GPIF Pays out Record Fees for Fiscal Year Money Managers Share in Big Alpha Gains Under Fund’S Performance-Fee Structure

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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 managing 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 lowering 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 billion 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. Page 19 nearly doubled in just one year, with 143 icant,” said Fassil Michael, head of It helps that Calvert has internal research proposals in 2021 compared with 74 in thought leadership for ISS governance on the economic benefits of a diverse com- Departments 2020. It also found record levels of support solutions in Rockville, Md. None of the SEE PROXY ON PAGE 29 At deadline ��32 Frontlines ��8 By the numbers ��14 Hirings ��26 Sovereign Wealth Funds Changes ahead ��35 M&A roundup ��19 DC roundup ��12 Other views ��10 Editorial ��10 Future Fund’s hunt for alpha will mean boosting staff Entire contents ©2021 Crain Communications Inc. All rights Patrick T. Fallon/Bloomberg reserved. Pensions & Investments (ISSN 1050-4974) is published By DOUGLAS APPELL SHIFTING biweekly by Crain Communications Inc., 150 N. Michigan Ave., Chi- cago, Ill. 60601-7593. Periodicals postage paid at Chicago, Ill. and GEARS: at additional mailing offices. Postmaster: Send address changes Australia’s Future Fund will nearly dou- Raphael Arndt to Pensions & Investments, Circulation Dept., 1155 Gratiot Avenue, ble its investment staff over the next three cited the Detroit, Mich. 48207-2912. $16 per issue; $350 per year in the U.S.; $375 per year in Canada; all other countries $475. ‘‘Canadian years to position itself for a post-pandemic pandemic as Post International Publications Mail Product (Canadian Distribution) environment where the pursuit of alpha will creating ‘deep Sales Agreement No. 0293539’’ GST #136760444. Printed in U.S.A. increasingly overshadow beta. and lasting Some observers came away from recent changes to CRAIN COMMUNICATIONS INC Senate testimony by Future Fund CEO Ra- economies and Keith E. Crain, Chairman phael Arndt convinced that the growth plan investment Mary Kay Crain, Vice Chairman would center on boosting the fund’s private markets’ that KC Crain, CEO markets manager selection team but that’s make seeking Chris Crain, Senior Executive Vice President not the case, said Sue Brake, chief invest- returns much Lexie Crain Armstrong, Secretary ment officer of the Melbourne-based more complex Bob Recchia, Chief Financial Officer A$178.6 billion ($135.4 billion) sovereign and challeng- G.D. Crain Jr., Founder (1885-1973) wealth fund, in a July 2 interview. ing. Mrs. G.D. Crain Jr., Chairman (1911-1996) Instead, with “bulk beta” unlikely to offer

Published every other Monday by Crain Communications Inc. the returns the fund requires anytime soon, Boston: 101 Federal St., Suite 1615A, 02110; Chicago: 150 N. Michigan Ave., 19th Floor, additional staff will be needed throughout 60601; London: 11 Ironmonger Lane, EC2V 8EY; El Segundo, Calif.: 400 Continental Blvd., 6th the organization to make up the difference 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. by extracting alpha — in many instances in- Address all subscription correspondence to Pensions & Investments, 1155 Gratiot Ave., Detroit, cremental gains — from anywhere in the agement of our balance sheet, it might be When Mr. Arndt told senators in late May Mich. 48207-2912 or email [email protected]. portfolio it can be found, Ms. Brake said. better dynamic processes” — all things that that the fund is moving to focus more on “al- Member of Business Publications Audit of Circulation That points to a broader, more granular can get those extra few basis points of re- pha-seeking activity,” it was in this broader www.pionline.com alpha hunt. “That might be illiquidity, it turn that can make all the difference in this sense of, for example, “changing the dynam- might be complexity, it might be better man- kind of environment, Ms. Brake said. SEE FUTURE FUND ON PAGE 34 Pensions & Investments July 12, 2021 | 3

Defined Contribution

Industry: New Norman Bendell brokerage rules are not needed DOL seeks feedback to make sure those with DC self-directed accounts protected

By ROBERT STEYER

Self-directed brokerage accounts are the ERISA version of cicadas for de ned contribution regulations — they generate a bit of buzz periodically but then go quiet. Seven years ago, the DC industry made a lot of noise when the Department of Labor issued a 39-question request for information about whether brokerage accounts merited more federal regulation. The DOL didn’t act on the RFI, and the issue disappeared from view until late last month, when the ER- ISA Advisory Council held Summer Reading a hearing in which DC industry members testi- ed that additional regulation isn’t necessary and Grab a chair and enjoy these suggestions could be expensive and counterproductive. Some nance-related books on tap for P&I readers to the following Another public hear- books: John Grish- ing will be held Aug. 26- this summer, but still lots of escapist fare to peruse am’s “The Guard- 27, and the council will ians,” “Camino hold two public meetings By JAMES COMTOIS, ARLEEN clude “Bananas: How the United Fruit Winds,” and “A Time later this year to discuss JACOBIUS, ROB KOZLOWSKI and Company Shaped the World” by Peter for Mercy;” “The their ndings and rec- CHRISTINE WILLIAMSON Chapman and “On Food and Cooking: President’s Daugh- ommendations, which it The Science and Lore of the Kitchen” ter,” by co-authors will send to the Employee Biographies, history and escapist by Harold McGee. James Patterson Bene t Security Admin- fare ranging from popular ction to Those books are, respectively, “great and former Presi- istration. The council’s travel guides top the summer reading historical perspective on the intersec- dent Bill Clinton; membership includes rep- lists of readers of Pen- tion of U.S. commercial interests and David Quentin Voight’s “American resentatives from the sions & Investments. and Latin American geopolitics” Baseball Volumes 2 and 3.” NOT AN ISSUE: Alison Borland insisted public, employers, unions, and “the seminal cooking refer- Mr. Perry said he also intends to re- that ‘there’s no problem that needs to investment managers and ■ Ashbel C. “Ash” Wil- ence work used in CIA course- read Edward Bellamy’s “Looking Back- be xed’ by the Labor Department. other nancial rms. liams Jr., executive di- work (Culinary Institute of Ameri- ward: 2000 – 1887,” a utopian novel rst The council “will study rector and chief in- ca, not the secret agent CIA),” Mr. published in 1888 “if I can nd my 50- the nature and extent of disclosures that plan participants re- vestment of cer of the Williams said. plus year-old copy, which is stored in ceive, which plan participants use brokerage windows, and in $245.8 billion Florida one of over 100 boxes.” what manner,” says a notice on the council’s website. The DOL State Board of Admin- ■ Mansco Perry III, executive di- He stressed in his email that he is wants to know “whether guidance would be appropriate and istration, Tallahassee, rector and CIO of the Minnesota reading “NOTHING about invest- necessary to ensure that plan participants and bene ciaries will be reading Hank State Board of Investment, St. ments” this summer. with access to a brokerage window are adequately informed and Jan Taft and Curtis Rindlaub’s Paul, said in an email he is making up As of March 31, the Minnesota State and protected under ERISA,” the website says. book “A Cruising Guide to the Maine for lost reading time this summer Board of Investment managed a total Coast” this summer. “having failed at getting much reading of $116.9 billion, including $84.5 billion If it ain’t broke ... The book is for background re- done during the last two summers, de- in de ned bene t plans. In testimony to the council and in interviews with Pensions search for an August trip on Downeast spite having an ambitious list.” & Investments, of cials of DC trade groups and record keepers Charter Boat Tours based in Maine, Mr. “After being distracted by pandemic ■ Johara Farhadieh, executive director said the brokerage account system isn’t broken, so there’s no Williams said in an email. TV streaming,” Mr. Perry said his sum- and CIO of the $28 billion Illinois State need for more regulation. SEE BROKERAGE ON PAGE 34 Other books on Mr. Williams’ list in- mer reading endeavors will be limited SEE READING ON PAGE 30

A look at the Fed’s balance sheet The U.S. Federal Reserve acknowledged in ationary pressures last month, although it believes they are due to transitory factors caused by the economy’s reopening. Nevertheless, the central bank raised the possibility of higher short-term interest rates in late 2022 or early 2023. That makes this an opportune time to look at the central bank’s greatly expanded balance sheet.

Massive growth: The Fed Appetite for Treasuries: The Fed’s Major holding: The Federal Reserve held Patient approach: From 2015 kicked its asset purchases into high U.S. Treasury holdings sat at $5.2 trillion as about 22% of outstanding Treasury securities through October 2017, the Fed gear after the onset of the of June 30 vs. $2.3 trillion at the end of 2019. as of the end of the rst quarter, according to reduced assets by a negligible $25 COVID-19 pandemic in early 2020. The increase was mostly driven by longer-term data provided by SIFMA. In 2008, it held billion to $4.5 trillion and to $3.8 The size of its balance sheet was at government securities — Treasury notes and roughly 6%. After enacting various quantitative trillion by August 2019. The 10-year $8.1 trillion as of June 30, nearly bonds grew to $4.4 trillion from $2 trillion. Over easing programs during the Great Recession, Treasury yield peaked at more than 3% double the $4.2 trillion at the end the same period, mortgage-backed securities that gure approached 20% in 2014 before in 2018 before falling back to pre- of 2019. holdings increased 65% to $2.3 trillion. declining over the next ve years. tapering levels. As of July 9, the 10-year yield was 1.36%. Total Fed assets (trillions) Growth of Fed assets by category (trillions) Holders of Treasury debt by category 10-year Treasury yields $9 $9 FederalFederal MutualMutual funds: funds: 16% 16% Special facilities Loans Reserve:Reserve: Pension 3.6% $8 $8 22% Pension U.S. Treasury bills 22% funds:funds: 13% 13% 3.3% $7 $7 Individuals:Individuals: 3.0% TIPS 6% 6% 2.7% $6 $6 Financial 2.4% $5 Mortgage-backed securities Financial $5 institutions:institutions: 2.1% $4 5% 5% $4 1.8% $3 State & local 1.5% $3 State & local U.S. Treasury notes and bonds governments:governments: 1.2% $2 $2 5% 5% 0.9% $1 InsuranceInsurance 0.6% $1 cos.: 2%cos.: 2% 0.3% $0 Foreign:Foreign: $0 JMAMFJDNOSAJJMAMFJ 29% Other:Other: 2% 2% 0.0% ’20’19’18’17’16’15’14’13’12’11’10’09’08 ’21 2020 2021 29% ’2120202019201820172016201520142013 Sources: Federal Reserve; U.S. Department of the Treasury; SIFMA Compiled and designed by Larry Rothman and Gregg A. Runburg 4 | July 12, 2021 Pensions & Investments

Hedge Funds Micha Theiner Hedge fund investment jumps in part on prospect of inflation

By CHRISTINE WILLIAMSON tivity found in the first half of 2021, ford, terminating three hedge hedge fund hires totaled $3 billion funds-of-funds managers totaling Asset owners significantly in- compared with $1.7 billion in the $2.4 billion. creased the pace of hedge fund in- six months ended Dec. 31. Most of Hedge fund inflows year-to-date vestment in the first half of 2021 as the investments went to single May 31 totaled $39.1 billion with they sought returns as well as di- hedge funds. $12 billion coming in the month of versification to protect portfolios Terminations fell in the first May, data from eVestment LLC, from the potential of higher infla- half of 2021 to $70 million vs. a to- Marietta, Ga., showed. In contrast, tion, a rise in interest rates and tal of $3.7 billion in the second half eVestment reported hedge fund in- higher volatility. of 2020, which was highlighted by dustry outflows of $59.3 billion in BIG CONCERN: Luke Ellis said institutional investors are worried about inflation and Analysis of Pensions & Invest- the $40 billion Connecticut Retire- all of 2020. its effect on bonds, so they’re turning to hedge funds as a fixed-income substitute. ments’ reporting of hedge fund ac- ment Plans and Trust Funds, Hart- Money managers and investment consultants said the specter of potential macroeconomic changes ahead is pushing some institutional investors to seek safe havens, one of which is hedge funds. “The No. 1 topic institutional in- CONFERENCES vestors want to talk about is inflation, but what they really are talking about is their bonds. All institutional investors will be impacted if inflation rises because those bonds will go down in price a lot,” said Luke Ellis, CEO of Man Group PLC, Retirement Income London, in an interview. “If the Fed raises rates, the front end of the yield curve pushes up, or if they don’t raise rates, the bond market will sell off. Whether or not Virtual Series the Fed is directly responsible for interest rate increases, yields will be going up,” and that is challenging September 14-16, 2021 for bond portfolios, he said. The solution for a growing number of investors is to turn to hedge funds as a fixed-income substitute Emerging Trend: ERISA Litigation Update with a likely mix of low-net equity, credit and macro funds, Mr. Ellis 2020 was a record-setting year for litigation under ERISA with the U.S. Supreme Court said, noting that Man Group is seeing “very strong engagement with issuing more decisions than it has issued in a single year in the 45-year history of the investors globally” regarding the statute. Just over 200 new ERISA class actions were filed, an all-time record that use of hedge funds as a fixed-income substitute. represents an 80% increase over the number of ERISA class actions filed in 2019 and Man Group managed a total of more than double the number filed in 2018. $127 billion as of March 31. Sources also said positive hedge fund performance in 2020 amid the 2021 is looking to be just as active if not more! COVID-19 pandemic likely per- suaded more institutional investors to resume hedge fund investing in a Join P&I’s Retirement Income Virtual Series as variety of strategies in the second Jaime Santos, Partner in the Supreme Court and half of 2020 and to increase investment in the first six months of June Appellate Litigation practice and expert in ERISA 30. That’s expected to continue for Litigation at Groom Law takes us through current the remainder of this year. Data provider Hedge Fund Re- ERISA Litigation issues and shares insights on how search Inc., Chicago, reported that to best prepare for a possible audit: the HFRI Fund Weighted Compos- ite index returned 10% year-to-date • ERISA excess fee litigation: What should you June 30, compared with 11.8% for the full year of 2020. In a quar- be doing and documenting to prepare for a ter-to-quarter comparison, the possible audit HFR index returned 5.8% in the first three months of 2021 and 4% • Fiduciary responsibilities and good governance for the second quarter.

• DOL Guidance LACERA invests $850 million Among asset owners making large allocations to hedge funds was the $69.6 billion Los Angeles COMPLIMENTARY REGISTRATION AT PIONLINE.COM/RI2021* County Employees Retirement As- sociation, Pasadena, Calif. SPONSORS: LACERA’s board of trustees approved $850 million for direct investments in four hedge funds in the year ended June 30. The move was part of the wind- ing down of two hedge funds-of- Questions? For more details contact Kathy Stevens at [email protected] | 843.666.9849 or Gerry O’Hara at [email protected] | 212.210.0196. funds strategies that totaled $983 million in 2019 and now are an ag- *Only asset owners and a limited number of consultants are invited to attend. All registration requests are subject to veriﬁcation. gregate $91 million, said Chad P&I reserves the right to refuse any registrations not meeting our qualiﬁcations. The agenda for Retirement Income Virtual Series is not created, written or produced by the editors of Pensions & Investments and does not represent the views or opinions of the publication or its parent company, Crain Communications Inc. Timko, senior investment officer who is responsible for the $2.4 billion risk-mitigation hedge-fund SEE HEDGE FUNDS ON PAGE 32 Louwman Museum The Hague

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Investing Emerging markets pushed to the sidelines for now Managers holding off as yields in the first quarter and Chi- For the second quarter, net inflows the first quarter of 2021 and $45 In the first half of 2021, the MSCI na’s tighter monetary policy have dropped to $15.9 billion, following billion in net inflows in the fourth Emerging Markets index delivered China tightens policy, contributed to the underperfor- $68.4 billion in net inflows for the quarter of last year. a performance of 7.5%, below the mance of emerging market assets first quarter of 2021 and $44 billion While investors sought more ex- 13% recorded by the MSCI World vaccination rates lag vs. developed market assets so far in net inflows for the fourth quarter posure to risky assets, including index over the same period. The in 2021. of 2020, according to EPFR. emerging markets, in the second Emerging Market Bond Index By PAULINA PIELICHATA On top of that, developed mar- As of June 25, emerging markets half of last year and the first quar- Global Diversified returned -0.72% kets continue to ride the vaccine- bond funds saw an 11-week run of ter of this year, they have gradually year to date as of July 6, while the Emerging markets have become and stimulus-induced wave of pos- inflows come to an end as they dialed down their appetites in the local currency Government Bond a victim of China’s success in 2020, itive performance, marking these posted their biggest weekly out- second quarter of this year. Both in- Index-Emerging Markets Global with money managers and inves- regions’ recoveries and setting flow since early March, according vestors and fund managers moved Diversified returned -4.19% for the tors now underweight and pulling them further apart from emerging to EPFR. Figures were not avail- to reduce their exposure to emerg- same period. assets from equity and debt alloca- markets. able. At the end of the second ing markets due to fears that tighter Investors said they are now wait- tions as they watch and wait for Emerging markets equity funds quarter, investors had pumped $13 Chinese monetary policy will hit ing for more signals that emerging better times to resume. tracked by data provider EPFR billion in net inflows to emerging the country’s growth and its de- markets will do better before they The recovery in the U.S. dollar, ended the second quarter of 2021 markets bonds funds. That fol- mand for other emerging markets’ will move to an overweight position. an increase in safe-haven asset with a three-week run of outflows. lowed $11 billion in net inflows in commodities exports, EPFR said. SEE EMERGING ON PAGE 29

ESG

Introducing Digital HTML Reprints Senators press TSP managers A new way to share Pensions & Investments’ on fiduciary content with your digital community duty vs. ESG

By HAZEL BRADFORD

Federal Retirement Thrift In- vestment Board, Washington, completed its addition of State Street Global Advisors as one of two managers for three index funds, the board announced at its monthly meeting June 29. State Street now manages roughly $57 billion of the $762.3 billion Thrift Savings Plan. The contract to add SSGA was awarded in October 2020. Previously, the index funds were solely managed by BlackRock. Republican senators this month took aim at both managers. Two days after the board’s latest meeting, two Republican senators expressed concern that BlackRock and SSGA are putting ESG and their CEOs’ “left-leaning” priorities ahead of their fiduciary duties when it comes to proxy voting. In a letter July 1 to Federal Re- tirement Thrift Investment Board Acting Chairman David A. Jones, Sens. Pat Toomey of Pennsylvania and Ron Johnson of Wisconsin We're excited to oer the next level of article reprints! questioned the priorities of Black- Customize your P&I Digital Rock and State Street Global Advi- A stand-alone HTML link that will never be placed behind a sors, who between them manage HTML Reprints with: nearly $500 billion for the $762.3 subscription paywall. The HTML Reprint can be licensed to billion Thrift Savings Plan’s 6.2 mil- • Your corporate logo post to your website, share on social media, used in email lion federal employees and mem- • Highlighted quotes or bers of the uniformed services. correspondence, presentations and so much more. “We are concerned that Black- call-out boxes Rock and SSGA may be prioritizing • Custom hyperlinks within their CEOs’ personal policy views Select from news articles (print and digital), rankings, opinion over retirees’ financial security,” the pieces, editorials, awards and more. HTML Reprints have the article text letter said. The Thrift Savings Plan offers same look and feel as traditional reprints including photos, • Key contact details participants five investment funds: charts and infographics. • Photos four index funds and the G fund of specially issued Treasury securi- • and more... ties that is managed internally by the board. Both firms “are increasingly in- corporating left-leaning environmental, social and corporate governance (‘ESG’) priorities” into their Contact Laura Picariello at [email protected] proxy voting guidelines, the sena- or 732.723.0569 for pricing and details. tors said. They cited BlackRock’s recent voting guidelines to address ESG issues including transition to a low-carbon economy, diversity, SEE THRIFT ON PAGE 31 SAVE THE DATE

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FOW.pdf RunDate: 07/12/21 Full Page Color: 4/C 8 | July 12, 2021 Pensions & Investments FRONTLINES

ASSESSING POTENTIAL LOSSES INFORMED INVESTORS Tech startup helps quantify climate risk of assets Carl Juste/TNS SEC reaches out A team of economists and she mentioned this conun- climate scientists have launched a drum to Ashby Monk, fellow San Diego-based technology FutureProof co-founder and to educate and startup company that allows asset executive and research managers, banks, insurance director of the Global caution investors companies and financial regulators Projects Center at Stanford to calculate, assess and manage the University, he said that The Securities and Exchange Commission financial risks of real assets linked wasn’t just a quandary for wants to help make smarter investors. to climate change. homebuyers, but a situation On June 23, the federal agency launched a Launched with $3 million in that institutional investors public service campaign featuring videos and financing led by venture capital were dealing with as well. advertisements on investing basics, financial firms Innovation Endeavors LLC, “Our hope is that this planning tools, investment-specific explana- MS&AD Ventures Inc. and Black- puts a price on climate tions of everything from bonds to hedge horn Ventures, FutureProof change and quantifies funds and more. Technologies Inc. is a climate-risk climate risk and that in turn The SEC campaign is particularly focused analytics firm that uses artificial helps institutional investors on new investors, including underserved intelligence to project current and build more resilient communities, to let them know there is future financial losses on physical portfolios,” Mr. Monk said in somewhere to go for reliable and free properties related to climate change. the same interview. information for making financial and “We’ve been able to use AI to FutureProof’s projections investment decisions. project climate-related losses in cover multiple climate The SEC’s Office of Investor Education dollars and cents terms. We can scenarios from the present and Advocacy campaign also directs project damages to physical assets to the year 2100. current and future investors to its website, under different climate models,” In addition to providing said Alisa Valderrama, San users with the dollar value Diego-based CEO and co-founder of current and future of FutureProof, in a phone IMPACT: FutureProof uses artificial intelligence to project climate-relat- climate-related damages to interview. “We’re trying to help our ed damages to properties and help investors build stronger portfolios. physical structures and the users operationalize climate-risk probability of defaults and data in a way that’s similar to other risk Defense Council Inc. said the inspiration loss from defaults on mortgages due to data being used out there.” for FutureProof came about when she and climate, the subscriber-based service Ms. Valderrama, a former senior policy her husband were looking to buy a house offers the climate impacts on more than analyst at the non-profit environmental and found it difficult to learn the climate 50,000 public and private companies. advocacy group Natural Resources risks associated with the properties. When — JAMES COMTOIS INVEST WISELY: One campaign video emphasizes the importance of diversifying one’s investments. THE NEXT GENERATION little help from its friends. Assisting NAIC on the program www.investor.gov. The website first launched called the “NAIC Paradigm Changers” in 2009 is continually updated with infor- NAIC forms internship program are the American Investment Council, mation on investment products like digital the Robert Toigo Foundation and assets and shows how to check out an to diversify alternatives industry alternative investment firms IMB investment professional’s background, Partners, Palladium Equity Partners registration status and more. The National Association of LLC and TPG. AIC and Toigo helped An online calculator demonstrates the Investment Companies is on its way to place interns with more than a dozen power of compound interest, and one video creating “a pipeline of women of NAIC and AIC member firms. AIC and shows how easy it is to diversify a portfolio. color” for the private equity and hedge the three alternative investment firms Other campaign videos cover day trading; fund industries, a stated goal for its will each be taking on an intern. special purpose acquisition companies, or inaugural summer internship There are 16 pre-MBA, graduate SPACs; environmental, social, and gover- program. and undergraduate students from a nance investing; index funds; and fractional While women accounted for 20.3% diverse cross-section of backgrounds, shares. Fees get a lot of attention, too. of all people employed at alternative experiences and majors in Paradigm’s Fees for investment products and services, investment firms at the end of 2020, first class of interns. They include the website cautions, “may seem small, but only 12.2% of senior executives and Lillian Murtonen, who is working on a over time they can have a major impact on 6.6% of board members are female, bachelor’s degree in narrative studies your investment portfolio. Understanding the according to Preqin data. at the University of Southern Califor- fees you pay is important to investing wisely.” “The NAIC is proud to lead the way nia and is AIC’s intern; Colby Baylor, Recent investor alerts cover “the signifi- and blaze a trail for the next genera- who is pursuing a bachelor’s in cant risks of short-term trading based on tion of female leaders in alternative marketing at the Ohio State Universi- social media,” understanding margin ac- investments with this program,” said ty and is interning at TPG; and counts and the risks of leverage accounts. Carmen Ortiz-McGhee, NAIC’s chief Norquata Allen, who has a bachelor’s “Everyone should have access to accurate, operating officer, in a news release. in aerospace engineering and is useful information to help them invest for And the 50-year-old Washing- pursuing an MBA at Harvard Busi- their future,” said SEC Chairman Gary ton-based trade association for ness School. Ms. Allen is Apollo Gensler in the announcement. ‘BLAZE A TRAIL’: Sixteen students from diverse diverse- and women-owned private Global Management Inc.’s intern. — HAZEL BRADFORD backgrounds and majors form the first intern class. equity and hedge funds did it with a — ARLEEN JACOBIUS

