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Retirement Plans Governance Japan proposal CalPERS board on contribution limits could hurt wrestling with What is a benefit to some could also discourage DC how to delegate By DOUGLAS APPELL THE PLAN: Kyle Departure of CIO reveals cracks in philosophy Japan’s regulators are moving to Delaney said of what power to give staff and what to keep put “fairer” contribution limits for Bridgewater wants to corporate defined contribution form closer ties with plans in place this year but analysts sovereign wealth By ARLEEN JACOBIUS warn their proposed changes could funds while it trims just as easily shrink Japan’s DC staff numbers. The sudden departure of market as expand it. CalPERS’ CIO has revealed Vincent Ricardel Along the way, some of Japan’s to some board members that biggest corporate plan sponsors they might have been driv- could be forced to restructure the ing from the backseat — de- mix of DC and defined benefit re- spite actions taken last year. tirement plans they offer to em- After an exchange of ployees. punches and counterpunch- At issue are current rules that Money Management es in the form of letters by mandate across-the-board reduc- board members about the tions in DC contribution ceilings for timing of meetings — regu- companies that also offer defined Bridgewater has a plan larly scheduled or emergen- benefit plans. cy — and type — open ses- In contrast to the U.S. 401(k) sys- sion or closed session — the tem, where regular deductions from for steering through storm board tried during mara- employees’ paychecks powers thon meetings held on Sept. growth, companies are the main 14 through Sept. 16 to turn MORE ON HEDGE FUNDS contributors to Japan’s corporate Manager in midst of the car around. DC asset pool, which has grown to restructuring after big n Institutional investors are looking Using power many board more than ¥12 trillion ($112.9 bil- to hedge funds to help navigate members indicated during MUSCLED UP: Keith Ambachtsheer thinks lion) since the country put its DC losses, bad publicity through volatile times. Pages 3, 16 the meeting that they didn’t stronger board governance translates into framework in place almost 20 years realize they had, the board higher retirement plan returns. ago. By CHRISTINE WILLIAMSON sponse to the impacts of the COV- turned information items on DB plans, meanwhile, remain the ID-19 pandemic on global markets. the agendas into action items. The board also secured significant core of Japan's corporate retire- Bridgewater Associates LLC, the Bridgewater’s total assets under governance changes, including giving the board shared responsibil- ment system with ¥63 trillion in as- world’s largest hedge fund manager, management fell 12.5% to $140 bil- ity with the CEO for hiring, firing and re-evaluating the CIO and, sets — roughly five times the size of is experiencing one of its hardest lion through June 30 from $160 bil- reversing a decision it made late last year, turning the investment DC. years after assets under manage- lion as of Dec. 31. After better per- committee back into a committee of the entire board. Under prevailing rules, compa- ment fell precipitously. formance in July and August, total And there could be more to come as the board wrestles with the nies offering only a DC plan can Its flagship global macro strategy AUM rose to $148 billion as of Sept. fallout from former CIO Yu “Ben” Meng’s departure in August. Mr. contribute up to ¥55,000 monthly, or — Pure Alpha — was down 20% in 1, down 5.7% from year-end 2019, Meng is now under investigation by the state Fair Political Prac- just over $500, to employees’ ac- the first quarter this year in re- SEE BRIDGEWATER ON PAGE 32 tices Commission’s enforcement division over potential financial counts. For companies offering a conflicts of interest. | SEE CalPERS ON PAGE 29 DB plan as well, that ceiling is cut in half — to ¥27,500. Japan’s Ministry of Health, Labor Alternatives and Welfare is arguing now that slashing monthly DC contribution limits by ¥27,500 is unfair for com- Investors answer call over infrastructure panies whose estimated DB contributions come in well below that European governments grams and changes to retirement tors, the initiatives offer the poten- amount, noted Junichiro Goto, To- plan rules. tial of snagging higher returns as kyo-based managing director, mul- make changes that will Amid the ongoing battle with the fixed-income assets continue to tiasset business development, with coronavirus pandemic, the French, disappoint. AllianceBernstein Japan Ltd. spur investing climate Dutch, Swiss and U.K. governments France and the Netherlands The ministry is calling for those are all moving infrastructure high- each unveiled fresh stimulus pro- companies’ DC ceilings to be raised, By PAULINA PIELICHATA er on their priority lists. grams on Sept. 3 and Sept. 7, re- flexibly, to allow total contributions For the governments, the push spectively. The French government for a sponsor’s DB and DC plans of European countries are paving would help renew aging infrastruc- will make a fiscal injection of €100 ¥55,000, Mr. Goto said. the way for institutional investors ture and spur new industries such billion ($118.4 billion) into its econ- By way of example, under the C’EST BON: Declan O’Brien said French to increase exposure to infrastruc- as solar energy while providing omy over the next two years with a SEE JAPAN DC ON PAGE 30 changes will be welcomed by investors. ture assets by launching fiscal pro- jobs for the unemployed. For inves- SEE INFRASTRUCTURE ON PAGE 31 SOUND BITE Principal Global creates Muslim app NISA’S DAVID G. EICHHORN: ‘One Principal Global hopes its inconvenient truth about fixed income ‘Young Hajj’ mobile app is there is always a role for it in any will be the start of a great rate environment.’ Page 3 retail relationship with Indonesians. Page 6 2 | September 21, 2020 Pensions & Investments

IN THIS ISSUE Regulation

VOLUME 48, NUMBER 19 Defined contribution DOL’s rapid pace is too quick, many are saying When COVID-19 hit, New York best interest of retire- State Deferred Compensation Plan Feedback on investment advice ment investors. The executives acted quickly to maintain ERISA’s 5-part test rule proposal needed more time standard would be in- services to participants. Page 6 for fiduciary advice terpreted and applied By BRIAN CROCE consistent with the Under the five-part test outlined in ESG Securities and Ex- the Employee Retirement Income Retirement plan executives in The latest chapter in the ongoing debate con- change Commission’s Security Act, a person is an “invest- Europe are dedicating more assets cerning investment advice regulation is raising best-interest stan- ment advice” fiduciary if all of the to active equity approaches as ESG eyebrows from stakeholders on both sides, with dard, known as Reg following are satisfied: information pools explode. Page 4 sources saying the Department of Labor’s now BI, which went into ■■They provide advice or make lapsed 30-day comment period was insufficient effect June 30. recommendations regarding investing Governance for interested parties to provide proper feedback. It will likely take in, purchasing or selling securities or CalPERS and CalSTRS are taking The Labor Department on June 29 unveiled a TRANSPARENT: Andrea months for the Labor other property while receiving a fee. different paths when complying with proposed prohibited transaction exemption that Seidt said the five-part test Department to final- ■■The advice is provided on a regular a state law requiring state officials to would permit investment advice fiduciaries to re- needs to be clearer on ize the rule. basis. ceive compensation for their advice and to engage fiduciary duties. Also on June 29, the avoid conflicts of interest.Page 29 ■■ in certain principal transactions that are now for- Labor Department There is a mutual understanding with the plan, plan fiduciary or IRA Money management bidden. Currently, the Employee Retirement In- announced a final rule reinstating the five-part come Security Act prohibits investment advice fi- test used to determine whether an investment owner. Executives at Principal Global duciaries from self-dealing, or taking actions that professional or financial institution is a fiduciary. ■■The advice will serve as a primary see their Young Hajj offering as a would provide additional compensation from It was in 2016 that the Labor Department under basis for investment decisions with first step in building an “Islamic transactions involving plans and individual re- the Obama administration finalized a rule, com- respect to plan or IRA assets. ecosystem” of goals-based savings tirement accounts for themselves, their affiliates monly known as the fiduciary rule, that aimed to ■■The advice will be individualized products. Page 6 or related entities. replace the five-part test by broadening the defi- based on the particular needs of the Investment advice fiduciaries relying on the nition on when a person or entity is taking on plan or IRA. Departments exemption would have to provide advice in the SEE FIDUCIARY ON PAGE 34 At deadline ��32 Frontlines ��8 Changes ahead ��35 Hirings ��26 ESG Classified ��28 Manager roundup ��19 DC roundup ��12 People roundup ��33 Editorial ��10 Other views ��10 ETFs ��13 RFPs ��28 CTFC report hailed as a ‘dramatic milestone’ Late responses still OK Outline of financial impact of climate for pair of P&I surveys change a first from a U.S. regulator P&I is accepting late responses to the annual survey of DC mutual By HAZEL BRADFORD funds and target-date strategies. Firms managing proprietary mutual The first U.S. government report on climate change’s funds or target-date strategies for financial impact is sparking some optimism among sus- U.S. institutional, tax-exempt DC tainability-minded investors and advocates. plans are eligible. Results will run “The importance of this report to investors can’t be Oct. 19. overstated,” given that it is the first to come from a U.S. financial regulator, said Divya Mankikar, investment Responses to P&I's annual index manager for the sustainable investment team at the manager survey are due Oct. 9. $417.3 billion California Public Employees’ Retirement Firms managing index strategies System, Sacramento. — including passive, enhanced, “It is a dramatic milestone,” noted Steven Rothstein, ETFs/ETNs and factor-based — Boston-based managing director of the Ceres Accelera- for U.S. institutional, tax-exempt tor for Sustainable Capital Markets, a Ceres initiative ad- assets are eligible. Results will vocating for capital market policies to address global cli- run Nov. 16. mate change. To request a survey or obtain The report issued Sept. 9 by the Commodity Futures further information, please contact Trading Commission’s climate-related market risk subcommittee warned that “frequent and devastating shocks Anthony Scuderi at ascuderi@ from climate change” pose a threat to U.S. financial mar- pionline.com or 212-210-0140, or kets, affecting multiple sectors, geographies and assets in visit www.pionline.com/section/ the United States, “sometimes simultaneously and within surveys. a relatively short time frame.” The 34 members of the non-partisan advisory sub- Entire contents ©2020 Crain Communications Inc. All committee, including Ms. Mankikar and representatives rights reserved. Pensions & Investments (ISSN 1050- IN SYNC: Divya Mankikar noted the findings align with similar conclusions in a CalPERS report. SEE CLIMATE ON PAGE 35 4974) is published biweekly by Crain Communications Inc., 150 N. Michigan Ave., Chicago, Ill. 60601-7593. Periodicals postage paid at Chicago, Ill. and at additional mailing offices. Postmaster: Send address changes to Defined Contribution Pensions & Investments, Circulation Dept., 1155 Gratiot Avenue, Detroit, Mich. 48207-2912. $16 per issue; $350 per year in the U.S.; $375 per year in Canada; all other countries $475. ‘‘Canadian Post International Publications Deadline getting nearer for P&I’s Eddy Awards entries Mail Product (Canadian Distribution) Sales Agreement No. 0293539’’ GST #136760444. Printed in U.S.A. There’s still time to submit entries for Sponsors of plans of all sizes are encour- Pensions & Investments’ 2021 Eddy Awards, aged to enter, with materials judged against CRAIN COMMUNICATIONS INC an annual program recognizing plan spon- those from their peers based on the number Keith E. Crain, Chairman sors and service providers that exhibit best of participants. Record keepers and retire- Mary Kay Crain, Vice Chairman KC Crain, President practices in offering investment and finan- ment plan advisers can submit their own Chris Crain, Senior Executive Vice President cial education to defined contribution plan generic entries or can enter in conjunction Lexie Crain Armstrong, Secretary participants. with plan sponsor clients. In the latter in- Bob Recchia, Chief Financial Officer The deadline for completing the entry in stance, both will receive trophies for a win- G.D. Crain Jr., Founder (1885-1973) the online system is Oct. 9. ning entry. Mrs. G.D. Crain Jr., Chairman (1911-1996) Because of the COVID-19 crisis, P&I has Winners of the Eddy Awards will be an- changed how entries are to be submitted. All Special campaigns related to the corona- nounced at P&I’s annual East Coast Defined Published every other Monday by Crain Communications Inc. Boston: 101 Federal St., Suite 1615A, 02110; Chicago: 150 N. 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Regardless of whether they Complete rules and entry forms are avail- to a new record keeper. This category also Member of Business Publications Audit of Circulation were distributed to participants in print or able at pionline.com/EddyEnter. includes consolidation of record keepers by www.pionline.com online, the entry materials must be submit- Please note: Materials submitted by mail 403(b) plans. All ongoing investment educa- ted online via the entry system. will not be judged. SEE EDDY ON PAGE 34 Pensions & Investments September 21, 2020 | 3

Stanley Rowin Defined Contribution SPECIAL REPORT HEDGE FUND MANAGERS Acquisition moves Hedge funds Empower closer to wanted after its ultimate goal investors lose MassMutual deal makes company that looks more like its complacency nemesis and market leader Fidelity firm broader based like Investments. market leader Fidelity The deal certainly adds heft to By CHRISTINE WILLIAMSON Empower, a subsidiary of Canadian financial services holding company Hedge fund managers that have suc- By MARGARIDA CORREIA Great-West Lifeco Inc. The acquisi- cessfully navigated their way through the tion brings 2.5 million participants first half of this year and are producing It might be easy to mistake Em- in 26,000 workplace retirement good returns are in demand by institu- power Retirement’s anticipated ac- plans to Empower’s record-keeping tional investors that are adding more quisition of MassMutual’s retire- platform, bolstering its assets under hedge fund exposure to their portfolios ment plan business as a administration to $834 billion from and/or are upgrading lackluster manag- straightforward play for scale, but $632 billion it had as of Sept. 30, ers with better choices. it’s more nuanced than that, indus- 2019, according to Pensions & In- “There’s a sense of optimism from try observers say. vestments data. Once the deal closes hedge fund managers, backed up by in- The record keeper is looking to as expected in the fourth quarter, vestors,” said grow the number of participants it Empower will have 12.2 million Thomas P. Kehoe, MORE ON serves — in industry parlance participants in approximately managing director HEDGE FUNDS “build scale” — as much as it’s try- 67,000 plans. and global head of n Raucous year ing to increase the services it offers. “This transaction consolidates research and sees assets The endgame, experts say, is to Empower as the second-largest MOVING TO THE TOP: Edmund F. Murphy III said the deal will make Empower communications decline 3.1%. morph into a bigger, broader-based SEE EMPOWER ON PAGE 30 No. 1 in the small- and midsize plan sponsor segment of the DC market. for the London- Page 16 based Alternative Investment Man- n A list of the Investing agement Associa- largest managers tion. of hedge funds can “More investors be found on Page Institutions still see a place are interested in 17 hedge funds, and are seeing a real tool they can latch on to

Demetrius Freeman/Bloomberg for fixed-income managers in this difficult environment for preserv- ing capital, managing volatility, mitigating By DANIELLE WALKER to implementing liability-driven in- risk and producing returns,” Mr. Kehoe vesting in their portfolios. said. Despite the low-interest-rate envi- David A. Hunt, president and CEO In fact, high volatility in the first quar- ronment and government bond yields of $1.3 trillion PGIM Inc., Newark, N.J., ter this year was the catalyst for investors reaching record lows, large fixed-in- said that low interest rates seen since to consider more investment in hedge come managers are still positioned to the global financial crisis have “fueled funds, said Kenneth J. Heinz, president of see continued inflows from institu- a search for yield within fixed income,” index provider Hedge Fund Research tional investors and largely expect that has resulted in institutions “mov- Inc., Chicago. their business strategies to remain in- ing out of lower-yielding Treasuries “A year ago, institutional investors were tact, bond experts and money manage- into higher-yielding fixed-income very complacent. They aren’t anymore ment executives say. products, whether corporates, high because of ultra-high equity valuations. There will still be demand for fixed- yield, bank loans, structured products They’re building out their hedge fund income strategies among institutional or emerging markets debt (strategies).” portfolios by putting the unallocated por- investors, whose investment objectives PGIM Fixed Income had $920 billion tion of their hedge fund target to work,” run the gamut from finding a source of in assets under management as of Mr. Heinz said. LOOKING HIGH AND LOW: David A. Hunt said since the arrival of the income to managing heightened vola- June 30 across its active fixed-income From conversations with asset own- coronavirus, his firm has seen investors ‘intensify’ the search for yield. tility during the coronavirus pandemic SEE BONDS ON PAGE 32 SEE HEDGE ON PAGE 18

Dividends for LDI? Few strategies have matched asset owners’ investment objectives as precisely as liability-driven investing, but it is very expensive to implement. Given how relatively inexpensive the stocks of quality rms that pay high dividends are (compared with U.S. growth equities and investment-grade bonds), should dividend stocks be more heavily weighted in an LDI strategy going forward?

Sizeable market: Bonds Whither yields? In 2007, LDI bonds Maybe growth, too: Bonds are the A good mix: Many investors include suitable for LDI are a small yielded what now seems like a massive 6.2%. best tool to manage cash ows, but the growth assets in an LDI portfolio, and those subset of the total xed-income With growth stocks in vogue, dividend stocks returns are xed. In a quantitative-easing with both high-quality bonds and stocks have market, and while quality still pay out signi cant dividends and now and growth-stock world, quality dividend realized the best return pattern. With yields equities with strong dividends outstrip the yields on LDI bonds. stocks might provide a more cost-effective this low, investors could tilt more to are also a small subset of the strategy. And growth in cash ows from inexpensive dividend stocks. Yields by asset class total U.S. equity market, the increased dividends may provide a Cumulative growth by allocation great news for investors is that 7.0% signi cant bene t down the road. there are trillions of dollars in 6.5% Quality dividend stocks* 400 Actual dividends* securities in which to invest. 6.0% LDI bonds 375 Quality dividend 4.0% 5.5% Option-adjusted spread 350 stocks*

$3.83 Total assets 5.0% 3.5% 325 50/50 (trillions) 4.5% 300 LDI bonds 3.0% 4.0% 275

3.5% 2.5% 250 3.0% 225 2.0% $1.83 2.5% 200 $1.66 2.0% 1.5% 175 1.5% 150 1.0% 1.0% 125

0.5% 0.5% 100 Quality U.S. U.S. LDI 20+ year 0.0% 75 dividend corporate Treasuries ’18’17’16’15’14’13’12’11’10’09’082007 Q1 Q2 Q3 Q4 Q1 Q2 0.0% ’19’18’17’16’15’14’13’12’11’10’09’082007 Q1 Q2 stocks* bonds ’19 ’19 ’19 ’19 ’20 ’20 ’20’19’18’17’16’15’14’13’12’11’10’09’082007 ’20 ’20 *An adjusted market-cap-weighted universe of the Morningstar U.S. Dividend Valuation index. Source: P&I analysis of Bloomberg LP data Compiled and designed by Aaron M. Cunningham and Gregg A. Runburg 4 | September 21, 2020 Pensions & Investments

ESG Investments being shifted to meet low-carbon push As priorities change, European retirement plans have increased sustainable investments investors make a push considerably in recent years in the wake of European governments into active approaches launching investment programs and regulations aimed at reducing By PAULINA PIELICHATA carbon emissions to zero by 2050. But advancements in climate- Calls for accelerating the transi- related investment due diligence tion to a low-carbon economy are and ESG research by the industry prompting investors to evolve their are showing significant progress is approaches to equity investing, in- needed as early as in 2030. In turn, vestors said. retirement plan executives are stepping up efforts to revise targets and embrace more actively run portfolios. Most recently: ■■The £12 billion (£15.9 billion) National Employment Savings Trust, London, said it will move an additional £5.5 billion of its default HOW DO YOU MANAGE fund’s passive developed market equity investments with a climate RISK WHEN THE WORLD IS tilt into an actively run climate- aware segregated account with UBS Asset Management. UPSIDE DOWN? ■■Edinburgh-based Scottish

QUICKER MOVES: Katharina Lindmeier said active management allows faster responses to new information.

Widows, which has £160 billion in assets, selected the BlackRock Cli- mate Transition World Equity fund for a new £2 billion allocation to active equity. ■■The 470 billion Swedish kro- nor ($53.7 billion) AP7, Stockholm, shifted an additional 500 million Swedish kronor into an active green equity strategy, increasing its exposure to a strategy run by Impax As- set Management Group PLC to 1.4 billion Swedish kronor. ■■The €45 billion ($53.5 billion) Varma Mutual Pension Insurance Co., Helsinki, slated up to €1 billion to invest over the long term in shares of companies whose operations support the United Nations’ sustainable development goals. The European Union’s interest in promoting investment in ESG strategies provides a marked contrast with the U.S., with the Depart- ment of Labor in June proposing that ERISA plan fiduciaries be barred from making ESG investments that sacrifice returns or take We can't control what's next, but we can help navigate it. CME Group provides 24-hour access to trading on additional risk. opportunities in every investable asset class, allowing market participants worldwide to manage risk and European ESG strategies, how- capture opportunities. For every economic twist and turn, when the new normal is anything but… CME Group. ever, are proving they can measure up to non-ESG counterparts. A study of 4,900 passive and active funds domiciled in Europe con- VISIT CMEGROUP.COM ducted by Morningstar Inc. and published on June 16 showed that through Dec. 31, 2019, a majority of Derivatives are not suitable for all investors and involve the risk of losing more than the amount originally deposited and any profit you might have made. This communication is not a recommendation or offer to buy, sell or retain any specific investment or service. Copyright © 2020 CME Group Inc. All rights reserved. sustainable funds have outperformed their non-ESG peers over multiple time horizons. Over the 10 years through 2019, SEE SUSTAINABLE ON PAGE 34 INTERESTED IN SUSTAINABLE INVESTING?

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Money Management Defined Contribution Hajj savings mobile app expected N.Y. Deferred Comp to entice Indonesian millennials plan offers a lifeline Principal Global hoping adoption will mark start of during virus turmoil ongoing retail relationship By ROBERT STEYER As the coronavirus stampeded through the nation’s By DOUGLAS APPELL economy, executives of the New York State Deferred Compensation Plan moved quickly to keep participants Principal Global Investors will launch informed to prevent reductions or delays in services a mobile app in Indonesia later this even though the virus’ impact thwarted many traditional month designed to help the country’s 80 sources of participant education and advice. million millennials get an early start on Working with their record keeper, Nationwide Retire- saving for the hajj — the pilgrimage to ment Solutions, plan executives had to act decisively the holy city of Mecca that’s obligatory because the coronavirus put a halt to all direct personal for Muslims to make at least once in contacts between participants and plan staff members their lifetimes. and account executives. Company executives say they see the Nationwide suspended visits — one-on-one sessions “Young Hajj” program as the first step in and group meetings — to employers on March 13. The building a direct-to-consumer “Islamic plan’s call center in Troy, N.Y., about six miles from the ecosystem” capable of being expanded, plan’s headquarters in Albany, was forced to close March eventually, to cover a range of goals- 16 due to a statewide lockdown order from Gov. Andrew based saving needs for the world’s larg- Cuomo. All 28 call-center counselors and staff had to est Muslim population. work from home. There is no timetable for reopening. Agung Budiono, Jakarta-based CEO Plan officials and record-keeper executives expand- of PT Principal Asset Management, said ed call-center activities, added a series of webinars, en- in an interview that Principal is answer- listed more staffers for the call center and enacted ing a call from the government body changes that enabled participants to receive timely re- dedicated to helping Indonesians save sponses. for the pilgrimage, Badan Pengelola As a result, “our business continuity disaster recovery Keuangan Haji. BPKH currently over- IN THE LEAD: Agung Budiono said Principal Global is the first to sign on to the savings program. plan allowed us to main- sees roughly 135 trillion rupiah ($9.1 tain 100% availability and billion) on behalf of those aspiring pil- Working as the engine provider for that offers a share in profits derived uninterrupted service,” Ex- grims. BPKH on the strength of the digital ini- from an asset rather than yields, which ecutive Director David A few years ago, BPKH launched an tiative Principal designed for the project are contrary to Islamic precepts, Mr. Bu- Fischer said in an email in- initiative with the goal of helping Indo- “is a great opportunity,” capable of posi- diono said. terview. “The core messag- nesians go on the hajj earlier in life — in tioning the money manager longer term For now, the runup to the Young Hajj ing, such as the need to middle age as opposed to retirement, as to help retail customers meet a growing mobile app’s launch has been even more save for retirement, didn’t is more often the case now. range of needs, Mr. Budiono said. reliant on smartphones and the internet really change.” Indonesians have to save roughly 25 It fits with Principal’s goal of achiev- than planned, thanks to the coronavirus. Additions to the plan’s million rupiah (about $1,700) to book a ing a greater balance between the insti- BPKH suspended plans to embark on education messages fo- place in the queue for Indonesia’s hajj tutional segment of the firm’s Indone- a roadshow with PGI to introduce the cused on “the changes quota, set by the religious authorities in sian business — currently 70% of its 8.5 Young Hajj mobile app to audiences brought about by COVID Saudi Arabia, and then accumulate an- trillion rupiah ($573 million) in assets such as Islamic universities, Islamic or- and the CARES Act,” wrote other 10 to 20 million rupiah from fur- under management — and the remain- ganizations and prayer societies Mr. Fischer, referring to the ther contributions or investment gains ing 30% it has raised through bank and throughout the country until the COV- Coronavirus Aid, Relief EXTRA MILE: David Fischer to cover expenses on the pilgrimage, insurance company retail platforms. ID-19 situation has settled down, Mr. and Economic Security Act. and Nationwide made several said Chee Khiong Tan, Singapore-based “Young Hajj will be our first direct-to- Tan said. “It was important for our changes to keep nervous head of business innovation, Asia, with customer retail product,” Mr. Tan said. That has left the launch dependent participants to understand participants in the loop. Principal Financial Group, in the same While the challenges — and expenses on webinars, he said. their new options.” interview. — of building a retail business in a A BPKH spokesman couldn’t imme- The actions took place during the first quarter, when The government typically subsidizes a country like Indonesia are daunting, its diately be reached for comment. total plan assets had declined, transfers to stable value portion of the total cost of the trip, which large population, much of which is “un- were greater than normal and first-quarter distribu- covers roughly a week of religious rites derbanked,” and vast territory offer a Still needs approval tions were 10% higher than the year-ago period. Total but can extend another month or more backdrop where digital solutions can Principal Global’s Young Hajj mobile plan assets fell to $24.1 billion as of March 31, down due to the logistical challenges of getting “leapfrog” those obstacles, said Thomas app still needs to win regulatory approv- 12.6% from the $27.5 billion on Dec. 31. However, assets to the holy lands and flying out again, Cheong, Hong Kong-based president of al from Indonesia’s financial markets rebounded to reach $29.5 billion by Aug. 31. said Mr. Tan. That subsidy came to about Principal Financial Group’s business in regulator, Otoritas Jasa Keuangan, be- Flows to stable value during the second quarter were 27 million rupiah in 2019, when the cost Asia. fore it can go live. Mr. Cheong said his “way down,” he said. “July and August bumped up but of the hajj was set at 72 million rupiah. The success of local companies such company is hoping to secure that ap- not like earlier in the year.” With demand far exceeding annual as ride-hailing business Gojek — as Ja- proval by the end of September. Distributions were above normal in April and May quotas, at present an Indonesian in Ja- karta-based PT Aplikasi Karya Anak Principal executives say their mobile and about twice the normal amount in June through Au- karta who can plunk down that first 25 Bangsa is known — has effectively cata- app represents a long-term bet on a big, gust. “We would expect that increase is almost solely million rupiah has to wait more than 20 lyzed the local market, paving the way fast-growing market. Managers facing due to COVID,” Mr. Fischer said. “Seasonally you would years to make the trip, he said. for digital distribution to serve as the pressure to achieve short-term results normally only see increases in December and January Mr. Tan said that while his company’s cornerstone of Principal Global Inves- will “just stick to the institutional mar- due to required minimum distributions and holiday surveys of Indonesian millennials be- tors’ Indonesian retail business, Mr. ket” but Principal Global is betting that shopping.” tween the ages of 25 and 40 found all Cheong said. building a digital Islamic ecosystem for eager to go for the hajj, “saving 25 mil- PGI is tailoring its Young Hajj savings retail investors in Indonesia will offer Worse than any storm lion rupiah (is) quite a big ask for a lot of program to extend for “five to 10 years, growing opportunities over the long The New York State Deferred Compensation Plan them.” depending on the customer’s savings term as Indonesia's economic growth has had contingency plans in place for years. One such Many try to save early, but “guess what appetite,” Mr. Tan said. accelerates, Mr. Cheong said. plan was established for strong winter snowstorms, a — a kid came along, they need to buy a The mobile app allows users to set While BPKH's existing 135 trillion common occurrence in upstate New York, when Nation- motor bike” and the money gets diverted, their desired time period, between five rupiah asset pool is already a source of wide would assign representatives from its Columbus, Mr. Tan noted. By the time they’re ready and 10 years, for achieving the 25 mil- mandates for managers, an executive at Ohio, headquarters to help with call center inquiries. to save, they’re in their 40s, which more lion rupiah target, with an investment a foreign firm with operations in Jakarta, The coronavirus has been far more enduring than a often than not means embarking on the calculator setting the monthly contribu- who declined to be named, said the snowstorm. physically demanding hajj when they’re tion required to get there, Mr. Tan said. Young Hajj program should be “a huge Average daily call volume had been 960 calls for the well into their 60s, he said. The client then makes an initial down opportunity in the future” as well. two years prior to the coronavirus outbreak, Mr. Fischer payment and sets up regular bank debit Mr. Tan said the pace of expansion, wrote. However, the plan received more than 1,000 calls First in line payments for contributions — to be when it comes to offering additional daily during 16 days in March, including some days in Mr. Budiono said Des Moines, Iowa- made electronically via bank virtual ac- goals-based savings products, will be which the volume was 50% higher than normal, he add- based Principal Global Investors LLC is counts at first but with plans to auto- determined by retail clients. “The Young ed. On March 9, the plan received 1,610 calls, which rep- the first money manager to sign on with mate payments via eWallets, he said. Hajj program is a ‘door opener’ for our resented the largest single-day number in 17 years. BPKH to make the investment needed Money raised from retail clients will retail business” and the offerings to fol- “Call volume in March exceeded our planned capac- to reach out to that retail customer base be invested in 100% Shariah-compliant low will be demand-driven, he said. “We ity and, due to the nature of the calls, average talk time across the sprawling Indonesian archi- instruments — with roughly 80% allo- plan to stay close to and listen intently to SEE CORONAVIRUS ON PAGE 29 pelago. cated to sukuk, an alternative to bonds our target customer base.” n VIRTUALLY MEET THE PLAN SPONSORS AT DCWEST DCW Fall Virtual Series

