed Cash U.S. fixed Agg U.S. fixed MSCI EM ex-U.S. ex-U.S. ex-U.S. ex-U.S. ex-U.S. 3.8% income income % income 1.8% income 1.7% income income 4.9% 5.3% 7.5% 6.9% 5.7% 5.3% 11.5% 11.2% 23.6% 9.9 4.8% -6.9% 2.7% 5.9% 6.5% 5.5% 9.5% 10.7% 14.0% 26.2% 49.4%

Global ex- Global ex- Global ex- Global ex- Global ex- MSCI ACWI BB U.S. MSCI ACWI BB U.S. High Russell High High U.S High Real MSCI EM Cash MSCI EM U.S. fixed S&P 500 S&P 500 MSCI EM S&P 500 MSCI EM Cash U.S. fixed U.S. fixed U.S. fixed . fixed Yield Estate income ex-U.S. Agg ex-U.S. Agg income Yield 2000 Yield Yield income income income 5.1% 2.3% 5.7% 2.9% 4.3% 3.9% -7.0% -4.3% 1.9% 9.4% 34.4% 3.7% 11.3% 10.8% 21.5% 9.6% 0.7% 4.1% 6.0% 3.3% 3.5% 8.9% 10.1% 8.2%

Russell Global ex- Global ex- High High High High Real High High High High MSCI ACWI BB U.S. BB U.S. High Global ex- High 2000 U.S. fixed U.S. fixed MSCI EM Cash Cash Yield Yield Yield Yield Estate MSCI EM Yield Yield Yield Cash Yield ex-U.S. Cash Agg Agg Yield U.S. fixed Yield income income 2.9% 2.4% 2.4% -11.3% 1.5% 0.9% income 4.6% 0.4% 4.1% 8.4% 9.7% 14.3% 9.4% 3.1% -4.5% 1.3% 0.0% 4.7% 3.0% 7.3% 7.5% 7.4% 6.3% 23.7%

Global ex- Russell BB U.S. Russell MSCI ACWI MSCI ACWI MSCI ACWI MSCI ACWI MSCI ACWI Global ex- Russell High High BB U.S. Real Global ex- Cash MSCI EM Cash Cash MSCI EM MSCI EM U.S. fixed 2000 Agg 2000 Cash ex-U.S. ex-U.S. ex-U.S. ex-U.S. ex-U.S. U.S. fixed Cash 2000 Yield Yield Agg Estate U.S. fixed 2.2% -1.3% 2.3% 2.4% -0.3% 1.4% income 2.2% - income 1.1% income 7.8% 7.5% 8.7% 9.2% -15.6% -11.2% 3.4% -4.8% 0.7% 4.6% -0.1% 7.2% 7.1% 4.7% 1.6% 7.2%

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 BB U.S. BB U.S. U.S. fixed ex-U.S. ex-U.S. ex-U.S. ex-U.S. ex-U.S. 2000 U.S. fixed U.S. fixed U.S. fixed ex-U.S. Estate 2000 2000 2000 2000 Cash 2000 ex-U.S. Cash Cash Cash Agg Agg income income income income 1.3% 0.8% 0.7% 0.6% -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% 1.4% 0.7%

MSCI ACWI Russell Russell Russell Russell Russell Russell Russell Real Real Real Real Real Real Real Real Real Real ex-U.S. 2000 2000 2000 2000 2000 Cash Cash Cash Cash 2000 2000 Estate Estate Estate Estate Estate Estate Estate Estate Estate Estate Cash Cash -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% -9.2% -9.8% 0.4% 0.1%

RECORD KEEPERS GRAB A BIGGER SLICE OF THE PIE Growth of record-keeping assets (in trillions unless otherwise noted)* Recent record-keeper transactions

$8.5 Acquirer/JV partner 2/ Target/JV partner 1/parent in spinoff spun-off entity Date $8.0 2020 Change Blackstone Group (Alight Solutions) Foley Trasimene Acquisition January 2021 assets from $7.5 (billions) 2010 Corp. $7.0 Strata Fund Solutions Alter Domus January 2021  Fidelity $2,576.1 173.9% $6.5 Truist Financial Corp. (institutional Ascensus and Empower January 2021 401(k) record-keeping businesses) Retirement $6.0 Alliance Benefit Group-Rocky Mountain PCS Retirement January 2021 $5.5  Empower $883.5 502.6% Retirement Planning Services Alerus Financial Corp. December 2020 $5.0 Fifth Third Bank (record-keeping Empower Retirement September 2020 $4.5  TIAA $656.5 105.1% business) $4.0 MassMutual (retirement business) Empower Retirement September 2020  Vanguard Group $592.7 116.5% $3.5 Alliance Benefit Group EPIC Retirement Plan Services January 2020  Alight** $480.2 66.6% $3.0 Goldleaf Partners Ascensus October 2019  Voya $423.5 45.1% $2.5  Principal $386.8 299.5% Alpine Investors (Beneco) Ascensus August 2019 $2.0  Bank of America $283.5 140.2% Aspire Financial Services PCS Retirement August 2019  Prudential $229.8 133.9% $1.5  T. Rowe Price $219.2 93.1% Wells Fargo (institutional retirement and Principal Financial April 2019 trust business) $1.0  Other $1,474.0 PNC Bank (Vested Interest) Newport Group March 2019 $0.5 Ascensus Atlas Merchant Capital*** February 2019 $0.0 2010 2012 2014 2016 2018 2020 Kaufmann and Goble Associates Northwest Plan Services August 2018

*Data are as of Sept. 30th except 2010, which is as of Dec. 31. ** Average of 2017 and 2015 data. ***Acquired only 25%. Sources: P&I Research Center; NISA Investment Advisors; Bloomberg LP 18 | April 19, 2021 Pensions & Investments HIRINGS

■ BayernInvest, a Munich-based ■ District of Columbia so an allocation figure wasn’t available. money manager, selected BlackRock to Retirement Board approved two manage a €400 million ($470 million) new commitments totaling up to $250 PGGM TAPS FIRM FOR REAL ESTATE IN ASIA ■ Phoenix Employees’ allocation to private debt with an ESG million. The $10.1 billion pension PGGM hired Singapore-based Alpha Investment Partners to Deferred Compensation Board focus, a spokesman confirmed. fund’s board at its March 18 meeting manage a S$360 million ($267 million) separate account mandate rehired Morley Capital Management as BlackRock will subadvise the firm’s approved a commitment of up to $200 focused on commercial real estate investments in Japan, China and stable value fund manager for the first private debt strategy, BayernInvest million to IFM Global Infrastructure Singapore, according to an announcement on the Zeist, Nether- city’s $1.5 billion 457 plan and $542 Unternehmensfinanzierung Europa Fund, an open-end fund, and up to $50 million 401(a) plan. lands-based pension manager’s website. ESG, a closed-end loan fund, which is million to Avance Investment Partners, The board issued an RFP in January aimed at granting loans to small- and a buyout fund, recently released The allocation includes a “top-up option of up to S$320 million, for an underlying manager for its midsize enterprises. meeting minutes show. which would bring the aggregate commitment to S$680 million,” Phoenix Stable Income Fund, and according to an April 1 joint news release. recommended awarding the services ■ California State Teachers’ ■ Dollar Tree Inc., Chesapeake, “PGGM has been a long-standing investor in various funds to Morley at its March 18 meeting, a Retirement System, West Va., hired Empower Retirement as managed by Alpha,” the private markets arm of Singapore-based letter of award recommendation Sacramento, invested $1 billion in two record keeper of its 401(k) plan. Keppel Capital Holdings, an Alpha Investment spokeswoman said in posted on the city’s website shows. new low-carbon transition readiness The retailer hired Empower to an email. exchange-traded funds managed by replace Wells Fargo as record keeper ■ Phoenix Group hired Barings BlackRock that began trading April 8, effective March 1, confirmed company PGGM runs the assets of the Pensioenfonds Zorg en Welzijn, Zeist, to manage a £250 million ($346 Thomas Lawrence, spokesman for the spokeswoman Kayleigh M. Painter. Netherlands, which has €238 billion ($279.8 billion) in assets. million) real estate debt allocation, a $286.9 billion pension plan, said in an According to a FAQ also posted on PGGM also committed €200 million ($235 million) to industrial spokesman confirmed. The allocation email. CalSTRS invested $650 million the plan’s website, there have been no real estate fund EG Australian Core Enhanced Fund, managed by EG will consist of investment-grade in the BlackRock U.S. Carbon Transition changes in the investment options Funds Management, a spokesman confirmed. buy-and-hold U.K. commercial Readiness ETF and $350 million in the lineup except for the addition of the The fund will initially target industrial and logistics assets in mortgage loan assets, including BlackRock World ex-U.S. Carbon Fidelity 500 Index Fund and the industrial, residential and office real Sydney and Brisbane, Australia, with countercyclical investments Transition Readiness ETF, Mr. Lawrence removal of the WF/BlackRock S&P estate based in London and other U.K. said. The ETFs invest in large- and 500 Index CIT Fund. such as office assets in Perth. locations. Phoenix will look to match midcap companies with a tilt toward As of Dec. 31, 2019, the Dollar Tree Further investments will be made into urban industrial assets, the cash flows and duration of assets companies BlackRock executives Retirement Savings Plan had $792 office buildings and retail assets. PGGM has €15.4 billion in private against the profile of its annuity expect to benefit from million in assets, real estate assets under management. liabilities, the spokesman said. the transition to a HAVE SOME NEWS? according to the low-carbon economy, a company’s most recent ■ Riverside County (Calif.) news release said. Please submit news of Form 5500 filing. had not been put up for bid since 2012. new to the plans. The plans added two Deferred Compensation Com- changes to David Schepp, KCERA has a target allocation of 10% to new active funds: the American Century mittee is adding the BlackRock news editor, at dschepp@ ■ Chicago ■ Fresno County hedge funds and 5% to its alpha pool. Emerging Markets Fund and the Wells Strategic Global Bond fund to the pionline.com Firemen’s Annuity (Calif.) Employ- Separately, KCERA’s board on April Fargo Special Small Cap Value Fund. investment options lineup if its five & Benefit Fund ees’ Retirement 14 approved commitments of up to The plan also added midcap growth defined contribution plans. hired RhumbLine Advisers to manage a Association, committed $115 million $22.5 million to Linden Capital Partners equity and midcap value equity index The fund will replace the Temple- passive domestic large-cap value equity to Harrison Street Core Property Fund, V and up to $7.5 million to Linden Co-In- funds managed by Vanguard Group. ton Global Bond, a global fixed-in- portfolio. Funding comes the termina- an open-end fund that focuses on vestment V, both buyout funds . Funds removed from the plan are a come fund managed by Franklin tion of active domestic large-cap value alternative property types in the U.S., target-date fund lineup managed by Templeton, effective April 14, a notice equity manager Wells Fargo Asset including student and senior housing ■ Louisiana Teachers’ TIAA-CREF, three individual investment on the county’s human resources Management. Board meeting minutes and medical office buildings, confirmed Retirement System, Baton Rouge, options also managed by TIAA-CREF website shows. Participants in the did not disclose the portfolio size for Doug Kidd, investment officer for the committed up to $50 million each to and 38 individual investment options Templeton fund will be automatically the $921 million pension fund or the $5.8 billion pension fund. commercial property and multifamily managed by Vanguard Group. mapped to the BlackRock fund, reason for the termination. In addition, the board decided to real estate fund FCP Realty Fund V NYU’s DC plans consist of three according to the notice. combine three fixed-income sleeves and Roark Capital Partners VI, a 403(b) plans, a 457 plan and a 401(a) The county’s website provides no ■ Connecticut Retirement managed by Western Asset Manage- buyout fund. As of Feb. 28, the $24 plan; three of the plans have $4.8 information on the plans’ asset sizes. Plans & Trust Funds, Hartford, ment Co. — a $208 million invest- billion pension fund’s actual allocation billion in total assets, while the asset made four new commitments totaling ment-grade credit strategy, a $135 to alternative assets and real estate size of the other two could not be found. ■ St. Louis Public School nearly $200 million. million agency mortgage-backed was 35.9%. Retirement System committed $5 Shawn T. Wooden, state treasurer securities strategy and $40 million ■ Two Orlando, Fla., pension funds million to ElmTree U.S. Net Lease Fund and principal fiduciary of the $40 Treasuries strategy — into one $383 ■ Maine Public Employees hired Axiom International Investors to IV. The $911 million pension fund’s billion state pension system, an- million core bond strategy for Western Retirement System, Augusta, manage active emerging markets board approved the commitment to the nounced at the state’s investment Asset to run. committed up to $167 million, said equity portfolios. value-added real estate fund at its Feb. advisory council April 14 his decision James Bennett, CIO of the $16.7 The Orlando Firefighters’ 22 meeting, said Susan Kane, to commit $100 million to the ■ Kentucky Public Pensions billion pension system. Pension Fund and Orlando Police executive director. BlackRock Global Renewable Power Authority, Frankfort, made new The board voted April 8 to commit Pension Fund conducted a shortlist Fund III, an infrastructure fund commitments totaling $248 million. up to $75 million to Pathlight Capital search for an emerging markets equity ■ San Francisco City & targeting climate-oriented assets with The investment committee of the Fund II; up to €40 million ($47 million) manager to complement the emerging County Employees’ Retirement a focus on energy storage, renewable authority, known as the Kentucky to Charterhouse Capital Partners XI; equities exposure in an active System disclosed a new commitment power generation and distribution; and Retirement Systems before April 1, and up to $45 million to Hellman & international equity portfolio managed and new investment totaling $167.5 $50 million to Rubicon First Ascent, a approved the commitments at its Friedman Capital Partners X. by Artisan Partners. million in a report from CIO William J. real estate fund managed by Rubicon March 25 remote meeting, confirmed The size of the portfolios was not Coaker Jr. for its April 14 board meeting. Point Partners that targets office Steven Herbert, executive director, ■ New Jersey Division of disclosed. The funds’ websites do not Within its absolute return asset opportunities in the Pacific Northwest. office of investments. Investment, which handles disclose their asset sizes. An class, the $31.7 billion pension fund Mr. Wooden also announced his The committee approved commit- investments for the $85.8 billion New investment consultant RFP in 2019 invested $100 million in global macro decision to commit $38 million to Icon ments of $100 million to Strategic Value Jersey Pension Fund, rehired Cliffwater said the two pension funds, along with fund Brevan Howard Alpha Strategies Partners II and $11.5 million to Icon Special Situations Fund V; $75 million as a hedge fund investment consul- the Orlando General Employees’ Fund. Within private equity, SFERS Partners III, private equity funds run by directly and $37.5 million in co-invest- tant, confirmed Jennifer Sciortino, a Pension Fund, had a combined $1.3 committed $67.5 million to Atlas Clearlake Capital Group. ments to MiddleGround Partners II, a spokeswoman for the state Depart- billion in assets at the time. Capital Resources IV, a buyout fund In addition, the state treasurer middle-market buyout fund managed by ment of Treasury. The division also managed by Atlas Holdings. decided to hire K2 Advisors as the MiddleGround Capital; and $35 million hired Aksia TorreyCove Partners as the ■ Pension Insurance Corp. Also, the retirement system rehired fund’s hedge fund risk mitigating to small-cap buyout fund New State division’s first private credit invest- hired Macquarie Asset Management to Callan as investment consultant of its strategy investment consultant. Capital Partners Fund III. ment consultant. run a new allocation to the U.S. private $4.1 billion 457 plan. Finally, Mr. Wooden told the council Effective April 1, the authority has As of Feb. 28, the New Jersey placement market. PIC, an insurer of that he is considering committing to two oversight over two new boards of Pension Fund’s hedge fund allocation defined benefit pension fund liabilities, ■ Spokane (Wash.) Employ- value-added real estate funds: $100 trustees: the board of trustees for the was $2.5 billion and the private credit invests £9.4 billion ($13 billion) in 150 ees’ Retirement System invested million to Mesirow Financial Real Estate $8.1 billion County Employees allocation was $6 billion. privately sourced debt investments in $7 million in PIMCO Dynamic Bond Value Fund IV, which targets multifamily Retirement System, and a board of the U.K. and Europe, covering Fund. The $348 million pension fund’s investment opportunities in the U.S.; trustees known as Kentucky Retirement ■ New York University renewable energy, social housing, board approved the investment in the and $50 million to Penzance DC Real Systems, which continues to oversee consolidated the investment options education and other sectors. unconstrained fixed-income fund at its Estate Fund II, a fund focused on assets the investments and administer the lineup of its five defined contribution The appointment marks PIC’s meeting on March 3, confirmed Phillip in the Greater-Washington area. $3.4 billion Kentucky Employees plans, which includes four new funds. expansion into the $60 billion U.S. Tencick, retirement director. Retirement System and the $327 The changes were effective April 1, private placement market, a news ■ Delaware Public Employ- million State Police Retirement System. according to materials posted on release on PIC’s website said. ■ Springfield (Mo.) Police ees’ Retirement System, Dover, NYU’s website. The changes included Macquarie joins PIC’s panel of Officers’ & Firefighters’ committed up to $15 million to Vision ■ Kern County Employees’ the addition of a self-directed fixed-income managers alongside Janus Retirement System committed Ridge Sustainable Asset Fund III. Retirement Association, brokerage option and the consolidation Henderson Investors, J.P. Morgan Asset $17.5 million to Crown Secondaries The $12.6 billion pension fund’s Bakersfield, Calif., rehired Albourne of investment options involving the Management, Schroders, Wellington Special Opportunities II. investment committee approved the Partners as hedge fund consultant, removal of funds that have duplicate or and TwentyFour Asset Management. The $548 million pension fund’s commitment to the sustainable real said CIO Daryn Miller in an email. similar investment objectives. A spokesman said Macquarie will be board approved the commitment to the assets fund managed by Vision Ridge The $5.1 billion pension fund issued Of the 27 individual investment tasked with building the insurer’s secondary private equity fund Partners at its Jan. 26 meeting. an RFP in January because the services options now offered, a total of four are allocation in U.S. private placements, managed by LGT Capital Partners at its Pensions & Investments April 19, 2021 | 19 HIRINGS