POWER OF WORDS and are focusing on a program of customer procured a recruitment platform that makes service design using data. Interns will work resumes anonymous, reduces the potential for with a mentor, data expert and a NEST unconscious bias in the hiring process and NEST removes gender-biased language specialist acting as an end user. provides detailed reporting that can help to instill Christina Finlay, NEST’s director of data and future improvements, added the spokeswoman. from data analytics job descriptions analytics, has had a long career in data “Changing the demographic of an industry analytics and has been aware in previous roles takes action from all sides — encouraging National Employment Savings Trust, London, outcome-focused language, all applicants to of “gendered language used in many job ads,” women to apply for our data analytics intern- appointed five women to data analytics the roles were women. The exercise formed a spokeswoman said in an email. Ms. Finlay ships is just one step, but we believe it’s the internships after it removed gender-biased part of NEST’s work to help bring more women wanted to see whether using gender-neutral first step on a journey to move data analytics language from its job descriptions. into the male-dominated data analytics sector. language would attract a wider range of from a very masculine world, to one which more The £17.2 billion ($23.9 billion) multiem- The five interns are from the University of candidates. Ms. Finlay now intends on using accurately reflects the world we live in,” Ms. ployer retirement plan ran job descriptions for Manchester, England and were hired for the lessons from this round of appointments Finlay added in a NEST news release. new data analytics internships through a eight-week paid internships, starting at the end for other internships and data analytics roles. NEST worked on the initiative to open up data gender bias tool, showing that 95% of the of June. The women will be responsible for At a NEST-wide level, executives have already analytics to women with part of the University of words used were masculine — despite the developing and building NEST’s data analytics changed the recruitment and selection policy to Manchester, which aims to make quantitative internships being open to anyone. By changing capabilities. Plan executives are building a ensure there are gender-balanced interview social sciences in the U.K. more accessible. the wording and using gender-neutral and “data community” to maximize its resources panels at every stage. It has also recently — SOPHIE BAKER 5210514'& 5'%6+10

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Technology solutions can also re- increased allocation in alternatives, the market VJGPWODGTQHTGUQWTEGU duce errors and eliminate the resources needed to maintain Wturbulence sparked by the COVID-19 pandemic these complex models. further increased diversification into this asset class as a TGSWKTGFVQOCPCIGKPXGUVOGPVU way to achieve required returns in low interest-rate markets. “You can adjust models more easily, with today’s technology, At the same time, the pandemic served notice to limited KVCNUQRTQXKFGUOQTGJQNKUVKE to the portfolio change you’re considering, whether it’s an partners that while these asset classes have grown, they increase in allocation to private equity or adding a new asset don’t really have a good way to manage them, said Paymun EQPVTQNQXGTCP.2oUCNVGTPCVKXG class like infrastructure,” he said. “It’s all updated automati- Saket, managing director of LP products at technology cally now, so you can have the flexibility and speed to make solutions provider Allvue Systems. These factors have led to KPXGUVOGPVUVTCVGI[ decisions.” the demand for fast and flexible access to different types of data and information on alternative investments, accelerating Furthermore, market conditions are not static, and technol- a digital transformation in the alternatives space. information, Saket said. Technology allows an LP to not only ogy can help LPs understand the impact on their portfolios extract data, but to slice and dice it to suit their specific through scenario analysis. “LPs can monitor their liquidity “The need for better data solutions became even more ap- investment needs. “This lets LPs better track and access needs and prepare for situations that could impact their cash parent during the pandemic, when any delay in information highly-granular data on their investments without increases flow needs. Being able to leverage opportunities presented or data error in fast-moving, volatile markets could have huge in staffing, which may be cost-prohibitive to some. The re- to them during times of market turmoil is crucial.” implications for limited partners or institutional investors in sults are cost efficiency and improved workflow, eliminating private equity funds,” Saket said. potential errors at each stage of a deal.” COMPETITIVE ADVANTAGE Saket said he believes that the technology available to LPs LPs already faced challenges in understanding the risks “LPs can set specific workflows, ensuring consistent, quality will continue to improve, and those who embrace it will have in their portfolios and in potential future investments in data with checks and balances, including all required infor- a competitive advantage over their peers. the private markets. “Despite the challenges, however, formation before moving to the next step,” said Saket. “They ward-thinking LPs also saw 2020 as a unique opportunity to can also work off the cloud, accessing their data from any- “We’re going to see more value-added functionality and boost investments in alternatives, particularly those who had where without having to worry about safety and security.” capability in tying together all of these different workflows the liquidity to move capital quickly as opportunities arose,” and aspects that you have in the system,” he said. “Rather according to Saket. Another benefit of the current digital transformation of private than just grabbing data or visualizing data, it will be more equity deal data for LPs is the ability to look at a portfolio in analytical, with tools designed to check the accuracy and LPs with larger alternative asset exposures faced challeng- its entirety — including both public and private investments — validity of data. You’ll be able to track your investments es in measuring, tracking and monitoring their investments to see how much exposure they have to a specific industry from the moment you hear about them, pre-closing, all the — especially with a remote, distributed workforce, he said. or geography across asset classes. way to maturity. You’ll also have access to all updates, cash “You need to have a system that can handle all of the data flows, relevant documents, meetings and more, in one loca- that comes with alternative investments. You need to have “Traditionally it’s been difficult to get data from alternative tion. This will tremendously reduce the burden on investors, people to enter the data, make sure it’s accurate — and have investments and combine it with the rest of the portfolio,” allowing them focus more on portfolio construction and risk a way to consume this information to be able to make the Saket added. “Technology has made this process easy and, management, which will also be assisted by the new tech- right decisions about your investments.” in many ways, automated it, allowing LPs to understand their nology available to LPs.” In the past, the solution for many LPs was to outsource total exposures instead of looking at investments in silos. For LPs who want to access the new technology, either as a much of their data work, losing some control over it in the LPs are also able to consume external market data when renew purchase or to enhance their current capability for alter- process, Saket pointed out. Increasingly, though, LPs are viewing their alternative investments, bringing in benchmark- native assets, Saket advised they should consider not only turning to technology to bring data management in-house. ing and public market performance to better understand how the current needs of their portfolio, but also future needs as They can now use automation to help organize ever-grow- their investments are performing and where and to whom their investment universe expands. ing amounts of data and extract the relevant information they should be deploying capital.” necessary for them to understand and analyze current and For example, an investor might only need an accounting sys- future investments. Robust reporting, combined with data availability, will allow individuals on LP teams to drill down into the data and sort it tem now, but in the future their needs could expand to include a deal and a portfolio management system. “Some solutions BETTER MONITORING on various factors such as country, industry or asset class, he said. “This will allow them to answer questions as they might require you to buy additional systems or bring in an The availability of such solutions has also made it much easier arise and respond quickly to new opportunities, changes in additional provider,” Saket said. “So, it’s important to look for for LPs with smaller exposures to expand their allocation to the market, or questions from internal or external stakehold- a solution that’s flexible and can grow with you.” alternative assets across different geographies and to add ers without needing to request this data from another team strategies that were previously inaccessible, Saket said. member.” In addition, LPs should look for a technology partner that “LPs of all sizes can now also perform in-house tasks that understands the industries in which they invest. Data being were previously outsourced. Automation not only reduces SPEED AND FLEXIBILITY tracked for real estate investments will be very different than the number of resources required to manage investments, it those of private equity or timber. “It’s important to work with also provides more holistic control over an LP’s alternative The latest technology solutions not only organize and someone who has the depth and breadth of the knowledge of investment strategy, allowing LPs to focus on more value- surface relevant data, but they also do it at record digital the market,” Saket said. “Because they will know what you’re added activities such as portfolio construction, monitoring speeds. Information that might have previously taken days looking for and speak the same language as you.” ■ risk, and pipeline management.” or weeks for a human analyst to collect and quantify can be completed nearly instantaneously by an automated solution. Another reason that interest in technology has increased URQPUQTGFD[ among LPs is that the technology itself has improved dramat- Investors no longer need to build a model in Excel and can ically in recent years, making it possible to read quarterly, instead access technology solutions to quickly determine monthly, or daily statements and pull out the most important how a new investment will perform, or how various scenarios

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21pi0051.pdf RunDate: 07/12/21 Full Page Color: 4/C 10 | July 12, 2021 Pensions & Investments OPINION

Christopher J. Battaglia President and publisher, Pensions & Investments Joshua Suguitan Executive assistant to the publisher, special projects associate [email protected]

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 John Frost Audience engagement editor [email protected] 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] EDITORIAL Anthony Scuderi Directory manager Valerie Ge Research analyst

SALES & MARKETING Nikki Pirrello Chief operating officer The need to address biases to foster diversity Julie Parten Head of sales JULIE.PARTEN@ PIONLINE.COM n a two-part roundtable discussion in June, Pensions & Invest- problems. And so unless people think that investing is not a Lauren DeRiggi Digital specialist/account ments convened a group of executives from across the institu- complex problem to solve, I think diversity is sort of a must-have, not executive [email protected] tional asset management industry to consider how to accom- a nice-to-have.” REGIONAL SALES MANAGERS Anna Koules New York plish diversity, equity and inclusion and what benefits it brings While steps are being taken — through emerging manager pro- Steve Middleton EMEA +44-(0)77-1012-8464 to investors. grams and legislated diversification targets for some public pension Hideo Nakayama Asia (Tokyo) +81-3-3479-6131; It is clear from those conversations that work remains to be done funds — the roundtable speakers made clear that there are certain [email protected] T. NE.JP I — especially to address the barriers built into the systems — and biases baked into the system that need to be addressed. Among Eduardo de Alcantara Machado Sao Paulo, Brazil +55-11-3167-0821; [email protected] that fiduciaries should be considering the racial, ethnic and other those identified were track record and measurement of team tenures

CONFERENCES/MARKETING kinds of diversities of the managers they employ in order to ensure as a sign of team cohesion. Usha James Group director of conferences true portfolio diversification. Getting firms owned by minorities, women or individuals with [email protected] As Jasmine Richards, who leads diverse manager research for disabilities to the table can be difficult if asset owners demand a Kimberly Jackson Director of conference sales Diane Pastore Director of conference Cambridge Associates LLC, said: “The way that we see it is that 10-year track record or if their teams don’t have decades of tenure, programming diversity is an asset, a tool that particularly money managers use to all of which can undermine inclusion efforts. Joshua Scott Director of conference programming increase performance.” It is time for the smart, capable people in this industry to dig in Kathleen Stevens Investor relations director Gerry O’Hara Investor relations manager Ariel Investments’ Rupal Bhansali, CIO for international and global and find new evaluation metrics that enable all asset managers with [email protected] equities, made it clear why diversity matters, citing research from good ideas to compete on an equal footing for the trillions of dollars Michelle DeMarco Director of relationship marketing professor Scott Page at the University of Michigan that found in institutional assets in search of outperformance and all the Assel Chanlatte Conference marketing manager “diverse teams come up with better solutions to the most complex benefits of true diversification. n Mirjam Guldemond Conference manager, WorldPensionSummit +31-6-2333-2464 Kristal Santos Client services project manager Ashley Perrucci Associate manager, client partnerships OTHER VIEWS KEVIN POULTON Rachel Lopez Conference administrative assistant

CUSTOM CONTENT/CLIENT SOLUTIONS Gauri Goyal Director of content solutions Corina Lewis Client solutions senior program Growth of data in financial services has led to a skills gap manager David Joseph Research analyst [email protected] oney managers are addicted to Kevin Poulton is development teams each building their own Tetyana Saucedo Digital campaign manager data. Driven by a need to managing director of platforms from the ground up. Physical Deanna Speziale Senior marketing associate increase efficiency and effec- infrastructure, operating systems, databases, [email protected] product strategy at Fitch tiveness in their ability to make Learning, a professional analytics tools, reporting platforms — were SUBSCRIPTIONS/SITE LICENSES predictions, money managers training and development all customized and built-to-order. While Elayne Glick Director of audience marketing Mhave talked about, considered and held data firm, which is part of Fitch competitive advantage was achievable, this and acquisition science in thrall for much longer than other Group. He is based in approach was not conducive to generating Ed Gorman Director, EMEA/international site areas of financial services — and in much either scale or interoperability between licensing +44-(0)20-3823-9891 London. more depth. For decades, analysts and manag- systems. Without these two things there was Erin Smith Sales manager, site licenses ers have pored over numbers trying to ascribe no possibility of assembling the pools of big REPRINTS meaning. Some used “technical methods,” data needed to make viable the techniques Laura Picariello Sales manager others “fundamentals,” but the principles we are seeing now. were the same — look for patterns, signals briefly consider the technologies that under- In 2021, some of the core technologies that ADVERTISING PRODUCTION Robert T. Hedrick Media services manager and indicators that help predict the future pin the way we work with data and how these organizations use to produce vast volumes of 312-649-7836; [email protected] and generate value. have changed over time. data are now reaching venerable status, and Subscription information - single copy Regardless of this long and important we are living in the big data era. For example, sales: 877-812-1586 history, some fundamental changes have Looking back this year marks the 15-year anniversary of

TO CONTACT A P&I STAFFER happened in the last two decades that mean By in the early 2000s, data systems were cloud computing availability at scale and 16 Unless otherwise noted above, email us at we are only now seeing a new phase in the widespread and commonplace in financial years of mainstream Python adoption. These [email protected] or find way data are analyzed. services — often customized or developed tools might be obscure to those outside of the phone numbers at pionline.com/staff. To understand why that is, we need to in-house — powered by large and expensive technology industry, but these are major Pensions & Investments July 12, 2021 | 11 OPINION

OTHER VIEWS SONAL DESAI Figure 1: Divergence in the magnitude of scal stimulus measures between the U.S. and Europe U.S. and European country scal spending (as % of GDP), A tale of two recoveries in U.S. and Europe 2020/2021 (COVID-19 crisis) vs. 2009 (Global Financial Crisis)

28% has key global investment implications 26% 24% 2009 22% 2020/2021 he global with €750 billion ($914 extraordinary stimulus. 20% recovery is billion) almost equally ECB President Christine 18% underway, split between loans Lagarde has also insisted that 16% but it and grants. But it is withdrawing monetary stimulus 14% promises to much smaller than its would be premature at this stage, 12% Tbecome increasingly U.S. counterpart, and but internal divisions within the 10% uneven across regions was only agreed upon ECB’s governing council play an 8% and countries, which after very contentious important role and could under- 6% holds important negotiations among mine market confidence. Jens 4% investment implica- eurozone member Weidmann, head of Germany’s 2% tions. The divergence states. Bundesbank and a member of the 0% The U.S. Fed ECB’s governing council, warned U.K.U.S. Germany Austria France Italy Greece Ireland Norway Sweden Switz- Belgium Portugal between fiscal Sonal Desai is chief stimulus packages in recently acknowl- publicly at the end of June that erland investment officer of Source: Franklin Templeton Fixed Income Research; Atlantic Council; IMF; EC & ILLS; World Bank. edged that inflation there are upside risks to inflation the U.S. and Europe Franklin Templeton’s Data are as of March 10, 2021. Map uses IMF methodology which proportions EU Commission risks are now tilted to and that the central bank should spending to each individual country. and the more decisive, fixed-income group in the upside, but it has stand ready to reduce stimulus as supportive stance of San Mateo, Calif. the U.S. Federal made it clear that it soon as the pandemic emergency Reserve compared to wants to see much has been overcome. U.S. population had received at Overall, therefore, while the the European Central Bank stand more progress toward full Much like the economic policy least one dose, compared to only European economy has recently out as especially significant. employment, as well as evidence response, U.S. vaccination efforts 23% in Europe. picked up faster than expected, it U.S. President Joe Biden’s that inflation is set to run above have been faster and more As of early July, the U.S. share remains exposed to significant administration has agreed in its 2% target for some time before decisive and effective than had risen to 54% and Europe was downside risks; moreover, much principle with Republican it considers unwinding its Europe’s. By early May, 44% of the still lagging behind at 42% (though stronger fiscal stimulus, earlier Senators on a $1.2 trillion infra- Germany and Italy had caught up vaccination progress and a more structure investment bill and is with the U.S.). reliable supportive stance by the still pushing for an additional and Figure 2: COVID-19 restrictions easing in the U.S. As a consequence, U.S. states Fed imply that the U.S. recovery is similarly substantial spending while remaining stringent in Europe were able to start reopening their likely to significantly outpace plan on “human infrastructure.” economies this spring, while EU Europe’s. The Oxford COVID-19 Government Response Tracker: Stringency These plans come on the heels of countries were tightening their index, April 1, 2020 - April 12, 2021. 100 = most stringent the $1.9 trillion stimulus approved lockdowns yet again to bring Investment implications in March, which in turn followed 95 another wave of contagion under These divergences have approximately $3 trillion in 2020. U.S. control. EU countries have more important implications for 90 This represents an extraordinary Germany recently begun to ease restric- investment strategies and risk amount of stimulus for an 85 France tions, but this delay in normaliza- assessments. In the short term, economy which has already begun Italy tion together with the smaller there is less scope for inflation to 80 to roar back, compounded by an Spain fiscal support will inevitably result pick up in the eurozone, given the extremely loose monetary policy. 75 U.K. in a later and weaker EU recovery. delayed and less dynamic The U.S. stimulus looks like The surge in cases of the recovery — as confirmed by the overkill and might well have a 70 COVID-19 Delta variant, mean- recent inflation releases in the bigger and more durable impact while, has caused a delay in the U.S. and the eurozone. The 65 on inflation than the U.S. Federal U.K.’s reopening plans and homegrown uplift to bond yields Reserve hopes for. 60 triggered some new travel will be correspondingly weaker. There is no doubt, however, that restrictions in Europe; while This combination makes Europe- it will give a strong short-term 55 several EU countries have been an fixed income less exposed to boost to growth. 50 reluctant to hinder the summer duration risk than U.S. fixed The European policy response tourist season, there is a risk that income, and more attractive at the pales by comparison and remains 45 some activity restrictions might be margin; the slower normalization bedeviled by internal divisions. imposed anew in the fall when the also suggests a cautious approach 40 The European recovery package April May June July Aug. Oct.Sept. Nov. Dec. Jan. Feb. March April traditional flu season will also to the European corporate represents an important step Source: Blavatnik School of Government at the University of Oxford raise the baseline pressure on high-yield sectors more directly toward regionwide fiscal stimulus, health-care systems. SEE DESAI ON PAGE 18

examples of some key technological pillars amount of data available for them to work will support them changing their core ments of the future may well be staffed by that have allowed companies to produce on. It is only now that we have enough business models to financial technology data ethicists who monitor the organiza- and manage huge volumes of data about data available, in a scalable way, that they from banking services. tions’ data scientists to ensure appropriate their clients, suppliers, organizations and can be effective. behavior, particularly as legal frameworks their products over the last decade and Today, tools to query, interpret and make Skills gap struggle to keep up with the pace of change. more. Critically, they are scalable, freely sense of this sea of data are much newer One of the largest critical challenges to But even when it comes to immediately available and interoperable. Big data has than those to generate it and are just address is the availability of skills. For required skills, recent research has shown a become easy, reliable and available to all. reaching maturity — the most advanced example, Goldman Sachs Group Inc. recent- chronic shortage of data talent. In the U.K., This development has led to the viability of machine learning developer functionalities ly announced the opening of its biggest for example, it is costing organizations more data-analysis techniques that are funda- (tools like TensorFlow, the industry-stan- office in the U.K. outside London, creating than £2 billion ($2.77 billion) a year, mentally different from historical ones dard machine learning tool set) have only hundreds of technology jobs in Birming- according to Nesta, a non-profit organiza- — namely those based on machine learning. reached mainstream adoption in the last ham, England. In recent years, Birmingham tion that fosters innovation. The govern- few years. The very recent and rapid also became the home for 1,000 employees ment’s National Data Strategy is seeking to Impact on financial services availability of these tools has created from Deutsche Bank AG, mainly in back-of- establish the U.K. as a world-leading data It is hard to understate the importance opportunities and challenges — business fice and technology roles. Goldman is hiring economy and highlights the need for firms of these new techniques and the elevated expectations for what can be achieved by software engineers, data analysts and data to develop the core skills required to insight they provide for the financial-ser- data interpretation have increased thanks scientists to work on new ways of delivering analyze data sets and bridge the data-sci- vices industry. These techniques do not to the progress of leading, innovative financial services at the Birmingham base, ence skills gap, and this initiative has only provide direct answers to problems, technology start-ups. Yet, the relative due to open by the end of the year. Most relevance globally. but can act as accelerators and recommen- youth of the tools used to undertake this critically, these roles will not be working on It is now the skills gaps, not the technolo- dation tools to support human decisions interpretation at scale means that the skills customized services but common platforms, gy gap, that will challenge organizations in made by investment managers; they can to use them are not yet fully embedded in ideas and tool sets. the upcoming race to leverage data in the provide insight and economical analysis the workforce. Some of the skills required to deliver on investment management organization. n that open up mass-market decision-mak- Today, financial services organizations the data-science paradigm are not yet fully ing at all sizes of investment portfolio. The have high expectations of what can be apparent or widespread — a widely This content represents the views of the author. constraint of these tools, however, is that achieved with machine learning and other understood example of this skills gap will It was submitted and edited under Pensions & their effectiveness and their transforma- data-driven technologies. A common be the ongoing need to understand the Investments guidelines but is not a product of P&I’s tional ability is directly correlated with the ambition — and belief — is that these tools ethical use of data. So, compliance depart- editorial team. 12 | July 12, 2021 Pensions & Investments DC ROUNDUP