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20pi0198.pdf RunDate: 09/21/20 Full Page Color: 4/C 8 | September 21, 2020 Pensions & Investments FRONTLINES

ROUND NUMBERS Zero bias of DC participants not doing them any favors

There’s a “zero bias” among target-date funds ending in zero Matt Cashore/University of Notre Dame defined contribution investors in that imply retirement at age 70. target-date funds. “The bias is particularly costly Regardless of their expected for those who are risk averse and retirement dates, the number of select later TRFs, but it also is most investors choosing a zero-ending beneficial to risk-average consum- target date fund (like 2020 or 2040) ers who choose early TRFs,” they is “much higher” than the number wrote. of investors choosing a fund “The designers of 401(k) plans ending in five (like 2025 or 2035), should take this bias into consider- ON THE JOB: Eighty ation, educate according to percent of Girls Who Invest investors on the research by interns are now working in long-term professors of the money management consequences of marketing at three industry. university choices made … business schools. and nudge “The bias has investors into SOON ON NETFLIX? far-reaching making selections implications for that increase their the total wealth financial well- LACERS finds a way to work around accumulated at being,” they added. the time of The research COVID-19 woes for Girls Who Invest retirement,” the was based on 2016 authors wrote in data from an COVID-19 derailed the Los Angeles City Employees’ Over the past two summers, LACERS has taken an article pub- unnamed invest- Retirement System’s plans to again take an intern interns from Girls Who Invest. The non-profit focuses lished by the ment management from the Girls Who Invest program, but officials at the on increasing the number of women in money Journal of firm covering Consumer Research Inc. 84,600 accounts — of which 48% $19.4 billion plan found another way to participate. management; it was started by Seema R. Hingorani, “An incorrect choice in TRFs can invested in target-date funds On Aug. 26, CIO Rodney June and 10 investment former CIO of the $211 billion New York City Retire- expose investors to risk that is — among 52 DC sponsors. On a officers joined a virtual roundtable with eight Girls ment Systems and now a managing director at incompatible with their profile,” “typical” website, the target-date Who Invest summer interns working for Pacific Morgan Stanley Investment Management, leading said the July 3 article referring to funds were listed chronologically Investment Management Co. LLC, Mr. June said. diversity, client development and client relationships. target-retirement funds. such as 2020 through 2065, the LACERS officials described their own academic Some 80% of the Girls Who Invest interns who The researchers found that researchers wrote. backgrounds, professional credentials, career paths have graduated college are now working in the money people born in years ending in The authors are Ajay Kalra, Xiao and advantages and challenges of working for a management industry. eight or nine chose target-date Liu and Wei Zhang, marketing public pension plan, Mr. June said. While the pandemic made it impossible to accept a funds ending in zero that imply professors at business schools, Mr. June told the board at its Aug. 25 meeting that summer intern this year, LACERS officials intend to they plan to retire at age 60 even respectively, at Rice University, though the traditional retirement Houston; New York University; and he hoped to encourage qualified women to consider take an intern in 2021, Mr. June said. age is 65. Those born in years Iowa State University, Ames. careers in the public pension fund world. — ARLEEN JACOBIUS ending in zero, one or two selected — ROBERT STEYER

WORKING TOGETHER GET OUT THE VOTE Mass. project Group wants private looking to equity industry to take improve ESG Suzanne Kreiter/The Boston Globe day off to hit the polls measurement The Institutional Limited Partners Association is giving its employees Election Day off and encouraging The $74.9 billion Boston-based others in the private equity ecosystem to do the same Massachusetts Pension Reserves through the use of #electiondayoff on social media. Investment Management Board has “ILPA is not politically affiliated and this effort is not partnered with the state Treasurer’s to encourage support for any party or platform,” said office and MIT’s Sloan School of Kari Grant, Washington-based director of strategic Management to launch the Aggregate communications. “We believe this is the right thing to Confusion project, an initiative do to support the LP community and our employees in designed to improve how environmen- exercising the privilege of voting.” tal, social and governance data in the ILPA is spreading the word to signal to private investment and financial sectors are equity limited partners, general partners and other measured. firms that participation in the electoral process is The Aggregate Confusion project important to the organization. On Sept. 1, ILPA seeks to expand upon the research executives issued a call to action with posts on Twitter from MIT Sloan’s Sustainability and LinkedIn and shared the information with Initiative “to improve the quality of ESG members and friends of ILPA, she said. measurement,” said a news release DOING THE MATH: Deborah Goldberg said the project will help MassPRIM rate companies. Unlike other initiatives, ILPA isn’t asking members issued by state Treasurer and and others to sign a pledge and so hasn’t had a lot of MassPRIM Chairwoman Deborah when evaluating investments.” “We believe we can do better in feedback, just anecdotal support, she said. And as of Goldberg. Although there is roughly $30 trillion evaluating companies’ ESG perfor- Sept. 11, it’s also gotten 23 likes on LinkedIn. “We believe companies that operate in assets globally that rely on ESG data, mance, and through this relationship Some in the private equity industry already give with consideration to ESG issues are measurement and ratings on ESG with MIT we will have access to the their employees time off to vote. KKR & Co. Inc. has higher quality investments that make a performance is inconsistent, which can best talent and researchers studying always given employees time off to vote, said spokes- positive impact in the community and post a challenge for firms and pension ESG measurement and ratings,” added woman Kristie Huller in an email. California law, which yield better performance over the long plans looking better integrate ESG into Michael G. Trotsky, executive director of also covers employees of the state’s pension plans term,” Ms. Goldberg said in the release. their investment processes. MassPRIM, in the release. “This is a including the $417.3 billion California Public Employ- “This collaboration will improve Through the partnership, MassPRIM unique opportunity to work with one of ees’ Retirement System, Sacramento, allows workers to MassPRIM’s ability to rate a company’s will help inform research questions and the most prestigious research universi- take up to two hours off work with pay to vote if they ESG impact by providing us with the methodology for the MIT research team ties in the world and have early access are unable to vote during non-work hours. most current research and enhanced and serve as a testing ground for new to this important set of data.” ARLEEN JACOBIUS methods for measuring ESG factors approaches to ESG matters. JAMES COMTOIS The Eddy Awards recognize outstanding eorts of both plan sponsors and service providers to educate participants about how to invest their deﬁned contribution plan assets wisely for retirement.

ENTER IN THE FOLLOWING CATEGORIES: • Ongoing Investment Education • Special Projects | Covid-19 Communications • Conversions/403(b) Consolidations • Plan Transitions • Pre-Retirement Readiness • Financial Wellness

Plan sponsors, service providers and retirement plan advisors

CALL FOR ENTRIES CALL FOR are all encouraged to enter.

For full details and access to the online entry system go to: www.pionline.com/EddyEnter Deadline for submissions: Oct. 9

If you have questions about the Eddy Awards, contact Michelle DeMarco at [email protected].

20pi0157.pdf RunDate: 07/27/20 Full Page Color: 4/C 10 | September 21, 2020 Pensions & Investments OPINION

Christopher J. Battaglia VP/Group publisher

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 Peter J. Retzbach Copy desk chief Colette Jordan Copy editor Patrick Roth Web producer Trilbe Wynne Editorial assistant

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

ART Gregg A. Runburg Art director Roger Schillerstrom Editorial cartoonist

DATA/RESEARCH Aaron M. Cunningham Director of research and analytics Anthony Scuderi Directory manager Valerie Ge Research analyst EDITORIAL SALES & MARKETING Nikki Pirrello Associate group publisher, conferences and marketing services Caution is the watchword for spooky October Julie Parten Head of sales REGIONAL SALES MANAGERS he economic crisis of 2020, spurred by the coronavirus positive for markets, given the potential for a second wave of Rich Kiesel West pandemic and the fallout from social distancing, is unique COVID-19 over the winter plus other risks related to Brexit and the Paul Kissane Midwest among other historic financial downturns. November U.S. presidential election. Anna Koules New York But we are moving into what can be a hazardous time of The European Securities and Markets Authority earlier this month Steve Middleton EMEA +44-(0)77-1012-8464 Hideo Nakayama Asia (Tokyo) +81-3-3479-6131; year. said in a trends, risks and vulnerabilities report that it “sees a [email protected] TOctober is a perilous month in financial history. The bank panic of prolonged period of risk to institutional and retail investors of further Eduardo de Alcantara Machado Sao Paulo, 1907, stock market crash of 1929 and Black Monday in 1987 all — possibly significant — market corrections and very high risks Brazil +55-11-3167-0821; [email protected] Patricia Ghazvini Sales assistant happened or started in October. (Lehman Brothers filed for bankrupt- across the whole of ESMA’s remit. ... The sustainability of the recent cy two weeks before October 2008, catalyzing the global financial market rebound remains a concern.” CONFERENCES/MARKETING crisis.) And as the quarter ends, J.P. Morgan Chase said in a note reported Kimberly Jackson Director of conference sales The stock market has been roaring, with indexes even touching last week by Bloomberg that pension and sovereign wealth funds are Diane Pastore Director of conference programming Joshua Scott Director of conference programming new highs, since recovering from the March pandemic-induced set to offload about $200 billion of equities as they rebalance their Kathleen Stevens Investor relations director downturn, helping investors salvage some semblance of positive portfolios, posing a risk for global shares. Gerry O’Hara Investor relations manager returns. All of this is to say that investors need to be cautious. The past six Michelle DeMarco Director, relationship marketing But trouble might lie ahead when federal aid programs continue to months should have served as a valuable lesson in how to protect Assel Chanlatte Conference marketing manager expire and assistance is decreased or not revived, providing a portfolios in the face of unexpected headwinds. The U.S. Federal Mirjam Guldemond Conference manager, worrisome picture of just how much damage the economy is facing. Reserve on Sept. 16 held interest rates near zero and indicated they WorldPensionSummit +31-6-2333-2464 Credit defaults and bankruptcies are expected to increase, and as could stay at that level until 2023. Kristal Santos Client services project manager Ashley Perrucci Associate manager, client protections for tenants and landlords wind down, real estate values Now is the time to take the temperature on markets and position partnerships could be in for a correction. for what could be a longer-than-expected recovery. Even if a vaccine Rachel Lopez Conference administrative assistant As Pensions & Investments reported in its midyear outlook special is approved and distributed in a relatively short time frame, it may CUSTOM CONTENT/CLIENT SOLUTIONS report, economists cited the fourth quarter as one that will not be so take years for the destruction to the economy to fully recover. n Greg Crawford Director of content solutions Corina Lewis Client solutions senior program manager David Joseph Research analyst OTHER VIEWS PETER HAYES Tetyana Saucedo Digital campaign manager Deanna Speziale Senior marketing associate

SUBSCRIPTIONS/SITE LICENSES Elayne Glick Director, strategy & business, site History can help when predicting a path for real estate license subscriptions David Bomberger Director, enterprise licensing he outbreak of COVID-19 has since the early 1990s — influenced previous down- Ed Gorman Director, EMEA/international site Peter Hayes licensing +44-(0)20-3823-9891 one contained in Asia in turns, lessons can be drawn quickly turned into a severe shock. is global 1998 and one truly global from history and certain RFP/RECRUITMENT The decline in economic output head of and systemwide in the observations can help make Erin Smith Sales manager recorded in the first half of 2020 investment makes the fallout from the 2008 form of the global sense of events as they research at REPRINTS financial crisis — a long, unfold. Tglobal financial crisis seem mild in compari- PGIM Real drawn-out correction Laura Picariello Sales manager son, while in real estate markets, transaction Estate, exacerbated by oversup- Impact on markets can volume has slowed sharply and values are located in ADVERTISING PRODUCTION ply in the early 1990s and vary significantly under pressure — notably in retail and hotels. London. Robert T. Hedrick Media services manager The highly uncertain nature of the current a temporary global The global financial crisis 312-649-7836; [email protected] crisis — in which public health concerns and demand shock in the led to a sharp correction and Subscription information - single copy policy measures are intertwined with unprec- aftermath of the dot-com-related financial affected almost every market. A relatively sales: 877-812-1586 edented economic and financial stresses — market turmoil and U.S. recession in the early swift recovery in values was led by both TO CONTACT A P&I STAFFER makes predicting its path a particularly 2000s. Asia-Pacific countries — which benefited Unless otherwise noted above, email us at difficult task. Despite obvious differences between the from a strong structural growth story — and [email protected] or find phone numbers at pionline.com/staff. There have been two major financial crises current situation and circumstances that SEE HAYES ON NEXT PAGE Pensions & Investments September 21, 2020 | 11

EXHIBIT 1 Global All Property Real Prime Capital Value index Pension Funds Hayes by downturn CONTINUED FROM PREVIOUS PAGE Index: Cycle Peak = 100 Multiemployer the U.S., where policymakers rapidly provided 150 economic stimulus and real estate lenders Early 1900s quickly regrouped after the banking crisis in 140 Asia crisis plans get tiny 2008. (See Exhibit 1) Dot-com In contrast, the overhang from supply meant 130 GFC markets in Europe and the U.S. were stuck in COVID-19 reprieve in the doldrums for much of the 1990s. The 120 dot-com and Asia crises were ultimately contained events with limited contagion, 110 affecting a much lower proportion of markets PBGC report and sectors. 100 Clearly, the aggregate impact of a downturn By HAZEL BRADFORD is milder when contained to a limited set of 90 markets — and also when correlations are low. The Pension Benefit Guar- A more diverse range of performance leading anty Corp.’s single-employer 80 up to a crisis is consistent with a less wide- program will remain in the spread impact because markets are not black over the next decade, simultaneously vulnerable to the same factors. 70 while the multiemployer pro- During both the early 1990s and the GFC, on gram could gain another year a peak-to-trough basis, major regions and 60 or two before insolvency, ac- -8 -6 -4 -2 86420 10 12 14 16 18 20 22 24 26 28 30 32 sectors were all similarly affected. However, cording the agency’s latest pro- QUARTERS FROM PEAK even if correlations are elevated, market jections report released Sept. performance will vary, at least in such factors Source: CoStar, Cushman & Wake eld, JLL, PGIM Real Estate. As of June 2020. 14. as magnitude of impact and timing. (See The report for fiscal year Exhibit 2) 2019 provides 10-year projec- By looking more closely at individual tions ended Sept. 30, under a markets, it is clear the key aspects of variation EXHIBIT 2 Peak-to-trough value movements by region range of financial scenarios. As relate to the magnitude of the initial decline of Sept. 30, 2019, the single-em- and how long it takes for a recovery to get Early 1990s Asia crisis Dot-com GFC ployer program had a net $46.3 underway. U.S. Eur. AP U.S. Eur. AP U.S. Eur. AP U.S. Eur. AP billion in assets, while the mul- A simple historical analysis shows most 0.0% 0.0% tiemployer program had a defi- markets will report declining values, in real -3.0% cit of $82.3 billion. -5.0% -4.9% terms, for an average of about three years -5.8% Last year’s report projected following a peak. However, while some markets the multiemployer program are already reporting a strong bounce in values would become insolvent by at that point, the bottom quartile are still September 2024, while the lat- reporting modestly declining real values five est report projects a very high years later. likelihood of insolvency by The most likely cause of a prolonged September 2025 and near cer- downturn is either sustained financial distress, tainty by September 2026. as suffered in the eurozone periphery after the -23.1% PBGC officials attribute the GFC, or an overhang of supply, which weighed slight improvement to enact- -26.3% on most major markets in Europe and the U.S. -27.7% ment of the Bipartisan Ameri- in the early 1990s. can Miners Act of 2019, which After three years, more than 50% of markets -31.3% relieved financial pressure on are likely to still be recording negative -33.4% -33.2% the PBGC for the insolvent quarterly real value growth, so building United Mine Workers of Amer- Note: Commercial sectors. Asia-Paci c (AP) covers both developed and emerging markets. exposure to recovering sectors and markets Source: CoStar, Cushman & Wake eld, JLL, PGIM Real Estate. As of June 2020. ica 1974 Pension Plan. can generate significant outperformance. “The one piece missing from the report is COVID,” said Jo- Real estate typically lags seph F. Hicks Jr., vice chairman The severity of the economic impact of EXHIBIT 3 of the American Academy of COVID-19 — and its knock-on effects on real Global average LTV ratio for a core of ce deal Actuaries multiemployer plan estate tenants and owners — point toward the committee. “All of the plans in sharp correction during the GFC being a more 72% the multiemployer community appropriate historical comparison than are the are looking at how COVID is af- 70% milder examples. fecting their plans, and if they One notable feature of the aftermath of the 68% have to either shore up the GFC was a lag in the recorded performance of Pre-GFC range funding status or remove risk.” real estate assets compared with wider equity 66% With a variety of industries markets. Equities fell by about a third in the sponsoring those plans, “each second half of 2008 before staging a strong 64% fund is having a difference ex- rebound in 2009. In contrast, the initial impact perience with the pandemic,” of the crisis on private real estate assets was 62% Mr. Hicks said in an interview. modest but became much more severe in 2009. The single-employer pro- 60% This pattern reflects several factors, gram’s financial picture is including natural lags in the valuation process, 58% shaped mainly by low claims a lack of evidence for appraisers to accurately activity and increased premi- determine values when transaction volume 56% um revenue, the report said. slows and the time it takes for real estate cash The PBGC model for the sin- flow — much of which is based on fixed-lease 54% gle-employer program was re- contracts — to adjust to weaker economic fined this year, with employers’ conditions. 52% projected pension contribution All of those factors are present today. It is behavior now assumed to vary 50% important to be alert to the fact real estate 2000 2001 20032002 2004 20062005 2007 20092008 2010 2011 20132012 2014 2015 2016 2017 20192018 based on the circumstances and values can come under pressure — especially incentives of each plan sponsor. if the current severe recession starts to weigh Sources: ACLI, Cass Business School, CBRE, PMA, Real Capital Analytics, PGIM Real Estate. As of June 2020. The projections report does on operating fundamentals, vacancy and not reflect the risk of corporate income receipts. and better coordinated than during 2008-’09. In the near term, vacancy looks certain to bankruptcies due to COVID-19, Second, use of leverage through the past increase due to rising unemployment and the and while the PBGC single- Some causes for optimism? cycle was low, meaning investors in general inevitable stress of recession, but it is reassur- employer program may look The COVID-19-induced downturn looks set have a better capital buffer now than in the ing the effects are not set to be exacerbated by good, “look at the size of the to be different again. The key variant is that as early stages of the GFC. Lenders have more a wave of new space. premiums,” said Linda K. Stone, a health crisis, its cause is truly exogenous. In breathing room on covenants for the time The severity of the impact of COVID-19 on senior pension fellow with the addition, several factors provide support for being, and there is still plenty of capital the global economy points to a widespread and American Academy of Actuar- real estate performance that had seldom looking to find a home. (See Exhibit 3) significant effect on real estate. There is still ies, in the same interview. featured in past downturns — particularly at Third, supply growth is much more con- much uncertainty as to how the current crisis “The story on the single side the start. tained. Even in the top quartile of markets will play out. However, analysis of past is still the same issue: The size First, COVID-19 hit when interest rates were ranked by growth in stock, only 2% of stock is downturns facilitates assessment of the of the premiums is causing ex- already low, meaning there was no lag between expected to be added each year compared with parameters for what comes next, helping its from the system,” Ms. Stone a drop in sentiment and policy reaction. Policy an average of 6% per year recorded ahead of investors navigate through today’s challenging added. n action has already been swifter, more sizable previous downturns. conditions. n 12 | September 21, 2020 Pensions & Investments DC ROUNDUP