Feb. 11 meeting, said Janell Manley, ■ Texas Teacher Retirement midcap U.S. companies that are likely ■ University of Vermont and meeting April 14. administrative director. System, Austin, committed $100 to benefit from a transition to a State Agricultural College, In credit strategies, the $93.6 It is the pension fund’s first million to F65 Opportunity Longhorn low-carbon economy. Burlington, hired Generation Invest- billion pension fund committed $400 commitment to private equity. Fund, according to a transaction The ETF’s benchmark is the Russell ment Management to run $25 million million to Whitehorse Liquidity report from the $176.9 billion defined 1000 index. in active global equities for its $617 Partners IV for a portfolio finance ■ Tampa (Fla.) General benefit plan. The €50.2 billion Varma funded the million endowment pool. strategy. Employees’ Retirement Fund The fund is run by existing manager investment with cash. Varma’s listed Funding comes from the reduction In real assets, Virginia committed approved its first private equity Westbrook Partners and will seek equity sustainable investments are of portfolios managed by international $125 million to Penwood Select commitment to a fund managed by investments in U.S. opportunistic real 20% of its total portfolio. equity manager Capital International Industrial Partners VI for a closed-end General Atlantic. estate properties. Over $1.2 billion was invested in and passive domestic equity manager enhanced core fund investing in U.S. The $810 million pension fund’s the ETF on April 8 when it was listed on RhumbLine Advisers in “proportion to industrial properties, and $125 million board approved the commitment at its ■ Varma Mutual Insurance the New York Stock Exchange, Generation’s then-current U.S. and to Harrison Street Real Estate Partners Jan. 19 meeting, recently released Pension Co., Helsinki, invested according to a news release by non-U.S. equity exposure,” according Fund VIII, a closed-end opportunistic meeting minutes show. The fund name €200 million ($235 million) in a BlackRock. to board meeting minutes. Further fund investing in U.S. and Canada and commitment amount were not sustainable ETF launched by Black- Varma’s goal is to reduce the information was not provided. alternative property types, such as disclosed. The pension fund has Rock, confirmed Timo Sallinen, carbon footprint of its own invest- senior or student housing. created a 10% target to private equity. Varma’s head of listed securities. ments and achieve a carbon-neutral ■ Virginia Retirement Virginia also hired Coatue Manage- BlackRock U.S. Carbon Transition investment portfolio by 2035, Mr. System, Richmond, announced ment for a $400 million long/short ■ Texas County & District Readiness ETF invests in large and Sallinen said. commitments of $1 billion at a equity fund. Retirement System committed $180 million to three funds, a transaction report showed. The $35.7 billion pension plan committed $100 million to Marblegate Partners Onshore Fund II, a distressed debt fund that seeks investments in middle-market credit opportunities primarily in North America. The plan also committed $50 million to Alcentra Structured Credit Opportunities Fund IV, which will seek investments in U.S. and European collateralized loan obligation markets; and $30 million to IDG Breyer Capital Fund, a China-focused venture capital fund co-managed by existing manager IDG Capital and new manager Breyer Capital.

■ Texas Employees Retire- ment System, Austin, disclosed private market commitments totaling $246 million in March, according to a transaction report. The $30.9 billion pension fund made a follow-on commitment of $75 Are you (or someone you know) doing million to open-end real estate fund Invesco Real Estate Asia Fund. It also something innovative to improve retirement made follow-on commitments of $25 million to private equity fund-of-funds income security for plan participants? ERS Private Equity Emerging Manager III, managed by Baring Private Equity Asia, and A$27.4 million ($21 million) to QIC Global Infrastructure Fund. Pensions & Investments and the Deﬁned Contribution The pension fund also committed Institutional Investment Association are once again $125 million total to four co-investments. As a matter of policy, ERS does co-sponsoring an awards program for excellence and not identify the manager or investment innovation by deﬁned contribution plan executives. target of co-investments.

■ Texas Municipal Retirement We want to recognize out-of-the-box thinking by those DC plan executives System, Austin, committed $560 and their employers who are making new and unusual changes to help million to five private equity and real improve participants’ retirement income security. estate funds in January and February, a transaction report from the $34.5 billion defined benefit plan showed. The possibilities are endless; there are no categories. A prominent theme In private equity, it committed an among last year, four of the seven winners centered their campaigns on additional $200 million to HarbourVest people nearing retirement, addressing topics such as drawndown strategies, TMRS Polaris SMA, a separately managed accounts and guaranteed retirement income that won’t run out. managed private equity account. The additional commitment is for investment in a new strategy sleeve of WWhatever the innovation is in design and/or excellence in execution, it private equity secondary investments, uundoubtedly is something others are just now considering. Help your CIO T.J. Carlson confirmed. peers by sharing your innovation and receive recognition for your ingenuity. The pension fund initially committed $400 million to the HarbourVest fund in September for private equity co-investment opportunities. NOMINATION Also, the pension fund committed $120 million to Arcline Capital DEADLINE Full details and nomination form are available at Partners II, a growth-oriented fund, and May 28 $40 million to Techstars Accelerator pionline.com/innovationawards2021 2021, a venture capital fund that will invest in startup companies managed by Techstars Ventures. In real estate, $100 million each was committed to Platform Ventures Real Estate Strategies V, which seeks investment in opportunistic properties and is managed by Platform Invest- Any questions, please contact Ashley Perrucci ments, and Transwestern Strategic at [email protected] Partners Fund III, managed by Transwestern Investment Group. 20 | April 19, 2021 Pensions & Investments