Supreme Court to hear ERISA case against Northwestern

The U.S. Supreme Court an- federal court in Asheville, N.C., on nounced July 2 it would hear oral behalf of participants in the AAA Growth Total assets: arguments in an ERISA case, Carolinas Savings & Investment IRAs see the largest growth of U.S. $34.9 Hughes et al. vs. Northwestern Plan and its successor, the Auto among retirement assets retirement $12.2 University et al., in which partici- Club Group Tax Deferred Savings assets by 35% pants in two 403(b) plans allege be- Plan, argues that defendants main- Over the past decade, U.S. retirement assets in vehicle ing charged excessive record-keep- tained “excessively expensive (trillions) 401(k)s and other defined contribution plans ing fees and high investment funds when superior alternatives IRAs option fees. existed,” and failed “to properly doubled to $9.6 trillion, while the category’s share The court provided no comment monitor” its advisers and record of total assets inched up to 28% from 27%. Over other than to say Justice Amy Coney keeper “allowing them to over- the same period, however, assets in individual Barrett took no part in the delibera- charge the plan with fees.” retirement accounts grew faster. At the end of tion. The case will be argued when The defendants named in the 2020, IRAs had $12.2 trillion in assets — up from $9.6 the court resumes work in October, suit are Carolina Motor Club (doing 28% although no date has been set. business as AAA Carolinas), Auto $5 trillion in 2010 — and made up 35% of total Total assets: $17.9 The plaintiffs submitted their re- Club Insurance Association, Auto assets, up 7 percentage points from 2010. 401(k)s and quest for court review in June 2020 Club Group, and individuals David $5.0 other DC plans Private defined benefit and government DB plans in assets after having suffered defeats at the Parsons, Tommy Burton, Shawn 28% District Court and appeals court Cherry, Carmen Mabe, Christina together saw their assets grow over the decade, of total levels. They asked the Supreme Johnson and Colin Campbell. but their share fell to a combined 30% from 37%. $4.8 $7.1 Court to hear their appeal, arguing Auto Club Group and AAA Caro- Annuities also lost ground, representing 7% of total 27% 20% that the ruling by the 7th U.S. Cir- linas announced their merger in retirement assets vs. 9% a decade ago. cuit Court of Appeals, Chicago, con- January 2020. Government DB plans flicted with ERISA opinions by oth- The complaint also contends that $4.1 er federal appeals courts, thus the defendants also cost partici- 23% creating a so-called circuit split. pants money by never putting Wells $3.4 The plaintiffs accused the fidu- Fargo’s record-keeping contract up 10% Private DB $2.5 plans ciaries of ERISA violations relating for rebid and allowing investment 14% $2.5 to, among other things, having too advisers Captrust Financial Advi- Due to rounding, asset breakouts may not equal totals and $1.6 Annuities 9% 7% many record keepers and too many sors and Wells Fargo to charge the percentages may not sum to 100%. investment options as well as plan “excessive fees and compen- Source: Investment Company Institute 2010 2020 charging excessively high fees. sation mechanisms, much higher The Chicago appeals court ruled than those warranted by the in March 2020 that a Chicago fed- amount of work these service pro- small-business owners that Pew the divestment needed will evolve the i-Sinar program announced in eral judge’s dismissal of the partic- viders were completing.” published in 2017. Roughly half over time, he added. November, allowing withdrawals of ipants’ claims in May 2018 was cor- Attorneys for the plaintiffs and (51%) of small and midsize employ- Assets are invested across nine up to 10,000 ringgit from Account 1 rect. “Any plan participant could an AAA spokeswoman could not be ers in that survey said they would strategies run by external manag- retirement balances, have come to avoid what plaintiffs consider to be reached for additional information. start their own plan rather than en- ers, the LifeSight Equity Fund and roughly 80 billion ringgit so far, the problems with those products roll workers in a state-sponsored the LifeSight Diversified Growth government documents show. ... simply by choosing other op- State-run plans might spur retirement program. Fund. With the new facility, total with- tions,” U.S. District Court Judge The most recent analysis is In July, LifeSight will also launch drawals by the end of 2021 could Jorge L. Alonso wrote in dismissing employers to start own based on 654,584 retirement plan a new investment option, the Cli- come to roughly 120 billion ringgit, the case. State-run retirement savings Form 5500 filings from 2013 to 2019. mate Focused Fund, which will ex- government estimates show. On May 25, the acting solicitor programs for private-sector work- clude companies with links to fossil For the three months ended general, Elizabeth B. Prelogar, filed ers could be encouraging employ- Hub International acquires fuels, instead focusing on firms March 31, the EPF reported a 1.8% a brief supporting the plaintiffs. ers to launch their own plans, ac- with lower carbon footprints. It will drop in investment assets to 981.7 The Northwestern fiduciaries cording to an analysis of Form 5500 Aegis Retirement Group invest in firms seeking to transition billion ringgit, with early withdraw- “offer no sound basis for denying filings conducted by Pew Charita- Insurance broker Hub Interna- their business models to the als contributing to the decline. review of the important and recur- ble Trusts. tional acquired retirement plan low-carbon economy or businesses An EPF news release June 28 ring questions raised by the peti- The non-profit found that in Illi- consulting firm Aegis Retirement that are solving environmental said the new facility is being intro- tion for a writ of certiorari,” Ms. nois, Oregon and California — the Group. challenges. The new equity fund duced “in response to the challeng- Prelogar wrote, referring to the three states that have begun enroll- Terms of the deal, which closed will be available to plan partici- es that EPF members are facing plaintiffs’ request. ing private-sector workers into June 1, were not disclosed. The ac- pants as an optional selection. The and was developed after careful She agreed with two of the com- their auto-IRA retirement pro- quisition of the Memphis, Tenn.- strategy will also invest in compa- consideration on how best to assist plaints made by the participants, grams — employers with retire- based firm adds 75 plan sponsors nies and projects that can help re- affected members while upholding who asserted that fiduciaries ment plans continue to offer them with about $500 million in assets to duce waste and pollution, as well as the EPF mandate.” “caused the plans’ participants to and those without plans are adopt- Hub’s client roster, a Hub spokes- improve biodiversity. pay excess investment-manage- ing new ones at similar or higher woman said. Deloitte announces ment and administrative fees rates than before the state pro- The transaction follows a string Malaysia offers workers new when (fiduciaries) could have ob- grams started. of acquisitions Hub made this year, big sustainability move tained the same investment oppor- New plans as a percentage of including most recently Epstein Fi- bite at retirement accounts Deloitte LLP, London, will intro- tunities or services at a lower cost,” existing plans nationwide climbed nancial Services, an East Long- Malaysian Prime Minister duce a new default fund that places she wrote. 2 percentage points to nearly 8% in meadow, Mass.-based registered Muhyiddin Yassin announced yet a greater focus on sustainability, a Ms. Prelogar’s comments also 2019 from roughly 6% in 2013 investment adviser firm it pur- another early withdrawal facility spokeswoman confirmed. suggested that the Supreme Court when state-run retirement pro- chased in June. from Employees Provident Fund About £1 billion ($1.4 billion) in should use this case to offer more grams were not around, Pew found retirement accounts as part of an defined contribution assets in De- clarity on how courts should inter- in its analysis. LifeSight commits to 50% emergency package for Malaysian loitte’s default fund will be shifted pret ERISA. New plan formation in Illinois, workers facing continued corona- into the Aberdeen Standard Invest- “The question of what ERISA re- Oregon and California showed a carbon reduction by 2030 virus lockdowns. ments Sustainable World Index quires of plan fiduciaries to control similar trend with the proportion of LifeSight, a U.K. defined contri- The new i-Citra withdrawal fa- Fund, she said. Assets are currently expenses is important to millions new plans holding steady or in- bution multiemployer plan, pledged cility will allow up to 12.4 million run in a global equity strategy. Fur- of employees throughout the na- creasing in each. In 2019, new plans to cut half of its carbon emissions in EPF participants under the age of ther details including the manager tion whose retirement assets are in Oregon and California grew by its default funds by 2030. 55 to withdraw a total of 5,000 ring- of the current passive fund were invested in ERISA-governed 10% and 9%, respectively, posting As part of its efforts to reach git ($1,203) — or 1,000 ringgit a not available. The change relates to plans,” she wrote. “And that ques- some of the highest proportions of net-zero carbon emissions by month over a five-month period — all 35,000 participants in the plan, tion frequently recurs.” new plan adoptions. In Illinois, new 2050, Willis Towers Watson’s mas- from their retirement savings in the which is run under the Standard plans as a percentage of existing ter trust, which has £10 billion national defined contribution sys- Life Master Trust. AAA towed to court over plans grew by 7%, slightly lower ($13.9 billion) in assets, will en- tem beginning in July. “This is the first step on the jour- than the national average. gage with portfolio companies dai- I-Citra is the third EPF early ney to improving the sustainability claims of ERISA breaches “This early evidence from Cali- ly on ESG issues such as climate withdrawal facility offered up since of our pensions, and we are commit- Participants of 401(k) plans fornia, Oregon and Illinois indi- change, human rights and respon- the global pandemic struck in the ted to continuing to review the funds sponsored by subsidiaries of AAA cates that auto-IRAs appear to sible supply chains. first quarter of 2020. being developed in the market so are suing the motor club federa- complement the private-sector The firm’s spokesman said some Withdrawals under the i-Lestari that we can provide the best options tion’s affiliates for allegedly making market for retirement plans such divestment might be needed where program announced in March 2020, to our members,” said Stephen imprudent decisions when manag- as 401(k)s,” wrote John Scott, direc- investments may violate interna- allowing EPF participants to take Griggs, Deloitte U.K. managing part- ing their retirement plans, thereby tor of Pew’s retirement savings tional norms and present reputa- 500 ringgit a month out from the ner, in a news release. “This change is costing plan participants millions of project, in the analysis. tional, regulatory or ESG risks that Account 2 balances usually set a result of direct feedback from our dollars, in violation of ERISA. The findings are consistent with are unlikely to be addressed aside for non-retirement needs people telling us that being a more The complaint, filed July 6 in the results of a national survey of through engagement. The size of such as housing and education, and sustainable firm matters to them.” INTERESTED IN SUSTAINABLE INVESTING?

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GFS-Fixed Income.pdf RunDate: 6/14/21 HOUSE Color: 4/C 14 | July 12, 2021 Pensions & Investments BY THE NUMBERS

PENSION RISK TRANSFER ACTIVITY MONTHLY CORPORATE FUNDING RATIO Annual volume by category (billions) Most recent transactions (millions) 105% $80 Type Sponsor Date Assets Total trans- Other ■ Commonwealth Bank of July 8 $583 100% June 2021: 95.8% Total transactions: Australia (UK) Staff Benefits $70 actions: 79 54 Scheme Lump-sum ■ Ladbrokes Pension Plan July 1 $583 95% $60 acceptance ■ Ridgeon Group June 30 $69 ■ Sonoco Products June 23 $900 90% $50 Lump-sum offer ■ QinetiQ Group June 17 $183 Total transactions: ■ John Good Group June 10 $24 85% $40 49 Unisys June 8 $103 Total trans- Longevity ■ Total transactions: swap ■ TUI AG June 1 $255 80% $30 actions: 47 49 ■ TUI AG June 1 $845 Buyout Allied Irish Banks May 27 $86 75% $20 ■ ■ Pfizer May 27 $268 70% $10 Buy-in ■ Chartered Insurance May 20 $78 Institute

$0 For details on all recent pension risk transfers, go to pionline. 65% 2017 2018 2019 2020 2021 com/pension-risk-transfer. 2010 2011 20132012 2014 2015 2016 2017 20192018 2020 ’21

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

Real BB U.S. Real Real BB U.S. BB U.S. BB U.S. BB U.S. Russell Russell Russell Russell Russell Russell Russell 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 2000 2000 2000 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% 74.9% 64.6% 62.0%

BB U.S. Real BB U.S. Real Global ex- BB U.S. BB U.S. BB U.S. 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 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% 48.7% 51.0% 40.9% 8.1% 8.4% 10.3% 15.6% 2.6% 9.4% 10.1% 6.2%

High High Russell Real High Global ex- MSCI ACWI BB U.S. Global ex- Russell MSCI ACWI 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 S&P 500 ex-U.S. 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% 46.0% 40.8% 6.6% 6.4% 25.5% 11.1% 6.1% 0.7% 8.3% 7.0% 5.0% 13.6% 42.8%

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 MSCI ACWI MSCI ACWI 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. ex-U.S. S&P 500 ex-U.S. income income % income 1.8% income 1.7% income income 4.9% 40.3% 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% 43.0% 35.7%

Global ex- MSCI ACWI BB U.S. MSCI ACWI BB U.S. Global ex- High Russell High High Global ex- Global ex- Global ex- High Real Real Real Real 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 U.S. fixed Estate income ex-U.S. Agg ex-U.S. Agg income Yield 2000 Yield Yield income income income Yield Estate Estate Estate 2.9% 4.3% 3.9% -7.0% -4.3% 1.9% 31.6% 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% 9.4% 34.4% 32.6% 35.1%

Global ex- MSCI EM Cash Cash High High High High Real High High High High MSCI ACWI BB U.S. BB U.S. High High High High High Yield Yield Yield Yield Estate MSCI EM Yield Yield Yield Cash Yield ex-U.S. Cash Agg Agg Yield U.S. fixed Yield Yield Yield Yield 2.9% 2.4% 2.4% -11.3% 1.5% 0.9% income 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% 19.7% 15.0% 15.4%

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- Global ex- Global ex- Global ex- 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 U.S. fixed U.S. fixed U.S. fixed 2.4% -0.3% 1.4% income 2.2% - income 1.1% income income income 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% 6.7% 7.8% 4.6%

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. 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 Cash Cash Cash income income income 1.3% 0.8% 0.7% 0.6% 0.1% 0.1% 0.1% -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%

Russell Russell Russell Russell Russell Real Real Real Real Real Real Real Real Real Real BB U.S. BB U.S. BB U.S. 2000 2000 2000 Cash Cash Cash Cash 2000 2000 Estate Estate Estate Estate Estate Estate Estate Estate Estate Estate Cash Cash Agg Agg Agg -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% -0.3% -0.4% -0.3%

AFTER BOTTOMING OUT IN APRIL 2020, COMMODITIES ARE ROARING BACK Growth of the Bloomberg Commodity index The largest Bloomberg Commodity index constitutents by weighting 100

95 Gold: 11.5% WTI crude oil: 9.9% 90

85 Natural gas: 9.2%

75 Brent crude: 8.0%

65 Corn: 5.8%

55 Copper: 5.3%

50 Soybeans: 5.1%

45 Aluminum: 4.4%

40 Soybean oil: 3.9% Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. March April May June 2020 2021 Silver: 3.6%

Sources: P&I Research Center; NISA Investment Advisors; Bloomberg LP Connect with us.

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17pi0374.pdf RunDate10/30/17 Full Page Color: 4/C 16 | July 12, 2021 Pensions & Investments Special Report TECHNOLOGY IN MONEY MANAGEMENT More digitization coming to investing

Cesar Balcazar CONTINUED FROM PAGE 1 Man Group manages $120 billion in assets. Tech benefits, and Mr. Rattray said it’s now possible to get managers’ plans advancements in how … to utilize intelli- streaming xed-income prices, quickly buy gence in extracting those insights in a much and sell xed-income securities and provide Accenture quanti ed the bene ts of AI faster and more meaningful way. It’s not that as well as demand liquidity. In the past, he scaling, and surveyed managers. it hasn’t started already, but it’s such in a na- said, “all we could do was telephone banks scent state today that business intelligence and ask them for quotes and they would send Alpha potential for mature rms using arti cial intelligence will become much us them in a very manual process,” but the scaling AI (basis points) more common practice.” changes “have been a function of ex- 200 310 Continued developments and improve- change-like technologies that were initiated ments in investment management technol- in equities and futures now coming to bear in ogy over the next couple of years will re- corporate bonds. So that means you now have volve around: something much closer to continuous prices ■ Ef cient data analysis. in corporate bonds, and you have prices for a ■ Customized investment strategies. very wide range of bonds.” ■ Digitization of investment processes. Gary Collier, chief technology of cer, Man 80 ■ Cybersecurity. Alpha Technology, Man Group’s front-of ce Much of the promise of technology has services unit, said credit as an asset class “is a 30 centered around data, said Eric Bernstein, number of years behind equities in terms of president of asset management solutions at electroni cation of markets, and therefore it Research Investment Trading Total Broadridge Financial Solutions Inc., New is an area where we’re looking to take advan- decision optimiza- alpha York, but data’s use has not matched its po- tage of inef ciencies and focus on the data tion potential tential because the industry still generally side and on the execution side.” employs traditional low-tech methods across Asset managers’ views on technology their operational infrastructure. “Pension funds aren’t going Increased customization “Start with the allocators,” Mr. Bernstein Bringing technology more to bear on in- Will an asset manager’s technology, data and digital capabilities be differentiators in 2025? said. “If you think about what asset owners to adopt new ways of doing vestment management will impact the strate- get from every manager, they’re getting ev- things without those new gies used by institutions, particularly with erything from a PDF report or an Excel targeted allocations to meet speci c needs, Yes: spreadsheet to access to an investor portal. ways having gone through said Dan Houlihan, executive vice president, 95% The struggle they’re facing is in normalizing the rigor and time to see if head of asset servicing-Americas at Northern and homogenizing that information.” Trust Corp., Chicago. they’re reliable.” “Digitization of the investment process is Understanding AI happening now, and I believe will continue to ENFUSION’S THOMAS KIM Technologies like arti cial intelligence accelerate in its acceptance,” Mr. Houlihan have been touted for years as ways to help said. “Right now, at most rms with funda- the industry consume data better, but adop- “If you look at all the big asset managers, mental active management, the process is in tion in the industry has been low, Mr. Kim only about 30% have outsourced things like the heads of the portfolio managers. Through said. data management and middle of ce and computing power, you can customize it so it’s Are you actively expanding your “I don’t think the technology — and the technology,” Mr. Taggart said. “You’re going to actually codi ed in the system, which gives partnerships with ntechs? money manager, quite frankly — has matured see more money managers outsourcing that you a 24/7 digital investment committee, es- to the point where you can say they’re going critical infrastructure so that they can focus sentially, but also allows you to run pro forma to use it for X, Y and Z,” Mr. Kim said. “Pen- on what differentiates them — their ability to portfolio measurement that actually mea- Yes: sion funds aren’t going to adopt new ways of generate alpha, their ability to understand a sures the ef cacy of the process, not the un- 64% doing things without those new ways having client’s requirements. All the core stuff they derlying investment decisions.” gone through the rigor and time to see if need to keep the lights on, they’re not going Ashby Monk, executive and research di- they’re reliable.” to do that anymore.” rector of the Global Projects Center at Stan- Among money managers speci cally, The transition from low-technology to ad- ford University, Palo Alto, Calif., said mass many rms don’t have the scale to handle vanced tech in the investment process has customization of individual institutions’ port- data management internally, said Richard been easier in asset classes like equities folios “could be real in the era of technology, Taggart, executive vice president, alpha ser- than in xed income, said Sandy Rattray, where managers could get access to your vices at State Street Alpha, Boston, an opera- chief investment of cer of Man Group PLC, portfolio and deliver real products and ser- Do you wish to leverage technology tional services provider that includes front-, London. Fixed income is “20-30 years be- vices that could t your needs … The more partnerships to explore emerging technologies middle- and back-of ce services and auto- hind equities from the perspective of tech- you can solve people’s problems, the more such as AI? mated services from Charles River, which nology driving the marketplace,” but the in- you can make money.” State Street Corp. acquired in 2018. dustry is starting to change, Mr. Rattray said. Such customization can be expanded

Yes: 62% Washington board targets $7 million for technology, data advancements Washington State Investment Board, exposures or risk factors, they can rely on the Olympia, has determined that data and data warehouse and this team to help with Are IT and the money management business technology are so important to managing its their research.” moving closer together, with skill sets $134.4 billion in commingled retirement Mr. Phillips said data warehouse develop- overlapping? assets that it has budgeted $7 million over ment is overseen by the board’s risk the next two years to their use. management-asset allocation team and Yes: The funding “is helping us evolve and investment data team, “two groups that are 52% develop our data warehousing, performance now combined into one unit” to bring measurement and risk analytics capability,” together their knowledge of investment said Chris Phillips, institutional relations and needs and data technology. public affairs director for the board, which The combined team emphasizes the had $171.5 billion in total assets as of integrity of the data it receives — “what’s March 31. “This work is used as an intelli- noise, what’s not, how does the source of the DATA DIVE: Chris Phillips sees a ‘real need’ for gence bank for our investment teams, so if data t into the platform we’re using for Sources: Accenture’s Global Data Analytics/Arti cal Intelligence Study 2020; Accenture’s Future of Asset risk analysis at WSIB’s total-portfolio level. they need data on slicing and dicing different analysis, is there distortion created by Management report Pensions & Investments July 12, 2021 | 17

Pandemic shines spotlight on benefits of tech for asset managers and owners

Technology’s use during the COVID-19 pandemic for the last 18 months they’ve proven they can has shown institutional investors how valuable and operate in whatever situation they’ve been in. It applicable innovation can be. doesn’t mean it’s optimal but it does mean there’s “You need a crisis to unlock the innovation. That’s more optionality.” what you’re living through now. Everyone has had to Money managers have already started making work remotely for over a year, so they’ve had to think changes to take advantage of existing technology, about their tech stuff. That’s why this is such a neat Mr. Nair said. moment,” said Ashby Monk, executive and research “We’ve seen a lot of activity, really much more than director, Global Projects Center, Stanford University, we’re accustomed to, in terms of organizations taking Palo Alto, Calif. a step back and really rethinking their business model, “I have never seen a period where there is more recognizing that there’s an opportunity to change their transformation happening than today,” said Sudhir operating model, recognizing that there are new pools Nair, managing director, global head of Aladdin of growth for which they need to be well-positioned in business in BlackRock Inc.’s solutions unit, New York. order to capture, and then thinking through how to use “And it is an absolute fact that COVID has accelerated technology as a lever to most effectively do that,” Mr. this transformation.” Nair said. “It’s a pressure, but increasingly it’s an Transitioning operations from offices to working opportunity for institutional asset managers to find a from home and the market volatility during the way to differentiate themselves in a world where pandemic “have put a spotlight on many organizations historically it had been increasingly hard to be to become more efficient, to streamline operations differentiated from their peers.” and to think about their business model post-pandem- Money managers won’t be alone in looking to ic and think about ways to use technology both as a change their operations as a result of the pandemic, catalyst and a driver.” said Mr. Monk. “Asset owners, especially coming out Ian Peckett, global head of buy-side product at of COVID, are going to be very focused on getting off Bloomberg LP, New York, said a lot of technology uses spreadsheets and getting into software, and very that were off the table pre-pandemic “have now come focused in getting that software powered with back on the table because people have proven they reliable, single-source-of-truth data you can trust,” can work remotely. It’s hard to argue that your Mr. Monk said. UNLOCKING INNOVATION: Ashby Monk thinks asset owners will join managers in portfolio manager has to sit next to your trader when — RICK BAERT considering how they can evolve their operations following the pandemic. through technology into a “whole portfolio ‘The fundamental way portfolios are These practices tend to be emerging, devel- concept,” which Mr. Nair of BlackRock said oping, establishing a level of credibility in will become more popular in the next two being built is changing. It goes back their own space and then expanding into oth- years. to outcome orientation — the need er domains. I think you’re going to see that” in “The fundamental way portfolios are being the future in money management. built is changing,” Mr. Nair said. “It goes back to blend asset classes across Also expected to benefit in the next two to outcome orientation — the need to blend equities, fixed income, truly years through better data technology is sus- asset classes across equities, fixed income, tainable investing, Mr. Monk said. “When truly multiasset, but beyond just asset classes, multiasset, but beyond just asset you hear people say, ‘We’re spending a lot of public and private, is critically important. classes, public and private, is time on sustainability and ESG,’ what you We’ve seen this trend of increased allocations should hear is data management, that ‘we to private markets and our view is that’s only critically important.’ need to figure out how to use ESG data in going to continue.” BLACKROCK’S SUDHIR NAIR our decision-making.’” That trend to more private market invest- Mr. Taggart of State Street concurred. ments could be made easier by technology, “There are dozens and dozens of signals from Mr. Monk said. “By moving data efficiently charging ridiculous fees for investing in Active, passive and ESG different providers about (ESG) factors and and quickly, it’ll be a quick way to level the companies we’ve all heard of, and if technol- Along with a broad application to invest- institutional asset managers are now being playing field. There’s economic value for a ogy can give us access to that, why would we ment infrastructure, technology will have an mandated in many cases or compelled to in- lot of people to level the playing field, espe- pay two and 20 (fee arrangement)? There effect in how investments are actively and troduce those factors into their invest- cially in private markets,” Mr. Monk said. are a bunch of tech platforms helping to fa- passively managed. ment-decision processes,” he said. “The ex- “Managers have been getting away with cilitate that (direct) access.” Mr. Nair said BlackRock is “seeing a resur- plosion of data you can use beyond the gence in active investing in terms of ways dif- traditional value, growth, yield kinds of ferent managers are using technology and things, the ability of data to be used in things bringing it in?” Mr. Phillips said. “They spend asset class, the currency-level risk could be data to change their investment process to like ESG is multiplying. The data helps with a lot of time working through these issues.” nil, but it could be at a different level in find new and different sources of alpha. That monitoring both ESG as an alpha driver and Eighteen percent of the board’s commin- another asset class.” is still critically required and paramount to a compliance driver.” gled retirement assets are run internally in WSIB also has “a high exposure in private the industry.” On the operational side, a prime concern in fixed income. The rest of its investment equity and real estate, so there’s a lot of Ian Peckett, global head of buy-side prod- the industry — cybersecurity — will be out- uct at Bloomberg LP, New York, said passive sourced by institutional investors over the portfolio — 32.8% in public equity, 24.6% in customization,” he said. “You can’t go buy money managers all tout efficiency in their next few years to asset servicing providers private equity, 16.8% in real estate, 5.6% in an off-the-shelf data or research product to investment strategies through mimicking well-versed in cyberprotection and the abili- tangible assets including infrastructure, and do what we do, so we have built out our own and reflecting the market. “Operational effi- ty to offer a whole-office approach with a 2.2% in cash and other assets — is run by data warehouse.” ciency and operational excellence … has higher standard, Mr. Taggart said. external managers. Mr. Phillips said those Among the combined team’s oversight come out of the passive (investing) world, “If you’re providing the whole supply chain managers are overseen by internal, indepen- responsibilities are return attribution, where it’s less about delivering alpha and yourself, then all those parts of the chain dent asset-class teams. investment risk assessment “and all kinds more about delivering beta with the lowest have exposed weaknesses,” Mr. Taggart said. A big reason for investing in data of portfolio modeling in support of asset level of cost,” Mr. Peckett said. “Both of those By outsourcing cybersecurity responsibility warehousing is “to see what the level of allocation,” Mr. Phillips said. “What they’re dimensions lead to people taking a more sys- to a financial services provider, he said, those tematic, more algorithmic and more da- firms like State Street must adhere to strin- risk at the total portfolio might be,” Mr. trying to get at is, are there hidden or more ta-driven approach. It’s a less subjective and gent global cybersecurity standards that des- Phillips said. “The risk at the asset-class subtle risks that are coming with the less intuitive way of investing.” ignate banks and financial services firms as level is well known, but when all of that rolls exposures that we’re creating, and how Technologies that have been used in pas- systematically important with stronger re- up to a total portfolio side of what we’re should we manage those risks? That’s their sive investing “start to gain credibility and quirements for cybersecurity than typical dealing with, there’s a real need for risk charge,” he said. find application in the active space,” Mr. Peck- best business practices. “That allows you to analysis at that level. For example, in one — RICK BAERT ett said. “Look at robotic process automation; check the box on much of those cybersecurity that’s really the next evolution of outsourcing. requirements,” Mr. Taggart said. n 18 | July 12, 2021 Pensions & Investments

Money Management Jonathan Little joins fray Daniel Erman in buying manager stakes Deal-maker started latest venture, Alderwood Capital, despite pandemic because of the opportunities he saw