Consultants predict increased coverage from SECURE Act

Consultants to de ned contribution plans expect to see increased coverage and savings as a result of Money market funds thrive despite lack of return the SECURE Act and are generally Money market funds hold $120 billion from U.S. de ned contribution plans as of March 31, according to ICI. Although they once provided some upbeat about new plan sponsors real return, Federal Reserve intervention has eliminated all real and absolute returns. With the prospect of many years at near-zero rates, joining multiple employer plans, investors have more lucrative options. There has been signi cant innovation in ultra-short xed-income strategies and stable value is available to according to T. Rowe Price’s inau- a large number of DC participants. gural study of the industry’s largest consultants. Money market assets, in billions, and seven-day yield* The study rated views of the top $160 8% 20 consultants on the likelihood of changes under the SECURE Act on Assets (left axis) $140 7% a scale of 1 to 4, with 1 being the Yield (right axis) least likely and 4 being the most likely. Consultants rated the likeli- $120 6% hood of increased coverage at 3.2, while rating the prospect of new $100 5% sponsors joining MEPs at 3.1. They weren’t as optimistic about $80 4% more plans offering in-plan annuities, rating it a 2.6, and even less op- $60 3% timistic about existing plan sponsors joining MEPs, rating it 2.3. Nevertheless, 78.9% of consul- $40 2% tants expect retirement income solutions to increase the most among $20 1% investment services, followed by the growth of managed accounts, $0 0% according to the study. The 20 de- 1990 1991 1992 1993 199419931992 1994 1995 1996 1997 1998 1999 2000 2001 2002 200320032002 2004 2005 20062005 2006 2007 2008 20092008 2009 2010 2011 2012 20132012 2013 2014 2015 2016 2017 2018 201920192018 Q1 ’20 ned contribution consulting rms *Vanguard Federal Money Market Fund. Sources: Investment Company Institute, Bloomberg LP were surveyed Jan. 7-Feb. 13 and April 8-21. The study was conducted in partnership with Schaus place de ned contribution plan The consultation period will end Dori Drayton and Susan Shoe- “Our goal with this campaign Group. regulations Sept. 11 to improve par- on Oct. 30. maker, Plante Moran partners, will was to provide a catalyst for em- ticipants’ retirement outcomes. join CAPTRUST as senior vice ployees to engage with their ac- MEP participants name The DWP is now consulting with Thrift Board raises default presidents. “Susan and Dori have counts and with their peers to en- industry experts, consultants, work- built a phenomenal team. They hance their retirement readiness. Pentegra in ERISA suit place plan executives and manag- contribution rates to TSP have made us better immediately We’re thrilled to be recognized for Participants in a multiple em- ers on the amendments it is plan- The Federal Retirement Thrift and we believe they will bene t achieving our objectives for this ployer plan managed by Pentegra ning to implement in October 2021. Investment Board, Washington, is from the signi cant scale we have campaign, which both prompted Retirement Services Inc. led a The proposed changes would re- raising the default contribution rate built in the retirement business at participants to take action in their lawsuit against the company and - quire executives of plans with as- for new federal workers and uni- CAPTRUST,” said Rick Shoff, man- accounts and promoted discussion duciaries alleging ERISA violations. sets below £100 million ($133 mil- formed service members. aging director of CAPTRUST’s Ad- of the DCPs bene ts,” said Steven “Instead of carrying out its du- lion) to report on how the default Under a nal rule published visor Group, in the news release. Montagna, the Los Angeles plan’s ciary duties, the (plan’s) board options offer value for participants Sept. 16, federal workers who start The Plante Moran acquisition is executive director, in the release. knowingly allowed Pentegra to con- when taking into account invest- on or after Oct. 1 will automatically CAPTRUST’s fourth this year. In NAGDCA Executive Director trol plan administration for the ment costs and fees as well as in- contribute 5% to their Thrift Savings June, it bought Lakeside Wealth Matt Petersen said in the news re- purpose of collecting excessive vestment returns. Executives will Plan accounts, up from 3%. Also, be- Management, a $1.6 billion RIA rm lease: “We applaud the City of Los fees,” said the lawsuit led Sept. 15 be expected to show how the lack of ginning Jan. 1, uniformed service based in Chesterton, Ind., following Angeles Deferred Compensation in a U.S. District Court in New York. value for participants relates to re- members in the Blended Retire- the purchase of Montgomery, Ala.- Plan for its tireless efforts to create “A systematic pattern of the plan turns, according to the DWP. ment System will do the same. based Welch Hornsby in March and engaging campaigns that spur par- paying excessive fees shows that Additional proposals would also The National Defense Authori- Wilmington, N.C.-based Fountain ticipation and advance understand- the board and other plan ducia- see the DWP alter the Occupational zation Act for Fiscal Year 2016, Financial Associates in February. ing of the many facets to attaining a ries failed to follow a reasonable Pension Schemes Regulations from which was passed in 2015, created a CAPTRUST has been on a buy- secure retirement.” process for monitoring, evaluating 2015 to enable plans to pay perfor- Blended Retirement System within ing spree since 2006, acquiring 42 The award honors the late Mr. or controlling plan administrative mance fees on strategies featuring the TSP for all uniformed services rms to date. In June it upped its Caple, a former NAGDCA president fees,” said the complaint in Khan et illiquid assets as well as to clarify members who enter service Jan. 1, commitment to acquisitions, selling and a leader in public-sector retire- al. vs. Board of Directors of Penteg- de nitions of costs in investment 2018, or later. The BRS offers ser- a 25% stake to private equity rm ment income security. ra De ned Contribution Plan et al. trusts. Currently, U.K. DC plans are vice members a de ned contribu- GTCR in a bid to deploy more capi- The plaintiffs are seeking class-ac- bound by a 0.75% fee cap of assets tion option as part of the TSP, as tal to support its plans to further ex- Record keeper Human tion status. under management and adminis- well as a reduced pension should pand the business nationally. If the defendants “had followed a tration. they serve at least 20 years. Interest eliminating fees prudent process and otherwise Other proposed changes will in- The board, which administers Los Angeles Deferred Comp Online record keeper Human In- complied with their duciary du- clude a requirement to produce a the $663.3 billion Thrift Savings terest has eliminated 401(k) trans- ties, they could have obtained rea- Statement of Investment Principles Plan, the retirement system for 5.9 gets second Art Caple award action fees inde nitely. sonable administrative fees for by plans invested in pooled funds million federal employees and Los Angeles City Deferred Com- The robo record keeper, which similar services far lower than with an allocation to a mixture of members of the uniformed services, pensation Plan won the second Art was founded in 2015 and provides those they caused the plan to pay,” asset classes and extend the costs originally announced the increased Caple President’s Award, offered by services to small-employer 401(k) the lawsuit said. disclosure requirements to strate- contribution rate in June 2019 and the National Association of Gov- plans, eliminated more than 20 fees, Plaintiffs also alleged that “from gies that are not offered to new par- proposed the rule in February. ernment De ned Contribution Ad- including all distribution fees, roll- prior to 2014 until at least 2018, de- ticipants in the plan. ministrators. over fees and other fees. The fendants failed to conduct any com- Commenting on the consultation CAPTRUST acquires Plante The $7.1 billion 457 plan was changes are effective Sept. 15, a petitive bidding process for plan Stephen Budge, principal at consul- recognized for its 2019 National Re- spokeswoman said. administrative services. A competi- tant Lane Clark & Peacock’s DC Moran advisory practice tirement Security Week campaign “A 401(k) is a powerful savings tive bidding process ... would have practice, welcomed the proposed CAPTRUST Financial Advisors “The Best Plans are with your vehicle but many people are not produced reasonable plan fees.” relaxation of fee cap rules. “It’s in- acquired the retirement plan advi- Friends,” according to a NAGDCA aware that it can come with unex- Pentegra spokesman Kevin Zim- teresting to see the greater clarity sory practice of Plante Moran Fi- news release Sept. 10. pected nancial penalties and pun- merman said in an email that the and support to hold physical assets nancial Advisors, a South eld, The campaign centered on an in- ishments. What’s worse is that these company declined to comment. outside of the charge cap restric- Mich.-based registered investment teractive exercise called the “Be a fees can disproportionately affect The complaint said the plan had tions, clearly highlighting the intent adviser rm. Friend Challenge,” which provided the people most in need of securing $2.1 billion in assets covering 27,227 to allow infrastructure-focused in- The acquisition of Plante Mo- ve suggested steps for each of the their nancial future,” said Jeff participants as of Dec. 31, 2018. vestments,” he said in an emailed ran’s retirement business, which plan’s audiences — active partici- Schneble, Human Interest CEO, in a comment. serves about 240 retirement plans pants, retirees and eligible non- news release. “These fees are often U.K. proposing changes Mr. Budge added that the £100 with more than $6.27 billion in as- participating employees — in order unforeseen and tend to be levied at million mark for smaller plans is a sets, will bring CAPTRUST’s assets to be eligible for a prize drawing. moments when people are already for workplace DC plans good level to assess whether plan under advisement to more than The campaign resulted in a 57% feeling some pain. ... If you’re in the The U.K. Department for Work strategies offer value compared to $400 billion, CAPTRUST said in a increase in enrollments during the process of a painful life upheaval, and Pensions proposed several strategies that are available in the news release. Terms of the deal promotional period compared to a paying surprise fees can feel like changes to a number of U.K. work- market. were not disclosed. similar campaign the previous year. salt in the wound.” Pensions & Investments September 21, 2020 | 13 EXCHANGE-TRADED FUNDS COVID-19 policy moves influence ETF market trends By ARI I. WEINBERG years losing ground to “fund flows gap” — dividend growth, and balance-sheet cheaper S&P 500 The shifting tides of ETF flows whether a fund family strength, these six strategies attract- Trends in exchange-traded fund trackers from Van- is seeing fund flows ed $209 billion from 2017 to 2019, or This year, flows into active debt and equity ETF strategies investing heading into the fourth guard Group and commensurate with 18.8% of net inflows for the U.S. ETF and ESG products have surged while factor funds have quarter have largely followed the BlackRock Inc. Since its start of year market market. This year, these strategies taken a step back. Flows are in billions as of Aug. 31. headlines. the beginning of 2017, share — Vanguard, at had seen net outflows of $1.5 billion Fixed-income ETFs have gath- these competing % of net % of Change $113 billion in net in- through Aug. 31. ered more than $140 billion in net products have both YTD net flows, YTD net (pct. flows through Aug. 31, Conversely, the largest gainers in Biggest gainers flows 2017-’19 flows points) flows through Aug. 31 on route to a taken in more than is $52 billion ahead of relative flows are ESG funds and second straight year of eclipsing $60 billion each at an Active $31.1 6.4% 11.7% 5.3 its expected flows, ac- simple market-cap weighted prod- equity ETF flows. And strategies in- expense ratio of 0.03%, ESG $16.7 1.0% 6.3% 5.2 cording to FactSet’s ucts, as well as active ETFs and a corporating environmental, social, while SPY has experi- Exchange-specific $13.9 0.9% 5.2% 4.4 Ms. Kashner, while small set of ETFs built around Nas- and governance factors have gath- enced net outflows of BlackRock and SSGA daq-listed securities, including the ered nearly $17 billion since Janu- nearly $35 billion Vanilla $192.1 68.9% 72.3% 3.4 are $34 billion and $29 Invesco QQQ Trust, which serves as ary, 50% more than the prior three against a 0.09% ex- billion behind expec- a proxy for technology stocks. Biggest losers years combined. pense ratio. tations, respectively. The strong flows into active ETFs While interest in these products To its credit, SPY Value $4.3 4.5% 1.6% -2.9 Cheapness, howev- are bifurcated between debt and eq- can largely be attributed to the in- still holds $301 billion Dividends -$3.5 3.1% -1.3% -4.4 er, is not a cure-all uity, and almost wholly unrelated to vestor and policy responses to CO- in assets and its struc- without brand or dis- the introduction of new products Multifactor -$3.8 3.1% -1.4% -4.5 VID-19, the influence of the pan- ture as a unit invest- tribution. A suite of that limit portfolio disclosures. demic on the ETF market is also ment trust makes it Low volatility -$5.9 3.3% -2.2% -5.5 eight low-cost ETFs For equities, the five active ETFs traceable to several other trends, cleaner for traders to Source: FactSet Research Systems Inc. from BNY Mellon In- seeing the greatest inflows are all some more apparent than others. use against futures vestment Manage- managed by ARK Investment Man- and options positions, ment, including core agement LLC, whose strategies focus How low can you go? even State Street Global Advisors the cost or less — until a rally in debt and equity funds with ero ex- on fast-growing, innovative compa- “The impact of consumer prefer- acknowledged the product’s short- trading volume helped drive nearly pense ratios, have seen very little nies. ARK’s five active funds have ence for ever-lower fees is really falls. In January, SSGA shifted the $20 billion into the product this interest since their April launch. taken in $6.6 billion in net inflows laying bare those products that are index of an existing large-cap ETF year.) this year, according to XTF.com, for a uncompetitive,” said Elisabeth to the S&P 500. The product was al- As the market leaders in ETF as- Factored out total of $13.3 billion in assets under Kashner, director of ETF research ready priced to match competing sets, BlackRock and Vanguard have The market’s affair with factor management as of Sept. 11. for FactSet Research Systems Inc. S&P 500 products from BlackRock benefited tremendously from the funds has also lost its spark. On the debt side, flows have gone The “ETF fee war,” as many have and Vanguard and has since seen ongoing shift to low-fee ETFs. Yet, in Among the strategies showing primarily into active short- and ultra- called it, has been particularly of- $2.3 billion in inflows. 2020, Vanguard, which has an asset- the steepest decline this year are short-duration fixed-income ETFs, a fensive to the largest ETF in the (At a 0.4% expense ratio, the weighted expense ratio of 0.06% momentum, value, dividend, low- dual response to sinking yields on U.S. Though the SPDR S&P 500 SPDR Gold Shares ETF was on the across its ETF products, has out- volatility and multifactor products. money market funds and the relative ETF Trust remains the market’s li- same path as SPY — losing ground paced the competition in net inflows. Including “fundamental” ETFs, such safety of shorter-dated Treasuries quidity stalwart, it has spent several to competing gold products at half In an analysis that looks at the as those based on earnings quality, and corporate securities. n

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Like us Follow us Follow us pionline.com/facebook pionline.com/linkedin @pensionsnews 20pi0193A.pdf RunDate: 9/21/20 Full Page Color: 4/C 20pi0193B.pdf RunDate: 9/21/20 Full Page Color: 4/C 20pi0193A.pdf RunDate: 9/21/20 Full Page Color: 4/C 20pi0193B.pdf RunDate: 9/21/20 Full Page Color: 4/C 16 | September 21, 2020 Pensions & Investments Special Report HEDGE FUND MANAGERS Raucous year sees assets decline 3.1%

liquid alternatives research and portfolio Volatile markets, dislocations caused by COVID-19 management at Aon Investments USA Inc. “The hedge fund managers that did well in 2020 make for great conditions to uncover value were those that successfully hedged risk during this period. A lot mattered on how you By CHRISTINE WILLIAMSON agers “can take advantage of growth and in- implemented your strategy during the un- ation at different speeds across different even recovery … after the big pullback in the During a tumultuous year through June 30, markets.” rst quarter that resulted in a lot of disper- aggregate assets under management world- Other hedge fund approaches that did well sion,” Mr. Walvoord said. wide by hedge fund managers with an insti- in the rst half of 2020 included xed-income Mr. Walvoord declined to name the hedge tutional orientation fell 3.1% compared to the hedge funds that include a broader range of managers he was alluding to, but noted that prior year. assets including commodities and foreign- hedge fund strategies that performed partic- Assets under management in single and exchange instruments as well as systematic ularly well in the rst half of this year includ- multistrategy hedge funds worldwide totaled trend-following strategies employing short- ed discretionary macro, long/short hedged $1.26 trillion as of June 30, down from $1.3 er-term trading tactics, Ms. Vodolazschi said. credit and equity market neutral. trillion as of the same date a year earlier, ac- By another survey measure, 47% of hedge cording to an analysis of data from 107 rms fund managers in P&I’s 2020 universe report- Big range of returns for Pensions & Investments’ 11th annual hedge ed AUM growth in the year ended June 30 Returns dispersion for hedge funds in the fund special report. from net ows and investment performance HFRI Fund Weighted Composite index for In 2019, P&I’s universe of hedge fund man- compared to 40% in the prior year. the year ended June 30 ranged from an aver- agers numbered 111. One-third of survey respondents had low- age 26.2% for the index’s top decile to -28.8% By comparison, aggregate assets of world- er AUM in 2020 compared to 39% in the pre- for the bottom decile, according to data pre- wide hedge fund in the year ended June 30, vious year, while the AUM of 2% of hedge ‘ENORMOUS GAINS’: Boaz Weinstein said his rm pared for P&I by HFR. 2019, were down 2.7% after three prior years fund managers was at compared to 4% of took advantage of credit default swap mispricing. Broad dispersion of returns across hedge of net growth, P&I’s historical survey data managers a year earlier. Firms new to P&I’s fund strategies in the year ended June 30 was shows. annual survey or those with- ence to all money managers, noting that in led by the 18.4% return of the HFRI 500 EH Volatile markets and nu- out comparative data from the contrast, “the rst quarter of 2020 was a sto- Technology index while the HFRI 500 Event- merous dislocations in sectors prior year represented 18% of ry of huge outperformance by hedge funds. Driven index was the worst performer over around the world since Feb- respondents. The return of the HFRI Fund Weighted the period, down 3.4%, HFR data showed. ruary caused by the COV- Aggregate global AUM of Composite index in the rst quarter was Saba Capital Management LP, New York, ID-19 pandemic created ideal hedge fund managers in both down 11.5% — led by macro strategies — was among the hedge fund managers indus- conditions for many hedge of P&I’s 2020 and 2019 rank- compared to the S&P 500, which was down try sources said helped to widen hedge fund fund managers to produce ings was down 1.7% to $1.16 20%. Hedge fund managers outperformed returns dispersion. solid returns in the rst half trillion. the (S&P 500) by 850 basis points because The rm’s multistrategy agship fund of 2020, hedge fund observers they had much lower beta compared to eq- combines credit relative value, tail risk and said. COVID-19 change uity markets.” closed-end fund arbitrage strategies and is “It’s been an interesting Industry observers said Returns of the HFRI Fund Weighted Com- designed to deliver alpha and do well in un- year, which tested the true di- global market turmoil caused posite index for the rst and second quarters certain conditions, said Boaz Weinstein, Sa- versi cation bene ts of hedge by COVID-19 in the rst half of 2020 were starkly different, with a 9.1% re- ba’s founder and CIO. funds. The fallout from the of 2020 profoundly changed turn in the quarter ended June 30 compared “The market was slow until February be- pandemic created numerous ‘It’s been an the outlook for hedge fund to the 20% return of the S&P 500 index during cause relative value and arbitrage seemed diverse outcomes for hedge interesting managers. the period, re ecting the sharp market rise insigni cant in comparison with rising equity fund managers,” said Victoria “The rst half of 2020 over the three-month period. markets. We were trying to catch volatility Vodolazschi, New York-based year, which couldn’t have been more dif- For the year ended June 30, the HFRI Fund and there wasn’t much of it,” Mr. Weinstein director, investments and tested the true ferent than the latter half of Weighted Composite index was down 0.6%, said. hedge fund research at Willis 2019,” said Kenneth J. Heinz, compared with a 7.4% gain for the S&P 500. The Saba team realized in February that Towers Watson PLC. diversification president of hedge fund index The wide range of investment opportuni- there was signi cant mispricing in credit de- “In the rst quarter, macro benefits of provider Hedge Fund Re- ties in the year ended June 30, especially in fault swaps with prices for high-yield CDS for strategies did very well while search Inc., Chicago. the rst six months of 2020, led to “huge dis- troubled companies at about the same level anything with beta, activist hedge funds.’ “2019 was the easiest year persion in returns as managers demonstrat- as CDS on investment-grade companies, Mr. or long-oriented strategies WILLIS TOWERS in which to make money be- ed what they could do by exploiting market Weinstein said. did not,” Ms. Vodolazschi WATSON’S VICTORIA cause everything was going dislocations,” said Christopher W. Walvoord, Saba’s wager was that spreads of high- said, noting that macro man- VODOLAZSCHI up,” Mr. Heinz said in refer- Chicago-based partner and global head of yield and investment-grade CDS likely would

Winners & losers Hedge-fund index returns for the year ended June 30. Wide-ranging returns Dispersion of returns, by decile, of the HFRI Fund Weighted 18.40% Composite for the trailing 12 months ended June 30.

30% Top 25% return 25% Average return 20% 10.93% Bottom 25% return 9.95% 15%

7.49% 10%

HFRI HFRI 5% Fund Relative HFRI 500 Weighted Value Event- FTSE 0% 2.39% 0.86% 0.23% Composite (Total) DJIA Driven 100 -5% HFRI 500 HFRI 500 HFRI 500 S&P 500 HFRI 500 HFRI HFRI 500 -0.60% -2.83% -10% EH: Tech- EH: Health- RV: Vola- TR Equity Macro Fund -2.96% -3.38% nology care tility Hedge (Total) Weighted -15% Composite -20%

-25%

-30%

-35% 9th 8th 7th 6th 5th 4th 3rd 2nd 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th DECILE Source: Hedge Fund Research, Bloomberg LP -16.91% Source: Hedge Fund Research Pensions & Investments September 21, 2020 | 17

go back to their historical means in the next market correction, the price of junk bonds The largest hedge fund managers would fall and the CDS for them would rise Ranked by discretionary assets managed in hedge funds worldwide, in millions, as of June 30, 2020, unless otherwise noted. sharply while investment-grade CDS prices would remain stable or rise. Change Change As the pandemic began to roil global mar- Rank Manager Assets from 2019 Rank Manager Assets from 2019 4 kets in late February, Saba’s bet worked ex- 1 Bridgewater Associates $98,918 -25.1% 58 Schonfeld Strategic Advisors $5,525 N/A tremely well and the firm had “enormous gains” in the first quarter, Mr. Weinstein said, 2 Renaissance Technologies $70,000 2.9% 59 Carlson Capital Mgmt. $5,503 -24.4% declining to provide returns. 3 Man Group $62,300 0.5% 60 HG Vora Cital Mgmt. $5,400 1.9% “The first quarter was awesome, but the 61 Napier Park Global Capital $5,389 4.5% second quarter was more about maintaining 4 Millennium Mgmt. $43,912 13.2% and managing the fund, which generally is 5 Elliott Mgmt. 1 $42,000 11.2% 62 Samlyn Capital $5,100 21.4% long volatility,” he said. 6 BlackRock $39,907 21.3% 63 Tilden Park Capital Mgmt. $4,672 0.3% Mr. Weinstein declined to provide the one- year return of Saba’s flagship hedge fund in 7 Two Sigma Investments/Advisers 2 $38,842 -9.5% 64 Autonomy Capital $4,500 -25.0% the year ended June 30 but a source with 8 TCI Fund Mgmt. $35,000 40.0% 65 Paloma Partners $4,500 -4.3% knowledge of the fund’s performance, who 2 66 LibreMax Capital $4,400 14.3% asked for anonymity, said the return was 9 Citadel $34,340 6.5% 89.3%. 10 D.E. Shaw Group $34,264 19.5% 67 EJF Capital $4,200 5.0% Without providing specifics, Mr. Weinstein 11 AQR Capital Mgmt. $32,100 -47.2% 68 Contrarian Capital $4,000 -25.9% said existing and new clients are interested in and have invested in Saba’s master fund, 12 Davidson Kempner Capital Mgmt. $31,850 3.1% 69 TIG Advisors $3,930 19.1% adding “their antennas are up regarding mar- 13 Farallon Capital Mgmt. $30,000 8.7% 70 Empyrean Capital Partners $3,850 -14.4% ket uncertainty and in recognizing the known 71 Greywolf Capital Mgmt. $3,696 -2.9% unknowns.” 14 Baupost Group $29,100 0.7% 5 Saba Capital managed $2.9 billion as of 15 Marshall Wace $27,800 2.6% 72 Gramercy Funds Mgmt. $3,664 -4.7% June 30, up 67.6% in the year, and ranked 75th 73 Solus Alternative Asset Mgmt. 1 $3,400 N/A in P&I’s hedge fund survey universe. 16 Capula Investment Mgmt. $23,000 16.2% 17 Canyon Capital $22,800 N/A 74 Deer Park Road $3,000 N/A Gains and losses 18 Wellington Alternative Investments $21,000 -4.5% 75 Saba Capital Mgmt. $2,850 67.6% The high level of returns dispersion wid- ened the span of AUM gains and losses 19 Viking Global Investors $19,950 N/A 76 Bardin Hill Inv. Partners $2,800 N/A among individual hedge fund managers in 20 PIMCO $17,453 0.4% 77 Kirkoswald Asset Mgmt. $2,700 N/A P&I’s universe in the year ended June 30. 78 Snow Lake Capital $2,700 35.0% Long/short equity manager D1 Capital 21 Point72 Asset Mgmt. $17,200 22.9% Partners LP, New York, which was new to 22 York Capital Management $16,500 -10.8% 79 Weiss Multi-Strategy Advisers $2,700 42.1% P&I’s ranking last year after launching in 1 23 Element Capital Mgmt. 3 $16,000 -11.1% 80 Cadian Capital Mgmt. $2,600 N/A 2017, had the largest AUM gain among survey respondents — 86.8% — to $12.7 billion in the 24 Cevian Capital 1 $15,283 N/A 81 Graticule Asset Mgmt. $2,600 -42.2% year ended June 30. 25 GoldenTree Asset Mgmt. 2 $15,092 10.7% 82 Greenlight Capital $2,600 4.0% AQR Capital Management LLC, Green- 83 P. Schoenfeld Asset Mgmt. $2,452 14.3% wich, Conn., had the largest decline with 26 Sculptor Capital Mgmt. $15,000 -1.6% worldwide assets in hedge funds declining by 27 Graham Capital Mgmt. $14,161 3.4% 84 Hildene Capital Mgmt. $2,243 -19.9% nearly half — 47.2% — to $32.1 billion in the 85 MKP Capital Mgmt. $2,176 -25.4% year ended June 30. The decline dropped 28 Anchorage Capital Group $13,500 -10.0% AQR to the 11th spot in P&I’s ranking from 29 King Street Capital Mgmt. $13,400 -25.1% 86 Candlestick Capital $2,000 N/A fourth the prior year. 30 Angelo Gordon $12,800 -5.2% 87 Kepos Capital $2,000 -16.7% Kevin Infante, an AQR spokesman, declined to comment on the firm’s fall in hedge 31 D1 Capital Partners $12,700 86.8% 88 Light Street Capital $1,869 16.8% 6 fund AUM. 32 ExodusPoint Capital $12,000 39.5% 89 J.P. Morgan Asset Mgmt. $1,816 -54.1% The composition of the ranking of the five 90 Cat Rock Capital Mgmt. $1,707 N/A largest hedge fund managers in P&I’s uni- 33 Winton Group $11,662 -46.6% verse changed with AQR’s AUM decline as 34 Appaloosa Mgmt. $11,600 -10.8% 91 Birch Grove Capital $1,600 -0.2% well as the 9.5% AUM drop to $38.8 billion for 35 Magnetar Capital $10,674 -15.7% 92 Quest Partners $1,562 7.4% New York-based Two Sigma Investments LP/ Two Sigma Advisers LP. Two Sigma moved 36 Pershing Square 1 $10,292 28.7% 93 SQN Investors $1,500 N/A down to the seventh position from fifth. 37 Pharo Mgmt. 1 $10,000 0.0% 94 Atlantic Investment Mgmt. $1,479 2.4% The top three spots continued to be held 1 95 Strategic Value Partners 2 $1,305 -29.3% by: 38 Brevan Howard Asset Mgmt. $9,670 37.6% Bridgewater Associates LP, Westport, 39 Nephila Capital $9,519 -10.7% 96 MidOcean Credit Partners $1,300 -38.1% Conn., remained No. 1 with worldwide assets 40 Lone Pine Capital $9,224 4.6% 97 Acadian Asset Mgmt. $1,220 -25.6% of $98.9 billion, down 25.1% from the prior year. 41 Tudor Investment $8,673 11.0% 98 Senvest Mgmt. $1,119 N/A Renaissance Technologies LLC, New 42 Steadfast Capital Mgmt. $8,100 8.0% 99 Hein Park Capital Mgmt. $1,000 N/A York, retained second place with assets up 2.9% to $70 billion. 43 Ellington Mgmt. Group $7,900 36.2% 100 Light Sky Macro $1,000 0.0% Man Group PLC, London, held on to the 44 Cheyne Capital $7,309 1.6% 101 Sarissa Capital Mgmt. $914 N/A third position with AUM growth of 0.5% to 102 Statar Capital $779 N/A $62.3 billion. 45 Aspect Capital $7,289 3.1% 2 New York-based Millennium Management 46 Taconic Capital Advisors $7,215 -6.1% 103 Kingdon Capital Mgmt. $644 -24.2% LLC replaced AQR in fourth place, up from 47 Balyasny Asset Mgmt. $7,000 16.7% 104 Windham Capital Mgmt. $380 -11.4% sixth, with growth of 13.2% to $43.9 billion. Elliott Management Corp., New York, moved 48 Whale Rock Capital Mgmt. $6,990 61.8% 105 Massar Capital Mgmt. $296 26.0% up to the fifth position from the seventh spot, 49 Capstone Investment Advisors $6,825 17.8% 106 Pine River Capital Mgmt. $252 N/A thanks to growth of 11.2% to $42 billion. 107 Aequim Alternative Investments $243 N/A Among continuing trends supported by 50 Senator Investment Group $6,700 -9.5% P&I’s annual survey data is the asset concen- 51 PDT Partners $6,500 8.3% TOTAL $1,256,496 tration among the largest hedge fund manag- 52 Värde Partners $6,398 -12.3% Notes: 1 Data are from a company source such as a spokesman, website or finan- ers. cial report. 2 Data are as of July 1, 2020. 3 Element proactively reduced its AUM by About 64%, or $835 billion, of total world- 53 UBS O’Connor $6,297 40.7% 20% during the year ended June 30 to prioritize continued outperformance. 4 Schon- wide assets in P&I’s universe were controlled feld does not include family office money managed in its hedge funds. 5 Gramercy 54 Eminence Capital $6,200 N/A by the 25 largest hedge fund managers, down returned capital to investors as some funds were closed in the year ended June 30. 6 J.P. Morgan reduced its hedge fund assets in the year ended June 30, 2020 as the 55 Hudson Bay Capital Mgmt. $5,918 69.6% slightly from 66% in last year’s survey. The 10 result of a spin out of one credit hedge fund and the wind down of another as part largest hedge fund managers ran 38% of total 56 Garda Capital Partners $5,633 39.6% of a restructuring. universe assets compared with 41% the prior 2 Source: Pensions & Investments surveys year. n 57 Mariner Investment Group $5,600 N/A 18 | September 21, 2020 HEDGE FUND MANAGERS Pensions & Investments