RFPs

Independent External Trust Fund Evaluation Services Los Angeles Fire and Trust Fund for the People of the Federated States of Micronesia Police Pensions Trust Fund for the People of the Republic of the Marshall Islands LAFPP has issued a Request for Pro- The two Trust Funds were incorporated in 2004 as District of Columbia nonproﬁt corporations posals (RFP) from qualiﬁed investment and established in accordance with the Compact of Free Association Amendments Act of 2005 managers to provide private credit (Public Law No. 108-188, 12/17/03). fund Consulting/Advisory services for its new private credit mandate. A copy The Trust Fund Committee of each Trust Fund is seeking an independent external evaluation of of the RFP and related documents the Funds since the Funds are near the end of a 20-year build-up period after which distribu - are located at https://www.lafpp.com/ tions may be allocated. The evaluations would be of contracted expertise, Fund performance, requests-proposals. Completed RFP and effectiveness of the management structure and resources utilized by the Committee. packages must be received no later than 4pm PST, May 7, 2021. A separate proposal is required for each Trust Fund. Proposals are due by May 14th, 2021. Interested parties may request the RFP and supporting documents for each Trust Fund evaluation from Anthony Costanzo, Executive Administrator, at [email protected] or [email protected] NOTICE

The New York State Common Retirement Fund THE TEACHERS’ RETIREMENT SYSTEM OF LOUISIANA Request for Proposals (RFP 21-09) SOLICITS EMERGING MARKET Real Assets Consultant DEBT MANAGER SERVICES

The Comptroller of the State of New York, as Trustee of the New York State Common Retirement Fund (CRF), seeks proposals from qualifi ed fi rms to provide Real Assets The Board of Tr ustees of the Teachers’ Consultant Services for the CRF. Retirement System of Louisiana, with assets of approximately $24 billion, Deadline for receipt of proposals is June 8, 2021 at 4:00 pm ET. The deadline for Sub- solicits proposals for Emerging Market mission of Written Questions is May 10, 2021 4:00 pm ET. Additional information Debt manager. To obtain a copy of the about this RFP may be obtained on the Offi ce of the State Comptroller’s website SFP go to www.trsl.org. The deadline http://www.osc.state.ny.us/procurement/index.htm for receipt of responses is no later than 4:30 p.m., CDT, May 10, 2021.

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with the U.K. counterpart in Lon- frames were not provided. vice president and director of cor- Pension Funds don, deal with notably different ap- The cautionary example of how porate engagement for Calvert Re- Exec pay proaches to executive pay, starting LGIM looks at pay through a pan- search and Management in New with the U.K. mandate to disclose demic lens, especially companies York, with $31.8 billion under CONTINUED FROM PAGE 1 executive pay. that enjoyed government support management. He and others cau- PennPSERS’ Farient Advisors LLC in Pasadena, Since 2016, LGIM has required or suspended dividend payments tion that transparency is still an Calif., an executive compensation U.K. companies in which it invests to shareholders, is International issue for those metrics. “We are and corporate governance consult- to not award director salary in- Consolidated Airlines Group SA, still figuring out how meaningful it return error ing firm that helps companies, large creases in excess of what was of- the parent company of British Air- is,” he said. public pension funds and mutual fered to the general workforce. ways and Qantas Airways. While funds review proxies and prepare They have also asked companies their workforces experienced lay- Meaningful metrics subject of votes on executive pay packages. to align executive pension pay- offs, company directors got full bo- Investors are working to con- This year, she said, “investors are ments with the wider workforce’s nuses — and a no vote from LGIM vince companies that ESG-linked really pressuring corporates to fo- levels and even suggested increas- on pay-related proposals at both executive compensation metrics federal probe cus on ESG” particularly as ing pension contributions for ex- airlines. The 28.4% dissenting vote are meaningful because they are COVID-19 shifts the spotlight to isting employees. That produced a should spur the remuneration material to shareholder value. “It stakeholder issues, including em- happy result in 2020, when many committee to take action, LGIM of- is important to cash flow and valu- By JAMES COMTOIS ployee welfare and racial and in- U.K. companies reduced pension ficials believe. ations. We always try to link it back come inequality. provisions for executive directors, “The big thing that has changed to what’s good for the company, A federal investigation was “Companies are now saying this and six FTSE 100 companies even this year is, if you cut dividends, and what will make it more attrac- launched into the Harrisburg-based is serious, and we need to seriously increased levels for their work- furloughed workers, had layoffs, tive for clients, customers, and Pennsylvania Public School Em- ask ourselves whether we should forces. we are going to be paying closer at- workers,” said Michelle Dunstan, ployees’ Retirement System after change our compensation,” said Ms. It is different in North America, tention. You should not give your- global head of responsible invest- the board discovered an error in its Ferracone, who sees more corpo- where LGIM is working to align self a bonus or a pay raise,” Mr. Ho- ing at AllianceBernstein LP in reported investment performance. rate boards and even federal and pay with performance. Last year, eppner said. New York with $697 billion under The $64.2 billion PennPSERS state regulators paying closer at- Mr. Hoeppner said, it voted against In the U.K., that message was de- management. “We do see a lot board issued a statement April 8 tention to executive compensation. 54% of say-on-pay management livered to companies “very early on more collaboration in the industry that it “has been served with a Measures for connecting issues proposals, many of which didn’t engaging for action on this issue,” grand jury subpoena for documents like workforce diversity, gender measure performance over three she said. and is cooperating fully with the re- balance pay, employee engagement years, and some that did not link Sometimes it’s a labeling prob- quest by the U.S. Attorney’s Office and retention, or health and safety long-term incentives to perfor- lem. In its 2020 engagements, Alli- in the Eastern District of Pennsyl- to executive compensation are just mance at all. anceBernstein talked to 293 com- vania.” The fund has retained the starting to develop and are “all over “We have quite a bit of influence panies that did not disclose having law firm of Pillsbury Winthrop the map,” Ms. Ferracone said. So far, in the U.K. and across Europe. We ESG metrics in compensation Shaw Pittman to represent the those metrics tend to make up are not having influence in the U.S. plans, and found that 133 do in- board during this investigation. about 20% of executive bonus plans, market,” Mr. Hoeppner said, but he clude them. Still, only 96 have met- PennPSERS “is confident that if but she anticipates that more will does see “more watchdogs out rics that AllianceBernstein believes any issues are identified that re- be included in long-term incentive there,” including large asset manag- appropriately measure ESG goals. quire correction, they will be re- packages eventually. ers like BlackRock Inc. and Van- While those discussions were solved, and appropriate action will “When you add up the investors, guard Group Inc. that are becoming fruitful, there is room for improve- be taken,” the statement added. the corporations, the employees more vocal about linking stake- ment when discussing ESG met- The fund said in March that the and the regulators, this is really a holder issues, executive pay and rics and executive compensation, board had discovered an error in its groundswell,” she said. performance. “The only way to Ms. Dunstan said. “We need a bet- reported investment performance change that is if our peers are also ter understanding of what a good figures. On Dec. 3, PennPSERS said Analyzing data convinced it is as big an issue as we PROPERLY FOCUSED: Michelle Dunstan metric is.” it had accepted results of an actuar- To see how COVID-19 has ad- do,” he said. said it’s just as important to have a good AlianceBernstein will follow up ial valuation report prepared by vanced stakeholder interests, Ms. Herms said she thinks it will grasp of which metrics work best. with those companies in 2021 and Buck Consultants. Per the report, Farient Advisors studied how happen, particularly if shareholder widen the lens to include fixed-in- PennPSERS posted a net return of companies around the world are value is impacted. “As investors get in the pandemic,” said Ms. Herms, come holdings. “Where we do not 1.11% for the fiscal year ended June incorporating those interests into less, they will be looking at pay. who thinks that “a lot of companies see progress, we will take the next 30, as calculated by Aon, the pen- their executive pay plans. Analyz- Companies are being judged on are going to be careful,” given that steps,” which could include nega- sion fund’s investment consultant. ing data on incentives from the how they weathered COVID, how last year about one-third of share- tive votes, she said. Following the report, PennPSERS most recent public disclosures for they have been treating employees holder votes went against proposed Taking a tough line on executive announced it had increased its an- companies in the U.S., Canada, and supply chains,” she said. If pay packages. compensation is not new for nual employer contribution rate. Europe, U.K., Australia and Singa- necessary, LGIM will escalate to To see whether companies and Calvert, which voted against more The board selected law firm pore, they found 67% of compa- director votes “to make it person- shareholders are connecting ESG than half of all pay proposals in Womble Bond Dickinson to conduct nies worldwide using measures on al,” she said. issues and executive incentives, each of the past five years, but “peo- a special investigation into the error, ESG, customer and community in- Last year, LGIM had 50% more governance and compensation re- ple are paying more attention to and law firm Morgan Lewis to serve terests in incentive plans, but remuneration consultations with porting firm Equilar looked at disparity and to CEO pay,” and in- as special counsel to assist the wide disparity by region. Australia companies on possible policy proxy statements of Fortune 100 corporating ESG measures into pay board in assessing any federal tax was the leader with 87% preva- changes and additional uncertain- companies over the last year. It packages, Mr. Wilson said. qualification issues involved with lence and Europe was close be- ties around the COVID-19 pan- found that 38 of 94 companies dis- “One thing that we are really fo- the shared-risk calculation, and to hind, with the U.S. bringing up the demic. closed compensation metrics tied to cused on is execution. Do you have advise on how to recertify the mem- rear at 56%. ESG goals. Most were for annual the governance in place to make ber shared-risk contribution rate. Legal & General Investment Success story incentive plans, and only one com- that happen? Companies are still “Buck’s work does not include Management Ltd. sustainable in- One success story came from pany did it for a long-term incen- working to put together their plans,” calculating investment return sta- vesting experts on both sides of Microsoft Corp., where LGIM col- tive plan. This proxy season Equilar he said. tistics, which are provided by a the Atlantic can attest to that dis- laborated on aligning pay in the expects to see more quantitative “Depending on the issue, the third party employed by (Penn- parity. tech industry and setting more disclosures, especially ones relating measurement is just coming into its PSERS),” a Buck spokesman said in John Hoeppner, head of U.S. formulaic financial targets for se- to culture and diversity. own now. Some (companies) are an emailed statement. “If a stewardship and sustainable in- nior management pay. LGIM also “Incorporation of ESG mea- wanting to get out in front, and third-party error has occurred, it vestments at Legal & General In- won a commitment of 30% minori- sures into pay packages has be- some are waiting to see what they may be necessary for us to revise vestment Management America in ty representation in senior man- come more and more a common are going to be told to do. I think our reporting accordingly.” Chicago, and Karoline Herms, glob- agement, and included diversity metric. We are seeing more com- eventually that will be an expecta- An Aon spokeswoman declined al investment stewardship manager targets in pay decisions. Time panies doing it,” said John Wilson, tion,” Mr. Wilson said. n to comment. n

other higher income-producing next five years, equating roughly against inflation. If the current inflation expectations from here investment-grade alternatives such to 1% x 5 = 5% cumulative return break-even inflation expectation may wish to tweak their bond Remley as short-duration corporate bonds. (ignoring compounding for for 5-year TIPS is 2.5%, then 5-year positioning. Short-duration, In the third edition of “Inside simplicity). In Scenario 2, rates corporates with 100 basis points of income-producing corporates and CONTINUED FROM PAGE 11 the Yield Book,” the authors rise by 1% a year for the next five additional spread will increase the securitized holdings such as risk, but it invites maximum mathematically demonstrate that years, equating to 2% in mark-to- inflation breakeven to 3.5%. CPI commercial mortgage-backed purchasing power erosion. the cumulative returns generated market losses each year, but has not printed above 3% in almost securities and asset-backed So, how do investors get by a bond portfolio will be higher accruing progressively higher 10 years, so that additional yield securities can provide a yield comfortable with owning fixed in a rising-rate environment if the income of 2% + 3% + 4% + 5% + 6% could mean the difference between cushion, while generating solid income given that ultra-low investor remains invested for at = 20%. Subtract the accrued a positive and negative real return cash flow that can be reinvested at interest rates risk being pushed least twice that of the portfolio’s mark-to-market losses of 10% and if this low-interest-rate environ- higher rates. Patience, reinvest- higher by rising inflation fears? duration (in years). The incremen- the cumulative return is 10% — ment persists. ment and understanding market Two considerations: First, the tal accruals earned from the outpacing the unchanged rate Naturally, if an investor strongly expectations are the keys to duration of the portfolio can be portfolio’s rising yield offset the scenario by 5 percentage points. believes in the current inflation staying ahead of an uncertain managed to balance mark-to-mar- mark-to-market erosion over that Voila! Inflation can actually narrative, then TIPS, cash and future. n ket risk with reinvestment potential time frame. benefit the patient bond investor shorter durations make sense. A at higher yields. Second, the For example, assume a portfolio who reinvests into higher yields. sharp rise in interest rates could This content represents the views of the portfolio can be diversified with has a 2-year duration and a 1% In addition, investment-grade lead to price drops even for TIPS author. It was submitted and edited under alternatives to ultra-low yielding yield today. In Scenario 1, rates alternatives to U.S. Treasuries can positions. However, those who are Pensions & Investments guidelines but is U.S. Treasuries, such as TIPS, or remain unchanged during the provide additional cushioning less sure about the change in not a product of P&I’s editorial team. 22 | April 19, 2021 Pensions & Investments

