June 28, 2021 PIonline.com $16 an issue / $350 a year

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Stanley Rowin ‘MARKETS HELPED, Regulation BUT...’: Steven F. Charlton cited organic growth as the main reason for NEPC’s strong showing as asset owners decided to All eyes on DOL get away from in-house management. plan to revisit duciary rule Proposal could broaden de nition under ERISA and who falls under it

By BRIAN CROCE

The political landscape in Wash- ington has changed in the year since the SEC’s best-interest stan- SPECIAL REPORT INVESTMENT OUTSOURCING dard took effect, which could mean different interpretations and en- forcement practices from regula- OCIO rides market rebound to big growth tors. But the attention among in- vestment-advice stakeholders this tion for institutional in- month is focused on the Depart- WORRIES: Fred Reish thinks a concern Managers also see clients shift from MORE ON INVESTMENT OUTSOURCING vestors as of March 31, ment of Labor, as it announced is for people who move to a retail IRA, internal management post-pandemic data from Pensions & plans to issue a proposed rule that where there isn’t a duciary standard. n Mass customization eyed Investments’ latest in- could broaden who’s considered a By CHRISTINE WILLIAMSON to grow retail. Page 14 dustry survey showed. duciary under ERISA. ee Retirement Income Security Act n Larger asset owners Market returns were The rule-making, unveiled as and the Internal Revenue Code, The year ended March 31 was a strong one for consider OCIO. Page 15 a signi cant driver of part of the Labor Department’s according to a Labor Department OCIO managers, many of which had double-digit n Questions to ask in OCIO OCIO manager growth semiannual regulatory agenda explanation. growth in assets under management thanks to a wave searches. Page 10 in the year ended June 11, would amend the regulato- Moreover, the amendment would of new clients and strong performance. March 31. The S&P 500 ry de nition of the term duciary “take into account practices of in- The combination of buoyant market returns in the Total Return index was up 56.4% in the year ended “to more appropriately de ne vestment advisers, and the expecta- last three quarters of 2020 through the rst quarter of March 31; AlphaNasdaq OCIO Broad Market index, when persons who render invest- tions of plan of cials and partici- 2021 and higher investment in OCIO strategies brought up 30.7%; and Bloomberg Barclays U.S. Aggregate ment advice for a fee to employee pants, and IRA owners who receive the industry to a new record total of $2.46 trillion in Bond index, up 0.7%. bene t plans and (individual re- investment advice, as well as devel- assets managed worldwide with full or partial discre- SEE OUTSOURCING ON PAGE 17 tirement accounts) are duciaries” opments in the investment market- within the meaning of the Employ- SEE FIDUCIARY ON PAGE 24 Endowments Investing Japan’s University Endowment Alex Griffiths Effects of Brexit dif cult Fund to spur other institutions to quantify as COVID-19 Government is hoping managing the ¥10 trillion the gov- ernment has pledged for the fund, muddying the waters to foster U.S.-style funds said Sho Ito, the Tokyo-based bu- at country’s universities reaucrat in charge of the program By SOPHIE BAKER as deputy director of the Cabinet Of ce’s Bureau of Science, Technol- Five years on from the U.K.’s referendum vote to leave By DOUGLAS APPELL ogy and Innovation, in a recent in- the European Union, money managers are still search- terview. “We want to change Japa- ing for data to quantify its hits to the U.K. economy. The giant ¥10 trillion ($91.1 bil- nese universities and we want to That’s not because there is no data — markets have lion) University Endowment Fund change (Japan’s) investment cul- continued to operate, trade is still happening and statis- that Japan plans to launch in March ture as well,” he said. tics are still published by of cial entities — but rather to reverse a downtrend in the coun- The fund — to be managed by Ja- because such data has been distorted by a much bigger try’s output of cutting-edge aca- pan Science and Technology, a concern: COVID-19. While the U.K.’s decision to leave demic research will also promote funding agency along the lines of the EU was revealed on June 24, 2016, it wasn’t until the emergence of U.S.-style endow- the U.S.’s National Science Founda- January 31, 2020, that the U.K. of cially left the bloc and ment funds as a key component of tion — will look to garner real an- began a set of negotiations with the EU over future re- Japanese university nances, gov- nual returns of at least 3% or $3 bil- MASKING: John Roe said stimulus associated with the lationships in nancial services and other sectors. ernment of cials say. lion a year, to be distributed to a pandemic makes it hard to nd underlying trends. And then COVID-19 hit | SEE BREXIT ON PAGE 26 The ambition is more than just SEE ENDOWMENT ON PAGE 26 Track record cited SOUND BITE as major hurdle CHRISTIAN BROTHERS INVESTMENT SERVICES’ Sara Tirschwell said women and minorities JOHN W. GEISSINGER: ‘I think this proxy have trouble advancing season really reminded everyone that the because they can’t use shareholders are the owners.’ Page 3 their investment track records. Page 3 2 | June 28, 2021 Pensions & Investments

IN THIS ISSUE Pension Funds VOLUME 49, NUMBER 13 CalPERS mulls tracking-error method change New calculation would remove alternatives,

Michael Reynolds/CNP citing problems with investible benchmarks Nicole Delaney By ARLEEN JACOBIUS

CalPERS’ board is expected to decide in September wheth- er to remove alternative investments from its tracking-error calculation used to control risk. Deciding to do so would make sense, consultants say. When it comes to alternative investments, tracking error doesn’t work because these asset classes lack an investible benchmark. By comparison, it’s “fairly easy to nd benchmarks” for pub- lic equities, said John Delaney, Philadelphia-based portfolio manager for Willis Towers Watson PLC. Using tracking error for alternative investments means that investors are constraining “real life strategies” to a certain level 6 of correlation or volatility relative to a proxy benchmark, he said. Many asset owners use a benchmark reecting the oppor- Courts tunity cost, or the return over a public markets index for alter- Some ERISA attorneys are using a native investments. For example, CalPERS’ private equity Supreme Court ruling written by Justice benchmark is Custom FTSE All World All Cap Equity, plus 150 Brett Kavanaugh in the Thole de ned basis points. bene t case to seek dismissal of de ned For private assets, tracking error limits can limit investment contribution lawsuits — with little success in assets that “don’t look like the benchmark,” reducing the so far. Page 6 value of investing in alternative investments, Mr. Delaney said. The issue came up at the June 14 investment committee of NOT SO EASY: John Delaney said that while it isn’t very dif cult to nd public equity Exchange-traded funds the $469.8 billion California | SEE TRACKING ON PAGE 23 benchmarks, determining benchmarks for alternatives comes with a host of issues. A number of exchange-traded funds are punching above their weight in ows this ESG year, data show. Page 13 Financial wellness European interest in social bonds growing Plan sponsors are keeping all options open in a quest to help participants build But investors nd supply isn’t keeping emergency savings. Page 4 pace with capital they want to deploy Money management Marc Schlossman J.P. Morgan Asset Management agreed By PAULINA PIELICHATA to acquire timberland and natural resource manager Campbell Global from Asset owners in Europe are keen to deploy more capital BrightSphere Investment Group. Page 21 into social bonds but say they are challenged by limited opportunities. Pension funds European investors’ exposure to impact investments, par- ticularly social bonds, has been growing in the last year — in David T. Veal was selected to be the next part due to new rules under the European Union’s Sustain- chief investment of cer of the Texas able Finance Disclosure Regulation, which became effective Employees Retirement System. Page 23 in March. Under the rules, regulators are steering pension funds’ investments into assets with a speci c environmen- Regulation tal, social and governance impact in addition to requiring Performance fees incurred by U.K. de ned them to incorporate ESG factors into all other allocations. contribution plans investing in illiquid Social bonds issuance was $249.6 billion in 2020, up from assets may be smoothed over ve years $22 billion in 2019, according to gures provided by the Cli- starting Oct. 1. Page 23 mate Bonds Initiative, an international organization that works to mobilize capital in the bond market to help miti- Departments gate the effects of climate change. The new SFDR rules around impact investing, known At deadline ...... 24 ETFs ...... 13 as Article 9, have been useful to focus investors’ atten- Changes ahead ...... 27 Frontlines ...... 8 tion on their contribution to the United Nations’ sustain- Classified ...... 20 Hirings...... 18 Corrections ...... 4 Other views ...... 10 able development goals such as access to health care or Editorial ...... 10 RFPs ...... 20 workers’ rights. These concerns were also elevated to the ESG roundup ...... 12 UNCERTAINTY: Luba Nikulina thinks standards are needed in the social bonds market to top of investors’ agendas because of the coronavirus avoid ‘unintended consequences in certain geographies.’ pandemic. SEE SOCIAL BONDS ON PAGE 21 Entire contents ©2021 Crain Communications Inc. All rights reserved. Pensions & Investments (ISSN 1050-4974) is published biweekly by Crain Communications Inc., 150 N. Michigan Ave., Chi- Regulation cago, Ill. 60601-7593. Periodicals postage paid at Chicago, Ill. and at additional mailing offices. Postmaster: Send address changes to Pensions & Investments, Circulation Dept., 1155 Gratiot Avenue, Detroit, Mich. 48207-2912. $16 per issue; $350 per year in the DOL wants details on plan cybersecurity practices U.S.; $375 per year in Canada; all other countries $475. ‘‘Canadian Post International Publications Mail Product (Canadian Distribution) Sales Agreement No. 0293539’’ GST #136760444. Printed in U.S.A. By BRIAN CROCE EBSA cybersecurity guidance and make an ance with cybersecurity and information effort to comply, “I don’t think they would be security standards. CRAIN COMMUNICATIONS INC Retirement plan duciaries can expect to surprised by the kinds of questions they The second piece of guidance was a list of Keith E. Crain, Chairman eld questions and document requests would get from our investigators,” Mr. Kha- 12 cybersecurity program best practices for Mary Kay Crain, Vice Chairman about their cybersecurity practices and pol- war said. plan sponsors and record keepers, such as KC Crain, CEO icies as part of the Department of Labor’s The Labor Department on April 14 un- having a reliable annual third-party audit of Chris Crain, Senior Executive Vice President Employee Bene ts Security Administra- veiled a three-piece guidance package de- security controls and ensuring that any as- Lexie Crain Armstrong, Secretary tion’s routine plan audits. tailing best practices for maintaining cyber- sets or data stored in a cloud or managed by Bob Recchia, Chief Financial Officer While EBSA investigators had opened security for plan sponsors, plan duciaries, a third-party service provider are subject to G.D. Crain Jr., Founder (1885-1973) inquiries into plan duciaries’ cybersecurity record keepers and plan participants. appropriate security reviews and indepen- Mrs. G.D. Crain Jr., Chairman (1911-1996) practices in the past, since the department The rst piece of guidance included tips dent security assessments. Published every other Monday by Crain Communications Inc. issued its rst cybersecurity guidance in for plan sponsors and duciaries on how to The nal piece was a set of online securi- Boston: 101 Federal St., Suite 1615A, 02110; Chicago: 150 N. Michigan Ave., 19th Floor, April, cybersecurity questions are now select a service provider with strong cyber- ty tips for participants and bene ciaries 60601; London: 11 Ironmonger Lane, EC2V 8EY; El Segundo, Calif.: 400 Continental Blvd., 6th standard, said Ali Khawar, acting assistant security practices and how to monitor the when accessing a retirement account. Floor, 90245-5074; New York: 685 Third Ave., 10017; San Francisco: 71 Stevenson St., Suite 400, 94105; Washington D.C.: 601 13th St. NW, Suite 800 South, 20005. secretary for EBSA, in a phone interview. service provider’s activities. The tips include Broadly, “cybersecurity is about technolo- Address all subscription correspondence to Pensions & Investments, 1155 Gratiot Ave., Detroit, Mr. Khawar declined to get into speci cs asking whether the service provider has ex- gy and it can be a very technical area, but if Mich. 48207-2912 or email [email protected]. about the types of documents investigators perienced past security breaches, what hap- you take a step back and you think about Member of Business Publications Audit of Circulation are now seeking from plan duciaries be- pened and how the service provider re- the guidance that we issued, really that www.pionline.com cause each case is “context speci c.” sponded, and making sure any contract with guidance is reaf rming very long-standing But if plan duciaries read through the a service provider requires ongoing compli- SEE EBSA ON PAGE 22 Pensions & Investments June 28, 2021 | 3