The largest hedge fund managers by regulatory assets Ranked by regulatory assets reported in SEC ADV lings, in millions, as of Dec. 31, unless otherwise noted. Hedge CONTINUED FROM PAGE 3 ADV PART 5 ADV PART 2A ADV PART 5 ADV PART 2A REGULATORY ASSETS DISCR. REGULATORY ASSETS DISCR. ers, Mr. Heinz said, “I don’t think Rank Manager Total Discretionary ASSETS Rank Manager Total Discretionary ASSETS there has been this much insti- 1 Tiger Global Mgmt. 1 $41,172 $41,172 $41,172 32 Scopia Capital Mgmt. $3,804 $3,804 $3,804 tutional interest in hedge funds over the past 10 years.” 3 2 Moore Capital $35,455 $35,455 $35,455 33 Falcon Edge Capital $3,723 $2,723 $2,723 Analysis of asset owners’ 3 Brigade Capital Mgmt. $26,756 $26,756 $26,756 34 Discovery Capital Mgmt. $3,657 $3,657 $3,657 hedge fund and hedge funds-of- funds hiring reported by Pen- 5 4 Coatue Mgmt. $25,781 $25,781 $19,220 35 Odey Asset Mgmt. $3,546 $3,546 $3,200 sions & Investments in the six 5 Baker Brothers Investments $23,578 $23,578 $23,578 36 Owl Creek Asset Mgmt. $3,434 $3,434 $2,813 months ended June 30 showed a sharp rise in hedge fund hires — 6 Caxton Associates $22,612 $22,612 $22,612 37 Finisterre Capital $3,245 $3,245 $1,560 50 totaling $4.5 billion. 7 Marathon Asset Mgmt. $22,090 $21,258 $21,258 38 Hitchwood Capital Mgmt. $2,924 $2,924 $1,820 The pace was more than dou- ble the 21 hires totaling $2.1 bil- 8 Third Point $21,089 $21,089 $15,900 39 New Providence Asset Mgmt. $2,836 $2,833 $2,833 lion made in the second half of 9 Haidar Capital Mgmt. $18,543 $18,543 $18,543 40 Tremblant Capital $2,537 $2,537 $2,537 2019. In the current quarter as of Aug. 31, 10 hedge fund hires to- 5 10 Polar Capital $16,753 $16,753 $16,753 41 Valinor Management $2,525 $2,525 $2,525 taling $660 million were made. 11 Lansdowne Partners 5 $16,095 $16,095 $10,059 42 Wexford Capital $2,481 $2,481 $2,000 Twenty asset owners made partial and full redemptions to- 12 Silver Point Capital $13,571 $13,571 $13,571 43 Aurelius Capital $2,432 $2,432 $2,432 taling $2.6 billion in the rst half 13 Glenview Capital Mgmt. 2 $13,290 $13,290 $6,763 44 Impala Asset Mgmt. $2,397 $2,397 $2,397 of 2020 and nine terminations totaling $2.8 billion were an- 14 Maverick Capital $12,605 $12,605 $12,605 45 QVT Financial $2,218 $2,218 $1,580 nounced between July 1 and 15 Waterfall Asset Mgmt. $12,430 $12,430 $8,770 46 JANA Partners $2,150 $2,150 $2,150 Aug. 31, P&I data showed. In contrast, a total of $675 4 16 ValueAct Capital Mgmt. $12,343 $12,343 $12,343 47 Varadero Capital $2,131 $2,131 $2,035 million was redeemed from 17 Systematica Investments $11,334 $11,334 $8,516 48 DW Partners $2,079 $2,079 $2,079 hedge funds/hedge funds of funds by six asset owners in the 18 Trian Fund Mgmt. $11,316 $11,313 $10,995 49 Deep Basin Capital $1,815 $1,815 $1,815 second half of 2019. 19 Paulson & Co. 1 $10,689 $10,689 $10,689 50 Highline Capital $1,625 $1,625 $1,625 Consultants, hedge fund managers and other sources said the 1 20 Black Diamond Capital Mgmt. $10,346 $10,346 $10,346 51 Columbus Hill Capital Mgmt. $1,538 $1,538 $1,185 comparatively high rate of re- 21 Whitebox Advisors $8,854 $8,854 $8,854 52 Ionic Capital Mgmt. $1,508 $1,508 $1,508 demptions this year likely stemmed from manager replace- 22 PointState Capital $8,128 $8,128 $8,128 53 Serengeti Asset Mgmt. $1,392 $1,264 $1,264 ments and strategy changes. 23 MSD Partners $6,452 $6,452 $6,452 54 Cartica Mgmt. $1,241 $1,241 $1,241 Going on the defense 24 Starboard Value $6,167 $6,167 $5,900 Notes: 1 Data are as of Jan. 1, 2020. 2 Data are as of Jan. 16, 2020. 3 Data are as of Jan. Part of the current hedge fund 31, 2020. 4 Data are as of Feb. 29, 2020. 5 Data are as of March 31, 2020. 6 Data are as 25 400 Capital Mgmt. $5,429 $5,429 $3,400 manager rotation may also be of June 1, 2020. going to managers offering port- 6 26 CQS $4,416 $3,725 $17,100 Source: SEC ADV Investment Advisor Disclosure filings. ADV Part 5 provides information folio protection as well as posi- about the money manager, including regulatory assets, which may include leverage on hedge tive returns, the sources said. 27 Fir Tree Capital $4,375 $4,375 $2,860 fund assets and non-hedge fund strategies. ADV Part 2A includes more detailed information about the firm, its strategies, fees, legal structure and assets under management. Manag- “Investors are most interested 28 Long Pond Capital $4,151 $4,151 $3,000 ers are permitted to provide regulatory assets or assets under management, not including in defensive, diversifying hedge 29 Quantitative Investment Mgmt. $4,074 $4,074 $4,074 leverage, in its “brochure” Part 2A. Managers are not required to provide net assets under management. 30 Hollis Park Partners $4,044 $4,044 $4,044

31 Shelter Growth Capital Ptn. $4,032 $4,032 $4,032

The most institutional hedge fund managers Hedge fund Ranked by percentage of total discretionary assets managed in hedge funds worldwide for institutions as of How the survey managers fret June 30, unless otherwise noted. was conducted Manager % inst’l Manager % inst’l about loss of Acadian Asset Mgmt. 100% Värde Partners 80% Pensions & Investments surveys AQR Capital Management 100% Marshall Wace 77% institutionally oriented rms to rm’s culture collect data about worldwide Birch Grove Capital 100% Windham Capital Mgmt. 74% assets managed in hedge funds. More than half of hedge fund Cheyne Capital 100% Cat Rock Capital Mgmt. 72% The universe that responds to the managers, 55%, said in a survey Davidson Kempner Capital Mgmt. 100% Schonfeld Strategic Advisors 72% survey changes each year, which they’re concerned remote working could have a negative impact Nephila Capital 100% Two Sigma Investments/Advisers 1 71% can affect year-to-year compari- on the rm’s culture and dimin- Garda Capital Partners 99% Farallon Capital Mgmt. 71% sons. ish opportunities for team build- This is the 11th year P&I has Massar Capital Mgmt. 98% D. E. Shaw Group 69% ing. surveyed hedge fund managers. The results of the survey of Weiss Multi-Strategy Advisers 96% Tudor Investment 69% Data for hedge fund rms that 144 rms conducted worldwide Quest Partners 96% King Street Capital Mgmt. 68% do not respond to P&I’s survey are in July and August were presented in a joint report from the MKP Capital Mgmt. 96% Graham Capital Mgmt. 66% collected from the rm’s ADV Alternative Investment Man- Napier Park Global Capital 95% J.P. Morgan Asset Mgmt. 64% Investment Advisor Disclosure agement Association and KPMG forms led with the U.S. Securities International released Sept. 10. Winton Group 95% BlackRock 57% and Exchange Commission when Almost every hedge fund ex- Capstone Investment Advisors 94% Whale Rock Capital Mgmt. 54% available. ecutive interviewed for the sur- Gramercy 94% Strategic Value Partners 1 49% In previous years, P&I also vey said they were worried about the impact a decentralized asked money managers to provide Aequim Alternative Investments 94% Lone Pine Capital 43% work environment was having Magnetar Capital 92% Sarissa Capital Mgmt. 38% information about assets man- on their investment culture. aged in hedge funds of funds Also, a little more than one- Aspect Capital 89% Millennium Mgmt. 37% worldwide. The question was quarter (26%) said they’re wor- PIMCO 88% Senvest Mgmt. 21% discontinued this year because ried that the lack of in-person social interaction may have led Balyasny Asset Mgmt. 86% Kingdon Capital Mgmt. 18% some large rms would not break to mental health issues among Man Group 85% Note: 1 As of July 1. out their hedge funds-of-funds their employees. GoldenTree Asset Mgmt. 84% Source: Pensions & Investments survey assets from their total assets “The value of culture, collabo- under management.  ration and face-to-face interac- TCI Fund Mgmt. 83% tion cannot be understated, not Pensions & Investments HEDGE FUND MANAGERS September 21, 2020 | 19

Michael A. Marcotte fund allocations,” stressed Christo- $5.9 billion as of June 30, moving the pher W. Walvoord, partner and rm to 55th from 77th in the survey. global head of liquid alternatives Kirkoswald Asset Management research and portfolio manage- LLC, New York, a newcomer to ment, based in Aon Investments P&I’s ranking in the 77th position USA Inc.’s Chicago of ce. with $2.7 billion, brought in $525 Mr. Walvoord said institutional million to Kirkoswald Global Macro investors in particular are “looking Fund over the year-plus period for bond substitutes given predict- with $350 million in three install- ed low returns for traditional xed ments coming from Illinois Teach- income such as event-driven, rela- ers in August and October 2019 and tive value, insurance-linked securi- March 2020 and $150 million in- ties and opportunistic credit hedge vested by the $30.2 billion Indiana fund strategies.” Public Retirement System, India- “Given uncertain markets, inves- napolis, in June. tors need to nd a return stream. Kirkoswald was launched in Who knows what equities will do April 2018. after their big bounce back? Bonds Only two managers in P&I’s uni- are yielding zero. Hedge funds are verse suffered a comparatively high one place institutional investors are level of redemptions. looking to for protection and re- Bridgewater Associates LP, West- turns,” Mr. Walvoord said. port, Conn., retained rst place in Hedge fund managers said they P&I’s ranking, but assets were down have been seeing more hiring activ- 25.1% to $98.9 billion in the year ity from North America than other ended June 30. regions. Analysis of reported hedge fund London-based systematic man- activities showed that Bridgewater ager Aspect Capital Ltd. has had had a total of $674 million in re- “asset-gathering success in the U.S., demptions from three pension particularly from public pension funds, with a total of $328 million funds. U.S. investors have hardly coming from terminations by the skipped a beat in hiring, but Euro- $81.6 billion Virginia Retirement pean, Japanese and Australian in- System, Richmond, with $150 mil- vestors have been slower to engage EVERYONE WANTS IN: Kenneth J. Heinz said institutions are showing more interest in hedge funds today than in the past 10 years. lion from Bridgewater Optimal Port- during the COIVD-19 pandemic,” folio in April and $178 million from said Martin Lueck, co-founder, gies “behaved as expected and we cluding the largest allocation — pension funds — among hedge Bridgewater Pure Alpha II in June. president and research director. had great performance. It’s been a $250 million — which came in two fund managers over the 14-month AQR Capital Management LLC, Mr. Lueck said the rm has been very exciting time for Aspect.” parts in March and June to Aspect period. Greenwich, Conn., had redemp- having “two conversations with in- Aspect managed $7.3 billion as Systematic Global Macro U.S. Fund The $58.2 billion Los Angeles tions of $227 million from four pen- vestors now,” with some wanting of June 30, up 3.1% for the year and from the $52.9 billion Teachers’ Re- County Employees Retirement Sys- sion funds with the largest with- positive returns in challenging moved up to the 45th position from tirement System of the State of Illi- tem, Pasadena, Calif., invested $300 drawal of $104 million from the $4.3 down markets and others that want 50th in P&I’s 2020 hedge fund sur- nois, Spring eld. million in Hudson Bay Fund, a rela- billion San Mateo County Employ- risk mitigation from the diversi ca- vey, and also was among managers tive-value multistrategy fund, in ees’ Retirement Association, Red- tion bene ts of the rm’s system- that attracted fairly large invest- New investment capital May. Florida State Board of Admin- wood City, Calif., in May. atic managed futures strategy. ments from U.S. investors. Multistrategy hedge fund man- istration, Tallahassee, which man- AQR managed $32.1 billion in Mr. Lueck declined to provide Aspect Capital received a total of ager Hudson Bay Capital Manage- ages the $166 billion Florida Retire- hedge funds worldwide as of June speci cs, but said at the beginning $443 million from three pension ment LP, New York, attracted the ment System, invested $200 million 30, down 47.2% from a year earlier, of the COVID-19 outbreak in Feb- funds between July 1, 2019, and largest amount of new investment in the same fund in April. which moved the rm to the 11th ruary and March, the rm’s strate- Aug. 31, P&I’s reporting showed, in- capital — $745 million from ve Hudson Bay’s AUM rose 69.6% to slot from fourth in 2019.  MANAGER ROUNDUP

just for the overall success of the Most employees continue the two managers surveyed in the 61% of investors predict a U- or W- Eurazeo, which owns 80% of Id- organization, but also for the well- working away from of ce Mountain West are both closed. shape recovery compared with 20% invest Partners, acquired a majority being and mental health of employ- Of the COVID-19 related policies saying that recovery will be V- stake in the rm in 2018, announc- ees,” said an unidenti ed executive The number of money manage- adopted by managers already open shaped. ing its intention to increase it in from a large hedge fund rm in the ment rms with employees work- for business or planning to open Forty-one percent of respon- 2021 and 2022. But the spokesman report. ing from home has barely budged soon (multiple responses to these dents believed that the develop- said the rm recently made a stra- KPMG’s Joseph Fisher, a senior over the summer, a Callan survey questions were permitted): ment of a COVID-19 vaccine is tegic decision to complete the ac- partner, said he’s con dent the released Sept. 16 showed. Commuting restrictions have what it would take for rates to rise, quisition in 2020. hedge fund industry will prevail Callan said 81% had not opened been imposed by 20% of Callan’s vs. 37% that believe in ation would “The decision to accelerate the over issues raised by remote work- their of ces as of Aug. 15, nearly the survey universe, while 16% have re- cause higher rates. Most invest- operation con rms the mutual am- ing conditions. same as the 84% that had reported quired additional training and 10% ment managers (71%) expect a bition of Idinvest’s partners to fully “Ultimately, hedge funds will nd keeping their doors closed in June. took other actions. credible vaccine for COVID-19 to engage in the group’s strategic the right balance of a more decen- The investment consultant’s sec- About 20% of respondents said be announced by Jan. 30. project and become a European tralized environment with the nec- ond “Coping with COVID-19” sur- they will not reopen soon. Net 18% of investors are over- leading benchmark for companies essary face-to-face interaction in vey report said 44% of the 98 re- Three-quarters of the managers weight equities, but far from what at every stage of their develop- the of ce,” Mr. Fisher said in a news sponding rms have not set a date who answered Callan’s survey said BofA would categorize as “danger- ment,” Virginie Morgon, CEO of release accompanying the survey for returning to the of ce. at least 90% of their employees con- ously bullish.” Meanwhile, net 35% Eurazeo, said in a news release report. Of the remaining universe of tinue to work from home. A higher of survey respondents are under- Thursday. The ability to collaborate will un- managers surveyed in August, 36% proportion of respondents — 78% weight U.K. equities, the lowest Terms of the deal weren’t dis- questionably be a prime consider- said they don’t expect to go back — said they are con dent that 25% since March 2018. Cash levels rose closed. The acquisition of the re- ation as rms continue to adapt to until 2021. Just 2% of rms picked or fewer of their workforces will to 4.8% from 4.6% over the month. maining shares of Indivest will re- the new reality,” he added. that time frame in the June survey. permanently work from home. Investors are rotating into small- sult in a limited capital increase And while traditional money See more of P&I’s coverage of cap equities, with net 14% thinking representing less than 1% of managers are reducing their work- the coronavirus Bull market starting anew, large-cap equities will outperform Eurazeo current share capital, the forces in response to the lingering A September opening date was small-cap, the lowest outlook on release Sept. 10 said. impact of the COVID-19 pandemic, named by 12% of August respon- 58% of managers believe large-cap stocks since July 2018. Eurazeo has €18.5 billion ($21.9 57% of hedge fund managers said dents vs. 25% in June; an October Most investment managers be- A second wave of COVID-19 in- billion) in assets under manage- they have made strategic hires date was picked by 7% in the recent lieve a new bull market is upon us, fections tops the list of biggest tail ment. Idinvest Partners has €8 bil- since February or intend to do so. survey, compared to 1% in the pre- according to results of Bank of risks for investors, followed by a lion in assets under management. About 27% of the rms said their vious survey; and just 1% of those America’s September Global Fund tech bubble and the U.S. election. Separately, Eric Sondag was best source for nding new talent recently surveyed cited November Manager Survey. named managing director at will be from hedge funds in the as the month they might reopen vs. A net 58% of respondents believe Eurazeo agrees to acquire Eurazeo Capital, a division of same strategy sector that are closing. zero in the June survey. the bull market has begun, up from Eurazeo, the spokesman said. One-quarter of rms said being By region, more managers — 46% in August and up from 25% in remaining stake in Idinvest The role is new. Based in New able to offer exibility on where, 38% each — in the U.K. and South- May. And for the rst time since European private equity manag- York, Mr. Sontag is focused on when and how long employees work eastern U.S. now have staff in the February, more investment manager Eurazeo agreed to acquire the growth buy-out strategies. each day also will be an incentive for of ce. The level of of ce openings ers (49%) believe that the global remaining 20% stake in middle- Mr. Sondag was previously part- new people to join their rm. was 20% on the U.S. West Coast, 12% economy is in an early cycle phase market rm Idinvest Partners be- ner at Searchlight Capital Partners. The report can be found on the in the Northeast and 9% in the cen- rather than in a recession (37%). fore the end of the year, a Eurazeo Details of his replacement were not KPMG website. ter of the country. The of ces for Results of the September shows spokesman con rmed. available. SPONSORED ROUNDTABLE

Real Assets: A Nimble Option for Institutional Investors

VIEW ONLINE AT www.pionline.com/RealAssetsRT20

real asset allocation encompasses a wide range of subasset A classes — from real estate to currencies to commodities and precious metals — providing a variety of risk and return profiles. The ability to determine different levels of exposure for each subasset class makes a real asset allocation a nimble option for institutional investors’ overall asset allocation. A close look at two of those subasset classes, infrastructure and gold, exemplifies how investments seen as on Jared Gross Head of Institutional Portfolio Strategy opposite ends of the real assets spectrum can be part of one allocation. J.P. Morgan Asset Management Pensions & Investments discussed these issues with Jared Gross, head of institutional portfolio strategy, J.P. Morgan Asset Management; John Tanyeri, head of infrastructure/project finance, MetLife Investment Management; and Joseph (Joe) Cavatoni, head of Americas, global sales and ETFs, World Gold Council.

Pensions & Investments: What role does real John Tanyeri assets serve as a single asset class? Head of Infrastructure/Project Finance MetLife Investment Management JARED GROSS: You have to recognize that there’s a broad range of investment categories that can be folded into the term “real assets.” You can go from the more liquid end of the market: TIPS, commodities, currencies — particularly emerging market currencies with a high degree of commodity export exposure — gold, and even REITs, though they tend to have a lot of equity risk exposure in them. Then, as you get into the less liquid end of the spectrum, there are sectors like real estate, transportation and infrastructure.

Conceptually, I would segment real assets into two broad categories. You can think of one category as strategies used in a portfolio to serve as a liquid market hedge against rising prices; that would be kind of the ﬁrst few that I mentioned such as TIPS or gold. In Joseph Cavatoni a second category, you’ve got real assets that pro- Head of Americas, vide long-term exposure to high quality asset-backed Global Sales and ETFs cash flows that have the potential to reset higher World Gold Council

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as prices and inflation rise. Generally profile. When we consult with institutions speaking, few investors need to directly about adding gold to their portfolios, hedge inflation in the short term. Lon- the discussion often centers on gold’s ger term, there’s a need for portfolios strategic drivers — market risk and to maintain value and outperform infla- uncertainty and economic expansion, tion over a long horizon. And I think that which are the factors most likely to move opens up the opportunity set to a lot of gold in the long term and influence price the less liquid real asset categories. The characteristics of gold are returns, the appreciation.