By SOPHIE BAKER obvious choice to buy in there.” The second type of firm that Al- Jonathan Little is used to build- derwood is looking for is one that ing businesses up and closing deals, has “acceleration opportunities — but doing it in the middle of a pan- 3- to 5-year-old firms, where man- demic is a totally different thing. agers are in a steady state but need While he’s known in money capital to either buy out an early management as something of a backer or to provide for the next deal-maker for the mergers and ac- stage,” he said. quisitions he has led over the years And the final opportunity — the — in particular during his time as one where Mr. Little believes Alder- head of the Bank of New York Mel- wood “can add even more value (is) lon’s international asset manage- liberation opportunities. There’s a FOCUSED: Jonathan Little said his new fund is looking to take minority stakes in single-strategy boutique money managers. ment business — Mr. Little did lot of ill-fated megamergers that think twice about launching his lat- have happened in the last few years,” ate businesses, including Insight game and we can’t offer anything” ple face-to-face, especially when it est business, Alderwood Capital he said. Within those firms, some Investment in 2009 — an example to those firms, he said. comes to asking institutional inves- LLP, which takes minority stakes in units or teams will be “trapped” and of a liberation opportunity, he said. tors for cash. The firm has not yet boutique firms. And that was with- looking for a way out, or market At the time of the deal, which Familiar team raised any capital but is in the pro- out the added stress of COVID-19. stress may push teams to be sepa- saw Lloyds Banking Group sell the As well as having Victory Capital cess of investor meetings. “I thought about not doing it rated out from parent companies. manager to BNY Mellon for £235 as a partner, Mr. Little has sur- “There is plenty of time as the again, but I just felt there was so million, Insight had about £80 bil- rounded himself with people he’s fund is not due to close until early much opportunity for us,” he said, Perfect fit lion in assets under management. worked with before. The nine- next year, but people need to see you speaking over video call from Al- The new business fits perfectly The firm ran £707.7 billion as of strong team at Alderwood reunites and asking someone for $300 million derwood’s offices in Covent Gar- with Mr. Little’s reputation as a March 31. him with four other staffers from via Zoom is tricky. Institutions have den, London. “It was really tricky deal-maker. He started Alderwood Alderwood has a smaller check- Northill, including Chief Financial tended to pull back on giving money setting up this business in COVID about a year after leaving Northill book than BNY Mellon, though — Officer Rebecca Noyes. Alderwood to people they haven’t worked with — not being able to travel is a real Capital — the firm he helped found the $2 billion fund he wants to partner Ryan Sinnot was director of before — that has harmed anyone issue.” in 2010 — where he was managing raise in order to buy minority strategy and development at Nort- either doing something different or But it hasn’t slowed him down in partner. Unlike Alderwood, Northill stakes will “be the only fund we’ll hill and prior to that, director of something new,” Mr. Little said. his quest to get the necessary infra- takes majority stakes in specialist do. We’re quite targeted and we strategy and development at BNY He hopes the relatively niche structure and systems in place for money managers. The assets under don’t want to take on assets that Mellon Asset Management — where part of money management that Al- Alderwood, which aims to raise $2 management of firms in which we can’t deploy effectively.” he led M&A and the execution of derwood fits into — citing New billion from institutional investors Northill holds a majority stake to- He also has secured some seri- strategic projects for the global York-based Dyal Capital Partners as in a single fund to take minority taled about $95.1 billion as of Dec. ous backing — Victory Capital money management business. an example of a similar type of firm stakes in single-strategy boutique 31. Its latest acquisition was of a Holdings Inc. took a 15% stake in “It’s fun, and people have turned — will pique investors’ interest. “I’m firms. He also has fund documenta- majority interest in outsourced CIO the firm in September. Victory in- up here that I’ve worked with be- hoping there will be pent-up desire tion and Financial Conduct Author- firm Strategic Investment Manage- tends to invest in the fund, the firm fore — that’s no accident. When you to start looking at things afresh.” ity approval in place. ment LLC in 2019. The firm had $28 said at the time of the acquisition. work at doing something you like, But in the meantime, he’s been There are three strands to the op- billion in discretionary assets un- “Our process is quite slow and with people you like, it doesn’t seem “shamelessly mining” his contact portunity set for Alderwood. The first der management as of Dec. 31. methodical — we like to get to know like work. I’ll be doing this in my book. “And we have good relation- is succession capital opportunities. He started Northill after a de- the manager, the culture, how they 60s,” Mr. Little said. He is 57, ac- ships with many of the managers “If someone wants to retire or an cade at Bank of New York Mellon, make money,” Mr. Little said. Exec- cording to regulatory filings with we’ve worked with over the years, early backer wants to sell … but they where he was vice chairman of utives also won’t look at beta play- Companies House. who’ve said they’ll act as a reference. don’t want someone to upset the ap- what was then BNY Mellon Asset ers, with no interest in ex- But he still needs to overcome Part of our sell is that we not only ple cart, we’re someone who can add Management and led its interna- change-traded funds or low-alpha the ongoing COVID-19 challenge in (work on) expanding good business- something,” Mr. Little said. “The tional business, overseeing more corporate credit strategies, for ex- order to make Alderwood — named es at good prices, but we’re a good world is full of asset managers set up than $400 billion in AUM. ample. “The types of firms we like after the alder tree, which “thrives partner. If after five years they still 15, 20, 25 years ago where one of the Under his leadership, BNY Mel- are good at something and can get in most environments” — truly regard us as a good partner, that’s a founders wants to retire — we’re an lon acquired a number of its affili- paid properly — beta is a scale work. He needs to start seeing peo- good yardstick,” Mr. Little said. n

domain expertise and the decisive- The upswing in commodity coming months. Here, differentia- with normalization. Together with ness to push the ECB to a very prices shows that the global tion and security selection will be vaccination programs, fiscal policy Desai forceful stance, crystallized in the economic outlook is brightening, the name of the game. Emerging plays a key role in this recovery, famous “whatever it takes” speech. although supply constraints markets countries and companies notably in the U.S. Going forward, CONTINUED FROM PAGE 11 Current ECB President Lagarde, triggered by the COVID-19 crisis that are better positioned to benefit we believe markets will increasing- exposed to COVID-19 restrictions. by contrast, has appeared much have also played a role. From an from a pickup in global trade and ly focus on whether this can be too The ECB’s less-convincing more concerned about building investment perspective, however, less exposed to currency risk on much of a good thing — whether stance, meanwhile, flags an consensus and lacks the economics we have to weigh the improved the funding side should prove to be the massive fiscal stimulus, important tail risk. Eurozone background of her predecessor. macroeconomic outlook for better bets. As ever, security enabled by an extremely stimula- yields will feel the pull of U.S. Both of these differences have emerging markets against the selection will be key, and a success- tive monetary stance, will cause the Treasury yields, particularly if the been apparent in recent press potential stress from higher U.S. ful investment strategy will require U.S. economy to overheat and latter surprise to the upside on the conferences. A less-convincing, Treasury yields. Higher U.S. bond even more hard work than usual. inflation pressure to build beyond back of a stronger-than-anticipat- more divided ECB could find it a yields would increase debt Another important factor to pay the central bank’s expectations and ed U.S. recovery. This might lot harder to allay market concerns. servicing costs for those emerging greater attention to is China’s role desires. We do not expect inflation reawaken concerns on higher-debt While we do not expect things to markets countries and corporates as a direct investor and funding to get out of hand, but given that periphery countries like Italy. get as nerve-racking as in 2012, a that have significant U.S. dollar-de- provider across emerging policymakers have now pulled out Should government bond yields bout of serious turbulence in nominated debt; and it would make markets. As China balances all stops, we suspect that managing turn on an upward trajectory, these eurozone government debt spreads emerging markets bonds at the economic and geopolitical their desired inflation rise will countries would face higher is a tail risk worth monitoring. margin less attractive to foreign considerations in its investment prove harder than they think and debt-servicing costs given their A stronger U.S. rebound bodes investors compared to U.S. bonds. decisions, and in handling distress claim. This could easily bring elevated debt levels; this fiscal well for emerging markets, Indeed, both hard currency and situation for its borrowers, heightened stress and volatility to pressure could raise their sover- especially when combined with local currency emerging markets understanding China’s shifting financial markets where prolonged eign risk and cause the spreads of the ongoing recovery in China bonds have had a challenging start priorities has become crucial for massive monetary easing has their government bonds to and the fact that Asia overall has to 2021 as the reflation narrative emerging markets investors. already contributed to stretched German bunds to widen. During made significant progress in pushed up benchmark U.S. yields. Overall, we expect that the valuations across asset classes. n the time of the eurozone debt bringing COVID-19 infections While U.S. bonds have taken a coming months and quarters will crisis, then-ECB President Mario under control and creating the breather and stabilized in recent see a consolidation of a robust This content represents the views of the Draghi turned out to be the perfect conditions for normalization — weeks, a strong U.S. recovery and recovery in the U.S. and in the author. It was submitted and edited under person to meet the challenge head with the unfortunate and notable highish inflation numbers have the global economy at large, with Pensions & Investments guidelines but is on. Mr. Draghi had both the exception of India. potential to push them up again in Europe catching up as it proceeds not a product of P&I’s editorial team. Pensions & Investments July 12, 2021 | 19 M&A ROUNDUP

strategies later this year, addressing shifts in demographics and growing AMG adds ESG-focused VIRTUS SET TO ACQUIRE STONE HARBOR demand for more sustainable in- Virtus Investment Partners, a boutique asset management shop, vestment solutions. Parnassus Investments announced June 28 it will acquire 100% of credit specialist Stone Last year, HSBC AM and cli- Harbor Investment Partners. mate-change advice and invest- Terms of the deal, expected to close by the end of the year, were ment firm Pollination launched a joint venture, HSBC Pollination Cli- to its stable of affiliates not disclosed, said James Doyle, a Virtus spokesman, in an email. mate Asset Management. Stone Harbor will continue to operate autonomously under its own Affiliated Managers Groupment had $123 billion in AUM and name and will be Virtus’ 11th investment manager affiliate. Blackstone to obtain agreed to acquire a majority equity $41.2 billion in assets under ad- Senior Stone Harbor employees have signed long-term employment stake in ESG-dedicated money ministration. agreements, including Peter Wilby, managing partner and co-CIO; ESG consultant Sphera manager Parnassus Investments. James Craige, co-CIO and head of emerging markets; and David Blackstone Group entered into Terms of the deal were not dis- StepStone announces Torchia, head of multiasset credit and portfolio manager, a news an agreement to acquire Sphera, an closed, a spokeswoman confirmed. deal for Greenspring release said. ESG performance and risk man- Parnassus partners will continue “We view this as an incredibly positive event for our clients, agement service provider, from to own a substantial portion of the StepStone Group, a private mar- Genstar Capital. business partners and our investment teams,” Mr. Wilby said in the firm’s equity and will direct its day- kets manager and consultant, agreed The agreement, announced news release, adding “as part of a larger company, we can augment to-day operations, a move that is to acquire Greenspring Associates, a jointly by the firms July 6 in a news consistent across AMG affiliate venture capital and growth equity our fixed-income solutions for new and existing clients.” release, values the company at firms, a news release said. The Par- manager, for $725 million. “Stone Harbor’s institutional-quality emerging markets debt about $1.4 billion. The deal is ex- nassus investment team will re- The deal, for $540 million in eq- capabilities are well-respected among clients and consultants and pected to close later this year, said main independent. uity and $185 million in cash, is ex- highly complementary to our other fixed-income capabilities,” said Matthew Anderson, spokesman at Benjamin Allen, CEO, portfolio pected to close before the end of the George R. Aylward, Virtus’ president and CEO in the release. Blackstone, in an email. manager and trustee, and Todd Ahl- year, a spokesman said in an email. As of March 31, Virtus’ existing boutique managers managed a Sphera, which offers ESG soft- sten, CIO and portfolio manager, The acquisition, which will pro- total of $168.9 billion, Mr. Doyle said. ware, data and consulting services, will enter into long-term employ- vide StepStone with an opportunity was originally acquired by Genstar Stone Harbor experienced a decline in worldwide assets under ment agreements under the deal. to expand its venture capital and Capital, a middle-market private eq- management primarily for institutional investors to $15.4 billion as Parnassus had $47 billion in as- growth equity capabilities, will cre- uity manager, from IHS Inc. in 2016. sets under management as of June ate a combined team of more than of May 31. “The increasing importance of 30 and invests in companies that 70 investment professionals fo- That’s down from $16.7 billion as of Dec. 31, 2020, and from environmental, social, governance have a positive impact on society. cused on those areas. $20.4 billion as of year-end 2019, according to Pensions & Invest- issues to businesses globally is a The deal is set to close by the end As measured by the firms’ comments data. Stone Harbor’s most recent asset peak was $35.9 key thematic investing focus for of the year, subject to closing condi- bined assets under management as billion as of Dec. 31, 2016. Blackstone,” said Eli Nagler, senior tions and regulatory approvals. of March 31, it represents about $22 P&I reported a number of asset owner terminations of Stone managing director at Blackstone, in AMG affiliates had a total $738 billion in venture capital and growth Harbor over the past several years for performance reasons. the news release. billion in assets under management equity AUM, a news release said July A spokesman for Stone Harbor said in an interview that the firm as of March 31. The stake in Par- 7. Also as of that date, Greenspring experienced outflows from one of its largest investment strategies Athene, Apollo ink deal for nassus brings its ESG-dedicated had more than $17 billion in AUM. AUM to about $80 billion, while its “Joining forces with Greenspring — local-currency emerging markets debt — beginning in 2016 as another 15% of Challenger AUM that incorporates ESG factors allows StepStone to scale our ven- institutional investors lost confidence in the asset class and Athene Holding and its strategic into the investment process will in- ture capital and growth equity capa- terminated the firm. Stone Harbor is seeing new inflows as asset partner Apollo Global Management crease to about $600 billion. bilities, further broadening the owners begin to re-enter the asset class. agreed to acquire a further 15% “Having known the senior part- menu of private equity solutions as stake in Australian investment firm ners for more than a decade, AMG we seek to build the highest quality Challenger. has developed a unique relation- portfolios for our clients,” said Scott The agreement calls for a base closed. The additional minority interest ship with this team and closely fol- Hart, partner and co-CEO at Step- payment of up to A$110 million on The combined firm will manage — 3% of which is subject to custom- lowed the evolution of their busi- Stone, in the news release. “We are completion of the deal, with a cash about $5 billion in assets in an op- ary approval by the Australian Pru- ness,” Jay C. Horgen, president and pleased to welcome Greenspring earn-out of up to A$75 million to be portunistic hedge fund, private dential Regulation Authority — CEO of AMG, said in the release. founder and managing general part- paid on the transaction’s second credit vehicles, and par credit and brings Athene and Apollo’s stake in The acquisition follows the re- ner Ashton Newhall, managing gen- anniversary, with the amount to be collateralized loan obligation vehi- the firm to 18%. That stake is about tirement of Jerome Dodson, found- eral partner Jim Lim, and the entire determined by conditions such as cles. “Birch Grove Capital is a prov- A$720 million ($546 million), a er of Parnassus, from portfolio Greenspring team as the newest revenue targets. en credit investor, and an excellent spokeswoman for Athene said. management and all managerial members of the StepStone team.” partner for the Ascribe funds and Challenger had a total A$104 bil- duties last year. As of March 31, StepStone had Vontobel gets remaining our firm more broadly,” Michael G. lion in assets under management as $86 billion in AUM and $340 bil- 40% of TwentyFour Fisch, founder and CEO of Ameri- of March 31. U.S. Bank agrees to buy lion in worldwide assets under ad- can Securities, in a news release. “Investing in Challenger rep- visement. Vontobel acquired the remain- “Robust credit investment capabili- resents an exciting opportunity PFM Asset Management ing 40% of fixed-income manager ties alongside our flagship buyout for us to support a well-estab- U.S. Bank agreed to purchase Macquarie to purchase TwentyFour Asset Management. funds make us a stronger, more lished platform within the Austra- PFM Asset Management. Terms of the deal, which closed knowledgeable, and more agile in- lian market, a geography we have Terms of the deal, which is ex- 2 AMP Capital businesses June 30, were not disclosed, accord- vestor across the board.” been studying given the current pected to close in the fourth quar- AMP Ltd. agreed to sell its mon- ing to a Vontobel spokeswoman. economic conditions and compel- ter subject to regulatory and other ey management arm’s global equi- Vontobel bought a 60% stake in HSBC takes minority stake ling demographic fundamentals,” closing conditions, were not dis- ties and fixed-income business to TwentyFour in 2015. TwentyFour, said Jim Belardi, chairman, CEO closed. Macquarie Asset Management for which manages about 24.2 billion in women-owned ESG firm and CIO at Athene, in the news re- PFM Asset Management will up to A$185 million ($140 million), Swiss francs ($26.4 billion) in as- HSBC Asset Management is tak- lease. continue to operate under its the two companies announced July sets, will continue to operate inde- ing a minority stake in U.S.-based Apollo said in March it would ac- name as a separate entity follow- 8. pendently. A message on Twenty- ESG, diversity and inclusion con- quire Athene. The firm already had ing the closing of the acquisition, The sale of AMP Capital’s rough- Four’s website from CEO Mark sulting firm Radiant ESG, a spokes- a 35% stake in the annuities firm. which is being made under U.S. ly A$60 billion business, expected Holman said its senior manage- man confirmed. Athene had $205.7 billion in total Bank’s subsidiary U.S. Bancorp to close in the first quarter of 2022, ment and portfolio management The actual size of the stake was assets as of March 31. Apollo had Asset Management, U.S. Bank is the first leg of a planned restruc- teams will not change. not disclosed, but HSBC AM will $461 billion in AUM as of that date. spokeswoman Kimberly Mikrot turing of the money manager’s Vontobel CEO Zeno Staub said in own a significant economic interest said in an email. broader business. a news release announcing the deal in the firm, holding up to 33% over SageView Advisory picks “PFM Asset Management brings Those plans call for the transfer that the “acquisition of the remain- time, the spokesman said. a wide array of client relationships of AMP Capital’s more than A$60 ing 40% stake is ... the logical next With HSBC’s backing, the firm up another RIA firm and product offerings, including lo- billion multiasset group business to step in our diversification and will be renamed RadiantESG Glob- SageView Advisory Group ac- cal government investment pools, its retail business AMP Australia, growth strategy.” al Investors. It is a female-owned, quired registered investment advis- outsourced chief investment officer followed by a demerger and listing Vontobel had 290.6 billion francs independent manager focused on er firm MJM401k, it announced in a services and separately managed of the firm’s roughly A$60 billion in assets as of March 31. next-generation ESG investment news release July 1. accounts in both fixed income and private markets business. opportunities for institutional and Terms of the deal, which closed multi-asset class strategies,” said The global equities and American Securities merges wealth management clients. June 30, were not disclosed. Eric Thole, head of U.S. Bancorp As- fixed-income business will boost RadiantESG was co-founded by The acquisition will add more set Management, in a news release. Macquarie Asset Management’s unit with Grove Capital Heidi Ridley and Kathryn McDon- than 100 retirement plans with $17 PFM’s financial advisory busi- assets under management to Private equity firm American Se- ald. Ms. Ridley was CEO and Ms. billion in assets under advisement ness is not part of the deal, the re- roughly A$720 billion, cementing curities said July 1 that its opportu- McDonald was head of sustainable to SageView’s client roster, lease said. the firm’s position as Australia’s nistic credit business, Ascribe Capi- investing at Rosenberg Equities, SageView said in the news release. As of March 31, U.S. Bancorp As- leading investment manager by tal, merged with credit asset part of AXA Investment Managers. MJM401k provides retirement set Management had more than AUM, Ben Way, head of Macquarie manager Birch Grove Capital to They left last year. plan consulting services to insti- $160 billion in assets under man- Asset Management, noted in a form AS Birch Grove. The RadiantESG executives in- tutional clients in a variety of in- agement, and PFM Asset Manage- separate news release. Terms of the deal weren’t dis- tend to launch two investment dustries. SPONSORED ROUNDTABLE

Private Markets 2021: Resilient Outcomes Amid a Turbulent Ride

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he unprecedented market turbulence sparked by the COVID-19 outbreak last year T struck both public and private markets, yet several private market sectors demonstrated remarkable resilience amid the challenges of the ongoing pandemic. Institutional investors continued to see private markets as a means of generating their target returns in a low-yield environment, and the overall transaction flow by year-end was strong. To find out which sectors are holding up well, which ones remain challenged, and where investors should expect to see opportunities next, Pensions & Investments spoke with Eric Lloyd, global head of private assets at Barings; Scott Baskind, head of global private credit and chief Eric Lloyd Global Head of Private Assets investment officer at Invesco; and Theodore Koenig, president and chief executive officer Barings at Monroe Capital.

Pensions & Investments: As developed markets what many investors may have expected. That said, emerge from the COVID-19 pandemic, one of performance varied widely across asset class, sector the remarkable takeaways is the resiliency of and company. Within real estate, for example, indus- private capital, even amid the initial volatility in trial and logistics properties performed extremely both public and private markets. Could you share well. On the other hand, areas like retail — which was your experience with how the private markets per- already facing challenges due to the structural shift formed? away from brick-and-mortar storefronts — were hit particularly hard. Other sectors, like office, still pres- THEODORE KOENIG: You mentioned resiliency. ent a fair amount of uncertainty. We’ve certainly seen that, but we’ve also seen consistency in private credit and that inspired a sense Through the ups and downs, one thing that has Scott Baskind of certainty among global investors. As a result, bor- become increasingly clear over the past year is the Head of Global Private Credit and rowers came into the private markets for capital at a importance of real relationships and partnerships, not Chief Investment Officer time when there was very little certainty in the public only with private equity sponsors and portfolio com- markets. panies, but also with investors. We were proactive in Invesco communicating challenges and sharing our outlook, Once the deals were getting done on a consistent which not only allowed investors to know how an basis, business leaders and investors could see that asset was performing within their portfolio, but it gave the private markets worked better than the public us insight into their broader portfolio challenges. Ulti- markets. You didn’t have to do “best-efforts” syndi- mately, we were able to work with our partners in cates or look at market pricings the day before. World a more constructive way, underscoring the value of events didn’t affect whether deals closed or not. clear communication, transparent partnerships and strong relationships. Large companies got used to the fact that they could do private market deals without an overabundance SCOTT BASKIND: I’ll focus on the private credit of disclosure of terms, conditions and covenants. space, within private markets. The pandemic in the That interest is continuing. We’re looking at billions first quarter of 2020 obviously brought on not only a of dollars of deals now that are held on a co-invest- health crisis, but also a liquidity and economic crisis ment, co-lending basis by private market lenders. It across risk-based assets. It also created significant just speaks to the size, development and efficiency opportunities across risk assets in general and within Theodore Koenig of these markets. the private credit arena. President and Chief Executive Officer Monroe Capital ERIC LLOYD: Private markets generally held up very Those opportunities were presented in a few different well through the crisis, performing largely in line with ways. One was in those sectors initially impacted the

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most by the ongoing shutdown of econ- They’re just starting to come back, and omies, namely travel and leisure, and it will be through 2022 before we see then the broader credit markets traded any real positive growth. off in sympathy. But very quickly, the rebound in those sectors began occur- Diversification clearly worked well. ring by the mid- to the end of the second The opportunity set remains attractive across the Credit diversification is your friend. The quarter, led by higher-quality assets in wider the portfolio, the less the concen- general, and then followed by the rest of different elements of private credit, whether it’s on the tration of risk. the private credit space. more liquid end, in syndicated bank loans, or the less BASKIND: [What has worked] is the abil- In 2021, private credit has performed* ity to not only build strategies from an quite well. The opportunity set remains liquid end, in direct lending and special situations. asset allocation perspective and man- attractive across the different elements age them within the different verticals, of private credit, whether it’s on the more — SCOTT BASKIND, Invesco but also to combine the different asset liquid end, in the syndicated bank loan classes. It’s about creating portfolios space, or the less liquid end, in direct that are dynamic across a full cycle. lending and special situations, which The ability to actively manage that asset remain a very interesting opportunity for allocation within a portfolio strategy is investors. incredibly powerful for the partnership chains get interrupted? All those things happened between an investor and a manager with expertise P&I: Let’s drill down further into the private debt during COVID. across different marketplaces, whether it’s bank loans, sleeve of the alternatives space. What are the take- distressed assets and special situations, direct lend- aways on what worked and what didn’t as portfolios Another thing that worked was equity support from ing, collateralized loan obligation securities or other repositioned to meet challenges as they arose? sponsors. A lot of in-person businesses, such as opportunities. How will they shape future investment activity? physician practices and dentist offices, restaurants, entertainment companies and fitness centers, all of [Investors] want a manager who can add value not only KOENIG: Strong underwriting worked well. That which had to close for extended periods of time, were from a bottom-up standpoint, but also at the macro meant looking at a s eries of downside “what-if” able to survive when sponsors stepped up and pro- level of asset allocation. There’s value in partnering scenarios to consider base-case and worst-case sit- vided liquidity. For businesses where the sponsors with someone who has the abilit y to shift from liquid uations: What if business slowe d? What if you lose didn’t step in, they were taken over by lenders and assets to illiquid assets and then back in the opposite customers? What if you lose margin? What if supply creditors. A lot of these cyclical industries got hurt. direction through a full cycle.