Kholood Eid/The New York Times Money Management ESG Ex-TCW exec: Climate tops proxy season Track record is in proposals, another hurdle success rate Women, minorities have trouble advancing Shareholders set tone for because of policies among investment rms taking the issue seriously

By ARLEEN JACOBIUS By HAZEL BRADFORD Embroiled in a high-pro le lawsuit against TCW Group Inc. over allegations of gender discrimination and sexual harass- The proxy season now wrapping up ment, former distressed debt manager Sara Tirschwell says sent a strong signal that investors expect long-standing practices among investment rms limit execu- companies to take climate change seri- tives who aspire to strike out on their own. ously. Those constraints, she said, effectively bar investment ex- Climate rose to the top of shareholders’ ecutives from taking their track records with them — to nd agendas this season, in terms of both the jobs or to start their own rms — and demonstrating their ac- number of shareholder resolutions and complishments to potential investors. the rate of success. Legal experts say that’s because the track record belongs to This year, 10 climate-related share- the rm; it is up to the manager to decide whether or under holder proposals received majority sup- what circumstances departing executives can use their por- port, compared with only three in 2020 tion of the track record. and zero in 2019. There was an equally To be sure, such constraints affect all investment execu- dramatic level of shareholder support for tives, not just women. But for women and minorities, it can be such proposals, averaging 52.6%, up from something of a Catch-22 — they often lack the seniority to ne- 38.5% the previous year, according to In- gotiate the use of such records, and track records are required stitutional Shareholder Services’ gover- by most institutional investors to award mandates. Without a nance and research unit, which counted portable track record, Ms. Tirschwell joined TCW in 2016 after 24 such proposals this year, compared to an earlier effort to strike out on her own zzled. 10 in 2020 and 12 in 2019. “The issue of the track record is a really important issue,” Proposals seeking stronger disclosure Ms. Tirschwell said in a recent | SEE TIRSCHWELL ON PAGE 24 ESSENTIAL: Sara Tirschwell called a portable track record ‘a really important issue’ in the industry. of how a company’s climate lobbying aligns with the Paris Agreement goals won majority support at Exxon Mobil ESG Corp., Phillips 66 Co., Norfolk Southern Corp., United Airlines Inc. and Delta Air Lines Inc. Similar resolutions led at CSX Managers cautious as Japanese rms revamp governance Corp., Duke Energy Corp., FirstEnergy Corp., Entergy Corp., General Motors Co. As rms rush to comply corporate governance and steward- Exchange under the revised codes. and Valero Energy Corp. were withdrawn ship codes are pushing Japanese The problem is exacerbated by when the companies agreed to disclose with new standards, companies and operating standards more stringent requirements for their climate lobbying activity. further in line with best practices corporations looking to make it into A majority of Exxon Mobil sharehold- execs warn of tokenism around the world. Appointing wom- the Tokyo Stock Exchange’s prime ers also approved a proposal seeking dis- en to company boards and adding listings section, requiring at least closure of the climate change risks the By SOPHIE BAKER independent directors are among one-third independence on the company faces. such enhancements. board and in some cases a majority At Chevron Inc., 61% of shareholders While Japanese companies are But executives focusing on Japan of independent directors. backed a proposal calling for Scope 3 making huge progress in terms of cor- warn there is a danger of tokenism and The proportion of independent emissions reductions targets, while 48% porate governance — particularly in “overboarding” — with directors sitting directors on Japanese corporate voted to recommend that the company re- relation to board independence and on too many company boards — as boards is already on the rise — sources port on its climate-related nancial risks. TAKE YOUR TIME: Kei diversity — money management ex- rms rush to comply with the stan- said they accounted for 36% of boards While oil and gas companies were most Okamura worries boards will ecutives say that caution is necessary. dards put in place by Japan’s Financial in 2020, up from 27% in 2019. often put in the spotlight to address cli- have inexperienced people. Recent revisions to the country’s Services Agency and the Tokyo Stock SEE JAPAN ON PAGE 22 SEE CLIMATE ON PAGE 27

Small caps on a roll The economy’s strong performance, with rst-quarter GDP up by 6.1%, has helped stocks of all sizes, and smaller caps in particular. But while returns have outpaced their larger brethren in Q1, de ned contribution plan participants have shied away from stand-alone U.S. small- and midcap equity options in favor of target-date funds, according to Callan. Small- and midcap stocks made up only 8.5% of DC assets, compared with about 27% for large caps and 32% for target-date funds.

Sales grow: Small-cap companies’ Recent outperformance: Valuations normalizing: The ratios of the S&P Risk-adjusted returns lag: sales growth and earnings trajectory The Russell 2000 returned 58.5% 500’s price-to-book and price-to-sales measures to the The Sharpe ratio of the one-year have markedly improved of late. The over the past year, handily Russell 2000 are currently 1.8 and 1.6, respectively, as iShares Russell 2000 ETF is higher Russell 2000’s year-over-year quarterly outpacing the S&P 500’s 35.8% of June 18. That is down from a P/B ratio of more than 2 than the SPDR S&P 500 ETF, but sales performance was negative last gain. But over the three-, ve- and for much of past year and a P/S ratio of more than 1.8. lower for other periods. The year but rebounded to 11% growth in Q1, 10-year periods, small caps have combination of lower returns and Valuation ratios of S&P 500 to Russell 2000 and analysts estimate 24% and 13% underperformed large caps. higher volatility has negatively increases in Q2 and Q3, respectively. 2.6 affected the Russell 2000. Index returns* 2.4 P/S ratio Year-over-year sales growth 60% P/B ratio Sharpe ratios* 2.2 25% 55% 3.0 2.0 20% 50% Russell 2000 2.7 iShares 1.8 Russell 2000 45% S&P 500 2.4 15% ETF 40% 1.6 2.1 SPDR S&P 10% 35% 1.4 1.8 500 ETF Trust 5% 30% 1.2 1.5 25% 1.0 0% 1.2 20% 0.8 0.9 -5% 15% 0.6 0.6 -10% 10% 0.4 5% 0.3 -15% 0% 0.2 0.0 -20% YTD One Three Five 10 0.0 YTD One Three Five 10 202120202019201820172016201520142013 year years years years ’21202020192018201720162015201420132012 year years years years *Through periods ended June 18. Source: Bloomberg LP Compiled and designed by Larry Rothman and Gregg A. Runburg 4 | June 28, 2021 Pensions & Investments