JOHN TANYERI: When we look at private right type of correlations and liquidity that’s More broadly, the characteristics of gold assets we’re traditionally thinking about are returns, the right type of correlations private corporates and private infrastruc- global in nature and very deep in the market. and liquidity that’s global in nature and ture investments as well as real estate, very deep in the market. And that all cul- which is comprised of commercial loans, — JOE CAVATONI minates in a long-term portfolio impact residential loans and real estate equity. that improves portfolio performance. In regard to infrastructure, we’re talking Significant state-level pension plans are about investment-grade assets that typi- increasingly embracing gold, averaging cally have some compelling economics in around a 3½% to 5% portfolio allocation. that there’s a historical spread premium over comparable public corporate bonds, P&I: Most large institutional investors yielding incremental income. In addition, infrastructure floating. Also, the asset class provides a fair amount have components of real assets in other asset cate- assets usually exhibit historically lower credit losses of diversification by currency, region and sector. gories, such as gold in a commodities portfolio, or vs. those comparable public bonds. as stand-alone asset classes, as is often the case JOE CAVATONI: Going back to where Jared started with infrastructure. What’s your view of that in terms From an asset-liability management perspective, us off, with cash flows, annuity streams and expected of what a large institutional investor should do? this asset class can help companies immunize their return profiles, clearly gold does not fit into that cat- long-term liabilities, given that maturities can range egory for one main reason: It’s no one’s credit risk. GROSS: At the end of the day, all of these real asset anywhere from 10 to 30 years, and you can struc- It’s actually a real asset that preserves its value, and categories can have some value in a portfolio and ture it as either amortizing or bullet in nature, fixed or price appreciation is how you will achieve the return that can vary across time. The most important thing is

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for investors to include real assets in a portfolio and pate in something relatively safe, or take a little more global scale. That’s something we were highlighting scale that exposure relative to their need for long- risk in hopes of getting a higher return. even before 2020. To help investors understand how term inflation-sensitive obligations on one hand, and gold may perform under a number of macroeconomic potentially against the need to hedge against a sur- GROSS: There are two things in relation to the broader scenarios, we’ve developed Qaurum, a web-based prise uptick in inflation on the other hand. Whether opportunity set. One is that when we think about core analytic tool predicated on how demand and supply they gather them into one large bucket or not is less real assets, infrastructure is a big piece, but you can may react in certain environments. important, I would say. Most sophisticated large insti- also look at real estate and core transportation assets. tutional investors will probably bifurcate those, and These share some key characteristics, including long- P&I: How did real assets perform when the pan- the less liquid cash flow-driven long-term segment term high-quality contractual cash flows, credit risk demic broke, as equity markets fell and the Fed will wind up in the return-seeking portfolio alongside that can be underwritten to a high degree of confi- injected so much liquidity? Were there any sur- things like real estate or other private assets. dence, and diversification and inflation protection at a prises as a result of that? relatively high level of yield. If you segment the market CAVATONI: Investors are digging in deep and really in terms of quality and risk, the core/core-plus space TANYERI: The infrastructure asset class is made getting their head around how gold and real assets is where most people will want to think about infra- up of essential hard assets that have stable cash can play a more substantive role in their portfo- structure as a real asset. flows over a very long period of time. Typically, those lios. What we can demonstrate to the market is that assets have high barriers to entry and will benefit even within commodities, gold is a standout asset The more equity beta risk one takes on, the more from some indirect government support. So, when we because of its dual nature. Consumer demand, com- one is shedding some of those characteristics that look at the overall asset class during this pandemic, bined with investment demand, means that gold is make infrastructure attractive as a diversifying real like most asset classes, we saw spreads widen out well-positioned to perform across varying market asset. That doesn’t mean it’s a bad investment, it just immediately. And within the infrastructure asset class, environments. However, what people often don’t looks more like listed equity — or in the case of pri- there’s a fair amount of differentiation with regards realize is that commodity indexes only consist of a vate value-add, private equity. As an 3%-12% allocation to gold, depending on the index. example, in the transportation space, So, if one is seeking greater exposure to gold, they owning shares in a shipping company may want to consider other vehicles like gold-backed is not the same as owning the ship and ETFs or bullion. leasing it to the shipping company. They’re very different investments, and P&I: Does it serve the same kind of role on the investors should not make the mis- infrastructure side? take of thinking that owning equity in a transportation company is a core infra- TANYERI: It’s very similar. We see a number of structure investment. The most important thing is for institutions — pension funds, insurance companies — actually breaking out a number of these asset classes P&I: With gold, is there that kind of investors to include real assets in and looking at them separately. Having said that, the variation in risk? asset class is comprised of real hard assets that can a portfolio and scale that exposure help act as an inflation hedge while providing diver- CAVATONI: Probably not. Investors sification. Infrastructure is a very expansive asset are asking about understanding gold’s relative to their need for long-term class. It covers a wide range across the risk spec- performance under different for- trum. The risk, the return, the cash flows that you’re ward-looking scenarios, whether it’s an inflation-sensitive obligations. expecting from these investments depend primarily inflation environment, a large market on the asset’s maturity, the region, the demographics, correction with the need for liquidity — JARED GROSS political risks, regulatory risk, sector and ultimately or they’re just looking at balancing out the underlying credit. When you take into account some of their concerns around geo- sector, geography and capital structure, you partici- political risks or concerns on a more

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to performance. For example, when we look at what COVID-19 — have amplified risk concerns, which how much policy can change. In the event that you has really been affected primarily by COVID, we see have propelled gold to be one of the best performing get a Biden administration with a Democratic Senate, demand-based assets such airports and roads as assets from the close of 2019 through 2020. and presumably the House stays Democratic, you sectors that have really suffered or have probably would have full Democratic control of Washington. performed worse. We have seen equity sponsors P&I: Along with gold’s performance, it’s also been Biden has already put out a $2 trillion infrastructure engage with us in an effort to seek some covenant more volatile. Are institutions concerned about that? plan with a number of green energy and sort of green relief. We have partnered with equity sponsors to infrastructure proposals. It’s highly likely that that help provide incremental liquidity and temporary CAVATONI: I think they’re understanding it quite well. goes through and could even be expanded. Also pre- convenant relief in an effort to lessen the economic Part of what we’ve seen over the last six months has sumably in the policy realm, you’d see less of a focus impact of the pandemic and help projects continue been that as a source of potential liquidity, gold can on a China trade war and more reconciliation there to survive during this time. Ultimately, the structure often get pulled down a bit with asset sell-offs that are which, broadly speaking, would be good for interna- that you’ve put in place will provide lenders with time pretty substantial. We saw that, I think, back in May. tional trade flows. So in the context of infrastructure, and protection. But ultimately, people are very clear in understanding ports and ships, rail, trucking, anything sort of trade how gold’s going to perform, and actually, there’s not related would presumably get a little bit of a lift from a Having said that, we were surprised because this a lot of concern around volatility, just a lot of the right Biden administration. A pure Republican sweep ― win asset class is built to survive slowdowns. I don’t think questions around finding the mix with what they hold in the House, keep the Senate and Trump retaining any asset class that you see out there was primed and what their expectations are and what they’re try- his seat ― is, I think most investors would say, a very and ready for a complete economic shutdown. While ing to achieve by allocating to it. low probability. So I think it’s really kind of either it’s really tested a number of infrastructure sectors, status quo or a tilt toward more infrastructure friend- especially on these demand-based assets, perfor- P&I: With a U.S. presidential election less than liness via a Biden administration. mance of these assets seem to be bouncing back two months away, what will be the effects on real rather quickly. asset investments after a Trump re-election or in TANYERI: If President Trump were to win re-election, a Biden administration? I think it’ll be a bit of the status quo and, unfortu- CAVATONI: The reality is that gold has performed as nately, while both Democrats and Republicans have we’ve expected it to. The market risk and uncertainty, GROSS: What really is going to drive the distinction recognized that infrastructure is an initiative that is monetary policy, central bank behaviors around the between the two is whether the Senate goes Demo- extremely important and needed to spur economic globe, geopolitical risks and trade tensions through- cratic, because I think divided government in either and job growth, there’s been very little compromise to out the course of 2019 into 2020 — and clearly direction is going to place very significant limits on build a comprehensive plan. The fundamental differ-

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Institutions are growing their infrastructure allocation for a number of reasons, but one J.P. MORGAN ASSET MANAGEMENT primary reason is increased awareness around 277 Park Avenue New York, NY 10172 growing a sustainable investment portfolio. jpmorgan.com/institutional — JOHN TANYERI Jared Gross Managing Director, Head of Institutional Portfolio Strategy [email protected]

ence I think we see with Democrats is they would like grows, we expect to see much broader adoption. to finance assets more on the government’s balance They perceive this as being, over the long horizon, an sheet by transitioning the funding of infrastructure to appropriate hedge to their real liabilities and it offers the public domain. Democrats are focused on target- the prospect of generating returns that are at or ing lower carbon emissions by increasing investments above their long-term expected return on assets. So, in renewables and other industries such as use of it’s actually a uniquely effective component of their electric vehicles, all of which are intended primarily portfolios. Rather than doing this investing directly, to be on balance sheet. I think with President Trump, infrastructure funds are the best way for an inves- there is a fair amount of thought given to the fact that tor to get asset diversification and, frankly, access to we need to have increased private investment if the the necessary skill sets. Deal origination, control and infrastructure effort is to succeed. Given that we are management of the underlying enterprises, and exe- METLIFE INVESTMENT MANAGEMENT most likely to have divided government again, I think cution of new investments ― these are very specific One MetLife Way it will probably fall primarily on states and their bud- skills that require dedicated expertise and experience Whippany NJ 07981 gets and how they’re able to finance infrastructure, to deploy effectively. We expect to see interest in this investments.metlife.com whether through municipal bonds or public/private space continue to grow, and there’s a positive feed- Thomas Metzler partnerships. back loop as more and more sophisticated investors Managing Director - Institutional Client Group are able to take assets from other balance sheets. 973 355 4153 CAVATONI: As it relates to the gold market, there are [email protected] two key issues to watch irrespective of the adminis- TANYERI: I agree this asset class continues to gain tration. First, the ongoing handling of trade tensions momentum and I don’t see that changing. Institutions will impact the outlook for gold. Second, ESG is are growing their infrastructure allocation for a num- already a priority for many investors and will con- ber of reasons, but one primary reason is increased tinue to grow in importance as geopolitical and social awareness around growing a sustainable investment dynamics evolve. Along with our member firms, we’ve portfolio. ESG and infrastructure go hand in hand, been at the forefront of developing the Responsible specifically when you’re talking about assets such Gold Mining Principles (RGMPs), an overarching ESG as renewables. So, there has been an initiative by framework for the gold mining industry. All World a number of international insurance companies first Gold Council member companies have committed and now domestic insurance companies to continue to adopting the RGMPs, which require participat- to grow that sustainability book. In addition, another ing companies to provide independent assurance of trend is the number of corporate pension plans and compliance. Moreover, we have undertaken extensive equity sponsors that have moved up in the capital external research around gold’s performance as a cli- structure to diversify their portfolio and move from mate risk mitigating asset. The outcomes suggest that equity investments to participating in debt invest- WORLD GOLD COUNCIL gold can lower the carbon footprint of an investment ments in an effort to get a higher allocations and 685 Third Avenue, 27th Floor portfolio over time and is likely to perform better than diversify their portfolios more quickly. New York, NY 10017 most mainstream asset classes under various long- www.gold.org term climate scenarios. One of the risks in increased carbon emissions goals is the decreasing appeal of fossil fuel assets as an Joe Cavatoni P&I: How do U.S. institutional investors generally investment in the future. For example, oil storage, Head of Americas, Global Sales and ETFs allocate to infrastructure? Are they on the right pipelines and other fossil fuel investments are becom- 212 317 3844 track going forward? ing more difficult to finance; people are questioning [email protected] whether those assets should be part of a long-term GROSS: In the U.S., public pension plans have been portfolio. From a regional perspective, we’re seeing a leading investors in infrastructure, but as awareness fair amount of opportunity in Latin America, the Mid-

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dle East and, potentially in the next 10 years, in Africa banks. Significant state-level pension plans are actu- tion as a portfolio hedge. The correlation between gold and in some Southeast Asian countries. ally making the same types of allocations at the same and equities is much more variable and it doesn’t fol- percentage level; 3½% to 5% portfolio allocation is low easily definable trends. It tends to be driven a lot P&I: Concerning the future of gold investments what we’re seeing. by retail flows and other kinds of market noise func- among U.S. institutions, have central banks’ stim- tions that make it tougher to embrace as a strategic ulus programs during the COVID-19 pandemic GROSS: As someone whose focus is on asset alloca- hedge solution. So I think what you see is a lot of peo- changed how institutions should look at gold in tion for the institutional community, I generally do not their portfolios? view gold as a core holding in most circumstances ple who are holding it in modest size as a diversifying for the simple reason that it doesn’t provide a source asset. And it gives them some flexibility in the event CAVATONI: Monetary and fiscal policy have had a of long-term return. Having said that, gold does have of a crisis to monetize it and reallocate to something direct impact on how gold is viewed by the investment some attractive characteristics. It generally has low more opportunistic. community at large. In terms of the opportunity right to negative correlations with most financial assets. It now for gold in a world of negative real rates, fiscal has reasonable liquidity and it provides access to one CAVATONI: Gold is well known and utilized as a safe policy has had a huge impact on the gold market and very distinctive value-add that you can’t get easily any- haven asset and diversifier. What we’re focused on is in understanding that gold can be an added benefit where else, as a disaster hedge. When the market is educating investors that gold also delivers long-term to a portfolio. So that’s item No. 1. In addition to that, contemplating some sort of structural breakdowns in returns of approximately 8%, which is comparable to central banks have been a large part of what’s driving the economy and the financial system, gold is certainly up the demand in the consumption of gold, and that at its finest as an asset class. other asset classes. The combination of returns, liquid- is simply because they are adding in as they diversify ity, correlations and risk mitigating attributes makes away from some of the traditional assets they’ve held Yet gold hedges certain risks but not others. It is not a gold a strategic portfolio asset for various economic in their reserve portfolios. And that’s not only central particularly attractive substitute for fixed income dura- environments. ■

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.

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Ball State University, Muncie, technology-focused buyout fund up to $50 million each to Technology Ind., hired Fidelity Investments as sole Francisco Partners VI and $50 million Crossover Ventures XI, a private equity record keeper of its 403(b) and 457 to technology-focused growth equity CALIFORNIA FUND COMMITS $4.9 BILLION fund focused on technology firms, and plans. fund Francisco Partners Agility II, and CalSTRS committed $4.9 billion to private equity in the first half of value-added real estate fund Waterton Fidelity will take over effective Nov. $150 million to Q-Street Capital, 2020, including $3 billion during the second quarter, according to a Residential Property Venture XIV. 2. The current record keepers are formerly known as CalPERS FP VI consultant report on the $253.6 billion pension fund’s website. Fidelity, Equitable, Lincoln Financial Co-Investment, a private equity California State Teachers’ Retirement System, West Sacramento, Macomb County Employees’ Group, One America, TIAA-CREF and co-investment vehicle with Francisco Retirement System, Mount committed $500 million to Ares Private Opportunities 2020, a Voya Financial. The asset sizes of the Partners. CalPERS also committed Clemens, Mich., committed $18 holding vehicle encompassing commitments to Ares Corporate plans were not available. $250 million to private equity fund million to a non-core real estate fund Ares Corporate Opportunities Fund VI. Opportunities VI, a buyout fund, Ares Special Opportunities I, a managed by TerraCap Management. California Public Employees’ It also committed $95 million to debt-related fund, and a debt-related co-investment vehicle. The $970 million pension fund’s Retirement System committed SLP Redwood Co-Invest, a private The system also committed €400 million ($474 million) to CVC board approved the commitment at its $9.4 billion to private equity and real equity co-investment with Silver Lake European Equity Partners VIII, an upper-middle-market buyout fund; Aug. 20 meeting, recently released asset strategies in the second quarter, and $40 million to a co-investment $425 million to Blackstone Core Equity Partners II, a long-hold buyout meeting minutes show. The minutes according to a report to the board. vehicle with global buyout fund Advent fund; $350 million to buyout fund Clayton, Dubilier & Rice XI; and did not provide the name of the real In the three months ended June 30, International Global Private Equity IX. $300 million and $50 million, respectively, to buyout fund Francisco estate fund. the $417.3 billion Sacramento fund Partners VI and growth equity fund Francisco Partners Agility II. committed $1 billion to Golden Reef Civil Aviation Authority Maine Public Employees Also, the system committed $300 million and $100 million, Infrastructure Trust, an existing Pension Scheme, London, hired Retirement System, Augusta, respectively, to buyout fund Thoma Bravo XIV and lower middle-mar- separately managed account run by BlackRock to provide fiduciary manage- approved a commitment of up to $45 infrastructure manager QIC. ment for its £4 billion ($5.3 billion) ket buyout fund Thoma Bravo Discover Fund III; $250 million to million to Technology Crossover Staff also committed a total of growth portfolio, a spokesman said. opportunistic credit fund Fortress Credit Opportunities Fund V Ventures XI. $990 million, including a $800 million BlackRock will execute asset Expansion and a co-investment vehicle; and €200 million to Vitruvian The $15.3 billion pension fund’s new commitment and allocation and manager Investment Partnership IV, a buyout fund. board approved the commitment at its $190 million additional HAVE SOME NEWS? selection in all asset Also during the first half of 2020, CalSTRS committed $150 meeting Sept. 10, said CIO James commitment, to classes. million to Hg Saturn 2, an upper middle-market buyout fund, $110 Bennett in an email. Please submit news of FSP-Base, a core office The plan previously million to Hg Genesis 9, a middle-market buyout fund and $25 million changes to David an existing separate had a delegated growth to Hg Mercury 3, a lower middle-market buyout fund, all managed by Massachusetts Pension account managed by Schepp, news editor, at asset mandate with Reserves Investment Manage- HgCapital. Commonwealth [email protected] Russell Investments, ment Board, Boston, committed Partners. the spokesman said. CalSTRS also committed $150 million each to Advent Latin $400 million to two alternatives funds, CalPERS also committed $800 The plan’s total assets were £7.3 America Private Equity Fund VII, a buyout fund; GI Data Infrastructure documents from the $75 billion million to Silver Lake Partners VI, a billion as of Dec. 31. Fund, a value-added infrastructure fund managed by GI Partners; and pension fund showed. buyout fund targeting global large-cap Spectrum IX, a growth equity fund. At its Sept. 9 meeting, the board technology firms; €750 million ($888 District of Columbia Retire- Finally, also during the first half of 2020, the system committed committed $200 million to Technology million) to CVC Capital Partners VIII (A), ment Board committed up to $50 $110 million to growth equity fund Summit Partners Europe Growth Crossover Ventures XI, a late-stage a European buyout fund; and $750 million to Technology Crossover Equity Fund III and $100 million each to CVC Asia V, an Asia-Pacific growth equity fund that targets minority million to General Atlantic Managed Ventures XI. buyout fund; buyout fund Rubicon Technology Partners III; middle- positions in high growth private and Account, a growth equity strategy. The $8.5 billion pension fund’s public technology companies in the market buyout fund Tenex Capital Partners III; and Vista Foundation Further, pension fund officials board approved the commitment to the U.S. and Western Europe. Fund IV, a small buyout fund. Also, $90 million went to venture committed $700 million to CalEast technology-focused private equity fund The board also approved allocating Solstice, an existing joint venture at its July 23 meeting. capital fund Summit Partners Venture Capital Fund V; and $75 up to $200 million to Blackstone between CalPERS and GI Partners, and million to SVB Capital Strategic Investors Fund X, a venture capital Property Partners, a real estate $400 million to TechCore, an existing Indiana Public Retirement fund of funds. co-investment fund. core real estate venture also with GI System, Indianapolis, disclosed CalSTRS also during the first half of 2020 made commitments to The board also rehired Hamilton Partners investing in technology-relat- manager hires and commitments nine co-investment funds: $75 million each to T-VIII Co-Invest-A, Lane as its private equity investment ed properties such as data centers. totaling $808 million in materials for managed by Stone Point Capital, and BXLS V Supplemental Account- consultant. Staff also committed $500 million its Sept. 11 board meeting. C, managed by Blackstone Group; $70 million to AP Fort Co-Invest each to Pacific Investment Manage- The $30.7 billion pension fund and $50 million to AP IX Tiger Co-Invest, both managed by Apollo Miami Beach (Fla.) Fire & ment Co.’s Distressed Senior Credit hired Baillie Gifford and BlackRock to Police Pension Fund allocated $60 Global Management; $61 million to Riverstone Echo Rollover Fund; Opportunities Fund III; Clayton, Dubilier run $169 million each in active million, said John McCann, senior €50 million to Hg Athena Co-Invest, managed by Hg Capital; £43 & Rice Fund XI, a buyout fund; and emerging markets equities. consultant at AndCo Consulting, the Harbert Management Corp.’s North Funding comes from the termina- million ($57 million) to H&F Speedster Partners, managed by pension fund’s investment consultant. American energy strategy, Gulf Pacific tions of Schroders from a $258 million Hellman & Friedman; €20 million to BC European Capital-Hercules The $934 million pension fund’s Power. active emerging markets equity Co-Investment, managed by BC Partners; and$2 million to Lanai board committed $50 million to JPMCB CalPERS also committed $450 portfolio and BlackRock from a $149 Holdings I, managed by Madison Dearborn Partners. Special Situation Property Fund, a million to Pacific Urban Residential’s million passive emerging markets value-added real estate fund managed Pacific Multifamily Investors, an equity portfolio. by J.P. Morgan Asset Management, and existing separate account that invests Also, the system committed $120 The $4.5 billion pension fund’s Louisiana School Employees’ a direct hedge fund investment of $10 in apartments in big cities, and $400 million to Waterfall Victoria Fund, a board approved the commitment to the Retirement System, Baton Rouge, million in Grosvenor Institutional million to BentallGreenOak Institution- private credit fund managed by software and technology service- committed $150 million to Landseer Partners, managed by GCM Grosvenor, al Logistics Partners, an existing joint Waterfall Asset Management; $100 focused private equity fund at its Investments Fund 2020. Mr. McCann said. venture investing in industrial million each to Kayne Anderson Real meeting Sept. 9, said CIO Daryn Miller. The $1.8 billion pension fund’s properties. Estate Opportunistic Debt Fund II, an board approved the commitment to the Michigan Department of Treasury, The total sizes of CalPERS opportunistic real estate fund, and Los Angeles City Employees’ private equity fund managed by at its Bureau of Investments, committed separately managed accounts and Oaktree Opportunities Fund XI, a Retirement System hired PGIM July 13 meeting. $255 million to private equity funds on joint ventures were unavailable. distressed debt fund; and $75 million and Wellington Management to behalf of the $72.2 billion Michigan Additionally, the fund committed each GSO Capital Opportunities Fund manage a total of about $800 million Louisiana Teachers' Retire- Retirement Systems, East €300 million ($355 million) to buyout IV, a mezzanine fund, and New in active emerging markets debt, said ment System, Baton Rouge, made Lansing, in the quarter ended June 30, fund Vitruvian Investment Partnership Mountain Partners VI, a buyout and Rodney June, CIO of the $19.4 billion three new commitments totaling up to according to documents from its IV, $300 million to Asia-focused buyout growth investment fund. pension plan, in an email. $500 million, said Dana T. Brown, meeting Sept. 10. fund KKR Asian Fund IV, and $300 Staff anticipated the total will be director of public markets, in an email. The commitments went to four million to an existing partnership with Kern County Employees’ split evenly between the two manag- The $20 billion pension fund funds: €100 million ($112.3 million) First Washington Realty investing in Retirement Association, ers, but the board gave staff discretion committed up to $400 million to to CVC Capital Partners Fund VIII, a grocery-anchored shopping centers. Bakersfield, Calif., committed $30 to change that due to possible Morgan Stanley Prime Property Fund, large-cap European buyout fund; $75 It also committed $250 million to million to Brighton Park Capital Fund I. constraints on Wellington’s strategy. an open-end core real estate fund, and million to Silver Lake Partners VI, a

Here’sHeree’s what yoyou missed since Sept. 1, 2019. GET ACCESS TODAY. SEARCHES HIRES TERMINATIONS $26.7B $99.7B $24.1B Access to the P&I Searches and Hires Database is 214 Manager and 881 Managers and 121 Managers and only available with a P&I Daily Enterprise License. Contact Elayne Glick at [email protected] Service Provider searches Service Providers hired Service Providers terminated or 212.210-.0247 for details. Pensions & Investments September 21, 2020 | 27 HIRINGS

large-cap buyout fund with a focus on Property Venture XIV, which will invest ments totaling $10 million for its $546 State of Wisconsin Invest- The board also committed $75 technology; $42.5 million to Meritech in U.S. multifamily properties. million endowment pool. ment Board, Madison, disclosed million each to Merit Capital Fund VII, a Capital Partners VII, a late-stage In infrastructure, $75 million was The investment subcommittee private debt and private equity mezzanine debt fund, and Sterling technology-focused venture capital committed to co-investment committed $5 million each to commitments totaling $1.25 billion Group Partners V, a buyout fund; $70 fund; and $25 million to Renaissance CO20200827. As a matter of policy, Charlesbank Equity Fund X, a middle- during the second quarter in the Sept. million to Francisco Partners VI, a Venture Capital Fund IV, a venture the fund does not identify the manager market private equity fund, and buyout 8-9 board meeting materials. middle-market technology-focused capital fund of funds. of co-investments. fund Thoma Bravo XIV, recently The board, which manages $126.3 buyout fund; £40 million ($53 million) released meeting minutes show. billion in assets including the $112.5 to middle-market buyout fund Nebraska Investment Council, Toray Plastics America Inc., billion Wisconsin Retirement System, Livingbridge 7; $50 million to direct Lincoln, committed $50 million to North Kingstown, R.I., hired John Wayne County Employees’ committed €250 million ($296 million) lending fund Sixth Street Specialty Resolute Fund V, a private equity fund Hancock Retirement Plan Services as Retirement System, Detroit, hired to European buyout fund CVC Capital Lending Europe II; $35 million to managed by The Jordon Co., at its record keeper of its 401(k) plan, First Eagle Investment Management to Partners VIII; $200 million to GSO Midwest-focused buyout fund Great board meeting Sept. 10, Michael replacing Vanguard Group. As of Dec. run $24 million in active international Capital Opportunities Fund IV, a Range Capital Fund II; $28 million to Walden-Newman, state investment 31, the Toray 401(k) Savings Plan had equities. mezzanine debt fund; €100 million private equity fund Brownstone Equity officer, said in an email. $259 million in assets. Funding comes from the $1 billion ($118 million) to EQT IX, a buyout fund; Partners I; and $25 million each to The council, which oversees $30 plan’s $24 million investment in an and $100 million each to Ares Francisco Partners Agility II, a buyout billion, made the commitment on University of Vermont and international equity index fund Corporate Opportunities Fund VI, a fund focused on small technology behalf of its five defined benefit plans, State Agricultural College, managed by Northern Trust Asset global flexible buyout fund, and buyout companies, and venture capital fund which have a total of $12.8 billion in Burlington, made two new commit- Management. fund Thoma Bravo XIV. Telescope Partners II. assets, and its cash balance benefit plans totaling $2.3 billion, according to board documents.

Oregon Investment Council hired Guggenheim Partners, Putnam Investments and Schroder Investment Management North America to each manage up to $600 million in Private Markets Virtual Series separately managed fixed-income accounts. September 29-30 The council runs the $75.3 billion Oregon Public Employees Retirement Versus the public markets, private markets tend to have a less robust system of risk management tools. With a lot of the Fund, Tigard. data being qualitative and harder to uncover, how can asset owners be sure they are protecting against the next crisis? Separately, the council committed During our Virtual Fireside Chat, Adnan Tariq of British Columbia Investment Management Corporation will discuss how another $300 million to Ascentris-OR their governance structure and investment strategies helped them weather any liquidity issues that arose during the Partners, an existing real estate separate account. The account now COVID-19 volatility and how they are building a portfolio to weather future crises. has about $700 million.

San Francisco City & County KEYNOTE SPEAKER Employees’ Retirement System Adnan Tariq committed $25 million to PAG Special Director of Private Markets Risk Management Situations Fund 3.2, a distressed/ British Columbia Investment Management Corporation special situations fund, according to an investment report from CIO William J. Coaker Jr. for the $28.4 billion plan’s board meeting Sept. 9. For further, in-depth analysis of the strategies that investors are taking on the governance and investment sides of their business, you’ll hear panels covering: South Carolina Retirement System Investment Commis- • Opportunities and risks in private markets sion, Columbia, disclosed up to $652 • Sourcing and selecting a manager and when it’s time to end a relationship million in commitments for the $31 • Building the optimal private investments portfolio within an asset allocation framework billion South Carolina Retirement Systems, according to board docu- ASSET OWNER SPEAKERS INCLUDE: ments from its meeting Sept. 10. In private equity, the council committed up to $200 million to Horsley Bridge Strategic Fund V, a buyout fund; up to €100 million ($114 million) to European buyout fund Nordic Capital Fund X; and up to $100 million Silver Lake Partners VI, a buyout fund targeting global large-cap technology firms. Adi Divgi Darren Foreman Drew Ierardi Dana Johns The council committed up to $138 Catalina Re Public School Employees’ Retirement Exelon Corporation Maryland State Pension million to a private credit strategy run System of Pennsylvania and Retirement System by Barings and up to $100 million to Crow Holdings Realty Partners IX, a real estate fund.

Springfield (Mo.) Police Officers’ & Firefighters’ Retirement System, with $469 million in assets, committed up to $30 million to Loomis Sayles Credit Disloca- tion Master Fund. Derek Jose Kashif Siddiqui Leslie Vargas Kelli Washington Blue Cross Blue Shield CRICO Swiss RE Cleveland Clinic of Michigan Investment Oce Tallahassee (Fla.) Pension Plan committed $20 million to WCP Real Estate Fund V, an opportunistic real estate fund managed by Westport COMPLIMENTARY REGISTRATION AT PIONLINE.COM/PM2020* Capital Partners, said Kent Olson, the SPONSORS: city’s deputy treasurer-clerk. The $1.8 billion pension fund’s target allocation to real estate is 15%.