*As of June 30, 2021

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P&I: Given the importance of diversification — in in lending to companies from an origination perspec- tion in an inflationary environment. We’re also looking both private equity and private credit — where tive at elevated spreads. at continuation funds, since some investors have good should institutional investors look for diversifica- assets in their portfolios that they don’t want to mon- tion today, and why? The second avenue is asset allocation — having a etize in this environment. So we’re looking at ways particular view on a go-forward perspective in terms to create a continuation vehicle for those particular LLOYD: We saw the importance of diversification over of risk-return and maintaining a volatility-adjusted assets as they come out of a private equity fund. the last year, as managers with the right portfolio com- framework that allows for a dynamic approach. So, it’s position and good diversification fared much better, moving from loans to direct lending, to special situ- Another area we’re watching is office repositioning. As overall, than those that were overly concentrated in a ations and distressed assets, and then as the cycle the office environment changes, there will be some particular industry or asset. moves to a more stable environment, taking the oppor- interesting opportunities to see what demand will look tunity to invest in other types of assets. like going forward. For instance, who will be able to As we think about diversification and consider areas take existing office space, repackage or reposition it of potential opportunity today, one area that comes to P&I: With the challenges of 2020, there was also in a value-add way, and also tie in environment, social mind is infrastructure. If we see a material infrastruc- a chance for private markets to be opportunistic. and governance components? Companies want to ture bill passed in the United States, for instance, it How were you able to capitalize on these opportu- have buildings that really speak to their values and will likely generate a fair amount of interest in the asset nistic strategies? their culture. class. Aside from traditional infrastructure, there is also digital infrastructure, which might create a differ- KOENIG: One of the areas where we were able to cap- We’re also looking at a potential rebound in the hotel ent opportunity set. We’ve also seen some interesting italize is within our opportunistic private credit strategy, sector, which should benefit from supportive tailwinds opportunities in residential real estate, such as build- which is focused on more asset-backed situations. We as the economy continues to open and travel patterns to-rent or single-family real estate, both on the equity have built a strong business in this area. It is a great start to normalize. Leisure seems to be driving the and debt sides. space because it is counter-cyclical and allows us to rebound for now, but as corporate travel picks up, spread the portfolio over private equity-backed loans we expect to see other parts of the hotel sector fol- In private equity, we’re more focused on the mid- supporting leveraged buyouts and non-sponsored low suit. From an investment perspective, it ultimately dle-market and emerging-manager space. Compared cash flow facilities for middle market to the really large private equity funds, emerging-man- companies, as well as loans that have ager vehicles tend to be smaller and more nimble, and significant asset protection. typically are less correlated with public markets. We also were able to take advantage of BASKIND: Within the world of private credit, we believe the idiosyncratic speedbump generated it’s important to not only think about diversification by the pandemic to provide increased within the context of a particular investment strategy liquidity and rescue capital to good com- We will continue to see pension funds and but also to consider the opportunity to assemble a panies. In both areas, we were able to portfolio of complementary strategies within private generate premium pricing and structures insurance companies embrace the private credit via asset allocation. and, thus, a better overall risk-reward for our investors. markets, and private credit over public debt, There are different avenues to look for alpha-generating opportunities within a strategy. One is at the P&I: What other opportunities are because they recognize how the illiquidity security-selection level. We would suggest that over you watching in the private markets the last year, the opportunity to drive alpha is at ele- space, and what are the tailwinds driv- premium enhances their risk-return. vated levels versus historical periods, particularly ing them? post-financial crisis and pre-pandemic. That’s quite — THEODORE KOENIG, Monroe Capital exciting, and it holds across all ratings and risk spec- LLOYD: We’ve started investing more in trums, within both liquid assets and illiquid assets, and real assets that may offer some protec-

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comes down to your time horizon on a par ticular ing so much and the rules are changing. In software, toward the future, there will likely be opportunities for asset. you need to understand the recurring nature of the investors to gain liquidity and take advantage of that revenue. In healthcare, especially, there are gov- opportunity set from a return standpoint. There are a number of macro trends that are also ernment-reimbursement rates, trend lines, margins, creating tailwinds. We see that, for instance, in dig- product innovation and insurance company pushback. P&I: How does the low-yield environment today ital infrastructure, with investment in fiber towers, impact investor interest in the private markets? Is e-commerce infrastructure, logistics and intermodal BASKIND: Some industrial and cyclical sectors have there continued interest in private debt as an alter- transportation. We also see it in clean-and-green had tremendous tailwinds. There’s cyclicality around native to traditional fixed income? investments, such as on- and off-shore wind, solar, the auto space that has led to very strong perfor- battery storage and carbon-capture technology. mance, and energy has also outperformed. One of the LLOYD: The low-yield environment has certainly strongest sectors in the credit space is oil, as a result been a positive for private assets. Private debt typi- KOENIG: Cloud storage and data has been a strong of the dramatic increase of the commodity price of oil. cally offers a yield premium, compared to its public business over the past five years. Software and tech- That inflection point in terms of creating value in the counterparts, to compensate for the illiquidity of the nology also continue to be very strong from a lending energy, oil and gas sectors has been quite opportune. market — a potentially attractive characteristic, partic- and an investing standpoint. We have gone from valu- ularly for longer-term investors willing and able to hold ing these companies on an EBITDA [earnings before P&I: With the evolution of the secondary market an investment until maturity. In an environment where interest, taxes, depreciation and amortization] multiple space, do you expect to see continued interest in base rates remain very low, an extra 200 or 300 basis basis to [valuing them on] a multiple of revenue, under- limited partner stakes in private equity? points of illiquidity premium is fairly meaningful. scoring the growth. BASKIND: The illiquid parts of the market continue Against this backdrop, it is perhaps unsurprising that We’re also seeing opportunity in healthcare and a to develop, and investors are always looking for we’re seeing existing investors increase their exposure chance to capitalize on the changes in how it’s being opportunities to create both liquidity as well as return and new investors come into the asset class as well. delivered. Five years ago, nobody would have thought opportunities for investors. Secondary markets started Given the leverage levels, stronger documentation and that telemedicine had a shot. Today, we’re seeing it evolving in the private equity markets years ago, in improvements in pricing, versus what we were seeing everywhere. terms of investors providing secondary liquidity to LPs. immediately preceding the [pandemic] crisis, many investors are looking at private debt as a way to pick These are sectors where you really need special- That same transition is beginning now in the credit up yield while maintaining their risk discipline. ists. You need deep knowledge of these industries, markets. It’s at the infancy of the evolution, but it’s in terms of underwriting, because the market is shift- certainly something that is developing. And as we look KOENIG: Since the great financial crisis, there’s been

Here’s to greater possibilities together

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We think investors will look increasingly toward multi-strategy options with a single manager—which could include a variety of asset classes, from infrastructure

BARINGS to private equity and real estate. 300 S Tryon St. — ERIC LLOYD, Barings Suite 2500 Charlotte, NC 28202 www.barings.com

Shannon Pons Head of North American Institutional Distribution 980-417-5422 [email protected]

a steady flow of investors and LPs moving out of tra- P&I: With environmental, social and governance ditional fixed income and into private credit. Private investing at an all-time high, how do you see it credit is the fastest-growing asset class in alternative impacting private markets? investments. LLOYD: ESG has evolved from something investors There’s been a wind at the back of private credit wanted managers to include in their investment pro- because interest rates have been so low for so long. cess to something they expect and demand — and its All types of institutional investors, whether an insur- importance will only increase from here. Of course, ance company, pension plan, university endowment the application and integration of ESG varies widely or health-care system, have needs from a return based on asset class, manager and a number of standpoint. For instance, you must hit your actuarial other factors. INVESCO numbers if you’re a pension plan to cover your bene- 1555 Peachtree Street NE fits or an insurance plan to cover your policies. For instance, a real estate equity asset manager who Atlanta, GA 30309 owns physical assets looks at ESG considerations www.invesco.com/institutional Now we’re seeing another seismic shift where high- differently than a real estate debt provider who, by net worth investors are pushing into private credit definition, does not own or sit on the boards of com- Ben Utt as well. They have historically been invested in the panies. That said, we are seeing more green-financing Head of US Institutional Sales public markets and in bonds. They’re moving to pri- initiatives on the debt side. In fact, our European 404-439-3450 vate markets for the same reasons that institutional direct-lending business last year was involved in one [email protected] investors did — they want safe, secure yield as part of the first European middle-market transactions in of their portfolios. which ESG criteria, in the terms of a loan, directly impacted the overall price. Specifically, our team put BASKIND: There is a tremendous need for global criteria into the loan document that rewarded the investors to invest in current-yielding assets. Credit achievement of certain ESG metrics via more attrac- tends to be one of the most favored asset classes, tive pricing. broadly. When you look at the private credit space, the vast majority of it is in floating-rate loans, whether Ultimately, with ESG, it comes down to how you influ- performing or nonperforming, liquid or illiquid. ence and promote sustainable, long-term behaviors in different asset classes and companies. It can be But now inflation concerns have increased dramati- challenging, to be sure, and there is much work to cally. We’ve seen a steepening of the yield curve, and do going forward. But what we have seen thus far is short-duration assets, as a result, have performed encouraging. MONROE CAPITAL LLC quite well. Investors are looking at that opportunity 311 S. Wacker Drive to capture not only the potential for increased return BASKIND: ESG is an exciting focus for us and our 64th Floor in these short-duration assets, but also as an offset investors. It’s another opportunity for the investment Chicago, IL 60606 against the principal challenges that longer-duration community to effect change in the global environ- www.monroecap.com assets face in a rising-rate environment. That’s a tre- ment. We have been focused on ESG investing for mendous trend. many years in the private credit space. R. Sean Duff Partner & Managing Director We’ve also seen a dramatic shift in bank loan flows Ours is an investment-led perspective as we under- 312-523-2372 over the course of the last several months. We had write transactions, conduct due diligence, and monitor sduff@monroecap.com seen outflows in the bank loan asset class throughout transactions over time. We look to engage with man- 2020, and that has reversed course. There is tremen- agement teams and sponsors and educate them, dous demand from all types of clients, including U.S. particularly with smaller companies that are in the retail and institutional clients, insurance and pen- financing markets. We have created a great marriage sion clients globally, family offices and private wealth between traditional credit-risk analysis and ESG anal- channels. The demand environment has shifted quite ysis. Bringing the two of them together is an incredibly significantly as a reflection of the interest rate and powerful tool for building portfolios, and in strategies inflation environment. and developing outcomes for our investor base.

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P&I: Looking ahead, do you have any predictions increased allocation to private markets in totality and cient to meet the needs of the institutional investor — grand or otherwise — in terms of your respec- capital coming into the private credit space. We think community. We will continue to see pension funds tive markets that institutional investors should be that the theme of moving from public to private mar- and insurance companies embrace the private mar- aware of as they set their allocations? kets is something that’s likely to continue as many kets, and private credit over public debt, because investors look to barbell their capital deployment and they recognize how the illiquidity premium enhances LLOYD: Institutional investors will look to do more asset allocation decisions to meet their return hur- their risk-return. things with fewer managers, which can offer greater dles, their internal targets and their need for current consistency and more streamlined reporting. Rather income and high total-return opportunities. Private The diversified alternative asset management firms — than working with various managers in various asset markets are critical to them to balance out the more the ones that do a good job — will continue to grow classes, we think investors will look increasingly variable and lower-return public markets. and their assets under management will increase. toward multi-strategy options with a single manager— You’ll also see the larger mutual fund companies which could include a variety of asset classes, from KOENIG: Private markets will remain in high demand, get into the alternative space. Firms that focused on infrastructure to private equity and real estate. In our alternatives will continue to stay hot in terms of per- public equities and mutual funds are already experi- view, the primary benefit of a multi-strategy mandate formance and yields in traditional fixed income will encing demand for more products. They will respond is that it gives managers the flexibility to go where continue to be low. Inflation will pick up modestly, by creating joint ventures or partnerships. they find the best value at any given point in time. It and we will see that on a consistent basis. We will also offers the potential for diversification and differ- continue to see volatility in public markets stemming I’m excited. The market over the next several years entiated returns. from geopolitical and macro-economic reasons. We is going to be very interesting. There’s a lot of green should see interest rates start to rise because of all grass ahead of us in private credit. Our job is going BASKIND: We are quite positive on the trajectory of that, but traditional fixed income still won’t be suffi- to be to mow as much of that grass as we can. ■

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This sponsored roundtable is published by the P&I Content Solutions Group, a division of Pensions & Investments. The content was not produced by the editors of Pensions & Investments and www.pionline.com and does not represent the views of the publication or its parent company, Crain Communications Inc.

21pi0054B.pdf RunDate: 07/12/21 Full Page Color: 4/C 26 | July 12, 2021 Pensions & Investments HIRINGS

Anthem Inc., Indianapolis, hired Fund Managers (Ireland) Ltd. will serve Special Situations Fund IV, an Fidelity Investments as record keeper as subadviser for the private debt opportunistic credit fund. It also of its 401(k) plan. allocation. Similar, Daiwa Fund TRUIST FINANCIAL REVAMPS 401(K) LINEUP committed $50 million each to Blue Fidelity will replace Vanguard Group Consulting will serve as adviser for the Truist Financial Corp., Charlotte, N.C., overhauled the investment Road Capital II, an agriculture fund; as the plan’s record keeper, effective domestic real estate allocation that options lineup of its 401(k) plan in 2020 following its merger with Leeds Equity Partners VII, a private Oct. 1, according to the company’s Mitsui Real Estate will subadvise. another plan, confirmed spokeswoman Amy Konrath in an email. equity fund investing in education, 11-K filing with the SEC on June 29. Chikyoren provided no details The SunTrust Banks Inc. 401(k) Plan was merged into the Truist training, information services, and As of Dec. 31, the Anthem 401(k) regarding the size of the allocations. software companies; and Realterm Financial 401(k) Savings Plan, effective July 31, 2020. The plan’s Plan had $9.9 billion in assets, Europe Logistics Fund, a fund investing according to the 11-K filing. Delaware Public Employees’ employee benefit plan committee worked with Truist’s investment in high-flow-through logistics such as Retirement System, Dover, consultant in re-evaluating the plan’s investment lineup and selected truck terminals, trans-shipment Arizona Public Safety Person- committed up to $35 million to Drive those “most appropriate for Truist,” Ms. Konrath said. facilities and transfer hubs. nel Retirement System, Phoenix, Capital Overdrive Fund II and up to $25 Truist Financial Corp. announced the completion of the merger of New Mexico ERB also committed made two new allocations totaling million to Drive Capital Fund IV. subsidiary BB&T Corp. and SunTrust Banks Inc. in December 2019. $30 million to ZMC II Extended Value $150 million. The $14.1 billion pension fund’s A comparison of the company’s 11-K filing June 28 with the SEC Fund, a middle-market private equity The $13.8 billion pension fund investment committee approved the with Truist’s prior 11-K filing and the SunTrust plan’s 2019 Form fund investing in media and communi- invested $100 million in Jana Strategic commitments to the venture capital cations companies managed by 5500 filing shows the newly merged plan added 10 mutual funds not Investments Benchmark Fund, a hedge funds at its June 8 meeting. Zelnick Media Capital. fund managed by JANA Partners; and previously held in either plan. Pension fund officials also made an committed $50 million to Shamrock Fairfax County Educational According to the new 11-K filing, the new funds and their assets in follow-on commitment of $50 million Capital Debt Opportunities Fund I, a Employees’ Supplementary the newly merged plan as of Dec. 31 were MFS Growth Fund, $688 to Andromeda Fund III, an infrastruc- private credit fund, spokesman Retirement System, Springfield, million; T. Rowe Price Institutional Mid Cap Fund, $659 million; ture co-investment fund of one Christian Palmer said in an email. Va., made two new private equity Dodge & Cox Income Fund, $247 million; MFS Mid Cap Value Fund, managed by CBRE Caledon Capital. commitments totaling $14 million. $212 million; Brown Advisory Small Cap Growth Index Fund, $135 New Mexico ERB’s previously Arkansas Teacher Retirement The $3.2 billion pension fund committed $100 million to the fund. million; RBC Emerging Markets Equity Fund, $68 million; PIMCO System, Little Rock, agreed to committed $7.5 million to venture Long-Duration Total Return Fund, $62 million; Fidelity Inflation-Pro- commit $30 million to Revelstoke capital fund Flagship Pioneering New York State Common Capital Partners Fund III, confirmed Origination Fund VII and $6.5 million to tected Bond Fund, $56 million; BBH Limited Duration Fund, $48 Retirement Fund, Albany, made a Rod Graves, deputy TA XIV, a growth equity million; and Harbor Diversified Internal Mid Cap Fund, $2 million. pair of alternative commitments in May director of the $21 HAVE SOME NEWS? fund managed by TA The newly merged plan also features a target-date fund lineup totaling $770 million, according to the billion pension fund, in Associates. managed by Vanguard Group, which had a total of $3.2 billion in website of Thomas P. DiNapoli, sole Please submit news of an email. The board assets in the plan as of Dec. 31. trustee of the $254.8 billion pension committed to the changes to David Schepp, J.B. Hunt fund and the state comptroller. news editor, at dschepp@ The Truist plan previously featured a T. Rowe Price Group tar- buyout fund that Transport Ser- The pension fund made a $750 pionline.com get-date fund lineup, which had $1.4 billion in assets in the plan as invests small- and vices Inc., Lowell, million credit commitment to ICG lower-middle-market Ark., added a series of of Dec. 31, 2019, according to the company’s prior 11-K filing. Excelsior, managed by Intermediate health-care services companies at its target-date funds managed by Also as of Dec. 31, 2019, the SunTrust 401(k) plan’s entire Capital Group. The fund will initially June 23 meeting. Vanguard Group to the investment investment options lineup, including a target-date fund lineup, was focus on Intermediate Capital Group’s options lineup of its 401(k) plan in managed by Vanguard. Assets totaled $3.5 billion, according to the European subordinated debt and Black Knight Inc., Jacksonville, 2020. As of Dec. 31, the series of 11 plan’s Form 5500 filing of that date. equity strategies, the comptroller’s Fla., hired Fidelity Investments as Vanguard Group target-date funds had The newly merged plan retained five of the 13 Vanguard funds website said. record keeper of its 401(k) plan. The a total of $200 million in assets in the previously held by the SunTrust plan. The pension fund also made a $20 plan moved to Fidelity as record keeper plan, according to the company’s 11-K million private equity commitment to The comparison between Truist’s new and prior 11-K filings shows effective July 1, 2020, spokesman filing June 28 with the SEC. Charger Investment Partners Fund I, Mitch Cohen confirmed in an email. A comparison of this year’s 11-K six funds were removed from the plan in 2020. which “will make control investments Fidelity replaced Wells Fargo. He filing and last year’s filing shows the As of Dec. 31, 2019, the Sterling Capital Special Opportunities in North American middle market said Fidelity was chosen because of plan did not have any target-date funds Fund, Sterling Capital Equity Income Fund and Sterling Capital companies” primarily in the manufac- the firm’s experience with larger clients in the lineup in 2019. Behavioral Large Cap Value Equity Fund had $332 million, $318 turing, consumer products, hospitality and because Fidelity already manages As of Dec. 31, the J.B. Hunt million and $237 million, respectively, in assets in the plan, accord- and business services sectors, the the company’s employee stock Transport Services Inc. Employee ing to Truist’s prior 11-K filing. website said. purchase plan. Retirement Plan had $1 billion in The other three funds, and their assets in the plan as of Dec. 31, The commitment to Charger is part As of Dec. 31, the Black Knight assets, according to the new 11-K filing. of the New York pension fund’s 2019, were the Fidelity Contrafund, $281 million; T. Rowe Price Mid 401(k) Profit Sharing Plan had $532 emerging managers programs through million in assets. Kern County Employees’ Cap Growth Fund, $264 million; and Federated Treasury Obligations M2 NY Pioneer Fund II, which is Retirement Association, Fund, $91 million. advised by Muller and Monroe. Chicago Firemen’s Annuity Bakersfield, Calif., made a direct As of Dec. 31, the Truist Financial Corp. 401(k) Savings Plan had and Benefit Fund rehired Callan as hedge fund investment of $50 million $9.7 billion in assets, according to the new 11-K filing. New York State Deferred investment consultant. in Aristeia Select Opportunities II. Compensation Plan, Albany, The other finalists for the $918 The $5.3 billion pension fund’s rehired Callan LLC as its independent million pension plan’s search were board approved the investment in the Berkshire Hathaway subsidiary’s two As of Dec. 31, the Marsh & investment consultant for a five-year Marquette Associates and Meketa multistrategy hedge fund managed by 11-K filings with the SEC on June 24. McLennan Cos. 401(k) Savings & contract starting March 31, 2022, Investment Group. Aristeia Capital at its June 28 meeting, As of Dec. 31, the Lubrizol Corp. Investment Plan had $5.9 billion in confirmed David Fischer, executive said CIO Daryn Miller. Employees’ Profit Sharing and Savings assets and the Marsh & McLennan director of the $33 billion plan. Chicago Public School Plan had $1.4 billion in assets and the Agency 401(k) Savings & Investment Teachers’ Pension & Retirement Knoxville (Tenn.) City Employ- Lubrizol Corp. Age-Weighted Defined Plan had $803 million in assets. Norfolk County Council Fund committed a total of $35 million ees’ Pension System made two Contribution Plan had $74 million in Pension Fund, Norwich, England, to four minority- and/or women-owned new private equity commitments assets, according to the company’s Metropolitan Government of hired 10 providers for its multiprovider private equity managers, CIO Angela totaling $10 million. new 11-K filing. Nashville (Tenn.) and Davidson framework for actuarial, benefits and Miller-May said in an email. The $704 million pension fund County hired Vanguard Group as the governance consultancy services. The $12.8 billion pension fund’s committed $5 million each to Adams Marsh & McLennan Cos. Inc., new target-date fund manager for its The £3.6 billion ($5 billion) pension board approved commitments at its Street Co-Investment Fund V and Top New York, added the T. Rowe Price $383 million 457 plan. The govern- fund, on behalf of a group of other June 17 meeting of $10 million each to Tier Venture Velocity Fund 4, a venture Small & Mid Cap Core Trust to the ment’s benefits board selected local government pension schemes Aldrich Capital Partners Fund II, a capital fund, said Kristi Paczkowski, investment options lineups of its two Vanguard at its June 6 meeting, said and other public-sector funds, growth equity fund; Lng Arc Capital executive director. 401(k) plans in 2020, confirmed CIO Fadi BouSamra in an email. appointed the firms across actuarial Fund I, also a growth equity fund; Red company spokeswoman Amelia Vanguard will replace Wells Fargo services, benefits consultancy, Arts Capital Opportunity Fund I, a Louisiana State Employees’ Woltering. Asset Management, Mr. BouSamra governance consultancy, funding risk supply chain and infrastructure-focused Retirement System, Baton Rouge, As of Dec. 31, the active domestic said. Wells Fargo has been on watch advisory services and consultancy private equity fund; and $5 million to H made two new commitments totaling smidcap core equity collective due to organizational changes. services to support specialist projects. Ventures Fund II, a venture capital fund $175 million. investment trust had a total of $613 As of March 31, the lineup of 12 For actuarial services, the funds managed by H Venture Management. The $13.7 billion pension fund million in assets in the two plans, Wells Fargo target-date funds had $38 appointed Aon Solutions U.K., Barnett committed $100 million to GoldenTree according to the company’s 11-K filing million in assets in the plan, accord- Waddingham, Hymans Robertson and Japan’s Pension Fund Association Distressed Fund IV, a distressed debt with the SEC on June 25. ing to the plan’s most recent Mercer — all rehired from the previous for Local Government Officials, known fund, and $75 million to Apax Digital Ms. Woltering said the CIT replaced investment report. framework agreement in 2016, locally as Chikyoren, hired Barings to Fund II, a buyout fund, at its May 27 the T. Rowe Price Mid Cap Growth according to a document on the manage an allocation to overseas meeting, recently released meeting Fund, Goldman Sachs Small Cap Value New Mexico Educational National LGPS Frameworks website. private debt and Mitsui Real Estate minutes show. Fund and the Vanguard Selected Value Retirement Board, Santa Fe, For benefits consultancy services, Investment Advisors Co. for an Fund. The funds had $366 million, committed a total of $330 million for the funds again rehired the same four allocation to domestic real estate. Lubrizol Corp., Wickliffe, Ohio, $126 million and $108 million, five new commitments and one providers: Aon, Barnett Waddingham, The Tokyo-based ¥25.56 trillion hired Empower Retirement as record respectively, in assets in the plan, follow-on commitment, said Bob Hymans and Mercer. ($230.7 billion) pension fund, in a keeper of its two 401(k) plans. according to the prior 11-K filings. Jacksha, CIO of the $15.7 billion For governance consultancy posting on its website, said Barings Empower Retirement replaced Voya Ms. Woltering said the company pension fund. services, Aon, Barnett Waddingham, Japan will serve as adviser and its Financial as record keeper of the two cannot comment on the reasons for The pension fund committed $100 Hymans and Mercer were rehired and Irish affiliate, Barings International plans effective Jan. 4, according to the the changes. million to Cross Ocean European Muse Advisory was also selected. The Pensions & Investments July 12, 2021 | 27 HIRINGS

2016 framework also included KPMG. Fund, bringing its total committed to Management for investment in a million to GSO Capital Advisors. TMRS invested $75 million in Funding risk advisory services — a $350 million. The pension fund direct-lending strategy. Goldentree Asset Management RedCo II, a health-care-focused new contract — will be provided by Aon, originally approved a commitment of received a $100 million commitment long-short equity hedge fund managed Barnett Waddingham, BDO, Hymans, $250 million earlier this year. Texas Municipal Retirement for opportunistic credit, while $100 by Redmile Group, and also committed Mercer and PricewaterhouseCoopers. System, Austin, committed or million was committed to two $25 million to FG Flatirons I, a The final contract, for consultancy Texas County & District invested $1.2 billion to 10 money man- structured credit managers — $60 separately managed venture capital services to support specialist projects, Retirement System, Austin, agers and terminated two managers million to Voya Investment Manage- account run by Foundry Group. was awarded to Aon, Barnett Wadding- committed $325 million to three with combined assets of $933 million, ment and $40 million to Ellington TMRS also terminated Pacific ham, Equiniti, Hymans, Mercer and funds, according to a transaction a transaction report showed. Management Group. The names of the Investment Management Co. from a PwC — all of whom were rehired. The report. The $34.5 billion plan directed funds were not provided. $790 million core-plus bond fund and funds also hired Deloitte and the The $38.1 billion pension fund $790 million to six managers within In real estate, TMRS committed DSAM Partners from $143 million Government Actuary’s Department as committed $175 million to Arbour the $6.2 billion non-core fixed-income $150 million to Virtus Real Estate invested in DSAM+ Fund, a long-short providers. KPMG was a provider under Lane Credit Opportunity Fund III, a portfolio, including hiring AllianceBern- Capital III, a non-core, value-added equity hedge fund. the 2016 framework. distressed debt fund; and $125 stein to manage a $200 million fund. For the real-return portfolio, it million to Carlyle Realty Partners IX, emerging market debt allocation. It committed $150 million to Grain Texas Permanent School Ohio Police & Fire Pension an opportunistic real estate fund; made $390 million in commitments to Communications Opportunity Fund III, Fund, Austin, committed $40 million Fund, Columbus, committed $50 and $25 million to 400 Capital TX bank loan and collateralized loan which focuses on the acquisition of to Warburg Pincus Asia Real Estate, million to CapitalSpring Investment COF II, a direct lending separate obligation funds, with $210 million for communication assets and is confirmed B. Holland Timmins, CIO of Partners VI. account managed by 400 Capital Octagon Credit Investors and $180 managed by Grain Management. the $40 billion fund, in an email. The $18.3 billion pension fund’s board approved the commitment to the direct lending fund at its meeting June 30, spokesman David Graham said.