which portfolio companies take on investors, the $32 billion New Mex- UPCOMING WEBINARS | REGISTER TODAY more debt to pay dividends to the ico State Investment Council, Santa Health care private equity funds that made the Fe, has been looking into the matter investments. Ms. Howell said divi- since 2020, said Charles Wollmann, CONTINUED FROM PAGE 1 dend recapitalizations create early spokesman, in an email. performing the median IRR for the cash flows for investors but can At a February meeting, members same vintages of all private equity weaken companies with added of the New Mexico State Invest- funds of 13.1%. debt. ment Council voiced concerns with However, academic studies are With enough early cash flows, Green’s management of Prospect starting to show that certain in- the private equity firm can provide Medical, a recording of the meeting vestments in the private equity investors strong returns even if the shows. New Outlook on Income: health-care universe, including in- company goes bankrupt, Ms. How- New Mexico State Investment vestments in hospitals, nursing ell said. Council member Nicholas Telles A Framework for Evaluating DC homes and behavioral health com- However, the practice “put those called the situation “deeply con- panies, have been detrimental to companies at risk for restructuring, cerning, very unsettling.” Retirement Income Solutions patient well-being, according to bankruptcy or cost-cutting to make Debbie Romero, secretary of the Live, Wednesday, April 28 • 2:00 p.m. - 3:00 p.m. ET testimony at a March 25 House up the interest payments and pay New Mexico Department of Fi- Ways and Means Subcommittee on off debt,” Eileen O’Grady, health- nance and Administration, said: There has been much discussion about bringing retirement income Oversight on private equity’s ex- care coordinator of non-profit Pri- “For us to do nothing is to accept solutions into DC plans as more plan sponsors report a preference to panded role in the U.S. health-care vate Equity Stakeholder Project, potentially bad behavior.” help their participants into retirement. However, progress has been slow. system. told the subcommittee. New Mexico State Investment Without processes to match objectives to income solutions, evaluating “Research on private equity has Some private equity-backed Council has committed a total of investments and strategies that address the wide range of participant found that in sectors where product companies that used dividend re- $205 million to Leonard Green needs can be complicated and intimidating. quality is transparent, markets are capitalizations over the past year funds. Green Equity Investors V competitive, and there is no govern- also received relief under The earned 21% IRR as of Sept. 30, ac- Informed by original research with plan sponsors and consultants, as ment subsidy, private equity has Coronavirus Aid, Relief, and Eco- cording to a private equity report in well as longitudinal data on trends in retirement spending, we will work positive effects on productivity and nomic Security Act support, Ms. February to the council from its through a retirement evaluation framework to help organize progress product quality,” Sabrina T. Howell, O’Grady said. private equity consultant, Mercer towards helping retiring participants who choose to remain in your plan. assistant professor of finance at One such company is Prospect LLC. New York University Stern School Medical Holdings Inc., a chain of Land Commissioner Stephanie of Business, testified. “However, hospitals primarily serving low-in- Garcia Richard, also a board mem- Register Now: pionline.com/TRPWebinar health care has none of these fea- come patients, which is a portfolio ber, added that investment council tures.” company of private equity firm officials need “to look carefully at Sponsored by: Patients cannot accurately assess Leonard Green & Partners’ fund, some of their (Green’s) policies health-care provider quality, they Green Equity Investors V LP. about reinvesting dividends into typically do not pay for services di- During its ownership of the chain, their properties, especially at this rectly and government agencies act the fund has taken dividend recap- time when that kind of medical ac- as both payers and regulators, Ms. italizations, including a $460 million cess is critical for certain popula- Howell said. dividend in 2020 when the compa- tions that are being hit hard by the ny reported a $244 million net loss, pandemic.” Other potential issues Ms. O’Grady testified. Several Pros- Since that meeting, council staff Understanding the PEP Evolution Testimony highlighted other po- pect hospitals have some of the contacted Leonard Green and tential issues at private equi- lowest quality ratings from the shared the firm’s responses with With the SECURE Act establishing pooled employer plans (PEPs) for ty-backed health-care companies, Centers for Medicare & Medicaid council members, Mr. Wollmann companies to join together in oering retirement savings plans, the including billing fraud allegations Services, she added. said. So far, there is no formal coun- prospect of closing the retirement coverage gap for workers who have and dividend recapitalizations in One of Green Equity Investors V cil action pending, he said. not had access to this benefit is now closer to reality. A range of companies without defined contribution (individual account) plans, and even some with existing plans, may have compelling reasons to embrace the The environment has led the Chinese mainland raise the pros- PEP opportunity. way in bringing investors into the pect that foreign companies assidu- Human ESG fold, with “climate change in ously adhering to ESG standards The experts discussed: particular … stealing the limelight and reporting on their activities, as CONTINUED FROM PAGE 2 because you get consensus on cli- organizations such as PRI call for, • Key considerations and possible timelines in adopting PEPs investors have come to understand mate,” Ms. Bioy said. could be putting their access to the • What the investment menu may look like for participants that all ESG issues are interrelated; With climate change posing an world’s fastest-growing market at • Fiduciary obligations of the pooled plan provider and the plan “you can’t just do one and not the existential risk, it’s been relatively risk — a threat, analysts say, that sponsor other,” Ms. Reynolds said. For ex- easy to make the case for coopera- could dent ESG momentum even if • Regulatory clarifications still to come ample, the need to shift to renew- tion, agreed Joey Alcock, principal it’s unlikely to derail it. able energy from fossil fuels is ur- consultant and chairman of the re- Replay Available: pionline.com/PEPsWebinar gent but understanding the social sponsible investment group with Following a pattern cost for workers losing relatively Melbourne-based investment con- Some observers — noting that Sponsored by: high-paying fossil-fuel jobs and sulting firm Frontier Advisors. instances of global companies ruf- transitioning them to similarly Meanwhile, the environment, and fling the feathers of overseas con- good-paying jobs will be key to fa- climate change in particular, have sumers and seeing their business cilitating that shift, she said. proven to be fertile ground for suffer temporarily as a result are Human rights will be the next big “constructive engagement,” offer- nothing new — predict the current issue for investors, said Hortense ing win-win opportunities for com- brouhaha on the mainland could Bioy, Morningstar Inc.’s Lon- panies on one side and money follow that pattern. “It’s not the first don-based director of sustainability managers and their asset owner time” Chinese nationals have Divest or engage? research. With the relentless ad- clients on the other to work toward launched boycotts, and Korean vance of information technology, it better outcomes, analysts say. brands, Japanese brands and Aus- Asset owners across the globe are facing increasing pressure to deal will become ever harder for compa- Willis Towers Watson PLC’s April tralian suppliers have all been tar- with the environmental, social and governance issues that their invest- nies to ignore seamier elements of 15 announcement that it will target gets in the past, noted Robin You, a ments may present. Many pension fund executives tout engagement as their supply chains they’ve managed net-zero greenhouse gas emissions Hong Kong-based senior invest- the way to go, with divestment viewed as a last resort where there is no to keep opaque until now, she said. for its $166 billion delegated investment analyst with investment con- hope of a company improving their practices. Topics discussed included: ESG’s S pillar — including hu- ment business by 2050 and a 50% sulting firm RisCura Holdings (Pty) man rights, racial justice, and diver- reduction by 2030 offers a taste of Ltd. “It comes and goes in a few • The Nordics approach – is there a preference for divestment or sity, equity and inclusion — is where the dynamics that have made cli- months,” he said. engagement? At what point do you have to walk away from an Ropes & Gray LLP, a New York- mate-related action mainstream, Others say growing geopolitical opportunity? based law firm that advises compa- with Craig Baker, the firm’s global tensions between China and the U.S., • Being a good steward – can you be a responsible owner if you di- nies, money managers and asset chief investment officer, noting that technological advances such as the vest, allowing less responsibly minded investors to simply purchase owners around the world on being ahead of the curve on a spread of social media and the im- these assets instead? ESG-related issues, has seen the low-carbon transition will “signifi- portance of online sales could make • How are regulatory and industry initiatives, such as TCFD and the greatest pickup in interest among cantly improve risk-adjusted returns the current backlash by Chinese con- SDGs, playing into your own approaches to investment? clients over the past year or two, for our clients ... (and) be one of the sumers trickier to defuse, with little said Michael R. Littenberg, a New biggest sources of alpha across all or no scope for the kind of construc- York-based partner with the firm. asset classes” in coming years. tive engagement that’s animated cli- Replay Available: By contrast, the S or social pillar mate-related issues and even other pionline.com/WorldPensionSummitWebinar More contentious era that includes human rights is social issues widely viewed as prob- The decision to put a spotlight on “wrapped up in differences of cul- lematic, such as child labor. Sponsored by: human rights could usher in a more tures, values and ethics” — both The aggressive pushback now on contentious era for an ESG move- more granular and more localized, the mainland against these foreign ment that’s gone to a mainstream Mr. Alcock said. companies’ sustainability state- focus of asset owners and manag- PRI’s announcement that human ments or credentials “is pretty un- ers alike from a cottage industry in rights will become a priority, mean- chartered territory,” with the poten- For a full list of webinars, go to pionline.com/webinars recent years focusing on climate while, comes as the brickbats being tial to impose more damage on change-related issues. thrown at global retailers on the their businesses in China than pre- Pensions & Investments April 19, 2021 | 23

