July 12, 2021 PIonline.com $16 an issue / $350 a year THE INTERNATIONAL NEWSPAPER OF MONEY MANAGEMENT Pension Funds David PlunkertDavid GPIF pays out record fees for fiscal year Money managers share in big alpha gains under fund’s performance-fee structure By DOUGLAS APPELL GPIF fees ¥61.1 Money managers gar- skyrocket billion nered a record ¥61 billion ($553 million) in fees man- aging the Government Pension Investment Fund’s ¥186.2 trillion port- ¥31.9 SPECIAL REPORT TECHNOLOGY IN MONEY MANAGEMENT folio — roughly half of Ja- ¥29.5 billion pan’s pension assets — for billion the fiscal year ended March 31. Further digitization on the horizon for investing Those outlays easily topped the previous re- in their personal lives and their consumer MORE ON cord of ¥48.7 billion for the More improvements in tech FY 2018 FY 2019 FY 2020 lives, and the gap between how they deal with TECHNOLOGY year ended March 31, 2018. for investment management that technology in their investing lives, are IN MONEY At the April 2018 start of expected in next two years quickly closing,” said Sudhir Nair, managing MANAGEMENT the following fiscal year, GPIF moved to achieve a better align- director, global head of Aladdin business in n Washington board ment of interests with its external managers, instituting higher targets $7 million for By RICK BAERT BlackRock Inc.’s solutions unit, New York. performance fees but only passive payouts for managers that “That is creating incredible change.” technology. Page 16 fail to top their benchmarks. Institutional money management’s use of Added Thomas Kim, CEO of fintech software n Pandemic shines The year the new system went into effect, GPIF’s fee payments technology is expected to burgeon in the next provider Enfusion Ltd. LLC, New York, “Today, spotlight on benefits plummeted to ¥29.5 billion before rebounding slightly to ¥31.9 two years, with that growth driven by a better everything is centered around data — access- of tech. Page 17 billion for the year through March 31, 2020 — roughly 2 basis understanding of what to do with it, sources said. ing it, using it, extracting insights from it — and n Data growth in points of the weighted average of the portfolio’s holdings. “The difference between people’s experi- in the next two years, there will be much more industry leads to GPIF’s then-chief investment officer, Hiromichi Mizuno, in- ence with how they interface with technology CONTINUED ON PAGE 16 skills gap. Page 10 sisted the world’s biggest pension fund wasn’t intent on lower- ing fees and stood willing to | SEE GPIF FEES ON PAGE 32 Private Equity ESG Firms turn to roll-ups Panel: Investors should view diversity as a strategy to find instant growth By SOPHIE BAKER Including diverse money managers in an in- Strategy employed to bypass paying high vestment portfolio should be viewed as an alpha prices to purchase portfolio companies play, investment executives say. Speaking at the second in a series of Pensions By ARLEEN JACOBIUS & Investments virtual round- RELATED tables on June 22, panelists Private equity firms with a record $1.6 trillion in dry CONTENT discussed the benefits that powder are leaning heavily on roll-up strategies as a way of To view video from hiring diverse or emerging avoiding high purchase prices for portfolio companies. In- the roundtable, go money managers — such stead, they are buying smaller, cheaper companies — espe- to pionline.com/ as those that are minority-, cially in the wealth and alternative investment manage- diversity women- or disabled per- ment and insurance sectors — and merging them for son-owned — can bring to instant growth. an institutional investor’s overall portfolio. Private equity-backed deals including roll-ups have been “It is about being a good fiduciary,” said Ange- on a tear since the fourth quarter of 2020, despite a pause la Miller-May, CIO at the Public School Teachers’ in transactions in the earlier part of 2020 when valuation Pension & Retirement Fund of Chicago. “Diversi- uncertainties caused by the pandemic drove private equity ty should be looked at as a strategy like (an) ESG BE A GOOD FIDUCIARY: Angela Miller-May, clockwise from upper left, Jasmine N. players to the sidelines. So far in 2021 to July 7, there were SEE DIVERSE ON PAGE 30 Richards, Rupal J. Bhansali and Gilbert A. Garcia participated in P&I’s roundtable. 1,741 roll-up transactions | SEE ROLL-UPS ON PAGE 33 SOUND BITE AMG adds Parnassus amid slew of M&A Minnesota State Board of Investment’s Affiliated Managers Group’s Mansco Perry III stressed his summer deal for a majority stake in reading list has ‘NOTHING about the ESG-dedicated manager investments.’ READ MORE ON PAGE 3 was one of a number of recent transactions. Page 19 2 | July 12, 2021 Pensions & Investments IN THIS ISSUE Pension Funds VOLUME 49, NUMBER 14 USS IM focused on in-house fixed income U.K.’s largest pension The fund is currently the subject of proposals, reviews and commen- fund works to increase taries due to a ballooning deficit. On a technical provisions basis, the internal management deficit grew to between £14.9 bil- lion and £17.9 billion as of March By SOPHIE BAKER 31, 2020, depending on the scenario used to value the shortfall — from The COVID-19 pandemic and its £3.6 billion as of March 31, 2018. effects are not slowing down USS Current proposals from the pen- Investment Management Ltd.’s sion fund include increasing the fixed-income executives fromlevel of employer and participant achieving their aim of more inter- contributions. nal money management. Even with potential changes on Not only are plans moving ahead, the horizon, the fixed-income team but the pandemic also gave the is marching on with its tasks. “I’m team the opportunity to execute building the team so that we can some huge trades. run a greater proportion of the as- USS IM is the in-house manager sets in-house — that’s very useful 18 for the U.K.’s largest private pen- for us as the scheme continues to sion fund, Universities Superannu- mature,” said Ben Clissold, head of ESG ation Scheme, London, which had fixed income and treasury in Lon- about £82 billion ($111.3 billion) in don, in an interview. “We can deliv- Two Republican senators expressed assets as of Dec. 31. The majority of er better value for money for mem- concern that Thrift Savings Plan managers assets is held in a defined benefit bers and better alignment with the BlackRock and SSGA are putting ESG and plan, with the remainder in a de- long-term challenges we face.” EVOLVING: Ben Clissold called an internal fixed-income team ‘very their CEOs’ “left-leaning” priorities ahead of fined contribution plan. SEE USS IM ON PAGE 35 useful’ as the pension fund continues to mature. their fiduciary duties. Page 6 Although the industry is paying increased ESG attention to diverse money managers, concerns remain for the future of minority- owned firms. Page 31 DEI resolutions make strong proxy showing Hedge funds Number of proposals nearly for those pro- proposals received majority support. Hedge fund allocations rose in the first half posals, averag- Many shareholders also pressed com- of 2021, as investors sought returns and doubles to 143, while support ing 61.6% for panies for demographic data and more diversification to offset low fixed-income ones addressing transparency about how diverse they are. yields. Page 4 jumps to record vote levels diversity and “Transparency is always very helpful inclusion at the moving the needle,” Mr. Michael said, Investing By HAZEL BRADFORD workforce level, and a continued focus by institutional in- Emerging markets have become a victim and ones target- vestors on the diversity of company of China’s success in 2020, with investors Investor demand for companies to ing board diver- boards “did wind up playing a big role underweight as recoveries trail developed commit to diversity, equity and inclusion sity averaging this proxy season.” markets. Page 6 was a highlight of the latest proxy season. 62.6% share- There were lots of majority votes, said “Some of the biggest votes that we have holder support. Mr. Wilson of Calvert. “The reason is, you Money management seen” were for shareholder proposals on BIG SUPPORT: John One new cat- are seeing some of the largest investors DEI, said John Wilson, vice president and Wilson said the largest egory this sea- start to support these proposals. You are Jonathan Little is used to building director of corporate engagement for investors are beginning to son was pro- starting to see a norm emerging, and that’s businesses from scratch, but doing it in the Calvert Research and Management in back diversity proposals. posals asking great.” His firm has been advocating for middle of a pandemic is a totally different New York, with $31.8 billion in assets un- companies to more diverse corporate boards for years. thing. Page 18 der management. undergo independent racial equity au- This year, Calvert changed its proxy voting The purchases of Parnassus Investments, According to proxy firm Institutional dits. Of the 20 filed, 12 wound up on bal- guidelines so that any board with less than Stone Harbor Investment Partners and PFM Shareholder Services Inc., activism for lots and they averaged 30.4% support, 40% diverse members, by gender or race, Asset Management were part of a flurry of DEI in the form of shareholder proposals “which for a new proposal is quite signif- does not get its support. M&A activity the past two weeks.