PensionDanmark, Copenhagen, committed €200 million ($239 million) to CI Energy Transition Fund I managed by Copenhagen Infrastructure Partners, a spokeswoman said. The 730.1 billion Danish kroner We’ll help you get ($117.1 billion) PFA Pension, Copenhagen, also committed to the fund. The size of PFA’s allocation wasn’t disclosed, a spokesman said. The fund, which held its first close qualiﬁed candidates June 29 at €800 million, focuses on greenfield projects in Western Europe, North America, Australia and developed markets in Asia, investing in energy infrastructure aimed at in the door. renewable electricity production, known as power-to-X projects. CIP is targeting €2.3 billion in assets for the fund. Your next career candidate is reading Pensions & Investments. In fact, we reach the largest pool

San Bernardino County of institutional investment industry leaders while they are making important business decisions. (Calif.) Employees’ Retirement Association rehired NEPC as its And we oer them the most robust array of executive and c-suite career opportunities in the investment consultant, confirmed investment community. Olivia Applegate, spokeswoman for the $12.6 billion pension fund. The board selected the consulting firm at its July 1 meeting. Verus was the other finalist. Have a position you need to ﬁll? The new contract is for five years and will start Jan. 1, with the option to Contact Erin Smith at 212.210.0719 or [email protected] renew for an additional two years.

Tennessee Consolidated Retirement System, Nashville, disclosed commitments and invest- Search job opportunities ments totaling up to $1.2 billion, said Shelli King, spokeswoman for state Go to www.pionline.com/careers Treasurer David H. Lillard Jr., who oversees the pension fund. In its strategic lending portfolio asset class, the $62.4 billion pension fund agreed to invest a maximum of $500 million to a strategic lending co-investment separate account managed by Pathway Capital Manage- ment, with an initial investment of $250 million, and also committed $150 million to GoldenTree Distressed Fund IV, a distressed debt fund. In private equity, the pension fund approved a total of $400 million in additional investments ($100 million a year) in a private equity co-investment separate account managed by Pathway Capital Management. TCRS originally invested $200 million in the separate account in 2019. The pension fund also committed $40 million to Foundation Capital X and $20 million to Foundation Capital Leadership Fund III, both venture capital funds managed by Foundation CAREERS Capital. Finally, in real estate, TCRS EXCLUSIVE ACCESS TO TOP TALENT committed an additional $100 million to open-end core-plus real estate fund Cortland Partners Growth and Income POSITION YOUR FIRM AS A THOUGHT LEADER 2021 Sponsored Content Marketing Opportunities

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sity. In just the past year, the per- the 1930s “that it could spell the end centage of S&P 500 companies that. DEI a growing factor in exec pay of capitalism” but that hasn’t borne Proxy a had at least one racially or ethni- out, Mr. Gensler said. cally diverse board member rose to Percentage of S&P 500 companies using DEI measures/ DEI advocates were encouraged CONTINUED FROM PAGE 2 95% from 88%, while the share of considerations in their incentive systems, by sector. July 7 when the SEC’s Asset Man- pany to back up that stance, an ar- Russell 3000 companies rose to 73% agement Advisory Committee Financials gument more investors are making. from 54%, ISS found. Gender diver- unanimously approved several rec- 58% “Our fiduciary interest is to have sity is still a concern but less a focus ommendations from a subcommit- Utilities diverse boards. It is primarily about of this year’s proxy policies. 54% tee on diversity and inclusion ad- how we deliver long-term results to Looking ahead to the next proxy Materials dressing imbalances in the asset investors,” he said. season, “My expectation is that this 43% management industry. The panel “Diversity is clearly an important trend will continue. There is defi- Communication services recommended three major steps: part of human capital management. nitely movement,” Mr. Michael said. 42% enhanced disclosure by registered We are seeing progress accelerate A new study by JUST Capital Consumer staples investment advisers on the racial on this issue,” Mr. Wilson said. also found companies getting the 38% diversity of their workforce, offi- As more institutional investors diversity message when it comes to Real estate cers, owners and fund boards; simi- — like the $253.4 billion New York their boards, with rising percentag- 37% lar disclosure by consultants; and City Retirement Systems overseen es of the largest U.S. publicly traded Energy enhanced scrutiny of consultants’ by New York City Comptroller Scott companies disclosing racial or eth- 32% conflict-of-interest disclosure. Stringer — demand that companies nic data on board members or di- Health care The recommendations are now publicly share annual Equal Em- rector nominees. The independent 29% in the hands of SEC officials. Mr. ployment Opportunity Commission research non-profit organization’s Information technology Gensler signaled his interest in tak- reports, known as EEO-1 reports, Corporate Racial Equity Tracker 23% S&P 500 ing them on, telling committee and that data begins to trickle in, gathers DEI data disclosed by the Industrials average: members that his agency will be 33% “we start engaging with companies 100 largest employers in the Rus- 19% looking at ways to improve. “The as- on their approach,” Mr. Wilson said. sell 1000, to help investors check Consumer discretionary set management industry has a lot 18% The EEO-1 report provides de- how companies are fulfilling their of work to do to increase racial and tails about the company’s work- commitments on diversity, equity Source: Farient Advisors gender diversity,” he said. force, broken down by several racial and inclusion. While only 45% of To help companies, asset owners and ethnic categories and by gen- those 100 companies disclosed the and asset managers make progress der at each of 10 professional levels. data in 2019, that swelled to 80% ages, found that one-third of all Companies are also preparing on DEI, the Institutional Leader- just two years later, even among S&P 500 companies include a DEI for the possibility that the Securi- ship Network representing 14 insti- Companies agree to act companies with low rates of board component when calculating top ties and Exchange Commission will tutions with $8 trillion in assets un- This proxy season, many of the diversity. The most common range executive pay plans. get them there faster. As part of der management is working on an top 100 companies with which of board racial or ethnic diversity broader efforts to update the agen- inclusive finance platform that in- Calvert engages also saw many was between 20% and 30%. Diversity and executive pay cy’s disclosure regime, information vestors and companies can use to shareholder proposals withdrawn Another indicator of how much Financial firms did the most to on human capital including diversi- integrate equity, diversity and in- after the companies agreed to im- companies are listening to inves- connect diversity with executive ty and climate risk will be ad- clusion into their organizations. prove diversity measures, including tors is when it comes to paying ex- pay, with 58% referring to DEI when dressed first, said Chairman Gary It should also spur collaborative more transparency. ecutives. An analysis by Farient Ad- determining incentive plans and Gensler, who has asked SEC staff to progress on DEI at proxy season Asked by Calvert to release EEO- visors LLC of S&P 500 companies’ awards. Companies offering discre- work out specific proposals. and throughout the year. “Our orga- 1 reports, which are not currently compensation disclosures shows tionary consumer goods like cars At a recent financial regulators nizations have shown that they can made public, many of those 100 corporate boards paying closer at- and high-end apparel, showed up conference, Mr. Gensler addressed have a meaningful impact when companies responded. In addition tention to DEI when making deci- on the opposite end, at 18%. head-on the expected resistance to they join forces towards a shared to the 15 already releasing the re- sions and setting targets for execu- Companies are trying to find more disclosure demands. “Experi- goal,” said Francois Cremet, port, by January, 27 more had tive compensation. their DEI bearings and as they gain ence has shown that disclosure re- co-leader of ILN’s Diversity in In- agreed to release theirs. For others The Pasadena, Calif.-based exec- experience measuring DEI perfor- quirements can strengthen eco- vestment Initiative and senior di- that refused or ignored the request, utive compensation and corporate mance, it’s expected that more com- nomic activity over the generations,” rector of stewardship investing at Calvert filed 16 resolutions, and will governance consulting firm that panies will quantify and disclose helping investors, capital formation the C$365.5 billion ($297.2 billion) consider more, Mr. Wilson said. helps companies, large public pen- how they measure and set DEI and the cost of capital, he said. Ob- Caisse de Depot et Placement du Companies are also responding sion funds and mutual funds pre- goals when making compensation jections have been raised since the Quebec, Montreal, in a statement to investor interest in board diver- pare votes on executive pay pack- decisions, according to Farient. SEC began regulating disclosure in on the platform. n

strategic allocation of 9%. cation is for about 7% of its equity telephone interview that there is a monetary policy — although that “We are not increasing emerging and 5% of its total assets to be in- big chance that a new spending bill will not happen before the Fed Emerging equity exposure. At this stage, we vested in emerging markets. will be passed in the U.S. in Sep- starts tapering. have preferred to take risk in devel- The U.S. dollar index fell 0.74% as tember. That would keep the Fed Still, Mr. Smudde said: “If (the) CONTINUED FROM PAGE 6 oped markets. We are now dealing of July 8 vs. March 31 and was down behind the curve, meaning it won’t Fed is going to taper, we will see ris- Luc Vanbriel, Brussels-based with infrastructure-type questions 4% vs. July 8, 2020. The dollar, which increase interest rates fast enough ing rates across the whole curve in CIO of the €2.5 billion ($3 billion) — for example, if there is enough appreciated in the first quarter of to keep up with inflation increases. the U.S. and as risk-free rates rise Pensioenfonds KBC, said in a tele- capacity to respond to COVID-19 the year as interest rates increased, “I think this environment is actually the search for yield will not be as phone interview that the fund is outbreaks,” he said in a telephone negatively impacted emerging mar- very supportive for EM asset prices, intense as it used to be ... You could slightly and temporarily under- interview, referring to concerns ket asset prices, sources said. in particular, considering the vac- expect that if monetary policy is weight its tactical allocation to over emerging markets’ prepared- APG’s Mr. Smudde added that in cine convergence that allows for less intense you would see spreads emerging market equities, which ness for coronavirus the second quarter U.S. the economic bounce back that we drift back up a little bit,” referring to accounts for 10% of its overall equi- variants. “There are rates didn’t increase as saw in the second quarter in the spreads between emerging market ty allocation. The fund’s total equity other places where the much as in the first U.S.,” he said, adding that the eco- debt and U.S. Treasuries. allocation was not available. Simi- capital can be chan- quarter and there has nomic rebound is next likely to larly, the fund has been reducing its neled,” he said. been a moderate dollar come to Europe and later to emerg- Neutral allocation tactical exposure to emerging mar- appreciation, lifting ing markets. Kristoffer Fabricius Birch, head ket bonds to a fifth of its total bond Stronger dollar pressure off emerging Mr. Medeiros added that vacci- of equities at LD Pensions in allocation of 18.5%. “We are positive Other sources said market investors. nation rates aren’t as high in Frederiksberg, Denmark, said the on listed equities, underweight that emerging markets Other sources agreed emerging markets as in developed fund is sticking to its neutral alloca- emerging markets because we are had benefited from in- that macroeconomic markets. “Many (EM) countries are tion to equity emerging markets for overweight eurozone equities,” he flows to risky assets in conditions in the sec- not out of the woods (yet),” he said. now. “From a tactical perspective, said. “We keep on assessing the sit- the second part of last TIMING: Luc Vanbriel ond half of the year are From APG’s Mr. Smudde’s point we haven’t been able to identify uation. Emerging markets still have year. The weakening of said high growth rates set to change course of view, “Investors have come to drivers that would (let) us take a to recover more than North Ameri- the dollar, which had prompted a move into and could in turn terms that China is tightening. A tactical decision (about investing ca and Europe. It might be that in benefited the valuation emerging markets. prompt investors to re- further spread of the coronavirus more in) emerging markets,” he six to 12 months we are overweight- of emerging markets consider their emerg- and delta variant taking hold in In- said. But he said that an entry point ing emerging markets,” he said. assets throughout 2020, reversed in ing market exposures in the next dia, Indonesia, Malaysia and Brazil to emerging markets could be if a “China has outperformed in 2020. the first quarter, Frank Smudde, ex- six to 12 months. That’s because of (could mean) there is some danger global reflation trade were to reap- The rest of emerging markets were pert portfolio manager asset alloca- improving fundamentals in emerg- that lockdown measures will take a pear. “I guess that happened in the slightly underperforming but they tion at APG Asset Management, ing market economies and an ap- toll later. We have to take that into last part of last year, but I am a little will catch up. They have high said in a telephone interview. APG proved $650 billion in support from consideration,” he said. bit confused to why it hasn’t been growth rates and that’s the reason is the in-house manager of the the International Monetary Fund To become excited about emerg- the case lately. U.S. interest rates why we want to be in emerging €495.3 billion ABP, Heerlen, Neth- providing financing to mitigate the ing markets again, and particularly have fallen since March and the re- markets,” he said. erlands. impacts of the pandemic. Even ta- to boost APG’s emerging market flation trade globally has faded out. State Super, Sydney, is currently Mr. Smudde said that on a tacti- pering from the U.S. Federal Re- debt allocation, Mr. Smudde said he I would think a point of entry would underweight emerging market eq- cal level his firm lowered its emerg- serve is expected to be well-tele- wants to see the COVID-19 pan- be if the reflation trade reemerges. uity in its A$8 billion ($6.1 billion) ing market equities allocation in graphed and will not have a big demic resolved and serious efforts That would be one scenario,” he defined contribution portfolio and the first quarter of this year on the impact on investors’ decisions to toward vaccination in emerging said. LD Pensions invests about 13% neutral in its A$34 billion defined back of China tightening its mone- invest in emerging markets. markets. Another “game changer” of its 14 billion Danish kroner ($2.2 benefit portfolio. CIO Charles Wu tary policy and the dollar’s appreci- Gustavo Medeiros, Lon- for Mr. Smudde would be the billion) equity allocation in emerg- said the allocation in the DC portfo- ation, but he didn’t disclose the size don-based deputy head of research change of economic stance by the ing markets. The fund has 55 billion lio is at about 7% — under the fund’s of the reduction. APG’s target allo- at Ashmore Group PLC, said in a Chinese government to looser Danish kroner in assets. n 30 | July 12, 2021 Pensions & Investments

UPCOMING WEBINARS | REGISTER TODAY Diversity ‘We don’t want this to be CONTINUED FROM PAGE 1 just a moment’ for diverse strategy or factor strategy. There is a diversity strategy that brings about increased alpha, and more than managers, panelist says anything … that is what it is about for a public fund like ours that’s un- Although the institutional see more and more people start derfunded — to make sure that we investing industry is paying lowering the threshold of” how can put our capital with managers increased attention to diverse such firms are defined, with ESG: Focus on Climate Change that are (going to) diversify our money managers, and some ownership levels as low as 25%, Live, Wednesday, July 21 • 2:00 p.m. - 3:00 p.m. ET portfolio, (and) bring excess returns consultants and asset owners Mr. Garcia said. He said it’s the when we need it,” she said. are allocating to them, concerns kind of situation seen in con- The Chicago Teachers’ Pension remain for the future of these struction and other supplier For participants, retirement income is about creating confidence: Fund had $13 billion in assets as of the confidence to retire on time and to structure a financial plan that firms and initiatives in place to industries — “white male-domi- May 31. Ms. Miller-May said about promote them. nated firms having a very small can absorb some of the unknowns of later life. For plan sponsors, the 48% of its assets are allocated to di- A major concern is that of token minority ownership” and confidence equation is more complex, including investment, policy and verse managers, the performances fiduciary angles. for which are not split out. CTPF’s dilution, said Gilbert A. Garcia, qualifying as a diverse manager. latest available funded status was Houston-based managing partner Short-termism was another In this webinar, attendees will hear from subject matter experts address- 45.4% as of June 30, 2020. at Garcia Hamilton & Associates concern for participants in ing all dimensions of decumulation: L P. Pensions & Investments’ second Diversity part of all evaluations “I’m concerned that, as there’s diversity virtual roundtable, which • Academic insights on demographic trends and investment struc- Boston-based Cambridge Asso- now a desire to start opening up took place June 22. tures ciates LLC’s diverse manager re- opportunity for minority money “What I worry about is, what • Public policy updates on active legislation furthering retirement search team evaluates all the man- managers, that you’re going to will our reflections be five years, income constructs agers with which the firm partners • Fiduciary considerations for sponsors, including insurer assessment on the basis of diversity. • Participant education and engagement best practices to bolster “The way that we see it is that di- adoption versity is an asset, a tool that partic- ‘Diverse teams are more ularly money managers use to in- Register Now: pionline.com/SSGAWebinar crease performance,” said Jasmine innovative, more creative, Sponsored by: N. Richards, head of diverse man- perform better … (and) when ager research. The team thinks of including diverse managers as a you have different perspectives way of pursuing “what all investors at the table … it reduces the are looking for: increased returns risk in the portfolio.’ and reduction of risk. … There’s been tons of research that shows CAMBRIDGE ASSOCIATES’ JASMINE N. Canadian Pension Risk Strategies that diverse teams are more inno- RICHARDS vative, more creative, perform bet- Risk management for pension plan sponsors is always top of mind but ter … (and) when you have differ- today, amid the COVID-19 pandemic, which has wreaked economic ent perspectives at the table … it showed that diverse firms perform better,” he said. Mr. Garcia thinks havoc around the world, it’s become more critical than ever. Hibernation reduces the risk in the portfolio,” just the same, “if not better,” than diverse firms are typically “more and pension risk transfer remain valid strategies but the approach may Ms. Richards said. “In essence, what non-diverse firms, said Gilbert A. nimble … more entrepreneurial be- have to be dierent. At the same time, managing volatility has taken on you’re investing in is a fund manag- Garcia, Houston-based managing cause (diverse managers) typically renewed urgency. This Canadian Pension Risk Strategies webinar pro- er’s ability to source different deals, partner at Garcia Hamilton & Asso- own their firms (and) just can move vides pension plan sponsors with actionable information for decision- access different networks. And for ciates LP. “That makes perfect sense faster.” making, planning and implementation of risk management strategies us, it just makes sense that diverse to someone like me because in the “They can exploit smaller mar- that best fit their pension plan. teams would be able to pursue dif- lives of all of us that are diverse … kets,” he added. Mr. Garcia also ferent opportunities (than) their in many ways we’ve had to work leads a subcommittee focused on Replay Available: pionline.com/CRISKWebinar peers.” harder (and be better.) And so in diversity and inclusion for the Se- A study by the John S. and James many ways it makes perfect sense curities and Exchange Commis- Sponsored by: L. Knight Foundation, Miami, to me that we perform as well, if not sion’s Asset Management Advisory

bers-oriented may underestimate competence, access to resources and the use of our creative side,” she even who gets the benefits of the Reading said. “This book would allow me to doubt,” she added. “This is an im- spend some time focusing in on it.” portant book which will challenge CONTINUED FROM PAGE 3 your historical perspectives, and at Board of Investment, Chicago, said ■ Angela Miller-May, CIO of the $13 once disturb and illuminate them.” she enjoyed reading “Red Notice: A billion Public School Teachers’ Pen- True Story of High Finance, Murder, sion & Retirement Fund of Chicago, ■ Shawn T. Wooden, state treasurer and One Man’s Fight for Justice” by said she has just started reading and fiduciary of the $40 billion Bill Browder. “Caste: The Origins of Our Discon- Connecticut Retirement Plans & “I enjoyed reading tents” by Isabel Wilker- Trust Funds, Hartford, cited a few Politicizing of Investments this one because it was son and “Leadership in books he’s looking forward to read- With growing societal consensus, and increasing political pressure an easy read/a page Turbulent Times” by ing this summer: “This Country: My and stricter regulatory frameworks, specifically via EU regulation, the turner,” Ms. Farhadieh Doris Kearns Goodwin. Life in Politics and History” by question is how ‘politicized’ investing may become, and whether these said in an email. She She said in an email that Chris Mathews; “Stamped from the frameworks leave sucient leeway for optimal investment activity. The added she’s a busy mom “anyone that loves his- Beginning: The Definitive History session will discuss with leading German pension-providing institutions so it was nice to finish a tory and government” of Racist Ideas in America,” by how to best match fiduciary duty with ESG-integration and responsible book in a short time. will love the latter book. Ibram X. Kendi; “Reimagining Cap- investment principles. Topics will include: Books she is looking italism in a World on Fire,” by Re- forward to reading this ■ Tina Byles Williams, becca Henderson; and, “to have a • What are the consequences of societal changes, a growing GIG summer include “The founder, CEO and CIO little fun,” he said, “The Beer Hand- economy, and the social divide, for financial markets and pension- Self-Driven Child: The of the Philadel- book: The Essential Guide to All providing institutions? Science and Sense of phia-based minority- Things Beer,” by Nancy Hajeski. • What new needs arise in pensions & social security, and what are Giving Your Kids More Control and woman-owned money manager “In an ever-changing world — no the consequences for professional investing? Over Their Lives” by Dr. William Xponance Inc., has also been read- matter how many years of education • Is there need to re-design investing in a pension-providing institu- Stixrud and Ned Johnson. ing “Caste: The Origins of Our Dis- someone may have or what their “I like understanding different contents,” “which frames area of expertise may be, tion? ways to approach my children as a race as an artificial con- I believe it is critically • What are the best and brightest approaches for balancing pension parent, so I look forward to seeing if struct, which is really important to always needs vs. political/societal/environmental “externalities”? I learn something new that I can the currency of a less strive towards self-im- apply. I want to balance protecting appreciated (and there- provement, both per- Replay availale: pionline.com/WPS-Webinar my kids, but also allowing them to fore more endemic) sonally and profession- be independent. I am sure like caste system, which pre- ally,” he said about his many parents!” she said. dates the idea of race.” list. “As someone who is Sponsored by: Ms. Farhadieh also noted she “As in other societies, committed to being a plans to read “Creative Quest” by America’s caste system lifelong learner, I find Ahmir “Questlove” Thompson. has helped to determine that books help enhance For a full list of webinars, go to pionline.com/webinars “Sometimes those of us in fi- standing and respect, as- my knowledge, cultural nance or perhaps more num- sumptions of beauty and awareness, and aspira- Pensions & Investments July 12, 2021 | 31