Erika Spitzer, partner who leads the Apria investment as part of its capital raising, investor relations Sector’s risks need to be overall portfolio review. and limited partner co-investment “Fraudulent business practices at Leonard Green, could not be pose ESG risks for investors like immediately reached for com- weighed, consultant says CalSTRS,” said Vanessa Garcia, ment. CalSTRS spokeswoman, in an Investor and manager interest investments have myriad risks, emailed response to questions. “We Rhode Island action in health care isn’t showing signs including that the popularity of the monitor all of our holdings and are New Mexico State Investment of abating any time soon. sector has led to higher prices, in regular contact with all invest- Council is not alone. Last year, the “It’s a pretty big playground,” which could lead to lower returns, ment managers as part of our nor- $9.6 billion Rhode Island Employ- said John Haggerty, Westwood, Mr. Haggerty said. mal course of business.” ees’ Retirement System, Provi- Mass.-based managing principal Until the first quarter, the Matthew Anderson, a Blackstone dence, which is also an investor in and director of private markets median U.S buyout equity to Group spokesman, said in an email Green Equity Investors V, said it investments at Meketa Investment earnings before interest, taxes, that the firm has been an investor will stop investing with Leonard Group. depreciation, and amortization has in Apria for 13 years, “helping the Green & Partners. company through two global eco- The health-care sector is been on a jagged upward trajecto- In a August letter to Leonard TAKE CAUTION: John Haggerty nomic crises to a successful recent ry, PitchBook Data Inc. information Green managing partner Jonathan extremely broad, ranging from believes health-care investments pose (2020) IPO.” Sokoloff, state Treasurer Seth Mag- large buyouts of hospital networks shows. Equity to EBITDA ratio rose myriad risks for investors. He added that Blackstone execu- aziner said officials were disap- to early-stage venture capital to 7.3x in 2020 from 4.9x in tives are “deeply committed to en- pointed in the firm’s investment in investments in potential new 2015. That multiple dropped to cultural changes is a risk, Mr. suring the health-care companies Prospect Medical Holdings, in drugs, he said. 3.6x in the first three months of Haggerty said. in which we invest have the sup- which it holds a controlling interest “The reasons why people like it 2021, according to PitchBook’s Health-care assets require port and capital they need to deliv- through the fund. are the reasons why it has become most recent report. much more careful attention than, er exceptionally high-quality care “Green Equity has extracted val- expensive,” he said. “It is seen as Reputational risks are another for example, a private equity to patients.” ue from Prospect Medical hospitals, pretty resilient and that’s the concern. investment in a manufacturing What’s more, at the time of the including St. Joseph’s Hospital and dividend recapitalization, Apria result of the obvious fact that in “The reputation of a health-care company, he said. And institutional Our Lady of Fatima Hospital in had no debt and “extremely low institution needs to be carefully investors are very mindful of this, Rhode Island, at the expense of pa- the hierarchy of needs, people are leverage thereafter,” Mr. Anderson tients and employees,” Mr. Maga- going to spend on health care no guarded,” any decline in quality of Mr. Haggerty said. said. As of Dec. 31, Apria had net ziner wrote. matter what.” However, health-care care brought on by cost cutting or — ARLEEN JACOBIUS debt (debt minus cash) of about one Prospect Medical’s issues under times earnings before interest, tax- private equity ownership may not es, depreciation, and amortization, be an outlier. Another recent aca- an SEC filing shows. demic study revealed that private The study was conducted by Dan portfolio company Apria Health- non-invasive ventilators to patients An Apria spokeswoman in an equity-backed hospitals have low- Zeltzer, assistant professor at Tel care Group Inc. In December, Apria who were not using them. Apria email said that the company was er patient experience scores, and Aviv University School of Econom- paid $40.5 million to settle a fraud completed a dividend recapitaliza- pleased to have resolved the civil fewer full-time employees per pa- ics, and Zirui Song, assistant pro- lawsuits brought against it by the tion the same month, Apria said in a matter. tient than non-private equity hos- fessor of health care policy and U.S. attorney for the Southern Dis- Securities and Exchange Commis- “Prior to becoming aware of the pitals. medicine at Harvard Medical trict of New York and various states. sion filing. government’s interest in the matter The academic study, reported in School. The suits, filed in 2017, alleged that One of the investors in the Black- in 2017, Apria had already made a the February edition of Annals of the medical equipment provider stone fund, the $21.7 billion Black- number of changes to the (non-in- Internal Medicine, found that hos- Blackstone’s Apria had submitted false claims to feder- stone Capital Partners V LP, the vasive ventilator) program’s pro- pitals backed by private equity are Testimony before the House al health programs including Medi- $286.9 billion California State cesses and procedures relating to more likely to be rural and/or locat- Ways and Means Committee also care and Medicaid seeking reim- Teachers’ Retirement System, West patient usage in the home,” she ed in lower-income neighborhoods. mentioned Blackstone Group Inc.’s bursement for the rental of Sacramento, is keeping an eye on said. n

Still, as clients get further up the curve on ESG, they’ve come to real- ize it’s “more complex than they Acquisitions originally thought it was, especially CONTINUED FROM PAGE 6 around social issues,” Mr. Litten- berg said. “Our advice is these are the firm said in a news release April issues that are nuanced, complex, 7. Lyxor is owned by Societe Gener- likely to be managed over the ale SA and was founded in 1998. course of many years,” he added. Lyxor had €124 billion in assets PRI’s Ms. Reynolds acknowl- under management as of Decem- edged the potential conflicts a ber, with €77 billion in ETFs and greater focus on human rights €47 billion in active management could create but called the decision assets under management. The to move forward unavoidable. deal would accelerate Amundi’s “We’re not pretending it’s going development in the ETFs market to be easy,” she said, or that “every and also complement its offering in investor will be, by the end of next active management — in particular week, expert in human rights.” in liquid alternative assets as well That’s why PRI is rolling out a five- as advisory solutions, the release year program designed to help in- said. vestors understand their role in the By bolstering France-based area of human rights, including Amundi’s passive money manage- how to report about their decisions ment business, the move also “will in that sphere, she said. contribute to the post-Brexit posi- Despite the challenges that tioning of the Paris financial cen- could come from focusing more on ter,” Yves Perrier, CEO of Amundi, issues such as modern-day slavery, said in the release. estimated to affect a record 40 mil- The deal is also fully aligned LEARNING: Joey Alcock said the collision of ESG and geopolitics in China could be a ‘key case study’ as ESG investing evolves. lion people around the globe at with Amundi owner Credit Agricole present, Ms. Reynolds predicted SA’s group strategy, which aims to vious boycotts have, said a Hong needle “is going to be very, very politics in China last month won’t the broader momentum ESG has reinforce the financial services Kong-based ESG executive with tough,” agreed Frontier’s Mr. Al- necessarily be a game changer but experienced in recent years should firm’s position in asset gathering, one global money manager, who cock. “The (Chinese) consumers it could prove to be a key case study continue. the release added. declined to be named. who are boycotting the Western — part of the “bumps and turns and Market participants likewise ex- The deal is expected to be com- It’s a sort of “rock and hard place” brands, for whatever reason, are learnings” that will accompany the pect investors to continue embrac- pleted by February 2022 at the lat- situation with “one cohort of your stating that the reasons why those continued embrace of ESG, Mr. Al- ing ESG factors, even if the near- est, following various approvals. customers — and your growth op- companies are not buying the cot- cock said. term outlook for the Chinese Both brands will continue to co-ex- tion — telling you that you’re crazy ton are erroneous,” lies and con- While some elements of the lat- market could be a distraction. ist until the deal closes and nothing and ... being really rude and mis- spiracies, he said. est news about foreign companies There’ll be controversial issues has yet been decided for the brands, representing what’s going on ... and Market participants predict the grappling with human rights issues that prove challenging but the only an Amundi spokeswoman said. another set of your customers and fireworks of the past month or so in China point to a “new dynamic” way forward is “to start the momen- Amundi does not anticipate any de- NGOs in markets that you’re listed should eventually recede but they in terms of the level of engagement tum and deal with the issues as partures of key people at Lyxor — in telling you that it’s potentially add that how the foreign companies by state and local actors, navigating you’re going along,” Ms. Reynolds its management team has actively genocide and that you’re participat- being targeted now can get there labor challenges around the globe said. After all, even five years ago a participated in the process, along- ing in slave labor and having goods from here remains considerably is not new and tensions vis-a-vis lot of people were still insisting that side SocGen, and was involved in blocked from coming into the U.S. murky. China are unlikely to derail the investors had no important role to all key steps of the deal, the spokes- as a result of these sorts of things,” takeup of ESG by companies, mon- play in combating climate change woman added. the executive said. ESG amid geopolitics ey managers and asset owners, and now “it’s considered completely Amundi has a total €1.7 trillion in In this instance, threading the The collision of ESG with geo- Ropes & Gray’s Mr. Littenberg said. mainstream,” she said. n assets under management. n 24 | April 19, 2021 Pensions & Investments AT DEADLINE PIMCO The state of DC plans said in an April 15 news release. PIMCO’s annual survey of DC consultants to large plans explored WSIB earmarks $4.2B CONTINUED FROM PAGE 3 sponsors’ priorities and their views on CITs and asset retention. Washington State Investment Twenty-four percent of the con- UNH allocates $14M Clients’ top five priorities in 2021 (could select up to five) Board approved or disclosed a sultants estimated that their clients University System of New total of up to $4.2 billion in had median DC assets of more than Review TDFs 68% commitments and investments at Hampshire disclosed a manager $500 million, and 73% estimated the Evaluate investment fees 64% its April 15 board meeting, a hire and commitment totaling $14 clients had median DC assets of spokeswoman said in an email. million for its $630 million more than $100 million. Evaluate administration fees 61% PIMCO also polled smaller-plan The board oversees $164.9 billion combined endowment pool. Evaluate retirement income 57% in assets, including $127.8 billion Prime Buchholz, the system’s consultants and advisers, which PIMCO calls aggregators, whose Navigate new regulations 39% in defined benefit plan assets. outsourced chief investment clients had total assets of $1.2 tril- officer, disclosed the hiring of Minimize duciary liability 32% Within its private equity asset lion. This survey contained re- Generation Investment Manage- class, the board was informed of sponses from 11 firms with DC as- Review managed accounts 29% a staff-delegated commitment of ment to run $10 million in active sets under advisement of $10 billion Improve participant 25% up to $2 billion to Evergreen Park global equities and a $4 million or more. Ninety percent of their retirement education Investment Fund, a leveraged commitment to Battery Select clients estimated that their plans Evaluate DC OCIO/delegated 21% buyout and growth equity Fund I, a venture capital fund had median DC assets of $100 mil- opportunities co-investment fund managed by managed by Battery Ventures, at lion or less. Improve nancial wellness program 21% Fisher Point Capital. the system’s finance committee Keeping assets in-plan Staff also disclosed commit- on investments meeting April 15. Evaluate how plan costs are paid 18% The survey of large-plan consul- ments of up to $750 million to KKR tants — PIMCO calls them institu- Review cybersecurity 14% capabilities of providers North America Fund XIII, a North CFA Level 1 pass rate slips tional consultants — found that 36% American buyout fund managed by Almost half of the first candi- of respondents’ clients last year ac- Simplify core lineup 11% KKR & Co.; up to $600 million to dates to take their CFA Institute tively sought to retain retired par- Set up a retirement income tier 11% TA XIV, a middle-market growth Level I examination under the new ticipants’ assets and 38% said they equity fund managed by TA computer-based testing passed. preferred to retain these assets but Other priorities 11% Associates; and up to $250 million Of 28,651 Level I candidates didn’t actively encourage it. By contrast, in 2014, the respective per- to Blackstone Capital Partners sitting the examination in Top three reasons to recommend a CIT over a mutual fund: Asia II, a pan-Asian buyout fund centages were 14% and 32%. February, 44% passed. Candi- There was a sharp drop among Optimal pricing 96% managed by Blackstone Group. dates sat for the examination at respondents’ clients preferring that Institutional clients only 54% Also April 15, the board 850 test centers in 400 cities in retiree assets leave the plan — 7% approved a commitment of up to 91 countries, a news release said. last year vs. 17% in 2014. Nineteen Investment and design exibility 39% $200 million to Providence percent of clients were indifferent The computer-based testing Plan preference 21% Strategic Growth V, a buyout fund proved to be more resistant to last year vs. 38% in 2014. managed by Providence Equity COVID-19-related cancellations due When asked what a majority of More attractive cash ow pattern 18% investing in U.S.-based lower to an increased number of testing their clients are doing to retain as- Simpler (no interest expense) 11% sets in their plans, 74% of the insti- middle-market software and days and smaller centers, the CFA tutional consultants said clients al- We do not recommend CITs technology companies. said. In the December examina- over mutual funds 4% ready offer retirement education Within its tangible assets asset tions, the last paper-based testing, tools and 22% plan to offer them. Trustee oversight 0% class, staff disclosed an addition- 49% of 26,212 candidates passed, Examples could include informa- al investment of up to $300 the document said. tion on Social Security, employ- Assuming comparable performance, the minimum pricing million in Emerald Energy Venture, er-paid pre-retirement counseling difference to recommend a CIT over a mutual fund: a joint venture between WSIB and Money managers bullish via a financial advisory firm, life- National Grid North America that time-income projections data and CIT is 1 bp less expensive 36% Macro and market optimism seeks investments in onshore enhanced discussions of lifetime among the global investment renewable energy projects. income options in an employee’s CIT is at least 3 bps less expensive 39% community remains quite high, with Also, the board approved a separation package, said Joseph most investors bullish on the Healy, a senior vice president, ac- CIT is at least 5 bps less expensive 14% commitment of up to $100 million economy’s future, according to count manager and specialist in the to PGIM Agriculture Fund, Bank of America’s April Global Fund defined contribution practice in CIT is at least 10 bps less expensive 7% managed by PGIM Real Estate. Manager Survey. Of the 200 fund PIMCO’s New York office. CIT is at least 15 bps less expensive 4% managers overseeing a total of The survey also reported that Brexit leads to 440 exits $553 billion in assets surveyed, 54% of consultants said a majority of clients provide distribution flexi- A total of 440 U.K. financial 50% say the economy is experienc- Clients’ views on retaining retired participants’ assets in bility (such as partial or installment their plan: services firms, including 92 ing a V-shaped recovery, vs. only payments) while 29% plan to do so. investment managers, have 10% believing that in May. In addition, 46% said a majority of 2014 2015 2016 2017 2018 2019 2020 relocated to other European cities Meanwhile, 37% now think the clients offer personalized advice, 45% or beefed up their European economy is facing a U- or W-shaped and another 21% said clients plan to presence due to the U.K.’s recovery, vs. 75% in May. do so. 40% withdrawal from the European A net 90% of respondents Forty-three percent said clients Union. Money managers and expect a stronger economy in the offer managed accounts and 21% 35% insurance firms have also trans- next 12 months, down 1 percent- said clients plan to offer this option. These were the most popular re- ferred more than £100 billion age point from last month, with 30% sponses among nine choices for as- ($138.3 billion) in assets to Europe 64% of respondents expecting the set retention for which multiple re- as a result of the U.K.’s withdrawal 25% global economy to get “a lot sponses were allowed. The least from the European Union. stronger,” up 1 percentage point popular choices were the offering 20% U.K. think tank New Financial from last month. out-of-plan annuity/insurance found that this month’s firm choices and the offering of in-plan 15% relocations or increasing resourc- Tool tracks commitments insurance/annuity choices. In each es in Europe, compared with 269 category, 4% of respondents said a Investors interested in checking 10% in a 2019 analysis. majority of clients had implement- how companies are fulfilling their ed these options while 11% were 5% commitments on diversity, equity planning to do so. WTW to cut CO2 footprint and inclusion can use a tracker 0% Willis Towers Watson will cut released April 14 by JUST Capital. Interest in PEPs mixed Prefer retirees Indifferent Prefer retaining Actively seek the carbon footprint for at least The Corporate Racial Equity The survey also polled institu- move assets out these assets, but to retain these do not actively assets half of its $166 billion discretion- Tracker gathers DEI data disclosed tional consultants and aggregators encourage ary delegated portfolios by 2030. by the 100 largest employers in about their future roles in the Source: Pacific Investment Management Co. LLC The firm also pledged to reduce the Russell 1000. The 22 data pooled employer plan market. Twenty-seven percent of aggrega- greenhouse gas emissions to points cover six specific dimen- tors said they plan to offer PEPs this When asked what plans would However, the consultants and ad- zero for the entire discretionary sions of racial equity: pay equity, year vs. 11% of institutional consul- be most attracted to joining a PEP, visers also predicted strong results delegated portfolios, outsourced racial/ethnic diversity data, educa- tants. The former (27% of respon- the survey, which combined com- for “modest migration” to PEPs for to the firm, by 2050. The transition and training programs, dents) and latter (30%) said they ments from both groups for this plans as large as $50 million in DC tion to a low-carbon economy will response to mass incarceration, would advise or consult with PEPs. question, reported the greatest in- assets. significantly improve risk-adjusted community investments and Half of the institutional consultants terest — PIMCO calls it significant In-plan retirement-income op- returns for the firms’ clients, WTW anti-discrimination policies. said they will observe the market migration — would be among plans tions such as annuities or guaran- this year vs. none of the aggregators. with $5 million in assets or less. teed minimum withdrawal benefits Pensions & Investments April 19, 2021 | 25