Financial Wellness Sponsors take closer look at emergency savings options Legislation would allow to $1,000 in emergency funds from with Francis Invest- REPAY: Kent Mason said ment savings — that is, $1,000 — their retirement accounts. They’re ment Counsel LLC in any previous withdrawal before they should be able to make participants to withdraw also evaluating what types of emer- Minneapolis. would have to be paid emergency withdrawals,” said Kent gency savings vehicles to offer their Many plan spon- back before taking Mason, a partner at Davis & Har- from retirement accounts employees, considering both “in- sors see an easy x in another. man LLP in Washington. plan” and “out-of-plan” savings op- proposed emergency Participants would be permitted By MARGARIDA CORREIA tions. Many are even considering savings legislation savings accounts for to take one emergency distribution reinstating long-discarded plan introduced by Sen. emergencies such as annually provided they replenish For plan sponsors, nothing is off provisions that would make in-plan James Lankford, unexpected roof re- any prior emergency funds they the table when it comes to solving a savings possible. R-Okla., and Sen. Mi- pairs, without having withdrew, Mr. Mason said. problem that the pandemic pushed “The pandemic really drove chael Bennet, D-Co- to pay the 10% early Plan sponsor trade groups wide- to the fore: the lack of emergency home the need for having emer- lo., on May 27. The withdrawal penalty if ly support the measure, saying savings among low- and middle-in- gency savings, whether it be in a bill — called the En- under the age of 59½. greater access to retirement sav- come Americans. bank, within the retirement plan or hancing Emergency and Retire- They would be allowed to draw ings for emergencies would per- Plan sponsors are not only back- within other quali ed savings op- ment Savings Act of 2021 — would only from vested amounts over suade more people to participate in ing proposed legislation that would tions,” said Alexandra Moen, a re- allow participants to withdraw up $1,000. “The idea is that individu- retirement plans. allow participants to withdraw up gional retirement plan consultant to $1,000 from their retirement als should have a base of retire- “Allowing participants access to savings for emergencies will en- courage participation in retirement programs — particularly for those who may be hesitant to ‘lock away’ money in case they will need it lat- Introducing Digital HTML Reprints er,” Aliya Robinson, senior vice president of retirement and com- pensation policy at The ERISA In- dustry Committee in Washington, wrote in a letter to Messrs. Lank- A new way to share Pensions & Investments’ ford and Bennet. Lynn Dudley, senior vice presi- dent of global retirement and com- content with your digital community pensation policy at the American Bene ts Council in Washington, shared similar views. “Even rela- tively small, unexpected expenses, such as a car repair or a modest medical bill, can be a hardship for many workers and fear of those ex- penses can keep them from saving,” she wrote in a letter to the senators. Alicia Munnell, director of the Center for Retirement Research at Boston College, doesn’t see much harm in the bill, saying $1,000 is “so little money that it makes it not troublesome.” In fact, the emer- gency withdrawals proposed in the bill “might be an easier, more di- rect way of getting at the problem” than emergency sidecar accounts, which are very cumbersome to set up, she said. Not everyone, though, likes the bill. Robyn Credico, Willis Towers Watson PLC’s Las Vegas-based de- ned contribution consulting lead- er, fears that participants would not return the money they withdrew from their retirement accounts for emergencies. “It’s not likely that people will put the money back or make it up,” she said of the proposed emergen- cy withdrawal measure, which al- We're excited to oer the next level of article reprints! lows participants to recontribute Customize your P&I Digital what they withdrew within three A stand-alone HTML link that will never be placed behind a years. HTML Reprints with: subscription paywall. The HTML Reprint can be licensed to Instead, Ms. Credico favors the • Your corporate logo use of emergency savings accounts. post to your website, share on social media, used in email “I’d rather see employers help peo- correspondence, presentations and so much more. • Highlighted quotes or ple save in a rainy day fund than call-out boxes SEE EMERGENCY ON PAGE 21

Select from news articles (print and digital), rankings, opinion • Custom hyperlinks within CORRECTIONS & pieces, editorials, awards and more. HTML Reprints have the article text same look and feel as traditional reprints including photos, • Key contact details CLARIFICATIONS charts and infographics. • Photos ■ Wilshire Advisors’ retail advisory business is one of the • and more... rm’s fastest-growing businesses. Inaccurate information was in the page 3 story “Consultants target foothold in fast-growing retail market” in the June 14 issue. Contact Laura Picariello at [email protected] Also, StepStone Group manages $500 million in 1940 Act tender or 732.723.0569 for pricing and details. offer funds for accredited U.S. retail investors. The type of funds StepStone offers were incorrect in the same story. 5210514'& 5'%6+10

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ith the resurgence of global economic activity as tion of income and wealth inequality today has led President the COVID-19 lockdowns ease, institutional inves- 9GDGNKGXGVJCVKPXGUVQTU Joe Biden to proclaim the end of the end of big government. Wtors are looking at accelerating corporate profit growth and accommodative monetary policies as strong tail- PGGFVQDGECWVKQWUFGURKVG It remains to be seen what impact these far-reaching pro- winds for overall investment performance. Yet these devel- grams will have. opments also bring inflationary pressures at a time of high VJGTGEGPVTWPWRKPINQDCN fiscal spending. In addition, debt levels are high and rising, Some of the proposals would significantly strengthen the and we may be at the beginning of a new era in foreign poli- OCTMGVUCPFEQPVKPWQWUN[ power and influence of the state over the economy and civil cy. Pensions & Investments spoke with Biagio Manieri, Ph.D., society. As the U.S. moves forward on this path, investors CFA, managing director and chief multi-asset class strate- GXCNWCVGNQPIVGTOKORCEVU would be wise to keep the historical case of Germany in gist at PFM Asset Management, to sort through the current mind. From the late 1990s to 2005, Germany was referred to macroeconomic and market risks that asset owners need to QHEWTTGPVRQNKEKGU as the “sick man of Europe” [because of unemployment and understand in order to better position their investment port- poor economic growth]. However, in the years that followed, folios and avoid a potentially bumpy ride. it improved its economic performance by liberalizing some of economic growth. One study by the International Monetary the rigidities of its economy and labor markets. Pensions & Investments: As the world slowly gets back to Fund found that higher debt levels lead to lower future eco- normal, can investors start to relax with the expectation nomic growth. It also showed a nonlinear relationship be- P&I: Can investors hope for improved U.S.-China rela- of smooth sailing from here? tween debt and future economic growth, meaning that as tions under the Biden Administration? debt increases, it has a proportionally greater impact on BIAGIO MANIERI: We wish that were the case. Investors reducing future growth. MANIERI: There are some areas where the two nations have face a number of risks. Many are risks that they have not common interests, and we expect cooperation in those ar- had to think about for a long time, such as inflation. The last It is also important to note that the Congressional Budget eas, such as climate change and terrorism. But it has been time investors needed to seriously fret about inflation was in Office [in the U.S.] estimates that debt held by the public our position for some time that U.S.-China relations are likely the mid-1960s and 1970s. Since the early 1990s, investors will reach approximately 200% of gross domestic product by be strained regardless of who occupies the White House. have not had to materially worry about inflation, nor ponder 2050. As a reference, it stood at about 100% of GDP during its impact on portfolio performance. the World War II era. When China was admitted into the World Trade Organization, the expectation was that China would begin to relax some Taking this a step further, many investors who included infla- P&I: Why should investors care about high debt levels of its internal controls while simultaneously working to im- tion-related hedging investments in their portfolios over the and its impact on productivity? prove its international relations. However, as we have seen past decade did not see much of a financial benefit and, in in the South China Sea and other regions, China is actually some cases, paid a price in lower investment performance. MANIERI: Modern Monetary Theory makes the case that adopting a more muscular foreign policy while tightening in- Today, however, a number of factors may push inflation high- debt levels and deficit spending do not matter. However, this ternal controls. Based upon these developments, we expect er, including the Federal Reserve’s new inflation-targeting is not what the data show. High debt levels are also tied to increased competition in U.S.-China relations. framework, significant fiscal and deficit spending combined another risk factor: slowing productivity. In our view, slowing with easy monetary policy, and other factors. productivity is more important than demographics, because P&I: Do you expect substantive changes to U.S. foreign productivity is what drives our improving standard of living. policy with our allies? P&I: What about the Federal Reserve’s position that any higher inflation will be transitory? Over the past decade, productivity has slowed to about half MANIERI: With respect to allies, no doubt President Biden’s of its longer-term average, and the CBO estimates that pro- style is different than President Trump’s. The question is, MANIERI: Federal Reserve Chairman [Jerome] Powell and ductivity will continue to slow. There is a relationship be- How much will policy change in substance? Again, we ex- others have argued that higher inflation is transitory and that tween rising debt levels and slowing productivity. Rising debt pect cooperation in areas of mutual interest. But we also [the Fed has] the tools to deal with it. In effect, the Fed is levels and lower national savings are taking place within a expect areas where the U.S. and its allies will see increased saying “trust us.” If one considers short-term versus long- backdrop of slowing domestic investments and rising enti- competition in the future. term inflation expectations, investors are indeed placing a lot tlement spending. We are saving less and not investing for of faith in the Fed. That said, investors would be well served the future and we are borrowing to fund higher current con- On the issue of economic and trade relations, while we are to keep a careful eye on early indicators of inflation and be sumption. unlikely to see inconsistent tariff proposals, President Biden ready to act should it prove to be more than transitory. has announced that ‘Buy American’ laws will be pursued Why should investors care? Productivity is one of the major more forcefully. This has an impact on our allies and trading P&I: In addition to possible higher inflation, what are oth- factors driving real economic growth over the longer term, partners. Nevertheless, we may be at the beginning of a er areas of concern for investors? which drives corporate profit growth and which, in turn, return to a more multipolar world, where the U.S., China and drives stock price appreciation. In short, we believe that low- Europe cooperate in some areas while competing in others. MANIERI: One topic that has received a great deal of atten- er productivity could result in lower equity returns over time. tion is the diminishing prospect for higher future investment P&I: Any final or parting thoughts? returns. Because low interest rates are hampering fixed- P&I: How should investors interpret the Biden Administra- income returns and have led to elevated equity valuations, tion’s far-reaching spending programs? MANIERI: We believe that investors need to be cautious, de- many investors are concluding that future returns are likely spite the recent run-up in global markets, and continuously to be lower. MANIERI: In some respects, there are similarities between evaluate long-term impacts of current policies. A thoughtful the current administration and the previous one. From differ- asset allocation, combined with diligent oversight [in order] In addition, there are demographic trends — aging popula- ent ends of the political spectrum, both adopted a ‘populist’ to make tactical shifts when opportunities arise, is vital for tion, slower population growth. We think that most investors approach to the relationship between state and civil society. investors to stay nimble in a changing world. ■ understand that. But investors may not be fully accounting That’s to be expected as the political pendulum swings back for the impact of rising debt and continuing low productivity. and forth. Just as the excesses of the 1960s and 1970s led URQPUQTGFD[ to the election of Ronald Reagan, followed by Bill Clinton pro- A number of studies have linked debt levels and future claiming that the “era of big government is over,” the percep-