Texas Employees Retirement System, Austin, committed a total of For more details please contact Elayne Glick at (212) 210-0247 or [email protected]. $125 million to two alternative Questions? investment funds in August, a *Only asset owners and a limited number of consultants are invited to attend. All registration requests are subject to veriﬁcation. transaction report showed. P&I reserves the right to refuse any registrations not meeting our qualiﬁcations. The agenda for Private Markets Virtual Series is not created, written or produced by the editors of Pensions & Investments and does not represent the views or opinions of the publication or its parent company, Crain Communications Inc. The $27.4 billion plan committed $50 million to Waterton Residential 28 | September 21, 2020 Pensions & Investments

RFPs

US Direct Lending Mandate

The Oklahoma Tobacco Endowment Settlement Tr ust (“The Tr ust”) is seeking a US Direct Lending manager that will outperform both a relevant benchmark and a peer group of comparable funds. ARIZONA STATE RETIREMENT SYSTEM (ASRS) SEEKS The benchmark will be jointly agreed ASRS Custodian and Investment Services to by the manager and the fund. Both separate accounts and commingled ve- The ASRS intends to issue a Request for Proposal (RFP) Solicitation Code BPM001958 hicles will be acceptable. All investment for ASRS Custodian and Investment Services under commodity code 93151605 (Gov- managers are prohibited from purchas- ernment Finance Services). A copy of the RFP will be available on the Arizona Procure- ing securities directly issued by a to- ment Portal (APP) at http://app.az.gov. bacco company. This restriction does not apply to the underlying holdings Services being requested are: Core Custody, Accounting, and Performance/Analytics; of commingled funds, mutual funds, Cash Management; Investment Management Services; Transaction Management; Lim- private market partnerships, and/or ited Partnership Investments; Risk Management and Compliance; Class Action Claims exchange traded funds. The Tr ust currently has US Direct Lending exposure. Filing; Proxy Voting; and Data and Transaction Storage. As indicated in the RFP, Offerors Approximately $50-$70 million will be may choose to submit a stand-alone proposal for a specific service or a combined pro- awarded to one or more managers. Advertise your RFP in posal for multiple services. Proposals are due by 4:30 pm pacific time on September 28th, 2020 . Solicitation responses must be submitted through the APP system. A Company must be Pensions & Investments, registered in the APP system in order submit a response. Contact APP by visiting the Additional information is currently avail- above link or calling 602-542-7600. able to download from the NEPC web- reach the top investment managers site. Advertise your RFP in Pensionsand service & Investments, providers PUBLIC NOTICE PUBLIC NOTICE PUBLIC NOTICE inreach the moneythe top managementinvestment managers industry. New York City Deferred New York City Deferred New York City Deferred Compensation Plan & NYCE IRA Compensation Plan & NYCE IRA Compensation Plan & NYCE IRA and service providers The New Yo rk City Deferred Com- The New Yo rk City Deferred Compen- The New Yo rk City Deferred Compen- Optimize your returns. pensation Plan (the “Plan”) is seeking sation Plan (the “Plan”) is seeking qual- sation Plan & NYCE IRA (the “Plan”) is in the money management industry. qualified vendors to provide US small- ified vendors to provide international seeking proposals from insurance con- cap equity value investment manage- growth equity investment management sultants or brokers to provide a range of ment services for the Small Cap Equity services for the International Equity consulting services in the area of cyber Meet yourOptimize next investmentyour returns. services Fund (“the Fund”) investment option Fund (“the Fund”) investment option of insurance. The Request for Propos- of the Plan. The objective of the Fund the Plan. The objective of the Fund is to als (“RFP”) will be available beginning partner in P&I. is to provide long term growth of capi- provide exposure to the broad interna- on Wednesday, September 16, 2020. Meet your next investment services tal by investing primarily in the stocks tional equity market. Qualified vendors Responses are due no later than 4:30 of smaller rapidly growing companies. that do not currently provide product p.m. Eastern Time on Wednesday, Oc- partner in P&I. Qualified vendors that do not currently capabilities to eVestment must submit tober 14, 2020. To obtain a copy of the provide product capabilities to eVest- product information to NEPC, LLC at RFP, please visit www1.nyc.gov/site/ ment must submit product information the following email address: acohen@ olr/about/about-rfp.page and down- to NEPC, LLC at the following email nepc.com. Please complete the sub- load the RFP along with the applicable address: [email protected]. Please mission of product information no later documents. complete the submission of product in- than 4:30 P.M. Eastern Time on Sep- formation no later than 4:30 P.M. East- tember 23, 2020. ern Time on September 23, 2020. If you have any questions, please submit them via e-mail to Georgette Geste- Consistent with the policies ex- Consistent with the policies ex- ly, Director, at the following e-mail ad- pressed by the City, proposals pressed by the City, proposals dress: [email protected] from certified minority-owned and/ from certified minority-owned and/ or women-owned businesses or or women-owned businesses or Consistent with the policies ex- proposals that include partnering proposals that include partnering pressed by the City, proposals from arrangements with certified minor- arrangements with certified minor- New York City certified minority- ity-owned and/or women-owned ity-owned and/or women-owned owned and/or women-owned busi- firms are encouraged. Additionally, firms are encouraged. Additionally, nesses or proposals that include proposals from small and New York proposals from small and New York partnering arrangements with New City-based businesses are also en- City-based businesses are also en- York City certified minority-owned couraged. couraged. and/or women-owned firms are encouraged. Additionally, proposals from small and New York City-based businesses are also encouraged.

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P028_PI_20200921.indd 28 9/17/20 4:22 PM Pensions & Investments September 21, 2020 | 29

than a year ago. On Sept. 15, the board took back “Imagine a sailing vessel in a CalPERS, CalSTRS diverge a role it had served before 2011 in CalPERS race. Where is the board?” Mr. Fun- which it shared with the CEO re- ston said. “They are not on the sponsibility for hiring, evaluating, CONTINUED FROM PAGE 1 boat.” on conflicts of interest and terminating of the CIO. It also The $417.3 billion California changed its investment committee Public Employees’ Retirement Sys- High stakes CalPERS and CalSTRS may be agement of conflicts, she added. back into a committee of all 13 tem, Sacramento, isn’t the only as- Getting the governance right is a located just a river apart, but their “If the person perceives a board members. set owner to struggle with gover- high-stakes process. paths diverge a bit when it comes conflict, the person has to nance issues as part of a move Various studies suggest that to their processes for preventing manage their conflict.” Committee level toward increasing in-house invest- stronger board governance gener- conflicts of interest between the The board is currently discuss- As is CalPERS’ custom, most of ment management and more direct ally correlates positively with personal holdings of their top ing requiring, as a condition of the debate on the governance is- investments in alternative invest- stronger pension plan performance, executives and their day jobs. employment, its next CIO to sell sues last week was held at the comments. These moves can require said Keith Ambachtsheer, Toronto- At the $417.3 billion California or place in trust securities that mittee level. boards to delegate more discretion based president of KPA Advisory Board members who attended Public Employees’ Retirement may present a conflict. to staff so that investment person- Services and director emeritus, In- the governance committee meeting nel can quickly make tactical deci- ternational Centre for Pension System, Sacramento, the current At the $253.6 billion California voiced concerns with balancing sions, such as co-investments and Management in Toronto, in an focus is on educating staff State Teachers’ Retirement their need for oversight and suffi- direct investments in alternative email. members on how to report their System, West Sacramento, its cient information to provide that investments. These studies also show that holdings in a statement of investments compliance unit oversight while at the same time At CalPERS, Mr. Meng and other there is a negative relationship be- economic interests required by helps staff avoid conflicts by projecting a stable organization by staff members argued for increas- tween fund investment perfor- state law and how to avoid coordinating ongoing education not making quick changes in re- ing the staff’s investment delega- mance and funded status in the U.S. conflicts. It is up to those staff about tasks such as filling out the sponse to Mr. Meng’s resignation. tion in March 2019 when the board and the proportion of board mem- members to take responsibility to statement of economic interests They also worried about inter- approved a private equity invest- bers who are either ex-officio-ap- recuse themselves on matters and having staff participate in a fering with the rights of confidenti- ment model for making direct in- pointed or election-appointed, he ality given state workers by civil that may involve a conflict personal trading program that vestments through an outside enti- said. service regulations over hiring and ty. That model has since been Canadian pension funds are less between their personal invest- requires them to link their firing that govern all of CalPERS moved to the back burner. politicized, he said. ments and CalPERS investments, brokerage account to the system staff except for the CEO, as well as Since 2018, the CIO has had del- “It should not be surprising that CEO Marcie Frost said in an that checks and, if necessary, overstepping their duty to prudent- egated authority to commit up to $1 Canadian pension plans end up interview in September. stops investment transactions to ly manage the system while dele- billion per private equity invest- with superior governance process- “Just because you own a avoid conflicts of interest with gating day-to-day to trusted staff. ment and up to $1.7 bil- es and financial out- security does not mean there is a CalSTRS’ portfolio, said Thomas “A shared responsibility for the lion per private equity comes,” Mr. Ambacht- problem, unless there is a Lawrence, CalSTRS spokesman. hiring and firing the CIO is an ap- secondary commitment sheer said. “In contrast, conflict” with the person’s role at However, CalSTRS cannot force propriate balance to strike,” said with no limit on the given the high propor- CalPERS, Ms. Frost said. the sale of assets by employees board member Lisa Middleton dur- number of investments tion of ex-officio/elec- ing the Sept. 15 governance com- “The fact that you own a or officers. Mr. Lawrence said. the CIO may make per tion board selection mittee meeting. “I do think it is im- year. Other investment processes ... it is also security is not an actual conflict. “There is no legal authority to portant we get to a place where we staff were given addi- not surprising that It depends on your role,” she require a state employee to have some stability.” tional investment dis- short-term politics of- said. disencumber any asset. CalPERS is also considering cretion for private eq- ten win out over the If CalPERS’ compliance and “We can and do require whether to require the next CIO to uity as well as real long-term ‘best-inter- other team members notice a compliance with applicable ethics sell or place in a blind trust any se- assets in September POINT THE WAY: Rick ests’ considerations.” potential conflict in a person’s and conflicts of interest laws.” curities that could potentially give 2019. Funston believes a At CalPERS, six of its statement of economic interests CalPERS does require some rise to a conflict under the relative- At the heart of many board should set board members are after conducting a review of the investment staff to report ly narrow strictures of the Califor- governance dilemmas direction, not manage. elected, four are ex-of- brokerage portion of the form, a personal trades and provide nia Political Reform Act before — including those at ficio and three are ap- joining CalPERS. team at CalPERS will reinforce the information on their own and their CalPERS — is how the board should pointed, he noted. On Sept. 16, CalPERS’ perfor- monitor and oversee policy deci- In Canada, board members can- education the person received spouses’ brokerage accounts, but mance, compensation and talent sions that are being carried out by didates are identified by a nomina- when he or she joined the system, it does not have an online management committee directed staff, but without micromanage- tion committee created for the pur- Ms. Frost said. But CalPERS reporting system. staff to do further research and re- ment. There is also a question of pose of identifying candidates, who relies on each person’s self-man- — ARLEEN JACOBIUS turn in November with a proposal trust, between the board and its are recommended based on their to require its next CIO, as well as committees and the board and staff skills, experience and strategic board members and some staff, to hired to carry out day-to-day busi- thinking capabilities, Mr. Ambacht- sell or use a blind trust for assets ness. sheer said. CEO Marcie Frost, who had sole should be notified about investiga- that give rise to a conflict under the The board is not there to man- responsibility for hiring, firing and tions into some of its top executives. state’s reform law. age; the board is to set the direction Under scrutiny oversight of the CIO, said in an in- The leading practice among the While board members generally and make sure it is managed con- What set the CalPERS board on terview before the last week’s board 57 largest U.S. pension plans is to voiced support for preventing per- sistently with the board’s vision, the road to re-examining its gover- and committee meetings that she have only the CEO directly report to ceived or actual conflicts of interest, said Rick Funston, managing part- nance was the abrupt resignation in informed only Henry Jones, the the board, with the rest of the staff several questioned the mechanics ner of governance and risk man- August of Mr. Meng after he report- board president, and two commit- including the CIO reporting only to of a blind trust. agement advisory firm Funston Ad- ed earlier in the year that he had tee chairs in April about an internal the CEO, Mr. Funston said. “I feel like this is a knee-jerk re- visory Services LLC, Bloomfield investments in the stock of two pri- investigation involving Mr. Meng, as The reason for this design is so action to oversight failures,” said Hills, Mich. Indeed, it could be a vate equity managers and the busi- was her practice. there is a single point of adminis- committee member Margaret breach of the board’s duty of pru- ness development company of a She said she typically informs trative accountability, he said. Brown. “I think we’re way ahead dence not to delegate duties to ex- third manager with which CalPERS the full board when an investiga- While the CEO has authority to because we haven’t done the re- perts, he said. had invested in the past. The disclo- tion into an executive team mem- hire, fire and compensate staff, the search here.” Mr. Funston declined to speak sure came as part of a statement of ber has been completed. leading practice is for the CEO to She said the performance and specifically about CalPERS. He also economic interest form he was re- There is no process set forth in consult with the board at various compensation committee needs appeared at CalPERS’ governance quired to file with CalPERS. CalPERS’ governance policy outlin- points of time regarding these deci- more time and information on how committee meeting on Sept. 15 The reports led to an anonymous ing the CEO’s duties to report to the sions so that the board is not sur- other pension funds in the U.S. and when he advised keeping the in- complaint with the state’s Fair Po- board on personnel matters. prised, Mr. Funston said. Canada handle such issues, whether vestment committee a smaller com- litical Practices Commission and CalPERS is considering making “That is the important differen- the proposal would solve the prob- mittee for the sake of stability since are currently being investigated by changes to its governance policy to tiator for any system that we see,” lem and how the proposal would that change had been made less that agency’s enforcement division. delineate when the full board he said. impact CalPERS’ recruiting. n

continue to help fielding phone During the first quarter, partici- Because Nationwide representa- “the webinars were accelerated” and calls. The plan’s website also has pants’ phone calls were “somewhere tives still aren’t visiting employers serve as the “primary method of dis- Coronavirus posted contact information about between fear and panic over losses for group meetings or one-on-one tributing plan information.” the field representatives — name, associated with massive daily de- sessions with participants, the plan The webinars continue to cover CONTINUED FROM PAGE 6 photo, telephone number, email and clines in the broader stock market, has been offering a series of webi- such topics as enrollment, asset al- was longer than normal,” Mr. Fisch- counties they serve — so partici- combined with uncertainty in the nars as well as a schedule for vir- location and pre-retirement plan- er said. pants can discuss their accounts. labor market,” Mr. Fischer wrote. tual and/or phone meetings so par- ning on a weekly or biweekly basis. Acting on a recommendation by “Our online services are working The representatives’ responses ticipants can discuss their accounts The webinars “remain very suc- Sharon Lukacs, the plan’s deputy di- very well,” Mr. Fischer wrote. ranged from “hand holding” to with the representatives. The virtu- cessful, and we have also made an rector, Nationwide began assigning To make sure the flood of calls “talking people off the ledge” with a al meetings also can accommodate extra effort to involve the participat- field staff to assist call-center staff didn’t cause frustrated and worried heavy emphasis on empathy, he presentations with small groups. ing employers in letting participants effective March 30. Sixteen field participants to wait for service, the added. Calls during the second Although the initial rollout of we- know about them,” Mr. Fischer representatives began taking three- plan instituted a call-back service quarter returned to more normal binars was planned before the coro- wrote. hour daily shifts for the plan’s help on March 23. “The participants can levels. “There are still plenty of navirus struck, it was viewed as “a Surveying the changes made line, increasing the plan’s call-taking hang up, go about their business calls, but it is down from earlier this supplement to the on-site and per- quickly by the plan and its record ability by 45%, Mr. Fischer wrote. and receive a call back from us year.” Mr. Fischer wrote. “Some calls sonal meetings” offered by Nation- keeper, Mr. Fischer concluded: “Be Account executives haven’t re- when their place in line comes up,” are about how to put money back wide, Mr. Fischer said. Some were prepared for anything and be flexi- sumed visits to employers, and they Mr. Fischer wrote.” that was withdrawn.” offered in February; but in March ble in how you deliver services.” n 30 | September 21, 2020 Pensions & Investments

The price that Empower is pay- management and human advice,” UPCOMING WEBINARS | REGISTER TODAY ing to gain scale and drive down Mr. Murphy said on the call. Empower costs is steep. In addition to paying Paul Mahon, president and CEO $2.35 billion, which is structured as of Great-West, also stressed the im- CONTINUED FROM PAGE 3 a reinsurance ceding commission, it portance of the Personal Capital ac- provider in terms of participants is putting up $1 billion of required quisition to Empower’s growth. “It’s and assets,” Edmund F. Murphy III, capital to support the combined a real opportunity to think about Empower’s president and CEO, said business. broadening and deepening the re- during a conference call with ana- lationships with participants,” he lysts. “Not only will this lead to sig- Adding tools, services said on the call. nificant scale advantages, but it will It’s no secret that record keepers Paul Holden, an analyst with Five Key Investment Implications of allow us to capitalize on expertise, must consolidate and build scale to CIBC World Markets Inc. in Toronto, technology excellence and deep compete in a business under pres- sees the Personal Capital acquisi- Rising and Unsustainable Global Debt product capabilities within the Em- sure to lower fees even as regulation as a way for Empower to cap- power platform.” tory compliance and technology ture IRA rollover business. “As peo- Live, Wednesday, September 23 • 2:00 p.m. - 3:00 p.m. ET With an anticipated 12.2 million demands increase. Empower, how- ple retire out of these plans and The inexorable trend of rising global debt to GDP is becoming the participants, Empower will be well ever, is combining its push for want or have to move to a different single-biggest risk factor in investment portfolios. High and rising debt ahead of Principal Financial Group, greater scale with an effort to bring platform, Personal Capital becomes levels are unprecedented and the next decade may look very dierent which after its acquisition of Wells more services to the growing num- a potential solution for them.” than history and existing long-term averages. This has important impli- Fargo’s retirement business last ber of participants it serves on its In addition, Personal Capital cations for both governance and long-term strategic asset allocation July, serves 8.6 million participants, platform. In August, for example, provides Empower with technology decisions. according to Pensions & Investments the company bought Personal Cap- capabilities that give it a “more ho- data as of Sept. 30, 2019. In terms of ital Corp., a hybrid digital wealth listic view of participants’ savings,” Join Fidelity’s Dirk Hofschire of our Asset Allocation Research team and assets under administration, Em- advisory company whose services intelligence that may create “op- Vadim Zlotnikov of our Institutional Asset Management team as they power will widen its lead over Empower is looking to market to portunities to gain additional share share research that examines the etiology of the mounting debt crisis TIAA-CREF, which as of Sept. 30, participants. of wallet from customers,” Mr. and the path toward monetary and ﬁscal policy experimentation that 2019 had $611.4 billion. It also “Together with Personal Capital’s Holden said. likely lies ahead. Additionally, they will uncover ﬁve key investment im- tightens — however slightly — its distinctive capabilities, Empower Empower is also hungry for a plications for capitalizing on the opportunities presented by the global huge gap with Fidelity, the domi- can offer an additional 2.5 million bigger audience for its managed accounts services. Mr. Murphy touted debt predicament. nant front-runner with 23.7 million clients of all plan sizes a full suite of participants and $2.25 trillion in as- financial wellness tools in conjunc- the growth of the business, saying sets as of Sept. 30. tion with first-class digital wealth managed accounts grew at a com- Register Now: pionline.com/Fidelity-Webinar

A document outlining the pro- Sponsored by: posal showed 91.7% of the minis- Japan DC try’s tally of 11,038 defined benefit plans making estimated monthly CONTINUED FROM PAGE 1 DB contributions of less than proposed change, a company pay- ¥27,500, leaving room for more than ing only ¥5,000 a month per em- 9 out of 10 companies to boost DC Credit Investing in the New Era of ployee into its DB plan could con- contributions. tribute up to ¥50,000 a month to Monetary Policy participants’ DC accounts — far in Skepticism remains Live, Wednesday, October 7 • 2:00 p.m. - 3:00 p.m. ET excess of the ¥27,500 permitted un- Still, some remain skeptical. der current rules. The ministry’s documents show Amid an ongoing global pandemic, 2020 has been an extraordinary At present, companies face no fewer than 15% of companies that year. For investors, it has been a wild ride featuring a bout of extreme limits in making contributions to currently offer only a DC plan — volatility followed by a powerful recovery across the risk spectrum as their DB plans and the push to gen- and which therefore have the abili- central banks took unprecedented actions to stabilize markets. Please erate a hypothetical, per-employee EVEN IT OUT: Junichiro Goto said one ty to contribute up to ¥55,000 a join T. Rowe Price Fixed Income investment professionals for a discus- DB figure is only relevant in the Japan ministry wants more balance month to member accounts — are sion of how the Federal Reserve’s vast monetary support has altered context of the current proposal to between DC and DB contributions. putting in more than ¥30,000 a the opportunity set for credit investors. Gain insights on where this come up with company-specific DC month, noted Kunio Nakashima, a unique credit cycle may be headed, sectors that oer potential oppor- contribution limits. Urata contended. senior research fellow with Tokyo- tunities, and possible solutions for institutional investors seeking higher Still, some market participants In addition, he called for lifting based NLI Research Institute. returns without undue risks. expressed concern that those hypo- the prohibition on after-tax contri- If that’s any guide, “even if the thetical, per-employee DB figures butions to DC plans for both em- Ministry of Health, Labor and Wel- Register Now: pionline.com/TRowePrice-Webinar could lay the groundwork for regu- ployers and employees. fare’s proposal comes to be real- lators to impose contribution limits As of March 31, 2019, Japanese ized, it is unlikely that corporate Sponsored by: on DB plans in the future. A minis- corporate DC assets came to ¥12.5 contributions will increase,” he said. try spokesman couldn't immedi- trillion, or 17% of total corporate re- A pension executive at Japan’s ately be reached for comment. tirement assets — up from 12% of Ministry of Health, Labor and Wel- the total for the year ended March fare didn’t respond to queries on Encouraging inflows 31, 2012, Mr. Urata's data showed. what proportion of the 91.7% of Analysts say while Japan’s DC Japanese corporate DC assets al- companies making monthly DB contribution limits are worthy of most doubled over the past six contributions of less than ¥27,500 review, the focus should be on en- years, nearly more than three times are currently making the maximum couraging as sharp a pickup in in- the growth rate for Japanese corpo- DC contribution of ¥27,500. flows to employee DC accounts as rate DB assets. But if the upside for DC asset Preparing your portfolio for possible, whether from corporate If boosting corporate DC contri- growth is limited, some warn of sponsors or employees. butions is a central goal for Japan's more potential downside. the road ahead At ¥660,000, or roughly $6,300 a retirement industry, the ministry’s The flexibility the ministry is July proposal, titled “In consideration looking to introduce can cut both The world is changing – is your portfolio prepared for the road ahead? year, Japan’s DC contribution limits are a fraction of the up to $57,000 in of setting a fairer DC contribution ways, forcing companies with high Are your investment strategies and tools up to the challenge? We combined contributions employees limit,” offers uncertain prospects. estimated DB contributions to re- shared our risk and return expectations for peer group portfolios and and employers can make to U.S. DC Japan’s DC contribution limits duce their DC or DB contributions explored investment themes that can strengthen portfolios. Moreover, accounts, noted Haruka Urata, To- currently are “rather complex and to stay below that combined month- you’ll see how technology is being leveraged to refine and optimize al- kyo-based head of DC proposition very difficult to understand,” with no ly limit of ¥55,000, said AllianceBer- locations for the new normal. Learn more about how to: and thought leadership with Fidel- common formula capable of neatly nstein’s Mr. Goto. ity Investments (Japan) Ltd. bridging the corporate and individu- Analysts say while there’s no de- • Make fixed income portfolios work harder Those low contributions are the al DC plans they cover, noted Akiko finitive list, the remaining 8.3%, or • Use factors to hedge inflation in portfolios main obstacle keeping Japan’s DC Nomura, a Tokyo-based managing more than 900 companies, on the • Diversify with emerging markets to take advantage of a global industry from graduating to much director with the Nomura Institute ministry’s DB sponsor list with esti- recovery faster-paced growth from the of Capital Markets Research. mated monthly DB contributions in steady gains of the past decade, Mr. And without better data on the excess of ¥27,500 likely includes Plus: A look at game-changing proprietary technology that can help in Urata noted in an August report corporate DB and DC contributions many of Japan's biggest companies the pursuit of optimal portfolio results. outlining potential reforms for Ja- being made now by companies with generous retirement plans. pan’s defined contribution system. sponsoring both types of retire- The government should “move The report suggested government plans, it’s tough to get a good carefully” because those companies Replay available: pionline.com/Invesco-Webinar ment concerns about lost revenues sense of who’s suffering, and to will face the choice of shrinking or from expanding DC incentives what extent, from that one-size- closing their DC plans or reducing Sponsored by: could be overstated. Added incen- fits-all, 50% reduction in DC contri- allocations to their DB plans, ac- tives would allow companies to fur- bution limits, Ms. Nomura said. cording to arguments presented by ther weight their retirement pro- The proposal suggests there’ll be the Trust Companies Association of grams toward DC from DB — a far more winners than losers from Japan at an Aug. 26 hearing of the For a full list of webinars, go to pionline.com/webinars potentially tax-neutral shift from taking DB outlays into account Corporate Pension/Individual Pen- the government’s perspective, Mr. when setting DC contribution limits. sion subcommittee of the Social Se- Pensions & Investments September 21, 2020 | 31