that institutional passively man- Smaller DC plans place greater focus aged strategies totaled $3 trillion, BlackRock accounting for 33% of total AUM but just 7% of combined base fees and CONTINUED FROM PAGE 3 on improving financial wellness efforts securities lending revenue, reflect- that he and Mr. Fink see, “making it ing lower pricing. Improving financial wellness programs is the top The dichotomy between large and smaller plans central to constructing sustainable As of the same date, ETFs totaled priority among smaller defined contribution plans this extended to PIMCO asking consultants and advisers portfolios of the future,” according $2.81 trillion or 31% of total assets year, according to a survey of DC consultants and to identify the single top priority among “leading to a transcript of the earnings call. and 39% of total base fees/securities advisers published April 19 by Pacific Investment edge” clients — those most likely to be first adopters Mr. Shedlin said first-quarter net lending; institutional active strate- Management Co. LLC. of new products or services. inflows included $133 billion into gies totaled $1.52 trillion, 17% of to- When asked what are their clients’ top five For the smaller plans, 27% of the aggregators cited long-term assets, reflecting “the tal AUM and 18% of base fees/secu- priorities this year, 73% of the respondents cited considering or reviewing health savings accounts, strength of our broad-based fran- rities lending; retail strategies were improving financial wellness, 55% identified navigating followed by a tie between minimizing fiduciary liability chise with positive flows across ev- $934 billion, 11% of AUM and 32% of ery asset class, investment style, base fees/securities lending; and new regulations and 45% cited evaluating investment and evaluating retirement income, both at 18%. client channels and region.” cash, $704 billion, 8% of total assets By contrast, among large-plan leading edge clients, fees as the top answers among 16 choices. In contrast, the firm’s total net and 4% of total base fees. These results were part of the 15th annual PIMCO 41% of consultants cited evaluating retirement inflow in the quarter ended Dec. 31 survey, which was conducted in income and 19% mentioned setting up was $126.9 billion and $35 billion in Income fluctuations January and February. a retirement tier — a combination of the first quarter 2020. Unlike the firm’s steady revenue The survey contains responses tools, products and services to help BlackRock’s net inflows in the growth, BlackRock’s net income has from 11 consulting and advisory firms participants nearing, at or in retire- quarter ended March 31 were led fluctuated more over time. with DC assets under advisement of ment. by its iShares exchange-traded Net income was $1.2 billion in $10 billion or more for a total of $1.2 All other priorities were less than fund unit at $68.5 billion, (prior the quarter ended March 31, down trillion. double digits, and HSAs received no quarter, $78.8 billion); cash man- 22.5% compared to the previous agement, $39.2 billion ($8.9 billion); quarter and up 48.8% from the first PIMCO calls these firms aggrega- votes. retail investors, a new record high quarter 2020. The PIMCO survey also remarked tors, defining them as independent of $36.5 billion ($35.3 billion); and Over the longer term, Black- DC-focused advisory firms with shared about the “clear divergence” between institutional, $27.6 billion ($2.1 bil- Rock’s full-year net income was resources. The survey notes that 90% clients of aggregators and institutional lion). Net outflows from Black- $4.9 billion in 2020; $3.3 billion in of the aggregators estimated that consultants regarding their recommen- Rock’s advisory/other business their clients had median DC assets of dations for retirement income were $187 million in the quarter $100 million or less. DULL EDGE: Joseph Healy said solutions. ended March 31, compared with (By comparison, a concurrent PIMCO smaller plans have less robust When asked what retirement $1.8 billion in the prior quarter. survey of larger plan consultants benefits and less pricing power. income strategy they would most likely BlackRock’s revenue in the quar- contains responses from 29 firms with recommend, 60% of aggregators cited ter ended March 31 was $4.4 billion, down 1.8% from the prior quarter DC assets under management of $10 billion or more in-plan annuities, 50% recommended managed but up 18.5% from the same quarter accounts, 40% selected stable value and 40% for a total of $5.5 trillion in AUM. Seventy-three percent a year earlier. of these consultants estimated that clients had endorsed target-date funds with embedded income median DC assets of more than $100 million.) guarantees. The firms were allowed to pick as many ETF growth Not surprisingly, smaller plans can have different as three strategies out of 11 choices. ETF products continue to drive needs and interests vs. larger plans. “Aggregators tend to have more of a comfort level BlackRock’s revenue growth. For example, the top client priorities for larger DC with annuities and guarantees as many have wealth In the quarter ended March 31, plans were reviewing target-date funds, evaluating management practices which include IRA rollovers BlackRock’s $2.81 trillion of com- STEADY RISE: Greggory Warren sees investment fees, evaluating administrative fees and from DC plans,” Mr. Healy said. bined ETF AUM brought in $1.4 BlackRock generating organic AUM evaluating retirement income. Improving financial Institutional consultants’ top choices were a billion of revenue, more than any growth of 3% to 5% despite headwinds. other individual investment ap- wellness programs ranked 10th. target-date fund followed by a three-way tie among proach, according to the firm’s 2015; and $2.1 billion in 2010, earn- The larger-plan market “has greater ability to target-date funds with embedded guarantees, earnings report. ings reports showed. influence fees, and has more robust benefits,” said income-focused fixed income investments and In the latest quarter, ETF reve- Net income fluctuation between Joseph Healy, senior vice president, account manager target-date funds with a predetermined payout for a nue was much larger than that of quarters and years is fairly com- and specialist in the defined contribution practice in specific period of time. other revenue streams – distribu- mon, sources said, given market va- PIMCO’s New York office, commenting on the “The largest plans advised by institutional tion fees ($340 million); technology garies. institutional consultants comments. consultants almost exclusively rely on target-date services, including the Aladdin “BlackRock is so diversified by For smaller plans, “there has not necessarily been funds,” said Mr. Healy, adding that the large-plan risk-management system ($306 product line, client type and region as robust benefits, more diversity in the choice of a consultants’ response to the survey “is a natural million); performance fees ($129 among other things, that when one default and less ability to exert pricing power,” he outcome” of their experience. million); and advisory and other business segment zigs, another services ($31 million). zags, causing the firm to have more added. — ROBERT STEYER ETFs also were BlackRock’s stability that its competition,” said leading revenue source over the Daniel Sondhelm, CEO of Sond- past decade. helm Partners, Alexandria, Va., still face hurdles, PIMCO reported. evaluating retirement income (57% age don’t plan to offer or haven’t In full calendar years, the firm’s which advises money managers on Asked what percentage of clients of responses) ranked fourth behind considered offering a retirement ETF revenues were $4.6 billion of a marketing and distribution strate- would offer these options in the reviewing target-date funds (68%), tier. However, 30% are planning to total of $16.2 billion in revenue in gies, in an email. next 24 months, institutional con- evaluating investment fees (64%) offer or evaluate a retirement tier. 2020; $3.3 billion of $11.4 billion in Another component of Black- sultants said only an average of 9% and evaluating administrative fees The survey did not ask for the 2015; and $1.9 billion of $8.6 billion Rock’s diverse offerings is its Alad- would do so. (61%). sponsor’s timetable for doing so. in 2010, earnings reports showed. din risk-management system, “a PIMCO executives decided to Other equity analysts expressed significant differentiator for the Safe harbor take this question a step further by CITs hinge on fees optimism about BlackRock’s corpo- firm,” CFRA’s Ms. Seifert said. “The SECURE Act helps, but asking consultants what was the Among other survey highlights, rate performance. “With so many investors moving there is still a lot to be learned,” Mr. single priority for so-called “leading PIMCO found that it doesn’t take “BlackRock is at its core a passive from ‘we’d like to have a sustainable Martel said, referring to the Setting edge” clients, which Mr. Martel de- much in terms of lower fees for investor … in an environment where mandate’ to making ESG a baseline Every Community Up for Retire- scribed as sponsors that are early consultants to recommend a collec- retail-advised and institutional cli- necessary investment, Aladdin will ment Enhancement Act, which was adopters of new products or ser- tive investment trust vs. a mutual ents are expected to seek out pro- give investors the ability to get intel enacted in December 2019. It pro- vices. fund, assuming performance is viders of passive products as well as on ESG and other strategies,” she said. vides a fiduciary safe harbor for DC For that group, the top priority, at comparable. active asset managers that have Aladdin’s revenue “won’t move the plans that offer in-plan annuities if 41% of responses, was evaluating For 36% of consultants, 1 basis greater scale, established brands, needle for a money manager as large an annuity provider were to fail. retirement income. The next largest point was the tiebreaker; for anoth- solid long-term performance and as BlackRock, but it does provide “There is uncertainty about what response was setting up a retire- er 39%, 3 basis points or less was reasonable fees, we believe that BlackRock with another leg up in products will meet participants’ de- ment tier, cited by 19% of respon- enough to recommend a CIT. BlackRock is well positioned,” said addition to its scale, product devel- mands,” he said. dents. “The numbers draw your atten- Greggory Warren, a sector specialist opment capability and massive dis- When asked the best way to de- Describing a retirement tier, PIM- tion,” Mr. Martel said. “It is per- equity analyst at Morningstar Inc., tribution network,” Ms. Seifert said. liver a retirement-income solution, CO researchers used a definition by ceived by sponsors as sufficient. It Chicago, in a report about the firm’s Mr. Fink told analysts on the the top choice among 11 options Defined Contribution Institutional was kind of surprising that 1 basis first quarter 2021 earnings. earnings call that “we’ve been in- was a target-date fund, cited by 43% Investment Association as a group point could make a difference.” Despite “secular and cyclical vesting in all aspects of our Aladdin of consultants. of products, tools and services that When asked their top three rea- headwinds to make AUM growth technology to better serve our cli- There was a three-way tie for enable sponsors to go beyond asset sons for recommending a CIT over difficult for … U.S. managers over ents’ needs.” second (36% of consultants): tar- accumulation to help participants a mutual fund, 96% of consultants the next five to 10 years,” Mr. War- As for future growth, Mr. Shedlin get-date funds with embedded in- nearing, at or in retirement. cited “optimal pricing,” 54% said ren said he expects BlackRock to said during the call: “Fundraising come guarantees, income-focused Despite consultants’ wishes, they would only recommend CITs generate 3% to 5% average annual momentum remains strong and we fixed-income investments and tar- however, their clients haven’t yet to institutional clients and 39% ref- organic AUM growth between 2021 have approximately $27 billion of get date-funds with a regular level embraced the retirement tier. erenced flexibility in investments and 2025. committed capital to deploy for in- payout — a predetermined pay- On average, only 6% of their cli- and plan design among eight choic- To Mr. Warren’s point about stitutional investors in a variety of ment for a specific period of time. ents offer a retirement tier while 1% es. Multiple answers were allowed. BlackRock’s predominant passive alternative strategies representing When asked what their clients’ is implementing one. Sixty-three Only 4% said they don’t recommend strategy tilt, earnings data for the a significant source of future base top five priorities will be this year, percent said their clients on aver- CITs over mutual funds. n quarter ended March 31 showed and performance fees.” n 26 | April 19, 2021 Pensions & Investments