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21pi0048.pdf RunDate: 0628/21 Full Page Color: 4/C 6 | June 28, 2021 Pensions & Investments

Courts

Michael Reynolds/CNP Judges don’t bite on DB defense applying to DC in ERISA cases By ROBERT STEYER between DC and DB. dismiss complaints, thus reducing The key issue was whether DB the costs of going to trial. Seeking to defeat ERISA com- participants had standing to sue if Since the Thole decision, at least plaints, some de ned contribution they weren’t hurt by a sponsor’s a baker’s dozen of federal court sponsors are using a 13-month-old, plan management. Because the judges have said what’s good for a pro-sponsor ruling by the U.S. Su- DB plan was overfunded in the sponsor’s DB defense isn’t accept- preme Court that addressed de- case of Thole et al. vs. U.S. Bank, able in a DC setting. “Standing is ned bene ts plans. NA, the Supreme Court said plain- the rst rung on the ladder,” said However, at the federal District tiffs weren’t harmed and thus Nancy Ross, a Chicago-based part- Court level so far, most judges lacked standing. ner for Mayer Brown LLP who have rejected this DC legal de- If DC sponsors could successful- represents some DC sponsors that KEY DIFFERENCE: Justice Brett Kavanaugh wrote in the Thole decision that there is an fense, citing the Supreme Court’s ly use this “no harm, no foul” ruling, have attempted to use the Thole important distinction between a de ned bene t plan and a de ned contribution plan. 5-4 ruling as making a distinction then they could persuade judges to decision as part of their defense. Like others interviewed for this ar- ticle, she declined to discuss cli- ents’ cases. “There is no quicker or easier CONFERENCES way to knock out a case than with standing,” Ms. Ross said. “If they don’t have standing, it’s done.” Just as plaintiffs’ attorneys often Retirement Income Virtual Series le multiple allegations, sponsors’ attorneys erect multiple defenses. September 14-16, 2021 The Thole strategy “is an additional way to make the argument,” said Je- Save the date for P&I’s Retirement Income Virtual Series and hear directly from our faculty of plan sponsors and advisers who will rome Schlichter, founding and explore, share tips and debate the current strategies of how to plan for a lifetime of guaranteed income during retirement and what managing partner of Schlichter Bo- factors may further impact savings. gard & Denton LP, St. Louis. He rep- 2021 Planned Agenda Topics Include: resents plaintiffs in ERISA cases, including some in which sponsors • Update and discussion on SECURE 2.0, Crypto investing and PE investing cited the Thole decision to claim • ERISA excess fee litigation: What you should be doing and documenting to prepare for a possible audit participants lack standing to sue. • Financial Wellness: Enhanced messaging and budgeting 101 •Adding Retirement Tiers to your plan Wiggle room? •Cybersecurity Despite the trend in lower court •A time and place for Annuities rulings, ERISA attorneys said they believe there is some wiggle room SPECIAL THANK YOU TO OUR 2021 ADVISORY BOARD: in the Supreme Court decision. If the justices had wanted to ex- clude de ned contribution plans from their opinion, “they could have been more clear,” said Samuel Levin, of counsel for Groom Law Group, Washington, who has cited the Thole decision in representing some DC clients in ERISA lawsuits. Still, the Supreme Court’s ruling makes it “very dif cult” for DC Michael Consorte David Eager Abbie Klein Ron Madey sponsors to win a dismissal by cit- SUNY Kentucky Retirement Systems Structure Tone Wealthcare Capital ing the Thole decision, said Joseph Management Torres, a Chicago-based partner for Jenner & Block LLP and chair- man of the rm’s ERISA litigation practice. DC attorneys “need to be cau- tious about Thole as a defense,” said Mr. Torres, who represents sponsors in ERISA complaints but who hasn’t used the Thole decision Denise McDonald Daniel McManus Jim Potvin Tobias Read as a defense. “It’s very dif cult be- General Motors BAE Systems Employees Retirement State of Oregon cause there is a material difference System of Georgia between the DC context and the DB context.” Like other attorneys interviewed for this article, Mr. Torres predicted it will take a while to establish what role, if any, the Thole decision might play in DC ERISA cases assuming various District Court judges’ rul- ings are appealed. The Supreme Court justices “dis- Chantel Sheaks Craig Stroup Malika Terry Reginald Tucker tinguished” between DB and DC U.S. Chamber of Commerce Fiat Chrysler Automotive UPS Orange County Employees “but they didn’t explain it a lot,” said Retirement System Karen Handorf, a Washing- ton-based partner in Cohen Mil- COMPLIMENTARY REGISTRATION AT PIONLINE.COM/RI2021* stein Sellers & Toll PLLC. She rep- SPONSORS: resented James J. Thole in his suit against U.S. Bank, although another law rm argued his case before the Supreme Court. Because she believes there’s Questions? For more details contact Kathy Stevens at [email protected] | 843.666.9849 or Gerry O’Hara at [email protected] | 212.210.0196. room for differing lower court in- terpretations, “you will need several *Only asset owners and a limited number of consultants are invited to attend. All registration requests are subject to verification. appeals court decisions to nail this P&I reserves the right to refuse any registrations not meeting our qualifications. The agenda for Retirement Income Virtual Series is not created, written or produced by the editors of Pensions & Investments and does not represent the views or opinions of the publication or its parent company, Crain Communications Inc. down,” she said. “ERISA is full of questions.” SEE ERISA ON PAGE 23 ESG: Climate Change

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DOING ITS PART PIMCO expands its commitment to ghting world hunger with donation Bank Initiative Lagos Food

Paci c Investment Management Co. is million kilograms of food globally.” doing its part to combat world hunger by “Hunger is a persistent problem, made donating $10 million to The Global Food- worse by COVID-19, which is why PIMCO Banking Network, a Chicago-based global recently announced a substantial increase non-pro t organization that provides better in its commitment to the Global FoodBank- access to food to communities combating ing Network, the world’s largest network of hunger. food banks,” Mr. Roman wrote in an open In addition, PIMCO CEO Emmanuel letter on PIMCO’s website earlier this Roman and CIO Dan Ivascyn will personally month. “This builds on a signi cant invest- donate $5 million each to charities, includ- ment we’ve already made to help address ing GFN, that provide food and resources to food scarcity.” communities in need. The PIMCO Foundation previously The donation is being made through the donated $3.5 million to GFN. Since 2018, Newport Beach, Calif.-based money PIMCO has donated nearly $5.6 million to FOOD ACCESS: The Global FoodBanking Network unites and advances food banks in over 40 countries. manager’s PIMCO Foundation and expands its charitable partners, including GFN. upon a three-year partnership with GFN. “Investing in food banking is an effective director of the PIMCO Foundation, in an land lls.” The funds will be deployed over the next and ef cient way to combat hunger since it email. “Food banks also help better allocate PIMCO managed $2.16 trillion in assets ve years. The new funds will “aim to directly bene ts those in need,” said food so there is much less waste and as of March 31. improve food access by distributing 17.9 Nathaniel Brown, senior vice president and subsequently less greenhouse gases from — JAMES COMTOIS