pound annual rate of 30% over the Dennis Gallant, a Boston-based small and medium corporate seg- Fidelity in sales and revenue, Em- past three years, far above the mar- senior analyst at Aite Group, echoed ment, which aligns very closely power needs to find a way to shove ket’s growth rate of 19%. similar views, saying that firms are with Empower’s business,” Mr. proprietary investments onto the Empower had a total of $45 bil- seeking to both achieve greater Murphy said. record-keeping and Personal Capi- lion in managed account assets on scale and expand their scope of ser- While small and medium-size tal conveyor belt,” he said. its record-keeping platform as of vices. In short, they’re looking to plans typically involve a great deal Industry observers agree that it’s Dec. 31. become broader-based players, more work than larger plans due to unlikely that MassMutual will be The MassMutual acquisition, in which is what he sees Empower their smaller human resources Empower’s last acquisition given its particular, will offer opportunities seeking to achieve with its two lat- staff, experts say the firm is now in need to continue to build scale and for Empower to market more insur- est transactions. a position to add more participants the level of consolidation among ance products to its participants. As “They’re assembling all the piec- onto its platform with diminishing record keepers. Indeed, during the part of the deal, Empower intends es to be on par with what a Fidelity cost per participant. conference call with analysts, Mr. to enter into a strategic partnership or a Bank of America, Merrill Lynch For Mr. Gallant, the infusion of Mahon said that while the company through which digital insurance provide,” he said. small and medium-size plans is a was “likely to be a little less active” products offered by Haven Life In- While the MassMutual deal is reflection of Empower’s desire to as it digested its new acquisitions, it surance Agency LLC, a MassMutual PUMP IT UP: Dennis Gallant sees primarily about bulking up Em- serve clients “from the small to the was not “going to sit on its hands.” affiliate, and MassMutual’s volun- Empower gaining financial wellness power’s number of participants and large” across a spectrum of services. “For the right opportunity at the tary insurance and lifetime income capabilities with the acquisition. assets, it also brings added benefits. right timing, we will look to sources products will be made available to The acquisition, for example, will Overtake Fidelity? of capital to try to get deals done,” customers of Empower and Person- in Vienna, Va. give Empower more financial well- Some in the industry even say he said. al Capital. Empower and other record keep- ness capabilities, Mr. Gallant said. that Empower is looking to over- Aite’s Mr. Gallant expects Em- ers looking to survive in today’s “MassMutual has some great take Fidelity, a challenge that might power to continue to make acquisi- Getting a bigger boat highly competitive market must tools that can interact with partici- be more than what the record tions but not necessarily of record In essence, Empower is trying to build a “conveyor belt big enough, pants and clients to help drive in- keeper can chew. Empower has nei- keepers. build out its “conveyor belt” to “push wide enough, long enough and vesting and savings,” Mr. Gallant ther Fidelity’s “national distribution He sees Empower making more out products and services to the dominant enough” that service pro- said. conveyor belt to serve individual of a technology play by buying end user,” not unlike Amazon, said viders are willing to put “their good- The deal will also give Empower investors or participants” nor its companies like Personal Capital, Philip Chao, a consultant to insur- ies” on it, Mr. Chao said. a No. 1 position in the small to me- “robust group of proprietary prod- which have the potential of turning ance carriers and asset managers “It’s about scale and it’s about dium-size plan sponsor market, a ucts to distribute to investors and the record keeper into a broad- who is also the founder and princi- providing more services so that segment that Mr. Murphy described gain more fees and revenue,” Expe- based wealth management advice pal of Experiential Wealth Inc., a they can drive more revenue be- as highly attractive. Half of Mass- riential’s Mr. Chao said. provider and “not just a defined registered investment adviser firm yond record-keeping fees,” he said. Mutual’s business is in “the coveted “In order to catch up and surpass contribution player,” he said. n curity Council. nounced at the start of the year programs as well as the Green Deal tion to alternatives, which is capped Under the new plan, “we would aimed at channeling €1 trillion from “are interesting developments,” he at 15% of portfolios. have to close up our DC plan, be- Infrastructure public and private investors over a wants to see the policy direction. Joel Huebscher, infrastructure cause our DB plan uses up the decade to curb greenhouse gases, Mr. Boots noted that investing di- debt portfolio manager at the 41 CONTINUED FROM PAGE 1 whole ¥55,000” allotment, said a hu- support industries and protect rectly in infrastructure equity billion Swiss franc ($44.9 billion) man resources executive with a heavy focus on sustainable trans- workers in the transition to a car- though a public-private partner- Swiss Federal Pension Fund PU- global Japanese company, who de- portation and green energy, while bon-neutral economy. ship has been challenging in the BLICA, Bern, said in a telephone clined to be named, calling that the Dutch government will spend Since the global financial crisis, last few years, mainly because of a interview the fund has been ramp- prospect “a big problem right now.” €20 billion over the next five years the supply of greenfield projects has small supply of projects and small ing up the asset class since it was to improve the country’s overall in- been lower while governments have equity stakes available in the capi- added to the portfolio in 2015 and Troubling news frastructure. also moved away from the private tal structure of such projects. he looks forward to investment op- Roughly 600,000 DC participants, Simultaneously, the Swiss gov- finance models, Mr. O’Brien said. In addition, investors like APG, portunities resulting from attrac- or 15% of the 4 million total working ernment — in a move that is said to “The (new) measures will result in some cases can only acquire up tive credit spreads observed in pri- for companies offering both DC and have been accelerated by the pan- in more ‘shovel-ready’ projects to 50% of the equity of an invest- vate markets. DB plans, could see either weaker demic — is allowing pension funds moving forward,” he said. ment due to tax-related reasons PUBLICA is underweight cycli- growth for their corporate DC ac- to devote a greater share of their Mr. O’ Brien added that his firm and therefore need other partners cal sectors such as transport and counts or their accounts being shut assets exclusively to infrastructure, recently moved its private market to participate. overweight non-cyclical sectors down entirely under the new para- effective Oct. 1. portfolios to overweight infrastruc- Under the Green Deal, however, such as renewable energy, Mr. digm, the Trust Companies Associa- In a similar modification to re- ture equity and debt in the European Invest- Huebscher said, adding that renew- tion of Japan warned at the Aug. 26 tirement plan rules, the U.K. gov- the energy transition ment Bank will step in able energy has been resilient in subcommittee meeting, according to ernment proposed Sept. 11 to ex- and telecommunication and share the financing the crisis. a report on those proceedings by clude direct investments in illiquid sectors but remained with investors. At least Commenting on the change in the Sumitomo Mitsui Trust and Banking. assets from fee cap rules to better neutral on transporta- €45 billion will be dedi- Swiss law, he said that Swiss pen- NLI Research Institute’s Mr. Na- enable infrastructure investments tion due to pandemic- cated to green and so- sion funds will be attracted to infra- kashima noted that calls for “transi- by defined contribution plans. related uncertainty cial infrastructure in- structure when it is not part of alter- tional measures” allowing firms All of these developments are ex- about the sector. vestments from the native asset allocation. Swiss making heavy DB contributions to pected by sources to facilitate better For investors looking EU's budget under the pension funds view alternative in- continue contributing to their DC access for institutional investors to to boost green invest- deal and up to €30 bil- vestments as risky, he said. When plans for a period of time could still infrastructure investments. The ments, the new infra- lion is expected to be infrastructure is not part of alterna- find their way into the final propos- changes come as the demand for in- structure programs are MORE: Ron Boots said committed jointly by tive investments, it could be per- al, likely to be hammered out as frastructure strategies is set to re- exciting. small equity stakes were the European Commis- ceived as a safer investment, he early as October. turn to its pre-pandemic levels, with For example, PenS- a problem for public- sion and the EIB. added. Still, Mr. Nakashima said, in his investors showing more interest in am, the 115 billion Dan- private partnerships. APG’s 3% allocation The fund’s strategic allocation to personal view, if the Ministry of Fi- the past two months, sources added. ish kroner ($18 billion) to infrastructure equity infrastructure is 3.5%, while actual nance rejects those calls, the steady multiemployer plan for elder care, is below the manager’s strategic allocation is about 3%. growth of Japan’s defined contribu- Down in second quarter technical service and education target of 4%, Mr. Boots said, adding tion assets could reverse. Europe-based infrastructure workers based in Farum, Denmark, that he is currently interested in U.K. proposal Others, however, believe the DC fundraising dropped in the second will increase its green investments telecommunications, utilities and In the U.K., defined contribution market could prove resilient in an quarter, with six funds closing at an to 10% of its portfolio by 2025 from renewable energy projects. plans could similarly increase in- environment where big plan spon- aggregate $2.1 billion, down from 11 about 5% currently. Frans Heijbel, head of interna- frastructure exposures in October sors are forced to make hard choices in the first quarter that raised $6.7 Among these ambitions is infra- tional real assets at the 893 billion 2021 under a current proposal to between their DB and DC plans. billion, according to data by Lon- structure, which is just 2% of the Swedish kroner ($102 billion) Alec- enable plans to pay performance Companies may well come under don-based alternative assets data portfolio currently, said Mikael Bek, ta Pensionsforsakring, Stockholm, fees on strategies featuring illiquid pressure to redesign or restructure firm Preqin Ltd. But in the third the fund’s head of environmental, said that now that deal flows are assets. Currently, U.K. DC plans are their retirement programs but quarter through Sept. 11, there have social and governance. Mr. Bek said “back to normal,” investors are en- bound by a 0.75% fee cap on assets shutting down their DC plans is un- been six fund closings that raised the fund had to be prudent because thusiastic about infrastructure. under management and adminis- likely to be a popular choice, said an aggregate of $10.2 billion. in the past few years, there have Alecta, which is planning to in- tration. Illiquid investments are Junior Thomas, a Tokyo-based con- By comparison, Europe-focused been fewer infrastructure projects crease its exposure to infrastruc- more expensive investments and sultant and actuary with Mercer’s funds raised $46 billion in all of with the right risk profile and high ture to €3 billion over the next five could cost 40 to 50 basis points pension consulting team. 2019 and $49 billion in 2018. enough returns. The fund is seek- years from €600 million, intends to compared to a few basis points With companies globally looking “The €100 billion French fiscal ing a target allocation of between move ahead with one or two more plans typically spent on passive eq- to minimize DB-related liabilities measures as well as the Green Deal 3% and 4%. commitments to renewable energy uity, sources said. on their balance sheets, a more are going to result in new projects and digital infrastructure funds be- Stephen Budge, principal and DC likely option could involve compa- becoming available to institutional More details fore the end of this year, he said. investment consultant at Lane nies freezing their DB plan, with investors,” said Declan O’Brien, Other investors want more de- In other developments, Swiss Clark & Peacock LLP in London, future accruals focused instead on London-based head of infrastruc- tails on the policies before they pension funds are set to benefit added that DC plans are looking to DC plans and lump-sum payouts at ture research and strategy at UBS jump on any opportunities. from new rules that would allow diversify sources of return and the retirement, he said. Asset Management’s real estate Ron Boots, Amsterdam-based them to invest up to 10% of their long-term infrastructure invest- If legislation incorporating the and private markets business, head of infrastructure for Europe at portfolios in infrastructure starting ments are going to be encouraged ministry’s proposal is approved, the which has $4.5 billion invested in APG Asset Management, the man- in October. Before the change, by the U.K. government. There are new DC contribution limit arrange- infrastructure. ager of the €462 billion Stichting which will make infrastructure a expectations that DC plans will ments would go into effect in Octo- The Green Deal is a European Pensioenfonds ABP, Heerlen, Neth- separate allocation, the asset class flock to U.K.-focused environmen- ber 2022. n Union investment program an- erlands, said that while the fiscal was considered part of an alloca- tal infrastructure, he said. n 32 | September 21, 2020 Pensions & Investments AT DEADLINE Bridgewater As of Jan. 31, the National TIAA to shut 3 funds CONTINUED FROM PAGE 1 Retirement Trust of the Blue Robert Tannenbaum TIAA-CREF plans to liquidate Cross and Blue Shield Associa- data from Bridgewater showed. three quantitative funds managing tion had $2.9 billion invested in “Bridgewater has gray clouds $6 billion, according to a Sept. 18 hanging over it right now with a lot the AllianzGI Structured Alpha SEC filing. of challenges ahead including per- Multi-Beta Series LLC I, AllianzGI The funds slated for liquidation formance issues, AUM decline, em- Structured Alpha Emerging are the $3 billion TIAA-CREF ployee layoffs and persistent nega- Markets Equity 350 LLC, and the Quant Large-Cap Growth Fund, the tive press,” said Michael S. Falk, a AllianzGI Structured Alpha 1000 $2 billion TIAA-CREF Quant partner at manager advisory firm LLC, according to the filing. Focus Consulting Group Inc., Long International Equity Fund and the After the funds experienced Grove, Ill. $1.3 billion TIAA-CREF Quant heavy losses in February and Mr. Falk was referring to two Large-Cap Value Fund. March, the investments were high-profile lawsuits regarding for- The funds are to be liquidated mer employees that Bridgewater liquidated and redeemed, and the after the close of business on has been involved in this year. committee received about $540 Dec. 18, according to TIAA-CREF’s “Bridgewater likely will lose a million, according to the filing. SEC filing. fair amount of assets until a strong As of Dec. 31, 2018, the Blue Nuveen spokeswoman E-Soo comeback happens, but when you Cross and Blue Shield Associa- Kim confirmed the pending have more than $100 billion of tion National Retirement Trust AUM, you do have a strong leg to TROUBLED WATER: Michael S. Falk believes Bridgewater still faces many challenges. liquidation of the three funds in had $4.6 billion in assets, stand on,” Mr. Falk added. an email. Nuveen is TIAA-CREF’s according to its most recent Form However, Bridgewater has a plan. partnerships. An investment consultant who money management unit. 5500 filing. By way of replacement for advice asked for anonymity said, “we have The closures are “part of the Fewer clients, employees and investment counsel from a client who is very reliant on already-in-progress absorption of The firm is 18 months into a re- Bridgewater employees, Mr. Del- Bridgewater for advice and counsel Nuveen’s quantitative capabilities Chicago fund cuts rate structuring exercise that will not aney said Bridgewater has spent and is close to the firm because of into our core investment plat- Chicago Public School Teach- only reduce the size of its client “tens of millions” in building out its this. Bridgewater is the best at ca- form,” Ms. Kim said. ers’ Pension & Retirement Fund is base to enable it to form closer stra- technology capability to handle a tering to its clients. It’s one of the Ms. Kim did not respond to a lowering its assumed rate of tegic partnerships with some of the new push to provide more digital reasons clients likely stayed with request for more information. return to 6.75%. world’s largest investors, especially engagement and portfolio manage- the firm even when the perfor- with non-U.S. sovereign wealth ment tools to smaller investors as mance of Pure Alpha is down 20% Nuveen manages $1 trillion. The $11.1 billion pension funds, but also decrease its head- well as to investment consultants. in the first quarter,” the source said. fund’s board voted Sept. 17 to count, said Kyle Delaney, chief com- Mr. Delaney said “we would nev- That said, not all institutional in- WSIB commits $925M lower the rate of return from 7% , mercial officer of the Westport, er ask a client to leave” but he ac- vestors have kept the faith. Washington State Investment said CIO Angela Miller-May. Conn.-based firm. knowledged that some current in- Board disclosed five new private Also, investment consultant To date, the client base has been vestors may choose to do so. Redemptions rise reduced to about 300 from 350 and “We have told smaller clients Analysis of hires and termina- equity commitments totaling up to Callan completed its asset-liabili- an unknown number of employees about this new approach. The con- tions from P&I’s reporting over the $925 million, spokeswoman Tish ty study and the pension fund will were laid off, according to informa- versations haven’t been about leav- past 11 years showed an elevated Day said in an email. not change its current targets, Ms. Miller-May said. tion reported by Bloomberg. ing, but rather telling them that we level of redemptions in 2020 The board, which oversees “We want to create partnerships can’t do as much for them regard- through Sept. 15. As of July 31, the fund’s actual $145.4 billion in assets, including with these megafunds to help them ing advice as we could in the past.” Four large U.S. public pension $111.5 billion in defined benefit allocation was: 29.8% domestic deal with their thorniest issues,” Mr. Given the high degree of consul- funds withdrew a total of $1.3 bil- plan assets, committed up to equities; 29.1% global equities; Delaney said. tation on portfolio and market is- lion from Bridgewater hedge funds $250 million each to Fountain- 27% fixed income & cash; 8.3% In order to do so, Bridgewater sues that Bridgewater employees and risk-parity funds, P&I data Vest Capital Partners Fund IV, a real estate; 4% private equity and has reserved the analytical and traditionally provided to all of the showed. About $270 million was growth equity and middle-market 1.8% infrastructure. portfolio advisory services that pre- firm’s clients, smaller clients may from two terminations of Pure Al- viously were offered to its entire reconsider their now digitally fo- pha strategies with the balance buyout fund managed by Fountain- The target allocation is: 30.5% client base for its large strategic cused relationship with the firm. taken from Bridgewater’s risk-pari- Vest Partners, and TCV XI, a each, domestic equities and private equity fund that focuses global equities; 23% fixed income; 9% real estate; 5% private equity; on technology firms managed by funds during the second quarter, their assets into risky asset classes,” Technology Crossover Ventures. and 2% infrastructure. the firm reported during its earn- he noted. The board also committed up Bonds ings call. The money manager had As of June 30, NISA managed $100.2 billion of total net inflows in $246 billion in physical assets, to $200 million to lower-middle- UC trims hedge funds CONTINUED FROM PAGE 3 market buyout fund Thoma Bravo The University of California the second quarter, of which $60.3 which were predominately fixed platform, which includes invest- billion was derived from fixed-in- income, and $168 billion in deriva- Discover Fund III, up to $125 Board of Regents approved ment-grade credit, emerging mar- come products. tive notional value in separate ac- million to Menlo Ventures XV, a changes to the asset allocation of kets debt, LDI, municipal and gov- Matthew Steinaway, a senior count overlay portfolios, according venture capital fund managed by its $70.2 billion pension plan, ernment bond strategies. managing director and chief invest- to its website. Menlo Ventures, and up to $100 which includes a new target to Since the emergence of COV- ment officer for global fixed in- According to Mr. Eichhorn, most million to Searchlight Capital III, a private debt and cutting its hedge ID-19, PGIM has seen the search come, cash and currency at State institutional investors fall into two buyout fund managed by Search- fund target by more than half. for yield “intensify,” Mr. Hunt added. Street Global Advisors, Boston, said broad camps as it pertains to their light Capital Partners. The board approved the change “Overall, we believe that fixed in- in an interview the firm doesn’t fixed-income objectives — either As of June 30, the actual at its Sept. 17 meeting. come will continue to be part of the think that low interest rates will using strategies to dilute the volatil- allocation to private equity was The changes in the target very much growing asset manage- necessarily mean lower flows into ity of return-seeking asset classes ment industry,” Mr. Hunt said, not- fixed income. or using bonds as interest-rate 21%. allocation were recommended to ing that demand for higher-yielding Of note, fixed income can pro- hedging in defined benefit plans. improve medium- and long-term strategies should continue as long vide a source of liquidity, generate BCBS sues AllianzGI return prospects, according to as rates stay low. yield or be used as a liability hedge Offsetting risk Blue Cross Blue Shield’s investment committee materials. Additionally, as populations in for LDI clients, he said. For investors falling in the sec- national employee benefits The portfolio’s expected developed countries grow older and “In the LDI context, I think ond camp, many are determining committee filed a lawsuit against 10-year return increases to 6.2% more individuals reach retirement there’d be a source of growth there “how many bonds should I hold to Allianz Global Investors and its from 5.8% as a result of the age, demand for fixed income is ex- because (clients may be thinking) offset all of this interest-rate risk in pected to increase, Mr. Hunt said. we’ve had a long equity run and it’s my liabilities?” Mr. Eichhorn said. investment consultant Aon changes, the materials show. Changes to the asset alloca- On Sept. 16, the Federal Reserve time to start locking down assets,” “If you are hedging something, you Investments USA, charging both signaled that interest rates would by using an LDI glidepath, Mr. are not driven by a return objective tion are: Creation of a 3.5% target with breaches of fiduciary remain near zero through at least Steinaway continued. per se.” responsibilities and breach of to private debt, reduction of the 2023. SSGA had $3.05 trillion in AUM, Dean Ungar, vice president, se- contract regarding more than $2 target to core fixed income to 13% including $476 billion in fixed in- nior credit officer at Moody’s Inves- billion in losses in the insurer’s from 15%, hedge funds to 3.5% Strong inflows come as of June 30, up 3.9% over the tors Service Inc., New York, said defined benefit plan trust. from 10%, emerging markets debt Amid the low-rate environment, first quarter. there have been very good inflows The lawsuit, filed Sept. 16 in to 1.5% from 2.5%, and increas- publicly traded money managers David G. Eichhorn, president and into fixed income so far this year, U.S. District Court in New York, ing targets to global public saw strong net inflows into fixed in- head of investment strategies at St. including in the third quarter, ex- come during the second quarter of Louis-based institutional money cluding “some blips” in the market alleges that AllianzGI took equities to 53% from 50%, private this year, with many investors tak- manager NISA Investment Advi- during the first quarter caused by “reckless actions” in the equity to 12% from 10% and real ing shelter in the asset class in re- sors LLC, said that “one inconve- the coronavirus pandemic. assets to 4% from 3%. The management of three funds the action to, and anticipation of, fur- nient truth about fixed income is “We’re more concerned with the targets to real estate and manager had said offered ther market shocks. there is always a role for it in any actively managed equity business downside protection against high-yield fixed income will remain BlackRock Inc., New York, for ex- rate environment.” (of money managers) because that’s market declines and volatility, unchanged at 7% and 2.5%, ample, saw record quarterly net in- “Yes, rates are very low by any been under tremendous pressure,” according to the court filing. respectively. flows of $57 billion in its iShares standard … (but) at a high level, cli- Mr. Ungar said. fixed-income exchange-tradedents and asset owners can’t put all Moody’s is less concerned about Pensions & Investments September 21, 2020 | 33 PEOPLE ty strategies. systematic process in response to proactive stance likely is one of the P&I data showed seldom Bridge- the COVID-19 impact on markets reasons that Bridgewater hasn’t ex- water redemptions between 2010 despite historical stress tests that perienced high redemption levels and 2019. suggested it was better to have despite performance issues. Assets managed in the Pure Al- stuck with the then-existing ap- In contrast, the consultant quot- CPPIB names first-ever CIO, pha strategy were down $3.5 billion proach. ed earlier said “everything Bridge- year-to-date through Aug. 31, most- “The virus and associated lock- water is doing in response to this ly from performance losses, Mr. downs affected economic linkages drawdown is reactionary. When cli- as fund looks to scale up Delaney said. in a way that required significant ents ask why Bridgewater is adjust- Pure Alpha II returns were flat in changes to our process. As the locking the beta sources in All Weather, Edwin Cass was named the first 2019, down 20% in the first quarter downs ease, the major differences the response is ‘because the market dedicated CIO of the Canada Pen- and up 3% in the second quarter, ac- will be driven by fiscal and mone- changed,’ not because it was in an- sion Plan Investment Board, Toron- cording to an anonymous industry tary policy choices of different ticipation of change. I don’t think to, the C$434.4 billion ($317.8 bil- source. In contrast, the return of countries that are in our wheel- they’re really changing much of lion) pension fund said Sept. 9. Hedge Fund Research Inc.’s HFRI house,” Mr. Jensen said. anything.” The newly created role of CIO Macro: Systematic Diversified in- He said given the fact that nomi- By way of bringing new investors will, in part, address the “anticipat- dex was down 0.5% in the first nal bonds offer little diversification to its hedge fund and risk-parity ed size and scale of CPP Invest- quarter, down 2.4% in the second and “can’t produce returns any- strategies, Bridgewater is increas- ments by 2025 and beyond,” the quarter and up 7.1% in 2019. more,” primary sources of return in ing the number of external distri- news release said. As CIO, Mr. Cass Edwin Cass Samantha Davidson Bridgewater’s Pure Alpha hedge the firm’s All Weather risk-parity bution partners it works with in or- is responsible for “total fund man- fund strategy was closed to new in- strategy now are inflation-linked der to tap larger pools of agement, including capital alloca- vestment before March but after bonds, gold and equities. institutional and wealth manage- tion between investment programs, some investors took redemptions, Pure Alpha currently has a di- ment investors run by these firms. and medium- and near-term port- the fund was reopened to new in- versified portfolio of positions Mr. Delaney said instead of es- folio guidance and balance sheet vestors or existing clients seeking across developed currencies, tablishing a presence on the ground management.” to add to a current investment. The emerging currencies, inflation- in various regions, Bridgewater Prior to Mr. Cass’ appointment, strategy remains open to new in- linked bonds and equities as well as opted to use a partnership model the CIO function was “distributed vestment, Mr. Delaney said. gold and other commodities, the for distribution of its investment between the CEO office, the chief As of June 30, Bridgewater’s firm said. strategies. In particular, Bridgewa- investment strategist and at the in- hedge fund assets totaled $98.9 bil- Mr. Jensen stressed that the Pure ter has its eye on Asian and Latin vestment department level,” a Brooke H. Jones D. William Kohli lion, down 25.1% from the same Alpha strategy doesn’t make “big American markets. spokesman at CPPIB said. date a year earlier, according to data bets. We invest in increments. We Existing Bridgewater distribu- Mr. Cass, who was previously Mr. van Olphen has served as provided by the firm for Pensions & aren’t trying to hit high perfor- tion partners include Lyxor Asset global head of real assets, will work chairman since 2016, working with Investments’ 11th annual hedge mance from equities. Rather we ex- Management and Silver Creek closely with President and CEO the board to shape the firm’s 2025 fund special report. pect very normal returns from a Capital Management LLC, he said. Mark Machin, Chief Financial and strategy. Bridgewater said hedge fund as- diversified portfolio of equities.” Regarding Bridgewater’s previ- Risk Officer Neil Beaumont and in- “I can take this decision (to de- sets rose to $104 billion as of Sept. 1. ously announced staff reductions, vestment department leaders to part) with confidence because I Pat on the back the total number of employees who “strengthen the organization’s in- know that APG is in the hands of a Boosting returns Some investment consultants have or will be laid off remains to vestment governance even further team of highly motivated and Greg Jensen, one of the firm’s who spoke with P&I on the condi- be determined, but the firm’s intent with the aim of generating greater knowledgeable people,” Mr. van Ol- three co-CIOs, said during an inter- tion of anonymity were generally is “to be smaller and leaner than in performance gains,” the news re- phen said in the release. view in early September that supportive of the firm’s changes to years past,” according to a state- lease said. ABP had €451 billion ($507 bil- Bridgewater is focused on improv- its portfolios in response to unprec- ment provided by the company on Deborah Orida, who was senior lion) in assets as of June 30. ing the returns of its portfolios, edented market conditions. Sept. 16. managing director and global head stressing that “our key in both al- “I give kudos to Bridgewater for Bridgewater did not provide a of active equities, was appointed Brooke H. Jones was named pha (Pure Alpha) and beta (All being the most thoughtful among timeline for employee layoffs and global head of real assets, assuming chief investment officer at Bryn Weather) strategies is to get the managers, especially global macro said annual attrition likely will be a Mr. Cass’ former role. Mawr College in Bryn Mawr, Pa., right balance of diversification.” managers, about how to deal with bit higher high in 2020 than in a confirmed college spokesman Mat- During an interview in April, Mr. low-yield bonds,” noting that most typical year and the number of re- Mark E. Thompson, chief invest- thew Gray in an email. Jensen said that in retrospect, the managers aren’t trying to find ap- placements hired likely will be ment officer at BP America Inc., The position is new. Effective investment team for the Pure Alpha propriate replacements, said one smaller. n Chicago, and director of group pen- mid-October, Ms. Jones will oversee hedge fund strategy should have investment consultant. sions at BP PLC, is retiring Dec. 31. the investment management of the changed the global macro fund’s The source said Bridgewater’s Bloomberg contributed to this story. Mr. Thompson, who has been college’s $888 million endowment. CIO since 2015, said in an email his She will also be responsible for