from now we don’t have a set of Richards said. terms of hiring, for example. “We’re asset owners that … shot from the Angela Miller-May, CIO at the $13 in this period of time where there hip, made some investments” and billion Public School Teachers’ has been a lot of talk. And now we Thrift Cambridge executives pat them- Pension & Retirement Fund of want to make sure that that talk CONTINUED FROM PAGE 6 selves on the back and feel good in Chicago, is also worried about turns into action,” Ms. Miller-May equity and inclusion, alignment of the near term, she said. intentions translating into action. said. companies’ political activities and Ms. Richards wants to make sure “This last year, when we’ve seen so That sentiment was echoed by stated policy positions, and share- executives did enough research, many managers with so many Rupal J. Bhansali, New York-based holder proposals. “Not to be out- made appropriate investments and initiatives — and some have been CIO and portfolio manager, interna- done, SSGA’s CEO stated ‘our main understood the investment case, really successful and great initia- tional and global equities at Ariel stewardship priorities for 2021 ensuring Cambridge is “making the tives … but I’m concerned overall Investments LLC, who said she is will be the systemic risks associat- right investments and that we can that the initiatives won’t turn into worried that diversity efforts could ed with climate change, and a lack still support those managers five action,” Ms. Miller-May said. “We’ve translate into tokenism “where of racial and ethnic diversity,” the years, 10 years from now.” She also been promised quite a few things people just check the box of having letter said. wants to make sure asset owners over the last year as far as increas- taken certain steps at a headline The senators asked FRTIB and CONSIDERATIONS: Gilbert A. Garcia is the two managers to brief them by don’t just follow consultants’ ing diversity, putting in programs, level, but actually not affecting the worried that thresholds will be lowered July 26 on their respective recommendations in the near term, being committed to colleges and outcomes and the opportunity set for how minority firms are defined. proxy-voting policies related to but have a long-term plan. diverse managers, but now we’re for actual assets being managed by TSP assets, including past commu- 10 years from now?” said Jasmine “So we want to make sure that taking a step back and we’re going diverse managers.” nication that could potentially ex- N. Richards, Boston-based head of we have that balance between the back to those managers, back to She wants managers to be held pose a fiduciary conflict. diverse manager research at near-term goals and results and those organizations, and saying accountable for the end results that One specific request was to see Cambridge Associates LLC. There’s really understand the long-term ‘where is the action?’” she said. executives want to see — more any proxy vote within the last five an immediacy in terms of acting on picture because I think we’re all Executives are asking how diversity — “not for the rhetoric that years on a shareholder proposal adding diverse managers, but “we agreed that we don’t want this to be promises made are coming to we hear being sprouted,” Ms. where BlackRock or SSGA did not want to be putting the right steps in just a moment. We want to make fruition, with more diversity Bhansali said. vote with management, plus analysis “documenting the anticipated in- place, so that five years, 10 years sure we have lasting impact,” Ms. promised across organizations in — SOPHIE BAKER crease in financial return in the investment as a result of such a vote.” Mr. Toomey is ranking member of Committee. Garcia Hamilton has and persons with disability-owned investing in based on merit. metrics, she added. the Senate Banking Committee and more than $17 billion in assets un- firms, said any manager that comes The top request Ms. Richards saw Rupal J. Bhansali, New York- Mr. Johnson is ranking member of der management. into the pension fund’s boardroom from Cambridge’s clients last year based CIO and portfolio manager, the Senate Homeland Security and Ms. Miller-May agreed: “It is “expects to be asked about their di- was to send a list of diverse manag- international and global equities at Governmental Affairs Permanent about hiring managers that are versity,” with executives in turn ex- ers with which to meet. “I think that Chicago-based Ariel Investments Subcommittee on Investigations. nimble and can provide the best pecting them “to have a good an- that is necessary, but largely insuffi- LLC, said the heart of the issue in A call to FRTIB was not immedi- solutions in times where the mar- swer,” she said. cient” in moving the needle. terms of asking the right questions ately returned. kets are volatile. And we’re looking CTPF executives want to not The barrier is that, as investors of diverse managers “is holding BlackRock Investment Steward- for those managers that can pivot only consider diverse managers, and allocators, “there are ways that people accountable for the right ship “performs independent re- and understand what is going on, “but we want to look at those the metrics and the systems that we outcomes. … Diversity can end up search and analysis on behalf of and that can be forward-thinking. non-diverse managers and make have historically used have inher- being tokenism.” our clients,” a BlackRock spokes- And we find those characteristics in sure that they have the systems and ent biases baked into them,” Ms. If success is defined as taking man said in an emailed statement. diverse managers.” the processes (in place) that in- Richards said. “And so, until we ad- more meetings with diverse man- “We cast informed votes aligned crease diversity because we believe dress those, just taking different agers, but actually less than 1% of with clients’ long-term economic Checking progress that those diverse candidates that meetings is going to be insufficient.” all assets are run by diverse man- interests. We see this responsibility As well as looking at diverse they hire and promote are the next If an investor meets with manag- agers, something doesn’t add up, as part of our fiduciary duty.” managers, panelists said it’s still generation of diverse managers,” ers but is using the same processes Ms. Bhansali said. It doesn’t matter SSGA spokeswoman Olivia Off- important to evaluate and meet Ms. Miller-May said. with the same biases, they are “go- how many meetings an investor ner said in a separate emailed with non-diverse firms, if only to Diverse managers were included ing to end up with the same results,” takes, how many metrics they use to statement: “We believe that asset keep an eye on what they’re doing in the portfolios of 59% of Cam- Ms. Richards added. Asset alloca- measure diversity and managers, stewardship is our fiduciary re- and how they progress. bridge Associates’ clients at the end tors asking for a “10-year track re- how many questions are asked in a sponsibility and one of the ways we Ms. Miller-May, for whom legis- of 2020, which is “exemplary of the cord in an industry that has been due diligence questionnaire — the add value for investors. As long- lation dictates she and her invest- fact that we are going out and find- historically non-diverse” is an ex- important thing is to “ultimately term investors, we always take a ment team must allocate at least ing undiscovered, underinvested-in ample of “baked-in bias.” Work hold (managers) accountable for broad view of ESG factors as they 20% of assets to minority-, women- investment ideas” that clients are needs to be done on evaluation the outcomes, not the effort.” n relate to sustainable returns.” n tion to be the best state summer read: “The gene editing and the further utiliza- ■ David Scaysbrook, co-founder Independence,” a look at the Amer- treasurer I can be.” Man Who Ran Wash- tion of DNA, shedding light on and managing partner of Quinbrook ican Revolution, and Crusaders: An ington: The Life and where the next generation of health Infrastructure Partners who is Epic History of the Wars for the ■ Luke Ellis, CEO of al- Times of James A. Bak- care is going,” he added. based in the Isle of Capri, Holy Lands,” by Dan Jones. ternatives manager er III,” by Peter Baker Principal Financial Group man- Queensland, Australia, chose two Man Group PLC, Lon- and Susan Glasser. aged $820.3 billion as of March 31. books for what is his ■ Dominick Impemba, don, said in an email “The seemingly qui- winter reading: “Ex- treasurer and chief fi- he’s sticking close to eter man behind four ■ John W. Rogers Jr., chairman, traordinary Popular nancial officer of the one of his passions, risk presidents, James Bak- CIO and co-CEO of Ariel Invest- Delusions and the more than $6 billion management, at least er endured, influenced ments, is reading “Think Again: The Madness of Crowds” by Rockefeller Founda- for one of the books on and helped achieve so Power of Knowing What You Don’t Charles MacKay and tion in New York, is his reading stack. much during his time Know,” the latest book by Adam “Green Hills of Africa” reading “Radical Can- “This summer I’ll be in Washington. I was Grant. “It’s so critical in the finan- by Ernest Hemingway. dor” by Kim Scott. reading ‘Strategic Risk curious to learn who cial services industry to be open to He said in an email “While we’ve taken Management: Designing Portfolios he is and how he accomplished so changing your thinking based on he selected them for great strides during the and Managing Risk’ by my col- much. This book reveals his integri- new facts and information,” Mr. “fun, education and en- pandemic to continue leagues Sandy Rattray, Campbell ty and grace, and his focus on re- Rogers said. “The ability to ‘think lightenment.” to enhance our work- Harvey and Otto Van Hemert. sults rather than his own ego,” Mr. again’ is incredibly important, espe- “The first one is ing relationships over “While I admit it’s not your clas- Kabiller said in an email. cially in our business.” heavier so more educa- Zoom, once we get sic beach read, it’s a must read for AQR managed $140 billion as of tion and enlightenment back together in per- investors who want to understand March 31. ■ Also at Ariel, Timothy Fidler, the around human behavior,” Mr. son we’ll need to work even harder risk in the investment context.” money manager’s ex- Scaysbrook said. “I’ve always had to just get back to where we were Mr. Ellis said he also plans to ■ Daniel J. Houston, ecutive vice president, an interest in human pathologies.” before, while also navigating the read Anne Louise Avery’s adapta- chairman, president director of research challenges of a hybrid working en- tion of “Reynard the Fox,” noting and CEO of Principal and co-portfolio man- ■ Greg Fitchet, investment officer vironment,” Mr. Impemba said. that the book is “a modern retelling Financial Group Inc., ager, is recommending at the $3.1 billion Phoenix City Em- of a classic story recommended to Des Moines, Iowa, has “A Random Walk ployees’ Retirement System, has re- ■ Brian Neale, vice president of in- me by one of my heads of compli- been entranced by a bi- Down Wall Street: The cently read “Pride and Prejudice” by vestments at the $1.7 billion Uni- ance (at Man Group) and I always ography — “The Code Time-Tested Strategy Jane Austen because “a couple times versity of Nebraska Foundation, do what she says.” Breaker” — by Walter for Successful Invest- a year I look to expand my horizons Lincoln, said he has a copy of “Cap- Man Group managed $127 bil- Isaacson. ing,” by Burton G. by selecting titles that are well out- ital Allocators: How the world’s lion as of March 31. Mr. Houston said in Malkiel. “A classic that side my usual realm of interest.” elite money managers lead and in- an email that the book we have all of our ana- Currently, Mr. Fitchet said he is vest” by Ted Seides that he has re- ■ David G. Kabiller, a co-founder, is about Nobel Prize lysts read for its ro- reading “Maverick: A Biography of served for airplane reading. In principal and head of business de- winner Jennifer Doud- bust history of capital Thomas Sowell” focusing on his in- preparation of his trip to partici- velopment at AQR Capital Manage- na and “the role she markets and treat- tellectual achievements by Jason L. pate in the World Series of Poker in ment LLC, Greenwich, Conn., is a played in developing the CRISPR ment of market efficiency and the Riley, and next he plans to read October, Mr. Neale plans to read prolific reader and suggested that technology,” an easy-to-use tool to psychology of investment deci- John Ferling’s “Almost a Miracle: poker strategy bible “Super Sys- others try his suggestion for a good edit DNA. “The book goes deep into sions,” Mr. Fidler said. The American Victory in the War of tem” by Doyle Brunson. n 32 | July 12, 2021 Pensions & Investments AT DEADLINE 2021, more than double its 18-ba- quence of corporate bond buying sis-point margin for the three years programs initiated by the Fed and GPIF fees through March 2020. the European Central Bank,” noted July 9, includes requirements for (Starting with the fiscal year end- Jean De Kock, Singapore-based UTIMCO sets allocation CONTINUED FROM PAGE 1 applications and related restric- ed March 2016, GPIF switched to fixed-income investment analyst The University of Texas/Texas tions and conditions in relation to pay handsomely for performance — providing manager-specific fee fig- with Mercer Investments. “Active A&M Investment Management Co. the American Rescue Plan Act of even as roughly 80% of the pension ures for three-year periods in place asset managers looking to put mon- board approved a strategic asset fund’s portfolio continues to be of single-year data. Single-year data ey to work would have been well 2021, which was signed into law allocation for the $49.1 billion managed passively. The fund ended for managers with mandates dating placed to take those bonds on at the by President Joe Biden on March UTIMCO manages for two its March 31 fiscal year with roughly back to the fiscal year ended March wider spreads on offer at the time, 11. endowments. 25% of its portfolio, or more than ¥47 2014 can still be calculated.) benefiting subsequently as spreads According to the PBGC website, The new asset allocation for trillion, each in domestic and for- By asset class, however, GPIF’s ground tighter over the remainder a multiemployer plan is eligible for eign stocks and bonds. Within those global fixed-income managers led of the year, he said. the $30.5 billion Permanent special financial assistance if it segments, active allocations came to the charge for the latest year, gar- Having fresh funds to invest University Fund and the $18.6 satisfies one of four criteria: It 27% for domestic bonds, 24% for for- nering fees of ¥25.4 billion, or more around the height of the pandemic billion Long Term Fund is effective has been in critical and declining eign bonds, 12% for foreign stocks than 40% of total outlays, up sharply crisis in March 2020 should have for the fiscal year starting Sept. 1, status since 2020; it has had its and 7% for domestic stocks. from ¥7.1 billion, or 22% of the previ- contributed to the breadth and 2021, University of Texas System The volatile, pandemic-stricken ous year’s total. The annual report depth of the outperformance benefits suspended as of March spokeswoman Cathy Biow year through March 2021 effective- showed 19 of the fund’s 21 overseas GPIF’s annual report shows for the 11; a funding ratio below 40% and confirmed in an email. ly became the first broad test of bond managers beating their bench- fund’s overseas bond managers last a ratio of active-to-inactive In FY 2022, the total target GPIF’s willingness to pay for alpha, marks for the year — 11 of them by 5 year, he said. participants of less than 2 to 3 allocation to the endowments’ with more than 80% of the pension percentage points or more. GPIF’s annual report — the one since 2020; and it has been fund’s roughly 50 active managers That record ¥25.4 billion of fees time each year the fund provides broad global equity category rose insolvent since Dec. 16, 2014, outperforming their benchmarks — was powered in part by the GPIF details about the amount of money to 65.7% from 63.1% in fiscal but as of March 11 had not been many by substantial margins. The board’s decision to boost the target each of its external managers over- year 2021, while the new terminated. year before, 18 managers outper- weight for global bonds in the pen- sees and the fees each receives in long-term target will raise the total The interim final rule provides formed while 29 underperformed. sion fund’s portfolio to 25% from return — showed Boston-based Fi- target allocation to global equity For the year ended March 31, 2019, 15% as of April 1, 2020. delity Investments enjoying some the formula that determines how to 65% from 63%, according to a 24 bested their benchmarks and 25 Data from GPIF’s annual reports of the latest year’s strongest returns much financial assistance PBGC report presented to the UTIMCO underperformed. showed $69 billion being shifted and rewards. will pay to an eligible plan and board at a June 29 meeting. GPIF’s latest annual report sug- into global bonds from other asset Fidelity’s ¥1.13 trillion overseas establishes the order of priority in The changes to the sub-asset gests that managers were able to segments during the year ended bond portfolio bested its Bloomberg filing and processing applications share in the portfolio’s stellar 25% March 2020, ahead of the formal as- Barclays U.S. Aggregate Bond classes within the global equity for such assistance. — or $340 billion — gain for the set allocation change, followed by benchmark by 11.72 percentage portfolios are: In addition, the rule specifies year, with fee payouts up more than another $89 billion during the latest points for the year — rebounding ■ Developed-market public permissible investments for funds 90% and climbing for the first time fiscal year. However, the vast bulk from underperformance of 5.77 equity will rise to 27% from 23%; and establishes certain restric- to roughly 4 basis points of the of that two-year surge in allocations percentage points the year before, the long-term allocation will rise portfolio’s value. — ¥17.7 trillion out of ¥19.5 trillion when it was managing a smaller tions and conditions on plans that to 27% from 25%. — went to passive strategies. Only pool of ¥694.8 billion. receive aid. Under the law, an ■ Private equity will grow to Baillie Gifford stands out an extra ¥1.8 trillion ended up with On the back of that performance, estimated $94 billion in assis- 24.2% from 22.8%; the long-term Baillie Gifford Overseas Ltd., active managers. the fees GPIF paid Fidelity for the tance may be provided to eligible allocation will remain at 25%. which managed a ¥1.2 trillion over- Still, some analysts noted that to three years through March 2021 multiemployer plans. The rule will seas equity mandate for GPIF as of the extent global bond managers surged to ¥8.24 billion, for an esti- ■ Emerging markets public be published in the Federal March 31, stood out among the were able to put that money to work mated margin of 24 basis points, equity will drop to 8% from 8.1% Register on July 12, then the year’s winners. The Edin- while pandemic-related volatility from ¥1.89 billion, or 9.1 basis in FY 2022 and remain at 8% long PBGC will allow the public burgh-based firm garnered fees of was depressing valuations, the shift points, for the three years through term. could have served to bolster perfor- March 2020. comment on the rule for 30 days. ¥14.4 billion for the three years ■ Directional hedge funds will through March 2021, up from ¥3.7 mance fees last year as well as ordi- be cut to 6.5% from 9.2% ; the billion for the three years through nary management fees. Fee margins improve long-term target allocation will EU moves ESG deadline March 2020, after besting its MSCI Other bond managers enjoyed stay at 5%. The European Commission is Kokusai benchmark by more than Record bond issuance solid — if less spectacular — gains. ■ Broad stable value portfolios delaying the upcoming deadline 19 percentage points for the latest A record $2.9 trillion of invest- Among them, Morgan Stanley year. ment-grade corporate bonds was Investment Management saw fee will be cut to 17.5% from 17.9%; under its ESG disclosure regula- That windfall boosted the firm’s issued worldwide in 2020 with margins improve to an estimated the long-term target will drop to tion by six months to help estimated margin to 40 basis points much of it “between March and 14.2 basis points from 5.3 basis 16% from 18%. The new target for managers, consultants and for the three years through March May of that year as a direct conse- points for the year before. The stable value hedge funds will fall supervisors with a smoother to 9.2% from 9.5%; the long-term adoption. target will stay at 10%. The deadline to implement Asia-focused multistrategy fund folio strategy for the hedge fund Outside of equities, the 7.4% some of the requirements of the managed by BFAM Partners Ltd. team of 50 South Capital Advisors allocation to global aggregate Sustainable Finance Disclosure Hedge funds and $150 million each to long/short LLC, Chicago, in an interview. equity strategies managed by Avidi- 50 South Capital launched a bonds will drop to 4.5% in FY Regulation will be postponed until CONTINUED FROM PAGE 4 ty Partners Management LP and hedge fund-based fixed-income 2022 and will be eliminated in the July 1, 2022, from the previous portfolio, which is part of the fund’s Yiheng Capital Partners LP. In the complement fund seven years ago long-term allocation. A new 2.8% deadline of Jan. 1, 2022, $14.9 billion total risk-mitigation second half of 2020, the that worked well in target allocation to long U.S. according to a source close to the portfolio. system allocated $250 2020, resulting in a 12% Treasury bonds is planned for FY commission. In the first half of 2021, LACERA million to Kirkoswald gain in assets under 2022. The long-term allocation is split a total of $500 million evenly Capital Partners LLP management and ad- 5%. The target for cash in the Texas earmarks $220M between discretionary global macro and $100 million to visement. The strategy managers Brevan Howard Asset Pharo Management Inc. has been even more stable value portfolios will remain The $33.5 billion Texas Management LLP and Caxton As- Both managers run dis- popular this year with at 1% for short- and long-term. Employees Retirement System, UTIMCO’s overall target sociates LP and $100 million was cretionary global macro an 83% growth in AUM/ Austin, committed $220 million to invested in an Asia-focused rela- strategies. AUA year-to-date July 1 allocation to real-return portfolios four private equity strategies in tive-value multistrategy fund man- Mr. Kasten said most mostly from net inflow, will drop to 16.8% from 19% ; May, a transaction report showed. aged by AM Squared Ltd. of the changes in the to $220 million as of long-term target remains 19%. From the system’s $5.9 billion In the second half of 2020, LAC- portfolio in 2020 in- SCENARIOS: Thomas K. June 30, data from the For the next fiscal year, the real private equity portfolio, invest- ERA awarded $250 million to Stable volved “reshuffling ex- Lynch said low-beta company showed. estate portfolio’s target allocation ment officers committed $180 Asset Management LP for invest- posures and tactical strategies should do well “People are looking falls to 7.3% from 7.9%; natural million to existing manager TA ment in a hedge funds emerging shifts” and the addition amid rising volatility. at their return bogies in manager program separate account. of new managers to fixed income and won- resources, drop to 4.5% from Associates, with $140 million Mr. Timko stressed that with the take advantage of COVID-19 in- dering how they’re going to meet 6.1%; infrastructure, down to 3% earmarked for TA XIV. The from 3.3%; and Treasury infla- change to direct hedge fund invest- vestment opportunities. their targets,” Mr. Thomas said. He remaining $40 million was ment, “LACERA’s portfolio contin- Because the current market en- said the fixed-income complement tion-protected securities, up to 2% committed to TA Select Opportuni- ues to emphasize risk mitigation vironment has good opportunities strategy continues to attract a high from a new 1.7% weighting this ties Fund II for recapitalization of objectives and return profiles with for hedge funds in 2021, Mr. Kasten level of interest and hires from as- fiscal year. high-performing companies in TA’s a low sensitivity to equity markets.” said “we have a couple more hedge set owners. He declined to identify portfolios. Existing manager The $66.8 billion Maryland State funds to add before we’re done.” investors in the fixed-income fund. PBGC unveils plan rules Industry Ventures received $30 Retirement and Pension System, 50 South Capital, a manager of Baltimore, earmarked a total of $850 alternatives funds-of-funds, had The Pension Benefit Guaranty million from ERS for investment in ‘Proved their value’ million for investment in five hedge “Hedge funds proved their pro- $11.1 billion in AUM/AUA with 27% Corp. set out information Industry Ventures Partnership fund managers from the system’s tective value for institutional port- invested in hedge funds as of July 1. underfunded multiemployer plans Holdings VI. $5.7 billion absolute-return portfo- folios in the first quarter of 2020 and Clients of Cliffwater LLC are, for must file to show they are eligible The system’s private equity lio, confirmed Gregory C. Kasten, then captured meaningful upside the most part, sticking with their cur- to receive special financial team also committed $10 million managing director of the abso- (gains) in the last three quarters. rent hedge fund portfolio construc- assistance. to CO20210524, a private equity lute-return portfolio, in an interview. They’ve also gained a lot of momen- tion, but some have added low-beta The interim final rule, published co-investment. In the first six months of 2021, the tum so far this year,” said Tristan L. hedge-fund strategies funded by system committed $250 million to an Thomas, managing director of port- lowering their fixed-income portfo- Pensions & Investments July 12, 2021 | 33

rm’s ¥1.2 trillion portfolio outper- One executive at a money man- formed its Bloomberg Barclays ager with a GPIF mandate, who de- Roll-up strategies on the rise Global Aggregate Bond benchmark clined to be named, said he wel- Roll-ups by 5.21 percentage points. comed the continued growth of Private equity rms are increasingly buying smaller companies and CONTINUED FROM PAGE 1 Newport Beach, Calif.-based Pa- institutional investor demand for merging them. ci c Investment Management Co. performance fees but that trend will (also called add-ons) in the U.S. with U.S. private equity roll-up activity LLC, in turn, saw its fee margins re- leave some rms under pressure to a total value of $164 billion, com- bound to 16.1 basis points from 4.4 balance their institutional business pared to 3,168 roll-ups worth a com- Total value (billions; left axis) Number of deals (right axis) basis points as the rm’s ¥1.27 tril- with steadier streams of income on bined $323.4 billion in all of 2020, a $360 3,600 lion portfolio beat its global aggre- the retail side of the business. according to PitchBook Data Inc. $330 3,300 gate benchmark by 3.42 percentage Meanwhile, if intermittent un- “We are in a very unprecedented points. derperformance remains a busi- time in M&A,” said Stacy Kirshner, $300 3,000 After global bond managers, do- ness challenge under the GPIF’s a New York-based managing direc- $270 2,700 mestic equity managers saw the fee structure, the latest annual re- tor with Alvarez & Marsal Holdings next biggest jump in earnings, with port included signs that managers LLC’s transaction advisory group. $240 2,400 combined fees rising 95% year on are being kept on a tighter leash in The increase in roll-ups — a $210 2,100 year to ¥12.7 billion. that regard. growth strategy that has been Firms posting strong gains in- around for decades — is being driv- $180 1,800 cluded Capital Group Cos. Inc. and Manager terminations en, in part, by the reopening of the $150 1,500 Fidelity, with both outperforming Eiji Ueda, who replaced Mr. U.S. economy that encouraged pri- their TOPIX benchmarks by more Mizuno as GPIF’s chief investment vate equity managers to get back in $120 1,200 than 12 percentage points for the of cer in April 2020, noted in his the game as well as an expectation $90 900 year. Capital Group managed ¥673.2 review of the year in the annual re- that favorable capital gains tax billion and Fidelity managed ¥521.2 port that eight active managers had treatment could soon change, push- $60 600 billion in active domestic equities. been terminated over the past year. ing business owners to sell now. $30 300 Capital Group’s three-year fee A GPIF spokeswoman declined “There was a thought going into total surged to ¥5.6 billion from ¥2.1 to name the terminated managers. 2021 that there would be an increase $0 0 billion for the three years ended The annual report showed To- in capital gains taxes, causing vol- 2016 2017 2018 2019 2020 2021* March 2020.The rm’s estimated kyo-based Asset Management One ume to increase,” Ms. Kirshner said. *As of July 7. Deal values include extrapolated data. Source: PitchBook margins improved to 83 basis points Co. Ltd., J.P. Morgan Asset Manage- “There’s a signi cant concern of pri- from 48 basis points. ment and Eastspring Investments vate equity investors and also a con- like Hightower (Advisors LLC) and your investors,” Ms. Kirshner said. Fidelity’s three-year total jumped Inc. being terminated from active cern of privately held businesses Focus (Financial Partners),” he said. Increased competition, mainly to ¥2.4 billion from ¥1.29 billion, domestic equity mandates that that if they sell next year, they would Another area of activity is among from private equity rms, makes with its margins climbing to 46 ba- came to ¥531.1 billion, ¥319.4 bil- get taxed at a higher rate.” private market managers, he said. that multiple arbitrage less of a sis points from 38 basis points. lion and ¥138 billion, respectively, These factors are leading indus- “This is more strategic as (alter- sure thing, she said. To reap a pro t If the latest gures show GPIF’s at the close of the prior year, and try executives to expect that 2021 native investment) rms are coming these days, investors have to show three-year-old fee experiment in a Tokyo-based Nomura Asset Man- will be a banner year for mergers together to offer broader solutions” they have a unique business, relatively attractive light for money agement Co. Ltd. losing an active and acquisitions in general, and to investors by adding new lines of whether that is through new lines managers, at the end of the day it overseas equity mandate of ¥83 roll-ups, in particular. business such as private equity, pri- of business, technology or service remains a program with sharp teeth billion. “2021 as an overall matter is vate credit, real estate and infra- offerings, Ms. Kirshner said. — as shown by the experience of Elsewhere, a handful of active proving to be one of the most active structure, Mr. Gooden said. Walter Scott & Partners Ltd., the overseas bond managers fell off the years in private equity ever,” said StepStone Group LP, a private Uncertain impact on returns Edinburgh-based global equity GPIF’s list in the latest annual re- Marc Lipschultz, New York-based markets manager and consultant, Whether roll-ups will result in boutique of BNY Mellon Invest- port, including Manulife Invest- co-founder and co-president at announced on July 7 it acquired larger companies worth more than ment Management. ment Management (U.S.) LLC, Blue Owl Capital Inc. “Roll-ups are Greenspring Associates, a venture the sum of their individual compa- After garnering ¥4.1 billion in which managed ¥701.2 billion for a very, very big theme.” capital and growth eq- ny parts is not just a consideration fees the prior year for outperform- the fund the year before, Franklin There are a lot of uity manager with $17 in the insurance area but across in- ing its MSCI Kokusai benchmark by Advisors Inc. as subadviser for a roll-ups partly because billion in assets under dustries, insiders say. 7.8 percentage points in the global Nomura strategy running ¥654.6 “of the high multiples management, for $725 Sources familiar with the roll-up equity market sell-off of March billion and a Nomura Corporate private equity rms are million. strategy said that there is nothing 2020, Walter Scott took in a meager Research and Asset Management paying,” Mr. Lipschultz There has also been about them that suggests the re- ¥197 million for the latest year, after Inc. mandate for ¥125.9 billion in said. “They have to have a surge in activity in the turns will be higher or lower. Al- trailing the index by 8.2 percentage U.S. high-yield assets. a way to generate re- insurance area. Histori- though with more and more roll- points. The rm’s estimated mar- Spokesmen for those rms de- turns.” cally, buyers concen- ups occurring, there are more gins dropped to 2.8 basis points clined to comment or didn’t re- Alternative invest- trated on property and bidders and therefore upward price from roughly 90 basis points. spond to requests for comment.  ment rm Owl Rock casualty insurers, but pressure on the add-on companies was formed in May by POPULAR: Marc now they are most infor which these private equity rms the merger of Owl Rock Lipschultz called roll-ups terested in investing in are competing, these people said. lios “on the margin,” said Thomas K. hedge fund rm, for example, has Capital Group and a ‘very, very big theme’ in life and health insurers, But executives at industrial-fo- Lynch, a New York-based senior seen “very strong demand and in- Neuberger Berman private equity this year. particularly those serv- cused private equity rm Sole managing director of the alterna- vestment” from asset owners this Group’s former subsid- ing the aging baby Source Capital LLC believe that the tives consulting rm, in an interview. year, said Ryan A. Tolkin, CEO and iary Dyal Capital Partners with spe- boom generation, Alvarez & Mar- roll-up strategy can boost returns. Given the likely macro scenario CIO, in an interview. cial purpose acquisition company sal’s Ms. Kirshner said. “Our team has done a good job of rising volatility, interest rates and “Hedge funds navigated the Altimar Acquisition Corp. Private equity rms’ interest in building larger businesses at high in ation globally and the fact that events of 2020 relatively well and For example, on July 7 private the insurance brokerages was en- speed,” said David Fredston, Los “ xed-income spreads can’t stay as provided a tailwind going into equity rm Genstar Capital an- hanced during the pandemic when Angeles-based CEO and founder of low as they are,” Mr. Lynch said 2021,” Mr. Tolkin said, noting that nounced the rm’s portfolio com- insurance companies thrived. Sole Source Capital. low-beta and sovereign-bond rela- investor demand last year was for pany Obsidian Insurance Holdings “Buyers love the insurance dis- “Roll-ups absolutely have an im- tive-value strategies that allow the the rm’s long-short equity strate- Inc. acquired Western Home Insur- tribution (brokerage) space. It has pact on returns with larger busi- hedge fund manager to choose be- gy while its quantitative fund is ance Co. from Western National highly, highly predictable revenue nesses having more potential buy- tween different countries’ debt most popular this year. Mutual Insurance Co. On June 30, streams with high margins,” she ers due to more competition for the should do well going forward. Schonfeld Strategic Investors ran Genstar Capital and TA Associates said. “2020 was no exception to that asset, especially at auction,” he said. Cliffwater advises institutional $8.8 billion as of July 1 of which 70% announced they signed a de nitive … Insurance brokers did pretty Sole Source has announced ve investors on a total of $20 billion in was for institutional investors. agreement to merge their portfolio well during COVID-19.” roll-up transaction so far in 2021. hedge fund investments. Despite the interest managers companies, Compusoft Group, a What’s more, growing competi- The latest was on July 7, an acquisi- said they are seeing from asset software provider, and 2020 Tech- tion in the insurance brokerage tion by portfolio company Supply Capstone’s strong year owners, “modest in ows into hedge nologies. The newly combined com- area means that to generate a de- Chain Services, a provider of auto- Capstone Investment Advisors funds are likely this year, given the pany will be majority owned by sired pro t for investors on exit, it is matic identi cation and data cap- LLC, New York, which specializes in percentage of hedge funds that al- Genstar and TA Associates. more crucial than ever that insur- ture and factory automation, of ISG volatility and tail-risk strategies, is ready is part of many institutional Activity is quite strong in certain ance brokerage companies diversi- Technologies. This is the fourth ac- having a strong year as large inves- portfolios,” said Samuel M. Diedrich, sectors including wealth manage- fy their offerings, which they are quisition made by Supply Chain tors seek uncorrelated returns, de- a New York-based managing direc- ment, alternative investment man- doing through acquisition, Ms. Services since Sole Source bought fensive strategies and substitutes tor and head of absolute return and agement rms and insurance com- Kirshner said. the company in May 2020, a news for xed income, said Paul Britton, credit strategies at OCIO manager panies, industry executives said. Sellers are being motivated by release said. the rm’s CEO, in an interview. Partners Investment Management Indeed, roll-ups of wealth man- high valuations to of oad compa- What’s more, the roll-up phe- “Owning xed income over the Group LLC, in an interview. “The ar- agement registered investment ad- nies. But while the roll-up strategy nomenon has caught the eye of Ro- last 30 or 40 years provided portfo- gument for the use of hedge funds visers are “at an unprecedented supercharges growth, industry in- hit Chopra, a commissioner on the lio diversi cation and returns, but as a xed-income substitute is very level,” said Ted J. Gooden, New siders are divided as to whether Federal Trade Commission who xed income isn’t providing the valid, but I think it’s more likely that York-based partner and head of these new group of roll-ups will re- said in a letter issued in July 2020 utility it used to,” Mr. Britton said. in ows in this and other hedge fund private markets at Berkshire Global sult in higher returns for investors. that the FTC should take steps to Hedge fund managers whose strategies will come from new Advisors, a mergers and acquisi- In the past, investors could roll increase its oversight of roll-ups, strategies aren’t necessarily a neat hedge fund investors rather than tions adviser in the investment up insurance brokerage companies, particularly in the health-care sec- t as a xed-income substitute said existing investors,” he said. management industry. for example, sell the larger compa- tor. One of the issues, he noted, was they are also seeing strong demand Partners Capital managed $40 “These rms have now grown ny for more than investors paid for that many of the individual deals from asset owners. billion in OCIO mandates as of along with the market to become all the companies — known as are too small to be reported under Schonfeld Strategic Advisors March 31, of which $7.9 billion was valuable businesses, which has at- “multiple arbitrage” — and “expect the Hart-Scott-Rodino Antitrust LLC, New York, a multimanager in hedge funds.  tracted capital from roll-up rms to ... make a pretty good pro t for Improvements Act.  34 | July 12, 2021 Pensions & Investments