LAYING A PATH Alts firms team up to diversify industry Hildabast Alternative investment rms Apollo Global Manage- THRIVE: ment Inc., Ares Management Corp. and Oaktree Capital Students of Management have joined forces to launch a new initiative Clark Atlanta designed to diversify the alternative investment industry. University, a The initiative, “AltFinance: Investing in Black Futures,” historically will be launched in partnership with historically Black Black colleges Clark Atlanta University, Howard University, college, will Morehouse College and Spelman College and is aimed at benefit from attracting, training and providing the schools’ students the ‘AltFi- nance: with career opportunities. Investing in OPPORTUNITY: Milken Institute Singapore Internship Program interns A new non-pro t organization, ALT Finance Corp., during a virtual onboarding session. Black established by the three alternative investment rms, will Futures’ administer the initiative. initiative. TRAINING THE NEXT GENERATION The idea was sparked by Antony Ressler, Ares’ co-founder and executive chairman, who called the Management Leadership for Tomorrow. leadership at Apollo and Oaktree and pitched the idea of John Rice, founder and CEO of MLT, said his organiza- Milken Institute, Partners teaming up to work with historically Black colleges, said tion’s role will be to share the expertise gained in its Jerilyn Castillo McAniff, managing director at Oaktree and mission to ensure that Blacks, Hispanics/Latinos and Group form intern program head of diversity and inclusion.“We were able to mobilize Native Americans are able to thrive at the highest levels very quickly as it was perfectly aligned with our goals and of corporate America. The Milken Institute and their areas of interest. Intern- made sense,” she said. The virtual institute will be created by the Wharton Switzerland-based Partners ships will run anywhere from The initiative consists of a mentored fellowship program, School of the University of Pennsylvania and offer educa- Group AG have joined hands to four to 12 months. a customized virtual institute and a scholarship program. tional materials and tools for students at the four colleges. contribute to a Monetary “I have an intern who’s Students awarded with fellowships will learn the ins and The 10-year, $90 million initiative is expected to Authority of Singapore push to working for me in philanthro- outs of nance and alternatives directly from a dedicated launch in the rst half of 2022 and expand beyond the provide Singaporeans with py. He’s really interested in mentor from one of the three rms. The fellowship program initial four colleges. “upskilling” opportunities to impact investment and enhance the city-state’s status because we had that conversa- will be run in partnership with the non-pro t organization — ROB KOZLOWSKI as a global nancial center. tion he is now doing a project On June 4, Milken and on impact investing research BUILDING AN INCLUSIVE WORKFORCE Partners Group announced the with Partners Group,” Ms. launch of the Milken Institute Petros said. Singapore Internship Program, Ms. Petros conceded that the Manulife promotes gratitude, inclusion in workplace a turbocharged version of an virtual environment necessitat- effort Milken has pursued on ed by the global pandemic in Manulife Financial Corp. Manulife executives. Indigenous students, DEI interview its own over the prior four Singapore — where a pickup in has found a way to help its The events were guides for hiring managers, focused years. This year, 22 candidates, the number of new cases employees recover from timed to coordinate recruiting from diverse colleges and all recent graduates, were recently prompted the govern- the pandemic while also with Juneteenth in the universities and hiring initiatives. selected from a pool of more ment to impose tighter lock- learning from the equity U.S. and Indigenous The commitment to DEI comes than 100 applicants — a class of down restrictions — has made challenges COVID-19 People’s Day in from the top. Performance goals for interns roughly double the size it more challenging for interns brought to the surface. Canada. Manulife’s executive leadership team of the program in previous to make the most of the On June 18, Toron- Manulife’s Chief members are linked to diversity, years, said Melissa Petros, the networking opportunities the to-based Manulife gave all Human Resources equity and inclusion, employee Milken Institute’s Hong program would otherwise offer. 37,000 people in its global Of cer Pam Kimmet engagement and leadership account- Kong-based director, philan- “We have had to adapt…but I workforce the day off. The said in a news release ability. The rm also partnered with thropy and programs, who think we’ve managed it really “Thank-You Day” repeats PROGRESS: Manulife’s that after ramping up Accenture PLC to give all 3,500 oversees the effort. well,” Ms. Petros said. There one from last year and Pam Kimmet DEI efforts last year, leaders worldwide access to two “The aim is really just to have even been some silver of cials there say it has the global afternoon of learning platforms on inclusive nurture young Singaporean linings, she added. The level of now become part of the culture. reection and learning and the leadership and ghting racism. talent so that they can continue speakers the program has been The day before, employees had the thank-you day “allow us to take stock There is more to do, Michelle to grow Singapore as an able to access, virtually, for its rm’s rst-ever Global Afternoon of of our progress and devote time to Taylor-Jones, Manulife vice presi- economic hub in Asia,” she said. Global Leaders Speaker series Reection and Learning, as part of gaining a greater appreciation of the dent for global diversity, equity and Each intern works with — which provides interns with Manulife’s goal of having a more many dimensions of diversity.” inclusion, said in the news release, mentors from Partners Group, a weekly opportunities to interact inclusive workforce and enlisting Since the rm announced DEI but “we are taking action and private markets-focused with prominent business everyone in its effort to increase recruitment and leadership goals for holding ourselves accountable in manager with more than $109 leaders and academicians — diversity, equity and inclusion. The North America last year, it has hit both the short term, as well as over billion in assets under manage- has been amazing, she said. day included webinars, keynote several milestones, including the long term.” ment or the Milken Institute in — DOUGLAS APPELL speakers and reside chats with nancial support and internships for — HAZEL BRADFORD INTERESTED IN SUSTAINABLE INVESTING?

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GFS Equity.pdf RunDate: 05/31/21 Full Page Color: 4/C 10 | June 28, 2021 Pensions & Investments OPINION

Christopher J. Battaglia President and publisher, Pensions & Investments

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

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

ART Gregg A. Runburg Art director Roger Schillerstrom Editorial cartoonist

DATA/RESEARCH Aaron M. Cunningham Director of research and analytics Larry Rothman Data editor [email protected] Anthony Scuderi Directory manager Valerie Ge Research analyst EDITORIAL SALES & MARKETING Nikki Pirrello Chief operating officer Julie Parten Head of sales [email protected] Lauren DeRiggi Digital specialist/account executive [email protected] Record keepers making changes for the long haul REGIONAL SALES MANAGERS Rich Kiesel West et big. Get cheaper. Get the technology up to date. Meanwhile, two other big players, Vanguard Group Inc. and T. Paul Kissane Midwest Those 10 little words pretty much sum up the Rowe Price Group Inc., have opted to outsource their technology Anna Koules New York marching orders for record keepers under unrelenting systems to partners with the expertise of running complex report- Steve Middleton EMEA +44-(0)77-1012-8464 Hideo Nakayama Asia (Tokyo) +81-3-3479-6131; fee pressure from plan sponsor clients, which also are ing systems. [email protected] demanding robust cybersecurity protections and new It’s still too early to evaluate how these individual bets will pay off. Eduardo de Alcantara Machado Sao Paulo, services to bolster participant engagement. Those aren’t unreason- Nevertheless, hopes are high among rms that building better systems Brazil +55-11-3167-0821; [email protected] G CONFERENCES/MARKETING able asks — but it’s not an easy circle to square. for clients and developing better tools and services for participants — Usha James Group director of conferences In the past few years, we’ve seen record keepers responding in everything from budgeting help, HSAs and emergency savings to [email protected] several ways to accomplish those goals. student loan services — will produce better outcomes for all. Kimberly Jackson Director of conference sales Diane Pastore Director of conference Mergers continue apace as rms race to gain scale and add And all of these efforts serve to set these rms up for opportuni- programming services. Empower Retirement’s acquisition of MassMutual’s ties in the future. Joshua Scott Director of conference programming Kathleen Stevens Investor relations director record-keeping business, completed earlier this year, solidi ed its Cerulli Associates Inc. estimates that retiring employees are Gerry O’Hara Investor relations manager No. 2 spot in Pensions & Investments’ latest survey for the year transferring some $500 billion annually from de ned contribution [email protected] ended Sept. 30. The deal brought 2.5 million participants in plans to retail rms. Michelle DeMarco Director of relationship marketing 26,000 workplace retirement plans to Empower’s platform and With that ow likely to continue as more and more baby boomers Assel Chanlatte Conference marketing manager boosted its assets by roughly $167 billion, to a total of $883.5 move into retirement, it is hard to overlook the connection between Mirjam Guldemond Conference manager, WorldPensionSummit +31-6-2333-2464 billion. Even so, the rm also credited investment in both front-end today’s investments and alignments and tomorrow’s business. We Kristal Santos Client services project manager client-facing services and back-end data and infrastructure technol- hope that this means retirees, as they move beyond duciary-led Ashley Perrucci Associate manager, client partnerships ogy services for enabling it to grow assets. plans, also will be served well. n Rachel Lopez Conference administrative assistant

CUSTOM CONTENT/CLIENT SOLUTIONS Gauri Goyal Director of content solutions able to clearly articulate their goals MORE INDUSTRY Corina Lewis Client solutions senior program OTHER VIEWS LUKE PROSKINE and needs to navigate the OCIO manager VIEWPOINTS David Joseph Research analyst landscape and ultimately select the [email protected] best provider to help meet their ■ Seth Weingram Tetyana Saucedo Digital campaign manager objectives. and Ram Deanna Speziale Senior marketing associate 4 key questions should drive Combined with each rm’s speci c Thirukkonda: Fixed [email protected] nuances, and the layer of additional income — the SUBSCRIPTIONS/SITE LICENSES complexity by involving a search allocator’s dilemma Elayne Glick Director of audience marketing and consultant, an institution’s deci- focused OCIO matchmaking ■ Josef Pilger and acquisition sion-maker is likely to have a dif cult Courtney Murray: David Bomberger Director, enterprise licensing time directly comparing each rm What’s next for Ed Gorman Director, EMEA/international site he last decade has seen using common criteria. licensing +44-(0)20-3823-9891 Luke Proskine government and tremendous growth in At the foundation of any OCIO is co-managing higher education RFP/RECRUITMENT outsourced CIO assets, to search are the institution’s goals, pain partner at retirement plans in Erin Smith Sales manager more than $2 trillion today points and needs, which determine Makena Capital the U.S.? REPRINTS how that institution navigates the from just $100 billion Management Laura Picariello Sales manager OCIO landscape and ultimately ■ Joshua Kutin: Tglobally in 2007. However, the term LLC, Menlo Park, OCIO is broad, at best. A wide selects a provider. Below we discuss Future of portfolio ADVERTISING PRODUCTION Calif. construction Robert T. Hedrick Media services manager spectrum of rms are expanding the four key areas of differentiation and 312-649-7836; [email protected] breadth of their OCIO services with list associated questions to drive an See pionline.com/ Subscription information - single copy different goals, strategies and fees. institution’s focused OCIO search. industry-voices sales: 877-812-1586 A side industry of search consul- To submit an Other Views TO CONTACT A P&I STAFFER tants — advisers that charge hand- 1. Investment strategy commentary, email Associate Unless otherwise noted above, email us at some fees to conduct an OCIO search landscape. Yet even with the assis- Targeting an OCIO provider that Editor Meaghan Offerman at [email protected] or find — has emerged to assist institutions tance of a search consultant, an partners with institutions like yours is meaghan.offerman@pionline. phone numbers at pionline.com/staff. com. with negotiating the complex OCIO institution’s decision-makers must be SEE PROSKINE ON NEXT PAGE Pensions & Investments June 28, 2021 | 11 OPINION