Peter Glass goal is to take some time off after 40 building and managing the college’s the outlook for fixed income be- Consulting LLP, said that the firm years at BP and after that, “time will investment team, which will be cause “the Fed is a huge buyer of has seen allocations to passive tell.” based in New York. She will report Treasuries and residential mort- fixed-income strategies steadily in- Mr. Thompson said in the email to Kim Cassidy, president of Bryn gage-backed securities. When you crease over the last five years that BP is still undergoing an inter- Mawr College. have a huge buyer, that’s going to among both institutional and retail nal review regarding his eventual Ms. Jones was a managing direc- keep asset (prices) up,” Mr. Ungar investors. replacement. tor of investments at Carnegie Corp. said. According to Mr. Stakel, while As of Sept. 30, 2019, BP America of New York. Despite low bond yields, investor large fixed-income managers will had $15.6 billion in total retirement uncertainty about an economic re- face fee pressures, an industrywide plan assets, according to Pensions & D. William Kohli, chief invest- covery and the impact of the presi- trend, fixed-income specialists may Investments data. ment officer of fixed income at Put- dential election positions fixed in- have “more room to defend man- nam Investments, will retire on come to still be “a safe haven and an agement fees.” Samantha Davidson was named June 30, 2021, company spokesman island of security,” Mr. Ungar added. “No matter where you play, senior partner and U.S. leader of Jon Goldstein confirmed in an By vehicle type, money manag- there’s going to be fee pressure. But Mercer’s outsourced chief invest- email. ers have had significant inflows INDEXING: Jeffrey B. Stakel said both where there is more room to gener- ment officer business. Michael Salm was named co- into fixed-income mutual funds retail and institutional investors are keen ate alpha relative to a benchmark, Based in New York, she reports CIO of fixed income at Putnam. He and ETFs, according to Brendan on passive fixed-income strategies. there is a higher likelihood of pre- to Chris Mahoney, senior partner will work alongside Mr. Kohli over- Powers, associate director, product serving the fees,” Mr. Stakel said, and U.S. leader of Mercer’s wealth seeing the firm’s $75 billion fixed- development at Cerulli Associates $221 billion in net outflows in noting high-yield bonds, emerging business, spokesman James Allan income business and become sole Inc., Boston. March alone, and municipal bonds markets debt and private credit said in an email. She replaces Rich- fixed-income CIO in mid-2021. “In our perspective at Cerulli, de- in these vehicles experiencing $43 strategies as areas where specialists ard Joseph, who was named U.S. Mr. Salm was a fixed-income spite the interest rate environment, billion in net outflows during that may be able to defend higher fees. distribution leader for Mercer’s portfolio manager at Putnam. Put- there will be demand for fixed-in- month. Mr. Steinaway at SSGA, however, wealth consultancy business in No- nam Investments had $180 billion come strategies among investors as “The fact that they were able to sees fee pressures resulting in the vember 2019. in assets under management as of they construct portfolios,” Mr. Powers recover to positive flows is signifi- continued migration of assets into Ms. Davidson was previously Aug. 31. said. “We don’t think the asset class cant for fixed income and indicates passive strategies. managing director and head of cli- will be significantly out of favor.” a fixed-income demand regardless “We’re a large index manager in ent solutions for Goldman Sachs Philip La Pierre was named CEO of the interest rate level,” Mr. Pow- fixed income, but there’s an under- Personal Financial Management. of Europe at LaSalle Investment Positive flows ers said, noting that the last eight lying trend from active fixed in- Mercer’s OCIO business has Management effective Oct. 1, a Despite significant withdrawals months offer an “important mea- come flows to index (flows). We more than $300 billion in assets un- spokesman said Sept. 18. from both institutional and retail in- sure” of how the low-rate environ- think that could be accelerated be- der management. Mr. La Pierre replaces Karen vestors in March from fixed-income ment may impact bond managers cause low yields don’t leave a lot of Brennan, who was appointed chief mutual funds and ETFs, the uni- looking forward. room for fees for asset managers. Gerard van Olphen is to step financial officer at LaSalle’s parent verse still posted positive investor During January to August, tax- As institutions are looking at their down as CEO of APG Asset Man- company, JLL. He will oversee the flows year-to-date through Aug. 31. able fixed-income ETFs saw net total return and net of fees, they’ll agement, the in-house manager of $23 billion European real estate From Jan. 1 to Aug. 31, taxable inflows of $133 billion. This was de- use index (strategies) in their port- Stichting Pensioenfonds ABP, business, reporting to Jeff Jacobson, bond mutual funds had $76 billion spite taxable bond ETFs experienc- folios more,” he said. Heerlen, Netherlands, next spring, LaSalle’s global CEO. He will also in net inflows, while municipal ing $18 billion in net outflows in Core and core-plus fixed income a spokesman confirmed. join LaSalle’s global management bond mutual funds had $13.6 bil- March, according to Cerulli data. are areas where he expects to see APG is searching for a successor committee. lion in net inflows, according to data Jeffrey B. Stakel, a Stamford, more institutions migrating a por- after Mr. Van Olphen decided to Mr. La Pierre has served as head from Cerulli. This was despite tax- Conn.-based principal for the tion of their fixed-income portfolios leave for private reasons, according and CIO of continental Europe in able bond mutual funds suffering Casey Quirk practice of Deloitte to passive investing. n to a news release Sept. 7. Munich since joining in June 2018. 34 | September 21, 2020 Pensions & Investments

ciary rule. He took issue with a sec- to Reg BI’s implementation. The tion that he said essentially elimi- survey found that broker-dealers Fiduciary nates the mutual understanding were much more likely than invest- and primary basis prongs of the ment advisers — who are already CONTINUED FROM PAGE 2 five-part test. held to a fiduciary standard — to fiduciary responsibilities. The 2016 “There are millions of broker- recommend the more expensive rule was struck down in federal client relationships where there’s products, like leveraged and in- court in 2018. Labor Secretary Eu- no mutual understanding of reli- verse exchange-traded funds and gene Scalia, then a partner Gibson, ance,” Mr. Mason said. “For the pre- variable annuities, to clients. Dunn & Crutcher LLP, was part of a amble to say out of the blue that “The reality is investment advis- team representing the U.S. Cham- typically any individualized recom- ers stay away from them because ber of Commerce, the Securities In- mendation satisfies mutual under- they’re often not in a client’s best dustry and Financial Markets Asso- standing and primary basis, there is interest because they cost more and ciation and other associations in no basis for it.” they have illiquidity issues,” Ms. Se- successful challenges against the Mr. Mason urged the Labor De- idt said. “We hope to see that gap rule, arguing the Labor Department partment to repudiate the pream- close with Reg BI but we don’t know exceeded its authority. ble language when it issues its final if that’s going to happen. We urge But now, stakeholders that ap- exemption, adding that as currently the DOL to wait until the evidence plauded Mr. Scalia’s efforts in doing written the language is “invalid” be- is in on that gap.” away with the 2016 fiduciary rule cause it contradicts the 2018 court WISHING: Barbara Roper wants rollover advice specifically to be covered by the test. are confused by the current propos- ruling and the regulation itself. 30 days al’s preamble, specifically the sec- But Barbara Roper, Pueblo, have to acknowledge fiduciary sta- Critics of the SEC package, like A wide swatch of stakeholders tion that deals with the five-part test Colo.-based director of investor tus. “People will give less advice be- Ms. Roper, say it doesn’t go nearly have called on the Labor Depart- and rollover advice, which become a protection at the Consumer Feder- cause it exposes them to liability,” he far enough to protect investors and ment to reopen its comment period, regulatory Rorschach test for those ation of America, said there’s “plen- said. “Others who don’t pull back doesn’t define what “best interest” saying that 30 days wasn’t enough on opposing sides of the debate. ty of room for firms to craft a new will be forced to accept fiduciary means. Supporters, like those in the time to hear from all interested par- way to establish that the recom- status and because of the liability brokerage and insurance indus- ties and noted that the Sept. 3 hear- The preamble mendation isn’t intended to create will stop serving small accounts. It tries, say the package is much ing was announced only nine days The Labor Department in the a primary basis for the investor’s was ill-advised to require it.” tougher than the suitability rule, in advance. preamble said the five-part test’s decision. (The critiques are) just Andrea Seidt, Columbus-based which was the standard to which James C. Allen, Washington-based “regular basis” prong would be sat- hyperbole on the part of the firms.” Ohio securities commissioner, said brokers were previously held. head of Americas capital markets isfied when an entity with a pre- Ms. Roper would like any recom- the test “needs to be clear when you Ms. Roper said that the Labor De- policy for the CFA Institute, said existing advice relationship with a mendation or call to action made by are, either through agreement or partment, nor anyone else, has con- ERISA and investment advice issues retirement investor advises them to an investment professional to be mutual understanding, serving in a ducted an analysis of Reg BI yet are complex and to “try and meld roll over assets from a plan to an in- explicitly covered by the test, espe- fiduciary capacity to an investor since it’s so new. “We do not know to those two together is difficult in the dividual retirement account. But it cially rollover advice. that you are in fact a fiduciary and which extent it’s going to have any best of times and to shorten that also said that an investment advice If the proposal and preamble that all of the obligations that come meaningful impact on changing the time period to 30 days, my goodness provider who establishes a new re- were to go into effect as written, the with that should apply.” Ms. Seidt incentives that brokers have to that’s really pushing it.” lationship with a plan participant potential for litigation from inves- testified on behalf of the North make recommendations that are not Rule-makings typically have 60- and advises a rollover “could satisfy tors would rise and many financial American Securities Administra- in the their customers’ best interest,” or 90-day comment periods, sources the regular basis prong of the five- professionals would stop serving tors Association during the Labor she said. “So we think at the very said. part test depending on the facts and small accounts, Mr. Mason said. He Department hearing. least it’s premature for the depart- Ms. Seidt said it’s important for circumstances.” referenced research published in ment with no evidence that Reg BI is the DOL to take its time and get it Kent Mason, a partner with law 2017 by Deloitte that surveyed 21 Reg BI effective to base an exemption on right. “You should welcome, not chill firm Davis & Harman LLP in Wash- SIFMA member firms and found The Labor Department proposal that untested regulatory approach.” or deter comments from interested ington who testified at a Sept. 3 La- that 53% of financial advisers re- was unveiled the day before the Ms. Seidt made a similar point parties,” she said. “They need to ex- bor Department hearing on the ported limiting or eliminating ac- SEC’s best-interest standard took during her testimony and refer- tend the comment period to give ev- proposal on behalf of brokerage cess to brokerage advice for retire- effect. The SEC Reg BI package aims enced a yet-to-be released North eryone that opportunity. Moreover, firm, mutual fund, insurance comment accounts after the 2016 to, among other things, compel bro- American Securities Administra- since they are suggesting following pany and asset manager clients, fiduciary rule was announced. kers to put clients’ financial interests tors Association survey of broker- the SEC’s new and untested Reg BI said the language in the preamble Moreover, to satisfy the exemp- above their own and requires them dealers and investment advisers approach, they’re going to need sig- effectively reinstates the 2016 fidu- tions a financial professional would to mitigate financial conflicts. about their practices in 2018, prior nificant time to review that test.” n

active is you can react much more In 2019, trustees standing what (ESG) ago in regard to what contributed to quickly from information that were required by law to means for them and the sustainability of a business. She Sustainable comes out. You can adjust method- begin incorporating how strong their beliefs noted that asset owners should in- ology and remove companies. ESG factors and present are and how deeply vestigate how active managers are CONTINUED FROM PAGE 4 “In passive (funds) you can’t ad- financially material they want to implement engaged with the companies in nearly 59% of the surviving 745 sus- dress ESG risk in a way that you ESG considerations (ESG) into an invest- which they invest rather than just tainable funds topped the returns would do in active,” she added. over the life span of ment strategy,” Mr. consider past performance of a par- of their average surviving non-ESG Jonathan Parker, head of defined their plans’ investments. Parker said. ticular fund. peers. contribution and financial well-be- Starting Oct. 1, trust- Mr. Parker added that Stephen Budge, principal and Sources said active management ing at Redington Ltd. in London, ees additionally will be trustees are still limited DC investment consultant at Lane in the context of ESG investing is a added that plan executives’ interest required to report on by a shortage of data. Clark & Peacock LLP in London, necessity and is worth the extra in active funds isn’t the result of how they acted on the IN VOGUE: Jonathan “Getting data out of said an active approach requires an cost. As the breadth of ESG research disappointment with passive ESG principles set out in Parker believes interest companies is getting additional layer of governance. “We expands, active management offers strategies. their policy, including in ESG investing is better,” he said, adding would favor active approach if it is flexibility to react to new data be- “If trustees want to incorporate financially materialdriving active strategies. that investors too often additive,” he said. Mr. Budge added coming available, they added. ESG at all into an investment strat- considerations, social end up with the manag- that investors could consider in- “In a passive tracker fund, you egy they have to take a more active and environmental impact of iner’s or the index provider’s interpre- cluding an active impact invest- are limited to the benchmark,” said approach than they have in the past vestments, and how trustees exer- tation of the data. ment strategy sleeve into default Katharina Lindmeier, responsible because changes in (the U.K.) regu- cised voting rights and engaged Luba Nikulina, global head of re- options. Tackling issues that plan investment manager at NEST, the lation are much more prescriptive with their portfolio companies. search at Willis Towers Watson PLC participants care about could im- multiemployer defined contribu- in what they require trustees to do,” “We are only really scratching the in London, added that definitions prove the level of engagement with tion plan in London. “The benefit of he said. surface in terms of trustees under- were even more vague three years plan participants, he added. n

emergency savings and debt reduc- participants are moved to a new or cluded in the effort, such as retiree In order to evaluate online com- tion, and household budgeting. existing DC plan. The depth of the medical, housing and other expens- ponents, the complete website ad- Eddy Ongoing investment education: education typically ranges from es, and Social Security. dress and a temporary user ID and Entries should educate existing what is found in investment educa- Special projects: Showcase spe- password, valid through March 10, CONTINUED FROM PAGE 2 employees on the investment option materials for new employees to cial education and communication 2021, must be provided. tion materials do not have to be in- tions of a new or modified plan, or what is found in conversion materi- programs with entries as simple as Entrants must return an online cluded. new employees about investment als. a single postcard or an email rather entry form for each entry with one Financial wellness: Workplace options of an existing plan. Entries Pre-retirement preparation: than a full campaign. Special cam- set of educational materials at- experts increasingly warn that em- must focus heavily on the invest- Awards in this category will recog- paigns related to the coronavirus tached to the entry form. ployees’ financial stress can dam- ment process. nize organizations that have done crisis should be included in this Please note that PowerPoint pre- age their productivity, health and Plan transitions: Entries in this the best job of educating partici- category. Campaigns regarding sentations and training materials ability to retire. This category aims category should reflect the invest- pants nearing retirement — specifi- loans and hardship withdrawals as for human resources teams or fi- to recognize efforts that take a ho- ment education and communica- cally those age 55 and older — on permitted under the CARES Act nancial advisers will not be judged. listic view of employees’ financial tion necessary when employees are how much they should save, how to also should be included here. Joint entries must include docu- well-being outside of traditional re- eligible to participate in a new DC make their savings last and other All entries must include evi- mentation that the plan sponsor ap- tirement programs. Those efforts plan. Such eligibility most often oc- steps they need to take for a finan- dence of the effectiveness, such as proved the submission. An acknowl- include, but are not limited to, edu- curs because of mergers, acquisi- cially secure retirement. Informa- an increase in participation or a edgment form is available online. cation or tools regarding student tions and spinoffs or when a de- tion about non-retirement plan change in the average participant For a look at last year’s winners, loans, health savings accounts, fined benefit plan is frozen and considerations also should be in- asset mix. visit pionline.com/eddyawards. n Pensions & Investments September 21, 2020 | 35 CHANGES AHEAD said, should incorporate climate- ferred regulators to more than 50 related risk into their mandates and recommendations in a June report Climate oversight functions, and they al- from Ceres on addressing systemic Seattle Voluntary Deferred Compensation Plan is searching for an ready have authorities that could be risk, and said that the regulators’ CONTINUED FROM PAGE 2 investment consultant. The $1.2 billion 457 plan is seeking a consultant used in four areas: oversight of sys- mandates come with a responsibil- because the contract of current consultant SageView Advisory Group of Wellington Management Co. LLP, temic financial risk; risk manage- ity to address the climate crisis expires Sept. 30, said Michelle Ell, deferred compensation manager, in an Vanguard Group Inc., Allianz Glob- ment of specific markets and finan- “right now and to guide our transi- email. The RFP is posted on the plan’s website. Proposals are due at 5 p.m. al Investors and BNP Paribas cial institutions; disclosure and tion to a net-zero future.” PDT on Sept. 25. Americas as well as corporate in- investor protection; and safeguard- Since that June report, “we’ve terests, voted unanimously to adopt ing financial sector utilities. had more than 500 conversations HAVE SOME NEWS? Dover Harbour Board Pension and Life the report, “Managing Climate Risk with regulators,” Mr. Rothstein of Assurance Scheme (1973), Dover, England, in the U.S. Financial System.” With ‘Far exceeded expectations’ Ceres said. Though he does not ex- Please submit news of is searching for a fiduciary manager for at climate change one of the top three CFTC Commissioner Rostin pect dramatic changes before the changes to David least £101 million ($131 million) in assets. risks to CalPERS, along with invest- Behnam, who requested the report, November elections, he is encour- Schepp, news editor, at The plan is now searching for a fiduciary ment returns and employers’ ability said on the Ceres briefing that the aged by the number of “very fruit- [email protected] manager for the first time, Chris Gilbert, to contribute to the pension fund, report “far exceeded expectations,” ful” conversations, which fall into pensions and insurance manager, confirmed in “CalPERS was honored to be nomi- despite the politics of climate two categories: what regulators an email, and added plan trustees are considering moving the entire £203 nated to the subcommittee, joining change in the U.S. should be doing it, and what they million in assets to fiduciary management, also known as investment a panel of experts in sounding an “It really becomes a defensible can do. outsourcing. Applications should be sent by noon British Summer Time urgent call for U.S. financial regula- document on many fronts that has a “We are all more attuned to the Sept. 25 via European procurement website Tenders Electronic Daily. tors to set a clear path to a low-car- lot of merit and a lot of credibility to risks. If you look at countries that bon economy,” Ms. Mankikar said. it. What this report has done has are leading the way, the financial Massachusetts Water Resources Authority Employees’ Retire- The report does not represent moved climate risk from the nice- regulators are involved. I do sense a ment System, Chelsea, is looking to allocate up to $30 million to an the CFTC’s official position on cli- emerging markets equities manager through either a commingled or mutual mate change. Chairman and Chief fund. The RFP is available on NEPC’s website. Proposals are due by 4 p.m. Executive Heath Tarbert, a Repub- EDT on Sept. 25. lican, in a statement acknowledged the importance of climate risk, but Oklahoma Tobacco Settlement Endowment Trust, Oklahoma City, is also pointed out that the report searching for one or more direct lending managers for a commitment total touched on transition risks that of $50 million to $70 million. The $1.3 billion endowment trust fund has “could be just as disruptive to our Greg Kahn/The New York Times York Greg Kahn/The New issued an RFP because the exposure to the private debt asset class is still financial system as the possible below its 8% target, said Don C. Stracke, senior consultant at NEPC, the physical manifestations of climate trust fund’s investment consultant. The RFP is posted on NEPC’s website. change, and that moving too fast, Proposals are due at 4:30 p.m. PDT on Sept. 28. too soon could be just as disorderly as doing too little, too late.” Bay County Employees’ Retirement System, Bay City, Mich., is searching for an investment consultant. The $350 million pension fund 53 recommendations issued an RFP due to its policy of putting the services up for bid every five The report offers 53 recommen- years, said Jan M. Histed, county finance officer. The RFP is available on the dations for steps that policymakers, county’s purchasing website. Proposals are due at 11 a.m. EDT on Oct. 2. regulators and stakeholders could take to build a climate-resilient fi- CalSavers Retirement Savings Program is searching for an invest- nancial system. ment consultant. The program launched on July 1, 2019, for employees The findings align with the strat- whose companies don’t offer a retirement plan and as of Sept. 10 had $9.3 egy and insights in CalPERS’ first million in assets. The RFP is available on the state’s procurement website. Task Force for Climate-Related Fi- Registration is required. Proposals are due at 4 p.m. PDT on Oct. 2. nancial Disclosures report released HIGH PRAISE: Rostin Behnam said the report carried both merit and credibility. earlier this summer, Ms. Mankikar University of Nebraska, Lincoln, is searching for a consultant to review said. “The key recommendations, to-have list to the must-have list,” real momentum that people are ad- its $3 billion 401(a) plan, $619 million 403(b) plan and $122 million 457 including adopting a meaningful he said. dressing this,” Mr. Rothstein said. plan. The university is seeking a consultant to evaluate investments, record carbon price, mandating climate For Mr. Behnam, the report’s “No. That includes Congress, which keepers, communication and education services as well as governance risk reporting and enabling invest- 1 lesson is all about building coali- for the CFTC’s Mr. Behnam is “a structures, according to an RFP on the university’s purchasing website. ment in resilience, will help asset tions,” he said. huge part of this conversation.” The Registration is required. Proposals are due at 2 p.m. CDT on Oct. 5. owners like CalPERS achieve our That was made evident in July, Senate is having its own break- goals,” she said. when a group of investors with through on climate change, accord- Bristol County Retirement System, Taunton, Mass., is searching an The CFTC report’s call for a price nearly $1 trillion in assets called on ing to Democratic Sen. Tom Carper opportunistic credit manager to run $25 million on behalf of the $713 on carbon pollution is grabbing a U.S. regulators to consider climate of Delaware, who along with two million defined benefit pension fund. Segal Marco Advisors, investment lot of attention. “Clearly the next change as a systemic financial risk. Republican members of the Senate consultant to the plan, is assisting with the search. The RFP is available on step is we have to put a price on The July 21 letter from pension Environment and Public Works Segal Marco’s website. Proposals are due 3 p.m. EDT on Oct. 14. carbon,” said subcommittee Chair- funds and other prominent inves- Committee, Chairman John Barras- man Robert Litterman, a former tors to regulators, including the so of Wyoming and John Kennedy Orlando, Fla., is searching for a record keeper for its $246 million 401(a) Goldman Sachs Asset Management heads of the Federal Reserve and of Louisiana, recently introduced plan and $205 million 457 plan. The city is seeking a firm to provide risk manager and founding partner the Securities and Exchange Com- an amendment to the American administrative, investment and communication services for participants of of Kepos Capital LP, a New York- mission, said: “It is more clear than Energy Innovation Act to deal with the two plans, according to an RFP on the city’s procurement website. based systematic global macro firm. ever that the climate crisis poses a greenhouse gas-producing hydro- Registration is required. Proposals are due at 2 p.m. EDT on Oct. 14. “Incentives are incredibly pow- systemic threat to financial markets fluorocarbons. It would implement erful,” Mr. Litterman said on a press and the real economy, with signifi- an 85% phase-down on their use Pennsylvania Municipal Retirement System, Harrisburg, is looking to briefing convened by Ceres. “We do cant disruptive consequences on and importation over the next 15 allocate roughly $1.1 billion to multiple index funds and $131 million to two have a problem with political iner- asset valuations and our nation's years and put the United States on small-cap value managers. Dahab Associates, investment consultant to the tia and that has to be addressed im- economic stability.” a path to meet targets outlined un- $2.7 billion plan, is assisting with the search. For the index funds, the mediately. It’s not going to get better The 72 signatories, including the der an international treaty to pre- system is looking to allocate $397 million to fixed income, $277 million to on its own. When you have a risk $253.6 billion California State serve the ozone layer. emerging markets equities, $167 million to developed international management problem, you’ve got to Teachers’ Retirement System, West The CFTC report, Mr. Carper equities, $150 million to small-cap equities and $128 million to large-cap address it immediately. The rest of Sacramento; $211.2 billion New tweeted, “reminds us that no aspect equities. Respondents must be able to offer all five strategies as com- the world is waiting for the U.S. to York City Retirement Systems; of our lives is immune to the cli- mingled funds with non-securities lending options. Proposals are available catch up. Until the U.S. gets in- $210.5 billion New York State Com- mate crisis, including the economy. on Dahab’s website. Proposals are due 5 p.m. EDT Oct. 29. volved it’s not going to happen, so mon Retirement Fund, Albany; Failing to take the necessary steps it’s very important we take these $56.1 billion Maryland State Retire- to ensure that the U.S. moves to a For a comprehensive database of search and hiring activity, visit P&IQ at PIonline. steps and we coordinate,” Mr. Lit- ment & Pension System, Baltimore; net-zero emissions economy is a com/piq. terman said. and the $3 billion Seattle City Em- threat to people’s lives and liveli- Financial regulators, the report ployees’ Retirement System, re- hoods.” n

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