Jennifer Bishop employees. The firm offers a bro- their core investment lineups at a kerage account to clients through time when many are trimming their Brokerage Charles Schwab & Co. menus for simplicity and using the “In my experience, that fear has self-directed brokerage accounts as CONTINUED FROM PAGE 3 never materialized,” said Mr. Ma- a way for participants — often the “There’s no problem that needs son, who works primarily with large more sophisticated investors — to to be fixed,” Alison Borland, San plans, large employers and DC pursue other investments, she said. Francisco-based executive vice trade groups. He suggested that the president for wealth solutions and Obama administration’s Labor De- Room to improve strategy at Alight Solutions Inc., partment put brokerage accounts Despite their misgivings about said in an interview. on the back burner because the more regulation, DC industry mem- Comments by Ms. Borland and agency “devoted its energy” in 2015 bers said there’s room for tweaks in other DC industry representatives and 2016 to developing the fiducia- ERISA. sounded the same in 2021 as they ry rule and a rule on state-run au- Sponsors do a good job of telling did in 2014, when the Labor De- to-IRA programs. participants “that the plan has not partment issued its brokerage ac- The Trump administration, he screened brokerage window invest- count RFI. After the RFI, “there was added, “had a different perspective ments,” Mr. Mason said. “We’re not no compelling reason to make on many issues,” so the brokerage opposed to strengthening that com- changes,” Ms. Borland said. accounts never surfaced as a regu- munication.” “I was surprised it was on the latory matter. Now, with the Biden Mr. Mahoney of FinDec said he list” said Kent Mason, a Washing- administration, “this was the next wouldn’t mind seeing the Labor ton-based partner at Davis & Har- opportunity,” he said. Department erect a few “guardrails” man LLP, referring to the ERISA for brokerage accounts. The rising Advisory Council’s agenda for this Already covered role of technology in plan adminis- year. “I don’t think there’s an issue.” Self-directed brokerage accounts tration and the emergence of new Mr. Mason and Ms. Borland were COVERED: Aliya Robinson believes current rules provide sufficient information for already are covered by ERISA rules types of investments could require among those testifying at June’s vir- participants to make informed choices on self-directed brokerage accounts. that provide sufficient information more clarification about what in- tual ERISA Advisory Council hear- for participants to make informed vestments are allowed under ERI- ing as did representatives of the brokerage accounts crossed a cer- Once again, DC trade groups choices, Aliya Robinson, Washing- SA, he said. ERISA Industry Committee, the tain threshold — based on how complained about regulatory over- ton-based senior vice president for Another suggestion — he doesn’t U.S. Chamber of Commerce and many participants invested in it — reach and the prospects of more retirement and compensation poli- call it regulation — would be more Empower Retirement. then sponsors would have a fidu- costs and administrative head- cy at the ERISA Industry Commit- “clear language” about the respon- Their unifying theme was that ciary duty to monitor it. The guid- aches. The agency never acted. tee, told the ERISA Advisory Coun- sibilities of sponsors, advisers and more regulation and more disclo- ance said such an investment would In the RFI, the department ex- cil on June 25. “Under current service providers. sure would create more problems be considered a designated invest- pressed concern that sponsors guidance, plan sponsors must pro- In her testimony, Ms. Sheaks of — administrative and legal — for ment alternative, putting it on a fi- might turn their DC plans into one vide participants with sufficient in- the Chamber of Commerce said sponsors leading to possible reduc- duciary par with plan’s core lineup. self-directed brokerage account as formation to understand how the ERISA should contain language tion or even cancellation of broker- a way to avoid or reduce fiduciary brokerage window works, explain saying the sponsor’s duty to moni- age accounts. A bigger burden responsibilities and fee transpar- any fees and expenses that may be tor covers only the activity of the “We’re good; we don’t need more DC members accused the Labor ency. charged against the participant’s brokerage account provider and not disclosure,” Chantel Sheaks, vice Department of back-door regula- “We never even saw that con- account and a statement of the dol- specific investments in the broker- president for retirement policy for tion. They said the guidance docu- templated” by clients, said Ms. Bor- lar amount of fees charged,” she age account. the U.S. Chamber of Commerce, ment would have forced them to land, whose company’s record testified. Assuming fiduciaries follow all said, adding there is room for more monitor all investments — hun- keeping clients are mostly large Ms. Robinson said ERIC and its of ERISA’s rules, she advocated lan- regulatory clarity. “More disclosure dreds or thousands — in the bro- employers. members feared that additional guage that clearly states they isn’t better disclosure.” kerage accounts, defeating the pur- At the smaller end of the DC rules or guidance, such as those shouldn’t be liable for a participant DC industry members “are still a pose of giving participants extra market, “no client has asked us proposed in 2012, would lead to losing money in a brokerage ac- little leery” about the Labor Depart- choices without requiring the fidu- about avoiding fee disclosures,” “unintended consequences” by cre- count investment. ment and self-directed brokerage ciary vetting of the DC plans’ core said Kevin Mahoney, the business ating onerous, expensive adminis- She also offered some model accounts due to a guidance docu- lineups. development officer at FinDec Co., trative requirements. language that sponsors can provide ment issued — and then swiftly An intense industry lobbying ef- a Stockton, Calif.-based firm which Faced with such rules, some to participants describing the bro- withdrawn — nine years ago, she fort led to the proposal being with- provides third-party administra- sponsors could drop the brokerage kerage account’s terms, costs and said. drawn in July 2012. tion as well as wealth, insurance account. Sponsors may say “Why administration as well as making In May 2012, the Labor Depart- In August 2014, the department and benefits services. His company bother?” she said in an interview. clear that neither the sponsor nor ment issued a fee disclosure guid- came back with its RFI about the has about 400 DC plan clients with “It’s not worth taking on the risk.” the account provider is responsible ance document, including a pas- cost, administration and disclosure average assets of $2 million to $3 Another unintended conse- for losses due to participants’ in- sage that said if an investment in policies of the brokerage accounts. million and an average of about 50 quence could be sponsors adding to vestment choices. n

“All those things add up to just tions already stand at roughly 35% increase in numbers was going to being more active about how we of the portfolio, with that 14.6% in dilute or jeopardize that culture,” Future Fund think about investing and that re- private equity complimented by she said. quires more people,” she said. 7.3% in infrastructure and timber- “We’ve resisted change,” striving CONTINUED FROM PAGE 2 land, 7% in private debt and 6% in to keep the team small due to the ic asset allocation program, leaning Expanding investment staff real estate. The portfolio’s remain- conviction that the Future Fund’s more heavily into private markets Mr. Arndt told Australia’s Senate ing 18.6% weighting is parked in culture is a big comparative advan- and complexity and illiquidity and the Future Fund’s investment staff cash — which Ms. Brake has said tage, “adding significant basis control premium because ... you needs to grow to 150 from 80 at should leave the Future Fund well points to our performance,” she can’t simply rely on the equity pre- present. Without those reinforce- positioned to pursue opportunities said. mium the way many people have ments, he said, his team could fall in what look to be increasingly Nonetheless, “we’ve come to that over the last 30 years,” Ms. Brake short of meeting the fund’s mandat- “fragile” global capital markets. inflection point (and) we do need to said in the interview. ed return target of Australia’s con- The CIO conceded that some ad- grow” due to the increasingly com- Mr. Arndt and Ms. Brake this sumer price index plus 4 to 5 per- ditions to the Future Fund’s private plex market environment and the year have contended that the pan- centage points going forward. markets staff would be useful, as handful of additional funds, with demic crisis has — as Mr. Arndt told Over the coming five years, the managing private assets that are al- HOT PURSUIT: Sue Brake believes combined assets of A$48.3 billion, senators on May 26 — brought Future Fund will have less passive ready in the portfolio is becoming a current drivers of return call for more the Future Fund team has been about “deep and lasting changes to exposure in public markets, Ms. heavier burden on the team as the breadth in portfolios — and more staff. tasked with managing over recent economies and investment mar- Brake said. A Future Fund spokes- portfolio continues to expand. years, she said. kets,” making the pursuit of invest- woman didn’t respond to requests The Future Fund does direct portfolio, given where we’re head- Additional plans falling under ment returns more complex and for a current breakdown of active deals and even though the private ing.” the Future Fund include the A$21.4 challenging than ever before. vs. passive exposures in the fund’s markets assets it acquires are ulti- There are no set targets for in- billion Medical Research Future There are more important driv- equity allocations of 32.1% — with mately managed by an asset man- creasing private market allocations, Fund and the A$15.3 billion Dis- ers of return now than there have 16.8% in developed market equities, ager, they still require considerable Ms. Brake said. abilityCare Australia Fund. been historically, which in turn calls 8.3% in emerging markets equities ongoing oversight by the fund’s in- To square the circle, the fund has for more breadth in portfolios and and 7% in Australian equities. vestment professionals, she said. ‘One team, one purpose’ launched a “Future Fund Academy” the pursuit of more granular diver- Mr. Arndt did specifically men- Those assets are “of decent size and Whether a near-doubling of in- to preserve the culture, providing a sification opportunities — a back- tion the need for more staff capable we put one or two people on the vestment staff will change the Fu- more formal induction and educa- drop that requires more investment of selecting managers of “skill- boards and you get to a certain ture Fund’s “one team, one pur- tion of both new and existing staff, professionals, Ms. Brake said. By based” strategies in market seg- point and the whole team is busy pose” culture — where there are no she said. way of example, she cited “geo- ments such as private equity and managing the assets we already targeted silos and every proposed “I think that’s going to be great graphic levers” of investment re- hedge funds — areas the fund is have,” Ms. Brake said. “The growth allocation has to justify itself vis-a- for us to be able to articulate what it turns that had come to be ignored already heavily exposed to with re- in the fund and the growth in the vis all of the portfolio’s existing is to do it the Future Fund way,” she as globalization went from strength spective allocations of 14.6% and number of mandates we’ve had just holdings — is an open question. added. to strength in recent decades. Going 14.4% of the portfolio. mean that we need to have more Ms. Brake said she’s confident Meanwhile, Ms. Brake said, that forward, the lack of focus on geo- There will be more private mar- people ... to continue to be thought- that culture will emerge intact from increase in staff won’t be rushed — graphic factors “needs to be re- kets exposure over that period, Ms. ful about what the right deals are the fund’s upsizing. “We wouldn’t taking place over a three-year peri- thought,” she said. Brake said. Private market alloca- and what the right assets are for the be doing this if we thought that this od. n Pensions & Investments July 12, 2021 | 35 CHANGES AHEAD As is the direction of travel for tors are always on executives’ minds. most large asset owners, the in- “The world is following the U.S. USS IM house manager will have fewer ex- at the moment — that’s often the Norwood (Mass.) Contributory Retirement System is looking to ternal managers but stronger rela- case at different points but it is very CONTINUED FROM PAGE 2 commit about $5 million to $10 million to a North American private equity tionships. Mr. Clissold declined to clear at the moment that the U.S. is fund of funds. Meketa Investment Group, investment consultant to the The latest available figures, as of comment further on relationships driving everything,” Mr. Clissold $205 million pension fund, is assisting with the search. The search is being March 31, 2020, show the pension with external managers. said, from central bank action to conducted to keep the plan at to its target allocation of 12% to 15%, said fund’s asset allocation was 26.9% in- encouraging workers back into of- Debra A. Wilkes, executive director of the retirement system. The RFP is dex-linked bonds, 11% “other” fixed Working smart fices, to inflation and the realign- available on Meketa’s website. Proposals are due by noon EDT on July 16. income, 6.5% nominal government Keeping some of the fund’s ment of global supply chains. bonds and 2% absolute-return strat- fixed-income allocations with ex- But the manager does have extra HAVE SOME NEWS? Orange County (Calif.) Transportation egies. The rest of the portfolio was ternal managers just makes sense, insight when it comes to central Authority is searching for an investment invested in public equities (38.4%), Mr. Clissold said. banks and policy — at least in terms Please submit news consultant for its $123 million 457 plan. The other private markets (21.9%), real Taking U.S. mortgages as an ex- of the way a central banker may of changes to David authority is seeking an investment consultant estate (5.5%) and commodities ample — which USS does not invest think — in the shape of Kate Bark- Schepp, news editor, at to assist the authority’s deferred compensa- (1.1%). There is also a 13.3% expo- in right now — “imagine we decided er, chairwoman of the trustees since dschepp@pionline. tion committee in carrying out its fiduciary sure to cash and overlays. that they look really cheap and we September and a director since com duties, according to the RFP posted on the The team runs about £25 billion wanted to go and buy some,” Mr. April 2020. Ms. Barker, who is also a authority’s procurement website. Registration — meaning about 75% of total Clissold said. “We could try and member of the investment commit- is required. Proposals are due on July 19. fixed-income assets are managed build a team to do that, (hold the al- tee and the governance and nomi- internally — but that includes a lot location for a couple of years) and nation committee, was a member of St. Louis Public School Retirement System is searching for an of leverage, Mr. Clissold said. That then we decide they aren’t cheap the Bank of England’s monetary investment consultant. The $926 million pension fund is seeking a firm to leverage is used for protection from anymore and we sell them. Would policy committee between 2001 and provide general investment consulting services, which includes the moves in interest rates and infla- we really want to go out and hire 2010. monitoring and recommendation of changes in asset allocation and money tion — which can of course lead to however many individuals you “We are incredibly lucky to have management and quarterly reports to the board of trustees, said an RFP losses but not when looking relative need to run those and then make a chair of trustees who was on the posted on the pension fund’s website. The RFP did not disclose whether to USS’ liabilities because both (the staffers) redundant in two MPC … We have an enormous current consultant NEPC is eligible to rebid. Proposals are due on July 23. move in tandem, Mr. Clissold added. years’ time? It’s just amount of knowledge There are also foreign-exchange clearly not very sen- ‘Only a year ago from her and she is Falmouth (Mass.) Contributory Retirement System is searching overlays to manage FX risk in sible,” he said. incredibly valuable for a U.S. small-cap core equity manager to run between roughly $15 non-sterling assets. Assets run in- There will always we nearly saw as a resource,” Mr. million to $25 million, or 14% of the $183 million defined benefit plan. The house include developed and be areas of invest- deflation. The Clissold said. actual amount to be allocated will be determined as a percentage of the emerging markets government ment where short- reaction The topic currently portfolio. Wainwright Investment Counsel, the pension fund’s investment bonds and credit. term or relatively top of mind — as for consultant, is assisting with the search. The RFP is available on Wain- The most recent preparation for short-term alloca- function there many investors — is wright’s website. Registration is required. Proposals are due by 2 p.m. EDT more in-house management start- tions are warranted, could be either, inflation. “There was on July 27. ed with last month’s appointment of meaning partner- always going to be an Janet Oram as USS IM’s first head ships with external and I think you inflationary shock as Chicago Policemen’s Annuity and Benefit Fund is searching for of asset-backed securities. managers. But there need to be very the rebound out of private equity managers and private debt managers. The $3 billion fund is Current USS allocations to ABS are other areas like aware that the pandemic hap- seeking one or two private equity managers to run $20 million to $40 — “an area where we as a team was sterling corporate pened, and I don’t million in growth equity, special situations and co-investment fund underrepresented,” Mr. Clissold credit or ABS “where, there’s a huge think it’s clear yet as strategies. The same number of firms are sought to manage $10 million to said — are immaterial in public as a U.K. pension spectrum of to how that will play $20 million in private debt, niche lending and opportunistic credit, markets and there is only a small scheme, we’re likely out in the long term,” confirmed Thomas A. Beyna, board president and chairman of the private markets exposure. Ms. to hold those for de- possible Mr. Clissold said. investment committee, in an email. Responses for both searches are due Oram will build a team but how cades potentially as outcomes here Given it’s a known by 4 p.m. CDT July 30, according to RFPs posted on the fund’s website. As much they will run is “an open an open scheme, and and manage unknown, executives of March 31, the most recent date available, the fund’s actual allocation to question … like lots of areas of having the capability need to be cognizant private equity was 1.3%, compared to a 7% target. As of the same date, the credit, (we) may choose to deploy to do that in-house accordingly.’ of all possible risks — allocation of the fund’s private debt portfolio was 2.3% vs. a target of 4%. more or less depending on the rela- (is) sensible,” Mr. USS IM’S BEN potentially that infla- tive value between (ABS) and cor- Clissold said. CLISSOLD tion continues to Kansas Public Employees Retirement System, Topeka, is searching porate bonds.” That approach of move higher, al- for an investment consultant for its $907 million 457 plan. The system Mr. Clissold thinks ABS will bring running certain allo- though he thinks issued an RFP due to the upcoming expiration of the contract of current a lot of investment opportunity go- cations in-house proved itself in that’s an “unlikely but definitely consultant SageView Advisory Group, said Arlen Zentner, KPERS deferred ing forward and, when he joined 18 the COVID-19 pandemic. possible” outcome. compensation plan officer, in an email. The RFP is posted on KPERS’ months ago, thought it was an area “Opportunistically, credit spreads “Only a year ago we nearly saw website. Proposals are due at 3 p.m. CDT on July 30. of fixed income that USS IM should were quite a bit wider and there deflation. The reaction function be doing more in — particularly was poor liquidity in corporate there could be either, and I think Grant County Public Utility District, Ephrata, Wash., is searching for since “a large proportion of credit in bonds last March and April,” Mr. you need to be very aware that a record keeper for its $82 million 457 plan and $71 million 401(a) plan. the U.K. is asset-backed.” Clissold said. there’s a huge spectrum of possible The utility district is seeking retirement plan providers with “demonstrated There’s also no target for the per- That led the in-house fixed-in- outcomes here and manage accord- experience in providing” record-keeping, administrative and communica- centage of fixed-income assets that come team to do a “significant ingly,” he added. It’s hard to be spe- tion/education services, according to an RFP posted on the district's will be run in-house — that depends amount” of selling of derivatives cific on these possible outcomes as procurement website. The utility district issued an RFP due to the upcom- instead on asset allocation decisions that had been used for protection there are so many, he said. Rather, ing contract expiration of current record keeper MissionSquare Retirement and the growth of the team. via the Credit Default Swap index, the key is being more conservative (formerly ICMA-RC), said Emily Wrightson, principal at CAPTRUST Financial But not all of the fund’s fixed-in- “which allows you to get exposure in how USS executives manage Advisors, an investment consultant that is assisting with the search. The come management will move in- to those wider credit spreads. And risks and assets. But again, coming firm is eligible to rebid, Ms. Wrightson said. Registration is required. house — Mr. Clissold wants to be as time went on and markets re- back to the manager and fund’s Proposals are due at 4 p.m. PDT on July 30. smart about it. “The way I envisage opened, we were able to transition long-term mandate, Mr. Clissold is that working is there’s lots of exter- into physical credit,” Mr. Clissold always talking to his team about the Missouri Department of Transportation and Highway Patrol nal managers that do a phenome- said. USS IM executives increased need to be calm. Employees’ Retirement System, Jefferson City, is searching for a nal job, and we want to get the best corporate bond allocations to just “There shouldn’t be something general investment consultant. The $2.9 billion pension fund is seeking an out of them. We’re not ever going to over £3 billion from £1 billion. that happens today — whatever it independent consultant to assist the board of trustees and investment have the breadth of knowledge of is, however much of a shock it is — staff in making “prudent investment management decisions,” according to 100 different external managers — External factors that is going to necessarily mean an RFP posted on the pension fund’s website. Proposals are due at 5 p.m. it’s just not going to be possible. So While USS IM is a long-term in- we have to do something immedi- CDT on Aug. 6. we want to make sure we get the vestor, running assets on behalf of a ately. We are looking at these things best out of those partners and pick pension fund with more than in multiple years, decades, time For a comprehensive database of search and hiring activity, visit P&IQ at those partners very carefully, and 450,000 participants employed in frames, and should be cognizant of PIonline.com/piq. make sure we have a good, strong the universities and higher-educa- that and not jump to quick conclu- relationships” with them. tion sectors, short-term external fac- sions,” he said. n

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