3. Customization OTHER VIEWS DANIEL PIETRZAK Customization is often perceived Proskine as a clear bene t because it allows institutions to ne-tune risk, return CONTINUED FROM OPPOSITE PAGE and liquidity parameters to t their Private asset-backed nance attracting a good place to start. Whether your speci c needs. For example, if primary goal is risk mitigation for institutions have stringent ESG de ned bene ts, long-term appreci- requirements, full customization may ation plus payout, or something in be a great option. investor interest amid low interest rates between, there are OCIO providers However, OCIO rms offering specializing in an investment custom portfolios may approach cus- strategy to suit your needs. Some tomization differently, and it is ust as direct lending has become a holidays and cancella- specialized strategies include: critical to understand what level of mainstay of private credit portfolios over tions to increase the ■ Low-cost passives that minimize customization is offered. Some the past decade, private asset-based odds of ultimate repay- fees and offer greater liquidity. provide completely bespoke nance is the latest strategy to capture ment. The vast majority ■ Manager selection and alterna- investments, while others customize widespread attention. With nominal have rebounded well tive strategies, seeking to capture a using commingled pools as building Jinterest rates near record lows, investors are — to pre-pandemic return premium for illiquidity risk. blocks, enabling custom allocations taking notice of the above-average yields and levels or above. ■ Rigid strategic asset allocation but not bespoke investments. A downside protection offered from a diversi ed driven by a top-down framework. commingled approach can be portfolio of assets. till there are also ■ Thematic-driven investing, such favorable when capacity-constrained Today, asset-based nance, or non-corporate risks. The funda- as ESG or sustainability mandates. alternative investments are includ- lending against nancial and hard assets, S mental one is Having a clear vision of your ed, removing potential allocation represents a $4.5 trillion market, which is forecast Daniel Pietrzak is credit risk. Investors institution’s risk and return goals conicts. A commingled approach to grow to $7 trillion in the next ve years, partner and co-head must examine how the and decision-making might also better according to estimates based on shadow banking of private credit at underlying loans will abilities will signi - align interests among data from the Financial Stability Board. With KKR & Co. Inc., New behave in different cantly narrow the Understanding clients; a customized favorable secular and cyclical tailwinds and an York. scenarios through type of OCIO your institution’s approach could lead investible universe 10 times larger than corporate granular, bottom-up provider whose to misalignment direct lending, ABF is still in its early innings as modeling that can involve millions of lines of services best t your needs and among clients, an asset class. data. Another is negotiating optimal structures needs. ensuring especially if a While ABF has long been a ubiquitous source to withstand macroeconomic and nancial particular client pays of nancing for millions of global businesses and cycles, as well as adequately scaling and 2. Discretion alignment in higher fees com- consumers, the market has evolved for the better deploying of assets. One of the main these four key pared with other since the global nancial crisis. As securitization Private lenders have become more sophisticat- criteria to consider is clients. declined and banks pulled back, well-capitalized ed thanks to nancial technology innovations and whether an institu- areas of strategy, private lenders stepped in to ll the funding gap. arti cial intelligence. Big data helps providers tion’s decision-mak- discretion, 4. Fees They have in turn created more appealing — and make better loans, faster. ers want to retain OCIO fees may be dependable — ways for institutional investors to New cadres of ntechs reliant on funding from discretion over customization advertised anywhere access the ABF asset class. private capital, such as marketplace and point-of- investments, or if and fees are from 10 basis points For borrowers accessing credit types as diverse purchase lenders, are streamlining credit con- that should be to 100 basis points or as x-and-ip lending, point of sale consumer sumption. They are leveraging e-commerce, using delegated to the critical to more. But these credit, equipment leasing and used auto nanc- algorithms for underwriting and risk assessment OCIO provider. navigating the numbers have little ing, the bene ts are clear. As more investors enter in novel ways that revolutionize origination and Some OCIO rms meaning without the market and ll the funding gap, businesses the customer experience. Forward-thinking may require full vast and diverse clarity on what costs and consumer borrowers can access more options legacy lenders are also driving innovation. discretion, and with OCIO landscape. are included or and competitive rates. Powerful machine-learning that added responsi- excluded. Depending The appeal to investors is easy models can analyze broad bility likely comes a on the provider, a la to understand. By pursuing By pursuing datasets to qualify new customers higher management carte services and underserved and mispriced for credit services, score risk and fee. Other rms may offer a more expenses such as customized lending opportunities, ABF offers underserved determine loan limits and pricing. consultative OCIO service where reporting, legacy investment attractive yields and exposure to and mispriced These platforms can help they propose investments that are management, audit, tax, custodian large, diversi ed pools of assets. providers offer competitive rates ultimately chosen by the institution’s and administrative may be excluded. Private credit investors are lending and increase the availability of decision-makers. Equally important, fees should rep- creating scaled exposures to a nancing in niche sectors, while Some OCIOs offer the ability to resent the level of service provided. diverse set of lending opportuni- opportunities, keeping risk costs low and meet somewhere in the middle, with Actively managed or alternative ties, often through platforms that ABF offers reducing fraud. a model where institutions can strategies will cost more than passive combine underwriting and ABF also can offer investment make complementary allocations to strategies because of the resources servicing expertise with deep attractive exposure in interesting and often asset class vehicles or to liquidity required for optimal execution. sector experience. yields and proprietary investments, such as pools, allowing them to customize OCIO fees come in several ABF is a strategy well suited to music intellectual property rights. their asset class exposure, risk and different avors: at management these times, owing to the downside exposure to Some have valuations over return pro le, and liquidity. While fees, tiered management fees, perfor- protection of collateral-based loans, $100 million, and the biggest the OCIO maintains discretion over mance fees, negotiable fees, supple- diversity of borrowers, and custom- large, names could reach $500 million, these vehicles, their institutional mental fees for add-on services (e.g., ized investment structures. diversified or more. With substantial cash clients maintain discretion over the access to alternatives or legacy The opportunity to invest in ABF ows and low correlation to other size of their complementary portfolio oversight), etc. has grown as structures have pools of asset classes, music IP can allocations and therefore their Transparency is also critical when evolved to include locked-up assets. present compelling value in a exposures. In the case of liquidity comparing fees among OCIO capital and increasingly permanent world with high equity multiples pools, clients maintain an additional providers. If the OCIO provider capital vehicles (such as interval and record low interest rates. layer of discretion since they decide allocates to third-party managers, funds) that can foster added Goldman Sachs and Morgan which investments to include — what fees do they earn? Are stability and longer-term growth strategies. ABF Stanley project annual streaming growth for the typically passive vehicles of stocks third-party managers af liated in also can get exposure from prime and near-prime next few years around 13%. In addition, music or bonds — and how to allocate any way to the OCIO provider? borrowers across multiple industry sectors, rights owners can further leverage their invest- among them. The OCIO industry has a vast population demographics and geographies. ments by partnering with musicians and pursu- Many investment committees have spectrum of choices. Even when two Private asset-based nance market focuses on ing sync placements in movies, TV shows and regular turnover, which presents a OCIO providers may appear compa- areas of the lending market that are underserved video games. Investors can own pieces of their challenge to continuity. In these rable at rst glance, there are likely by traditional lenders, secured by collateral favorite music with the potential for meaningful instances, delegating discretion to an nuances and intangibles (concerning ranging from homes and vehicles in consumer diversi cation and double-digit returns on OCIO provider’s dedicated team can anything from track record to fees to lending to inventory and equipment in the small invested capital. provide the continuity required to client service) that must be ap- and midsize enterprise market. It also lends Another area with substantial opportunities is ensure an institution meets its goals proached with caution and transpar- against hard assets such as aviation leasing and auto loan markets, speci cally in the United over the long term. ency to accurately compare them. contractual cash ows like royalty nancing. Kingdom. In 2015, the U.K. used-car market was a Discretion is also relevant to an Understanding your institution’s The strong performance of diversi ed ABF £50 billion ($71 billion) industry, yet only £12 institution’s ability to make timely needs and ensuring alignment in portfolios during the pandemic is a testament to billion was nanced at the point of sale with investment decisions, especially in a these four key areas of strategy, the resiliency of the asset class. Though there is dealers. Multiple nance companies targeted volatile market when you need to act discretion, customization and fees no benchmark, each investment being idiosyn- different demographics. quickly to protect against permanent are critical to navigating the vast and cratic, ABF did not experience massive volatility For global investors seeking potentially high capital loss. diverse OCIO landscape. n like public equities and traded credit (loans, yields, downside protection and portfolio diversi- Investment discretion should be bonds, CLO liabilities, ABS), nor were there cation, ABF can be an appealing option. n detailed in the investment policy This content represents the views of the widespread reports of leverage providers seizing statement, as well as items such as author. It was submitted and edited under and liquidating assets due to margin calls. Many This content represents the views of the author. It was sub- benchmarking, reporting guidelines Pensions & Investments guidelines but is not managers took measures such as turning off mitted and edited under Pensions & Investments guidelines and client service expectations. a product of P&I’s editorial team. new loan origination and offering payment but is not a product of P&I’s editorial team. 12 | June 28, 2021 Pensions & Investments ESG ROUNDUP