to water down (that ownership). It is Research Consultants Ltd., in an to meet with the chairman of a FTSE public ownership — something that regulatory schizophrenia — they email. “Dual-class share structures 100 company, it’s very rare we get can benefit both parties. “But the key Listing want to give investors power, but not are designed to protect manage- turned down.” thing here is the presence and use of real power. That’s an issue,” Mr. Dal- ment from challenge by those who It’s a different experience in other sunset clauses,” Mr. Richardson said. CONTINUED FROM PAGE 2 las said. have provided capital to the compa- markets such as the U.S., where Se- An important clause is that any from offering shares with differently Caroline Escott, London-based ny (which) seems unlikely to con- curities and Exchange Commission super voting shares remain in the weighted votes. senior investment manager, active tribute to positive governance out- rules do not prohibit the use of du- hands of founders, reverting to ordi- The FCA now needs to consult on ownership at RPMI Railpen, agreed comes.” al-class structures on public mar- nary voting shares once that person any changes it might make to list- that dual class structures “dilute The Principles for Responsible kets. The listings review said 20% of relinquishes the shares rather than ings rules — including other pro- market discipline and the ability of Investment thinks that weakening companies listing in the U.S. used being gifted or bequeathed, Mr. posals such as removing a barrier minority shareholders like Railpen existing rules risks “undermining dual-class structures between 2017 Richardson added. that deters special purpose acquisi- properly to hold companies to ac- confidence by institutional investors and 2020, vs. fewer than 10% in 2016. Sudhir Roc-Sennett, New York- tion companies from listing in the count, with voting control skewed in and could reinforce concerns based head of ESG at Vontobel Asset U.K. — based on the recommenda- the interests of the few who own around a potential global race to the Not against the idea Management’s quality growth bou- tions. those share classes with superior bottom,” Athanasia Karananou, di- However, other money manage- tique, agreed that provisions are While the debate over amending voting rights.” rector, corporate governance and ment executives are not against the needed but said the proposal is U.K. listings rules has popped up The firm, which runs research in London, introduction of dual-class structures “fresh thinking,” with dual-class over the years, the review is particu- about £31 billion ($42.9 said in an email. to U.K. premium indexes — provid- structures fitting into the box of “ac- larly relevant now: Between 2015 billion) for railway pen- Some money managed provisions are in place. ceptable risks” for investors. and 2020, London accounted for sion plans, welcomed ers agreed. “The big question for investors to But if investors think it is an ac- only 5% of initial public offerings the safeguard proposals Legal & General In- consider is whether the principle of ceptable risk, it is key that investors globally. — something it had vestment Management one share, one vote should be con- have visibility of controlling share- “We need to get the balance right. called for — but still be- Ltd. will continue to sidered a price of entry to capital holders’ goals “so they can value the London does need to attract capital, lieves “these new pro- push the FCA on the is- markets, or whether it should be potential against its inherent risks,” but needs to maintain good gover- posals will make it sue of one share, one considered as a governance destina- he said. nance standards,” Ms. Hamilton harder for long-term vote “as a matter of tion,” said Jeremy Richardson, se- Overall, “we feel dual voting Claxton said. investors to undertake principle,” said Sacha nior portfolio manager, global equi- would not be something bad for the the effective steward- IT DEPENDS: Jeremy Sadan, London-based ties at RBC Global Asset long term, as long as shareholders Conditional changes ship of individuals’ sav- Richardson is open to director of investment Management (U.K.) Ltd. in London. can understand what the controlling The review said any changes ings which the govern- dual-class shares under stewardship, in an Coming to the public market shareholders are trying to achieve. must come with certain conditions, ment has been laudably some circumstances. email. shows a maturity of the business. We don’t think it brings more risk including introducing investor pro- keen to encourage Andrew Millington, “Allowing other shareholders to now than, say, highly cyclical or poorly tections such as sunset clauses, through other recent initiatives,” Ms. head of U.K. equities at Aberdeen participate in this company, taking it run businesses,” Mr. Roc-Sennett which put time frames on how long Escott said in an email. Standard Life in Edinburgh, agreed from private to public, is a stage in said. something such as a dual-class Joe Dabrowski, London-based in a separate email that the recom- the company’s natural development And Peter Harrison, group CEO structure may operate. deputy director of policy at the Pen- mendations “represent an important as it grows,” Mr. Richardson said. at Schroders PLC, said in a notice on While some welcome the changes sions and Lifetime Savings Associa- evolution of U.K. equity markets in Investors can also benefit from the firm’s website March 4 that the with protections and provisions in tion, also highlighted that investors strengthening the U.K.’s position as diversification in terms of new com- firm “is in full support of Lord Hill’s place, many in the industry oppose are seeking and increasingly re- a global financial center …(but) any panies to invest in. While he thinks review. It is crucial that we do all we the proposal. quired by U.K. law “to positively in- measures aimed at encouraging the one share, one vote concept can to make the U.K. the most at- “We discourage it and most of our fluence corporate behavior.” Intro- companies to list and raise capital in “should be retained as a gold stan- tractive place for companies to list members do as well,” said George S. ducing the changes “would be a the U.K. must be balanced with high dard,” Mr. Richardson “would be and to do business for the benefit of Dallas, policy director at the Inter- backwards step and risks reducing standards of governance.” While the open to thinking about permitting investors.” national Corporate Governance the U.K.’s strong reputation for high firm has “strong reservations” about under certain circumstances super He said a balance is needed “be- Network in London. corporate governance standards,” he introducing dual class structures, voting shares for, in particular, (com- tween ensuring the highest stan- The ICGN’s case on why du- said in an email. the suggested safeguards were wel- pany) founders.” dard of governance and supporting al-class structures are a bad idea be- The changes would also mean comed. Dual-class structures can keep the growth of companies and the gins with common sense. While less accountability from companies, Another concern is that the “great company founders who have long- U.K. economy. Lord Hill’s review stewardship codes aim to “empower said Tom Powdrill, London-based access to directors” that managers term ownership in mind and who achieves that balance,” adding that investors and encourage them to be head of stewardship at corporate currently have may change under are “strong drivers of the ethos of the announcement “should encour- good and active stewards, the explic- governance and shareholder advi- dual-class structures,” RLAM’s Ms. the business, its purpose, its culture” age more innovative and pioneer- it purpose of dual-class structures is sory firm Pensions & Investment Hamilton Claxton said. “If we want on board as a company matures to ing businesses to list in the U.K.” n