Maine law requires state fund to divest fossil-fuel companies

Maine Gov. Janet Mills signed lawsuits should require investors into law a bill that would require to show that corporate misstate- the $17.6 billion Maine Public Em- ments had a material impact on S&P 100 boards getting more gender diverse ployees Retirement System, Augus- share prices. More than 70% of S&P 100 companies have increased their female board representation since 2016. ta, and the state treasurer to divest The Supreme Court did agree As of 2021, 30% of the median company’s board is female — ranging from Charter Communication’s holdings in fossil-fuel companies with the appeals court that defen- 7% to 58% for General Motors — up from 25% in 2016. Gilead Sciences had the greatest relative by Jan. 1, 2026. dants, not shareholder plaintiffs, The legislation also requires the bear the burden of persuasion to improvement over that time span, increasing to 44% from 11%. This was followed by Goldman Sachs pension fund and the state to halt prove a lack of price impact. Group’s 31-percentage-point gain to 46%, and PayPal’s 25-percentage-point increase to 36%. Four investing in multiple fossil-fuel It is an important victory for in- companies in the S&P 100 were excluded from the calculations due to major mergers and spinoffs. companies. The state treasurer can- vestors, said Laura Posner, a part- not invest in prime commercial pa- ner with Cohen Milstein. “The deci- Number of S&P 100 rms by percentage of female board members Firms by change in per or corporate bonds issued by sion con rms that defendants bear 45 number of female board fossil-fuel companies. the burden to demonstrate by a members, 2006-2021 Fossil-fuel investments repre- preponderance of evidence a lack 40 70 sent $1.34 billion, or 7.6%, of pen- of the price impact, including in sion fund assets, said Sandy Mathe- cases where the price maintenance 35 2016 son, MainePERS executive director, theory is alleged.” 2021 in an email June 18. 30 “One of the key provisions of the Fed Thrift should consider bill is that any actions must be in accordance with sound investment climate change – GAO 25 criteria and consistent with ducia- The Government Accountability ry obligations,” Ms. Matheson wrote. Of ce recommended the Federal 20 “We haven’t developed a plan at Retirement Thrift Investment this point, but any plan we develop Board, Washington, evaluate the 15 has to put the nancial interests of Thrift Savings Plan’s investment our members rst. We will not be offerings with an eye on risks relat- 10 taking any actions that create a loss ed to climate change. 18 for the plan.” In a report that was published in 5 The law says pension fund’s May and publicly released June 24, 8 board of trustees “shall review the the GAO said retirement plan in- 0 extent to which the assets of any vestments, including the TSP’s, 0% 8% 16% 24% 32% 40% 48% 56% state pension or annuity fund are could be exposed to nancial risks to to to to to to to to Increased Stayed Decreased 7% 15% 23% 31% 39% 47% 55% 63% the same invested in the stocks, securities or from climate change. The Thrift other obligations of any fossil fuel board “has not taken steps to assess Source: Company reports company.” In addition, such a re- the risks to TSP’s investments from view will include “any subsidiary, climate change as part of its pro- af liate or parent of any fossil fuel cess for evaluating investment op- Sacramento-based pension plan’s rectors of 82 companies from more showed sustainable strategies ac- company.” tions,” the GAO stated in its report. ESG investment team to help iden- than 125 state treasurers, public counted for 11% of a total €10.25 The law de nes fossil fuels as The Thrift board administers the tify and analyze emerging diversity, pension fund trustees, foundations trillion ($12.59 trillion) in assets in coal, petroleum, natural gas or any $757.8 billion Thrift Savings Plan equity and inclusion issues and in- and socially responsible investors Europe as of Dec. 31, up from rep- derivative of coal, petroleum or for federal employees. The board is vestment opportunities. with a collective $1.5 trillion in as- resenting 7% of a total €9.66 trillion “natural gas that is used for fuel.” required to invest the TSP’s funds At Blackstone Group, Devin sets said that as duciaries and a year earlier and 5% of a total €7.96 passively. Glenn was named managing direc- trustees of public funds and retire- trillion as of Dec. 31, 2018. High court sends Goldman Ravindra Deo, the Thrift board’s tor and global head of diversity, eq- ment savings, “we are concerned In terms of net inows, sustain- executive director, said in a letter to uity and inclusion. with the erosion of political stability able strategies attracted 52% of suit back to lower court the GAO in April that the FRTIB It is a new position, a spokes- in the United States.” €414 billion in total net inows in A proposed class-action lawsuit “subscribes to a strict indexing dis- woman said in an email. Ms. Glenn The letter also asked companies 2020, compared with 30% of €375 led by the $20.7 billion Arkansas cipline using the broadest possible will be responsible for continuing to stop contributing to any elected billion in 2019 and 22% of €172 bil- Teacher Retirement System, Little market opportunity set. As such, to implement current policies and of cial who voted against certifying lion in net inows in 2018. Rock, against Goldman Sachs individual companies are held in initiatives for Blackstone and its the 2020 presidential election and Group hit a roadblock June 21 when the TSP index funds at their mar- portfolio companies to achieve a to disclose all political contribu- BlackRock to integrate the U.S. Supreme Court ordered the ket weights, in line with the theory more diverse and inclusive work- tions. “We are facing an existential 2nd U.S. Circuit Court of Appeals in that markets are generally ef cient place, a news release said June 22. threat to the election system in the Baringa’s climate modeling New York to reconsider allowing and that the market portfolio is the She was previously assistant di- U.S. which poses substantial sys- BlackRock will acquire and inte- shareholders to pursue a class ac- most ef cient from a risk and re- rector of diversity, equity and inclu- temic risk to long-term investors’ grate business and technology con- tion over alleged misrepresenta- turn perspective.” sion at law rm Skadden, Arps, portfolios. This is not a question of sultant Baringa’s climate-change tions made during the subprime Mr. Deo also noted that the board Slate, Meagher & Flom. partisan politics — many Demo- scenario model into its own cli- mortgage crisis about its ethical has an investment consultant re- Also, Rebecca Rosen was named crats and Republicans have op- mate-risk capability. principles and internal controls view the TSP fund offerings period- director of diversity and inclusion posed contemporary attacks on the The money management rm over conicts of interest. ically to determine whether the of- at Acadian Asset Management. The functioning of American democra- entered a de nitive agreement to The 2011 lawsuit stemmed from ferings are appropriate and if position is new. cy — but of ensuring voter partici- acquire Baringa’s technology, which Goldman Sachs’ Abacus collateral- additions are warranted. The next Based in Boston, Ms. Rosen will pation and enfranchisement. The is used by clients with more than ized debt obligation, a subprime review is slated for scal year 2022, lead the rm’s global strategy for question for corporations is wheth- $15 trillion in assets, with the aim of mortgage-based nancial instru- he added. D&I, including setting realistic and er to continue operating under bringing it together with Black- ment assembled with the help of aspirational goals, and expanding business-as-usual assumptions or Rock’s Aladdin Climate technology. hedge fund Paulson & Co. Goldman CalPERS, 2 managers Acadian’s existing strategy to recognize this threat and take ac- The Aladdin Climate technology Sachs’ contrary bet against the CDO heighten staff engagement, develop tion,” the letter said. is part of BlackRock’s Aladdin plat- was not disclosed to investors, lead- add DEI positions and retain talent, and increase its Signatories include public pen- form, which combines risk analyt- ing to its $550 million settlement CalPERS, Blackstone and Acadi- positive impact on the community. sion duciaries in California, Ore- ics with portfolio management, with the SEC in 2010. an Asset Management each an- Ms. Rosen was director of diver- gon, Rhode Island, Connecticut, trading and operations tools. The Supreme Court’s 8-to-1 de- nounced diversity, equity and inclu- sity at Tufts Health Plan. Maryland, Massachusetts, Minne- Under the agreement, BlackRock cision agreed with Goldman Sachs’ sion hires earlier this month. Blackstone has $649 billion in sota, Vermont, Chicago and New and Baringa will collaborate to set argument that its issuer state- Marlene Timberlake D’Adamo assets under management; Acadian York City. the standard for modeling the ef- ments may have been too generic was named chief diversity, equity had $110 billion in AUM as of fects of climate change and the to affect Goldman’s stock price. and inclusion of cer, effective im- March 31. Sustainable European transition to a low-carbon economy The appeals court will now recon- mediately, at the $469.8 billion Cali- strategies get 52% of ows on nancial assets. sider the question. fornia Public Employees’ Retire- Shareholder advocates The Baringa deal follows Black- Goldman Sachs had also warned ment System, according to a news Sustainable investment strate- Rock’s partnership with indepen- in its Supreme Court petition that release June 21. press rms on voter rights gies gathered 52% of all European dent research rm Rhodium Group, shareholders have too much power Ms. Timberlake D’Adamo had Voter suppression and other net new inows in 2020, with assets cemented last year. That partner- to pursue such class-action allianc- been serving in the DEI position election threats are capturing the in these products accounting for ship aims to tackle the data chal- es, and allowing the lawsuit to con- on an interim basis since June attention of shareholder advocates, 11% of total AUM. lenge related to the physical im- tinue “will have enormous practical 2020, in addition to her role as including a coalition of institutional The inaugural European Sus- pacts of climate change. Rhodium consequences for public compa- chief compliance of cer, which she investors that called on companies tainable Investment Funds Study uses climate science, economics, big nies.” That stance was supported by began in 2016. June 16 to stop contributing to by Morningstar, management con- data and cloud computing to pro- several industry groups concerned In her new position, Ms. Timber- elected of cials supporting it. sultancy zeb and the Association of vide evidence-based insights into that class certi cations for such lake D’Adamo partners with the The open letter to corporate di- the Luxembourg Fund Industry climate scenarios. Pensions & Investments June 28, 2021 | 13 EXCHANGE-TRADED FUNDS Halfway through 2021, ETF ows already near new record