when a person or entity is taking on sure that their investment profes- not create incentives that under- bones of the exemption look like it fiduciary responsibilities. The rule sionals satisfy the fundamental mine compliance with the best in- will be with us now for quite a long Advice was struck down in federal court in obligation to provide advice that is terest standard. And they make clear time.” 2018 due to regulatory overreach. in the retirement investor’s best in- that, while strong supervision is Mr. Mason said that even minor CONTINUED FROM PAGE 1 Also in June, the Labor Depart- terest,” the Labor Department stat- necessary to address conflicts, it is changes in guidance can present big toward those providers that are re- ment stated that its previous analy- ed. To do so, “financial institutions not a replacement for steps to re- challenges for firms. “The biggest lying on, or are planning to rely on, sis — a 2005 advisory opinion known must be careful not to use quotas, duce or eliminate the harmful in- takeaway here is any short-term ef- the exemption. It includes back- as the Deseret Letter, which found bonuses, prizes, or performance centives.” forts to comply with this exemption ground information, compliance that rollover advice did not consti- standards as incentives that a rea- Another segment of the FAQs in- are going to be aiming at a moving dates and the definition of fiduciary tute investment advice — was incor- sonable person would conclude are dicated that financial institutions target,” he said. “Whatever you were investment advice under ERISA, as rect. likely to encourage investment pro- should “avoid compensation that is working on is going to have to re- well as 12 frequently asked ques- In the FAQ this month, the Labor fessionals to make rec- likely to incentivize in- fined periodically as they give more tions about complying with the ex- Department said it will not delay the ommendations that are vestment professionals guidance.” emption. application of its interpretation re- not in retirement inves- to recommend one in- Ms. Eller likened the potential for In one of its FAQs, the Labor De- lated to rollover advice. Previously, tors’ best interest. The vestment product over additional guidance or a new partment outlined the types of anal- in the exemption’s preamble, the financial institution another comparable rule-making effort to learning to ysis financial institutions must un- Labor Department said it would not should aim to eliminate product based on the juggle with the items already in the dertake to determine whether a pursue claims for breaches of fidu- such conflicts to the ex- greater compensation air. Using a different metaphor, she rollover is in a customer’s best inter- ciary duty or prohibited transactions tent possible, not create to them or their finan- said, “If I’m starting down the road est, including weighing the long- when the Desert Letter was in effect them.” cial institutions.” Steven of compliance and I think that road term impact of any increased costs. — 2005 to February 2021. But now, Kent Mason, a part- W. Rabitz, New York- is a mile long and four months from It also said that a “single, discrete “Having disavowed the Deseret Let- ner with law firm Davis based partner at De- now or four days from now the de- instance of advice to roll over assets ter both in its 2016 rulemaking and & Harman LLP in POSES ISSUES: Kent chert LLP, said that will partment says, ‘No, no it’s a mile- from an employee benefit plan to an its 2020 exemption, the department Washington, said the Mason sees problems likely “be taken as a re- and-a-half long,’ that has a real im- IRA” would generally not give rise to does not believe additional exten- conflicts of interest por- with the FAQ’s conflicts minder that the exemp- pact on whether I would’ve started investment advice, but reiterated a sions are warranted or protective of tion of the FAQ goes of interest portion. tion’s focus is on con- down that road in the first place.” point it made in the exemption’s plan participants’ interests in sound further than the pream- flicts at both the For Ms. Roper, the guidance is a preamble: that rollover advice can advice,” it said in the FAQ. ble in some respects and presents franchise and the investment pro- good first step, but further action be considered fiduciary advice so Jennifer Eller, a Washing- problems for financial professionals. fessional level.” will be needed to deliver real protec- long as the other conditions of the ton-based principal at Groom Law Under the FAQ, “arguably any so- In announcing the new guidance, tions to retirement investors. five-part test are met. Group and co-chairwoman of the licitation of a rollover would run the Labor Department said it is con- “In particular, DOL still needs to When proposing the exemption firm’s retirement services practice afoul of it,” Mr. Mason said. “When I tinuing to review issues of fact, law undertake rule-making to close loop- in June, the Labor Department also group and fiduciary practice, said, “If solicit a rollover and obtain it my and policy related to the exemption, holes in the definition of fiduciary announced a final rule reinstating you were relying on Deseret as the compensation goes up, so that gives and more generally, its regulation of investment advice and incorporate the five-part test used to determine reason why you weren’t a fiduciary, me an incentive to solicit rollovers; fiduciary investment advice. the Impartial Conduct Standards” — whether an investment professional now you don’t have that ability.” how do I square that with this lan- George Michael Gerstein, a best interest standard, a reasonable or financial institution is a fiduciary. The Labor Department in its guage in (the FAQ)?” co-chairman of the fiduciary gover- compensation standard and a re- It was in 2016 that the Labor De- FAQs also explained how advisers Barbara Roper, Pueblo, Co- nance and ESG groups at Stradley quirement to make no materially partment under the Obama admin- must mitigate conflicts of interest lo.-based director of investor protec- Ronon Stevens & Young LLP in misleading statements — “into relat- istration finalized a rule, commonly under the exemption. tion at the Consumer Federation of Washington, said if there is more ed exemptions. Without that, firms known as the fiduciary rule, that “Financial institutions must take America, said in an email that the guidance on this issue it will likely will continue to find ways to work aimed to replace the five-part test special care in developing and mon- Labor Department “is sending a very “be like these FAQs, which maybe around these rules. I’m confident the by broadening the definition of itoring compensation systems to en- strong message that firms should add a little bit more detail, but the folks at DOL are aware of that.” n Pensions & Investments April 19, 2021 | 27 CHANGES AHEAD squeezes (re: GameStop) and dow-sensitive events generally ar- forced liquidations as to their effect en’t relevant to pension funds be- Anomalies on active portfolios,” Mr. Neumann cause most have much longer Weymouth (Mass.) Retirement System is searching for a S&P 500 said, adding “our concern is that the intermediate- to long-term invest- CONTINUED FROM PAGE 3 index manager to run $30 million to $35 million and an active international environment in equities is not hold- ment horizons.” growth equity manager to run between $18 million and $25 million. “GameStop was less an anomaly ing sway to say the least. Thus stock Pension funds contacted for this Fiducient Advisors, investment consultant to the $240 million defined and more about a change in market picking is difficult and the short story agreed. benefit system, is assisting in the searches. The RFPs are available on behavior. It’s something to watch in side perhaps more dangerous than David Veal, CIO of the $3.2 bil- Fiducient Advisors’ website. Proposals for the passive equity search are the future,” said Craig G. Bergstrom, previously as there are crowded lion City of Austin (Texas) Employ- due by 4 p.m. EDT April 27; proposals for the international equity search managing partner and CIO of alter- longs and shorts.” ees’ Retirement System, said in an are due by 4 p.m. EDT May 11. natives manager Corbin Capital Regarding Archegos, Mr. Neu- email that his investment team has Partners LP, New York. mann wrote that the “sheer amount been watching the GameStop and Plymouth (Mass.) Retirement System is “Archegos was about the dangers of money lost by the slower to liqui- Archegos situations “through our HAVE SOME NEWS? searching for a passive S&P 500 index of leverage and GameStop was a re- date (prime brokerages) is clearly risk-management framework. We Please submit news manager to run $20 million to $30 million, an minder about the dangers of short- going to have rippling effects at view both as symptoms of a broader of changes to David active international growth equities manager ing. The lessons learned from Game- these organizations and in the in- trend toward greater liquidity and Schepp, news editor, at to run between $6 million and $18 million and Stop were a reminder of the poten- dustry. The question is will this leverage in the financial system, dschepp@pionline. an active international small-cap equities tial of unlimited loss, the new impact bring about more an industrywide which is in turn a source of system- com manager to run between $5 million and $12 of social media, reasons to beware deleveraging that will in turn move atic risk that bears watching.” million. Fiducient Advisors, investment disclosure of short positions and valuations back to more fundamen- Massachusetts Pension Reserves consultant to the $215 million defined benefit system, is assisting in the crowded short positions,” he added. tally supportable levels?” Investment Board, Boston, for ex- search. The RFPs are available on Fiducient’s website. Proposals for the Corbin Capital managed $8.1 bil- Archegos’ inability to meet its mar- ample, would not change its portfo- passive search are due 4 p.m. EDT April 27; proposals for the growth lion as of March 31, $5.5 billion of lio management because of the strategy are due at 4 p.m. EDT May 11; and small-cap proposals, 4 p.m. which was in hedge funds-of-funds GameStop and Archegos incidents EDT May 18. strategies. given its long-term investment mantra, said Eric R. Nierenberg, The Colorado treasurer’s office is searching for an investment Risk control is key chief strategy officer. However, as consultant for the state’s secure savings program. Colorado Gov. Jared Adam B. Blitz, founding partner, with many risk-management is- Polis signed into law on July 14 a bill establishing the statewide secure CEO and CIO of alternatives man- sues, the PRIM team is having “dai- savings program for all private-sector employees in the state not currently ager Evanston Capital Management ly and even hourly conversations” enrolled in a retirement plan. The RFP is available on the state treasurer’s LLC, Evanston, Ill., said that “it all as the investment team “studies website. Proposals are due 1 p.m. MDT April 30. came down to risk control for both what’s going on in the markets. Tak- market events” and agreed with Mr. ing action is another thing; long Plymouth County (Mass.) Retirement Association is searching for Bergstrom that the impact of the term, it’s not indicative that there a core fixed-income manager to run about $60 million for the $1.2 billion GameStop trading activity was will be more market stresses,” Mr. pension fund. Meketa Investment Group, the retirement plan’s investment more serious “in a risk-manage- Nierenberg said. consultant, is assisting with the search. The RFP is available on Meketa’s ment sense.” MassPRIM managed $87.5 bil- website. Proposals are due at noon EDT on April 30. In the case of the retail trading PAY ATTENTION: Craig G. Bergstrom says lion in defined benefit plan assets blitz around GameStop, Mr. Blitz the market behavior around GameStop as of Feb. 28. Watertown (Mass). Contributory Retirement System is looking to said “short squeezes are really is ‘something to watch in the future.’ The Florida State Board of Ad- allocate $40 million to $50 million to an active international core equities problematic if a hedge fund’s long ministration, Tallahassee, “regularly strategy. Fiducient Advisors, investment consultant to the $250 million positions are also going down and gin calls in late March as the lever- monitors broad market dynamics defined benefit plan, is assisting with the search. Proposed strategy should the manager has to liquidate both aged stocks it held lost value result- and events to assess general mar- have a large-cap bias. The board may select more than one manager. The long and short positions at the same ed in the forced liquidation of more ket risk and the impact that risk RFP is on Fiducient’s website. Proposals are due 4 p.m. EDT May 4. time. It’s all about risk management than $20 billion in stock positions may have on our specific invest- and prudent levels of exposure so linked to the company in late March. ments, investment partners and Citizens Information Board, Dublin, is searching for a multiemployer you aren’t forced to make changes Credit Suisse Group AG, Zurich, counterparties,” said Alison Roma- plan provider to set up and manage the retirement assets of its contractor and crystallize losses.” Switzerland, said it expects to take no, deputy CIO, in an email. companies’ employees, a spokeswoman said. CIB, Ireland’s governmental Evanston Capital managed $4.1 a 4.4 billion Swiss francs ($4.7 bil- She added that “when we make body that provides information, advice and advocacy on public and social billion as of March 31, most of lion) loss from Archegos’ inability to new investments in any investment services, has 22 supplier companies for which it will provide a retirement which was in hedge funds of funds. meet margin commitments in late structure, we closely evaluate both plan. The selected provider will supply an outsourced, cost-effective Investment consultant Sussex March. the sources of investment and op- multiemployer plan solution, known as a master trust, to manage the Partners U.K. Ltd. attributed “the erational risk and the guidelines retirement assets for employees of these companies. Its value is expected abundance of liquidity that has Long-term investor reaction and processes by which those risks to reach €20 million ($24 million) within the first year. All employees will be flooded the market” for making As for institutional investor reac- are mitigated and managed. The enrolled into the default option. Applications should be sent by 3 P.M. GMT events like GameStop and Ar- tion to extralimital market turmoil, Archegos situation does not change on May 6 via an Irish procurement website. chegos actions more likely, said Verus’ Mr. Toner said “it’s not typical our approach.” James A. Neumann, the firm’s New for an institutional investor to make The SBA managed a total of $244 Los Angeles Fire & Police Pensions is searching for a non-discretion- York-based CIO, in an email. changes in reaction to market ac- billion as of April 7, $190 billion of ary private credit consultant to assist the board in the development of a “We have been asked by inves- tions like those caused by Archegos which was for the Florida Retire- newly created private credit portfolio. The $28 billion pension fund issued tors about the effect of the short or GameStop. These time-win- ment System. n the RFP following the creation last June of a new 2% private credit target allocation. The RFP is posted on the pension fund’s website. Proposals are due at 4 p.m. CDT on May 7. SEC examiners also found proxy practices. “Where compliance per- voting practices inconsistent with sonnel were integrated into firms’ Louisiana Teachers’ Retirement System, Baton Rouge, is searching Risk alert stated approaches or misleading ESG-related processes and more for an active emerging markets debt (local currency) manager to run up to statements about clients’ ability to knowledgeable about firms’ ESG CONTINUED FROM PAGE 4 $300 million. The solicitation for proposal is available on the $24 billion vote on ESG-related proxy propos- approaches and practices, firms pension fund’s website. Proposals are due at 4:30 p.m. CDT on May 10. not implement them, or failed to als. were more likely to avoid materially document clear ESG-related in- In addition to misleading mar- misleading claims” and have more Maryland 529, Baltimore, is searching for an investment consultant. The vestment decisions. keting materials, SEC examiners meaningful review of those, as well board that oversees the state’s two 529 plans and a savings program for Recent SEC exams also found found that some ESG advisers as testing of ESG-related proce- people with disabilities issued an RFP because the contract of current compliance programs not well-de- “touted favorable risk, return and dures and implementation. consultant Marquette Associates is expiring, spokeswoman Michelle signed to guard against inaccurate correlation metrics” but did not dis- The division’s advice to clients Winner said. The plans have combined assets of more than $9 billion. The ESG-related disclosures and mar- close significant expense reim- and investors is to check that dis- RFP is available on the board’s website. Proposals are due at 2 p.m. EDT keting materials or prevent viola- bursements from fund sponsors so closures, marketing claims, and on May 14. tions of SEC regulations, and a lack returns were inflated. other public statements jibe with of controls to match clients’ ESG-re- The examiners also found exam- internal firm practices, and that For a comprehensive database of search and hiring activity, visit P&IQ at PIon- lated investing guidelines, man- ples of good practices in place, with firms implement ESG investing line.com/piq. dates, and restrictions, such as neg- compliance personnel knowledge- consistently with appropriate over- ative screens. able about specific ESG-related sight and documentation. n

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