By ARI I. WEINBERG Browne, the ticket count from retail among nearly 500 oth- two Guinness Atkinson brokerage apps has doubled in the ers — experienced net Asset Management mu- The exchange-traded fund mar- past year. Moreover, retail money in ows at roughly 50% ETFs on a roll tual funds to ETFs in ket is red hot. market fund assets have been or more than their 2020 Total net yearly ETF ows, in billions. Data for 2021 March was a ground- On the heels of a record year for steadily declining, down $100 bil- year-ending assets are through June 21. breaking move, Dimen- net in ows at $487 billion, the ETF lion to $1.43 trillion since early Feb- through June 10, ac- sional Fund Advisors $487.1 market could surpass that amount ruary, according to Investment cording to FactSet Re- $477.5 LP’s shift of four mutual in just a few weeks — with half a Company Institute data through search Systems. $434.1 funds to ETFs on June year to spare. According to FactSet June 16. Moreover, 67 issuers 14 provided a road map Research Systems Inc., through In an recent research note, Mat- are now managing be- for large-scale conver- June 21, U.S.-listed ETFs had cap- thew Bartolini, head of SPDR Amer- tween $100 million and $327.5 sions, boosting Dimen- tured $434 billion in net in ows icas research at State Street Global $1 billion, up from 53 at $303.7 sional’s ETF assets un- and, unlike prior periods of intense Advisors in Boston, wrote that 66% the end of last year. $283.3 der management to $30 asset growth for ETFs, this ow ral- of products had experienced net “They have just enough billion from $2 billion in ly is remarkably broad. ows through April 30, the highest assets for a good busi- a day. “A majority of the ows is coming “hit rate” for the rst four months ness without a major “A similar decision by from ETF models, which have since 2014 when the industry prod- breakthrough fund,” a rm like Capital grown signicantly in the past uct count was 40% less. said Mr. Browne of GTS. Group could change year,” said Reginald M. Browne, “In a more dispersed return en- This breadth of activ- that conversation com- New York-based principal at elec- vironment, we’re seeing more dis- ity is building what pletely,” said Daniil Sha- tronic market maker Global Trad- persed ows,” Mr. Bartolini said. Bloomberg Intelligence piro, associate director 2016 2017 2018 2019 2020 2021 ing Systems LLC. “While the risk- “The re ationary trade is driving senior ETF analyst Eric of product development Source: FactSet Research Systems on rally began last year with a interest in sector funds as investors Balchunas has called at research and consult- large-cap bias, there has been a look to generate alpha by over- the ETF “middle class,” ing rm Cerulli Associ- shift to value this year. Many sector weighting cyclical industries, in- where investors are lifting prod- Uranium Mining ETF, each adding ates Inc. This wraps into the “other funds are rein ating, as well as cluding nancials, raw materials, ucts and providers into long-term more than 500% of their year-end big ow story,” according to Mr. commodities and raw materials and consumer discretionary, and efcacy. While the hot hands at assets in net ows through June 10, Shapiro, as the fund industry looks ETFs, rolling all the way down to underweighting health care, con- ARK Investment Management LLC according to FactSet. The strength to nd any form of kryptonite to short-duration xed income.” sumer staples, and utilities.” attracted billions in assets earlier in ows has been accompanied by beat back the relentless rise of But Mr. Browne said that self-di- Among the ETFs punching in the year, other thematic and spe- a near stemming of ETF closures, Vanguard Group Inc. rected retail investors (even those above their weight in ows this cialty product providers have been with only 20 products being pulled According to FactSet, Vanguard who rally behind meme stocks) year include the $48 billion Finan- able to draw investor assets. Exam- from the market as of June 17, com- has pulled in $152 billion in net can’t be overlooked as drivers of re- cial Select Sector SPDR Fund, the ples here include the $198 million pared with 138 over the same peri- ows this year, nearly double the cent ETF activity. “They are a little $14.8 billion iShares MSCI EAFE Direxion Moonshot Innovators od last year. And new products and assets gathered by BlackRock Inc. bit less brand-driven and show no Value ETF, and the $9.6 billion Van- ETF, the $170 million First Trust entrants to the market over the at $80 billion, giving Vanguard $1.83 allegiance to any one issuer,” he guard FTSE All-World ex-US Small TCW Securitized Plus ETF, and the next few years could look more like trillion in U.S. ETF assets compared said. AT GTS, according to Mr. Cap ETF. Each of these ETFs — $389 million North Shore Global old faces. While the conversion of with BlackRock’s $2.28 trillion. n

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Like us Follow us Follow us pionline.com/facebook pionline.com/linkedin @pensionsnews 14 | June 28, 2021 Pensions & Investments Special Report INVESTMENT OUTSOURCING Mass customization aimed at retail growth

growth of personalized invest- model portfolios and SMAs, said Managers, consultants look to diversify ments is the industrywide move by Girard M. Healy, Boston-based client base to meet rising retail demand nancial intermediaries toward managing director in Accenture’s fee-based asset growth, which in- North American asset management cludes advisory services for inves- group, in an interview. By CHRISTINE WILLIAMSON the way they order their coffee to tors, and away from commis- For money managers, “mass cus- the way they consume television. sion-based retail investment tomization does require signi cant Money managers and invest- They are less likely to invest in out- management, Mr. Levi said. scale and the right technology to ment consultants that manage of-the-box investment products. He added that the changing provide digital and mobile technol- money, including those with out- They want to control ESG prefer- landscape of the retail and wealth ogy” to meet retail investor expec- sourced CIO strategies, increasing- ences and restrictions, optimize the management industry is prompting tations, Mr. Healy said. ly are looking to offer and expand after-tax returns of their portfolios more nancial intermediaries to Consultant Wilshire Advisors their mass-customization strategies and have transparency into what work with money managers and LLC, Santa Monica, Calif., initially to further diversify their client base companies their dollars are being consultants that can provide model offered its institutional capabilities in retail channels. invested in,” Mr. Dori said. and separately managed account in asset allocation, portfolio con- Individual managers and consul- Money managers “offering exist- portfolios that are customizable to struction and fund selection to the tants internally de ne mass custom- ing strategies in new packaging varying degrees — usually depend- investment adviser industry, but ization in different ways, but at its creates an opportunity to reach ing on client size — that re ect the mainly in prepackaged solutions most basic level, the label refers to new audiences while leveraging the investor’s risk tolerance, income for advisers working with retire- the ability of a manager, consultant manager’s existing investment tal- DEMAND: Bryan J. Dori de ned mass needs and personal values. ment plans and individual inves- or a nancial intermediary — such ent and expertise,” he said. customization as delivering ‘personalized Money managers and consul- tors, said Nathan Palmer, managing as a wealth manager, registered in- Among the personalized strate- investment strategies at scale.’ tants that manage money have tak- director, in an email. vestment adviser or broker-dealer gies in demand by the existing and en notice of the potential of mass By “leveraging technology to pro- — to “deliver personalized invest- new retail clients of money manag- quickening, said Jeffrey A. Levi, a customization for their bottom line. vide the bene ts of both customiza- ment strategies at scale,” said Bryan ers and nancial intermediaries Stamford, Conn.-based principal at The vast majority — 80% — of the tion and automation together — J. Dori, president and CEO of Archer are model portfolios; separately Casey Quirk, a practice of Deloitte 250 senior executives of U.S. and mass customization — (Wilshire IMS LLC, Berwyn, Pa., a technology managed accounts; uni ed man- Consulting LLP, which advises Canadian money managers sur- has been able) to create  exible, service provider to investment com- aged accounts, which combine sep- money managers. veyed by Accenture PLC in Novem- high-quality investment solutions panies, in an email. arately managed accounts; themat- “Mass customization is the future ber and December said they be- unique to the individual adviser, re- He said mass customization is ic; outcome-oriented strategies; of nancial advisory, and it’s a big lieved that “customization for the tirement plan or end investor irre- growing due to rising retail investor and customized target-date funds, area of growth for wealth platforms masses will be an important invest- spective of size,” Mr. Palmer said. demand and the opportunity it sources said. that want to offer a suite of SMA ment strategy over the next ve He added that Wilshire has also presents for institutional money and model portfolios,” Mr. Levi said. years,” according to the rm’s “The harnessed its investment technolo- managers and other providers of Pace increasing Model portfolios are multiasset Future of Asset Management” re- gy to power customized advice for investment strategies, as well as “Money managers absolutely are portfolios created by money man- port published in May. retirement plan participants; tar- technology advances that make looking to offer mass customiza- agers, consultants and nancial in- “Financial intermediaries are get-date portfolios that plan spon- mass-tailored portfolios possible. tion. The topic has been coming up termediaries to meet investors’ doubling down on developing the sors can customize by setting the “Today’s investors are accus- a lot in conversations with money goals and/or their risk tolerances. technology and data analytics they glide path, vehicle, asset class, ac- tomed to a personalized experience managers over the past ve or six In addition to investor demand, need for mass customization” and tive/passive mix and fund selection; in all aspects of their (lives) from years” and the pace of adoption is another strong driver behind the are hiring managers that can create and model portfolios for wealth

Investment outsourcing at a glance The largest managers of outsourced assets Managed for institutional investors. Assets are in millions as of March 31. Worldwide institutional outsourced AUM, with full/partial discretion, in millions, as of March 31.

One-year Five-year Rank Manager Assets Rank Manager Assets 2021 change change 1 Mercer $366,986 24 SECOR Asset Mgmt. $17,411 Total worldwide outsourced assets* $2,813,596 21.5% 84.1% 2 Goldman Sachs Group $207,701 25 PFM Asset Mgmt. $17,207 Worldwide outsourced AUM** $2,461,643 22.7% 90.5% 3 Aon $202,809 26 BNY Mellon $16,637 Managed with full discretion $1,947,022 23.8% 124.5% Internally managed $570,422 13.7% 105.8% 4 Russell Investments $183,809 27 Sterling Capital $15,501 Total U.S.-client outsourced assets* $1,926,289 19.0% 87.2% 5 State Street Global $181,157 28 Commonfund $12,943 U.S.-client outsourced AUM** $1,627,554 20.1% 87.2% 6 Willis Towers Watson Invest. $167,740 29 Agility $12,033

Managed with full discretion $1,275,592 20.5% 141.8% 7 BlackRock $158,663 30 Pentegra Investors $11,980

Internally managed $295,850 9.5% 93.0% 8 SEI Investments $106,300 31 Marquette Associates $10,952

Total worldwide outsourcing clients 29,151 3.9% 168.5% 9 Northern Trust $100,464 32 Global Endowment Mgmt. $10,823 26,161 4.0% 202.4% U.S. outsourcing clients 10 Vanguard Group $61,914 33 Callan $10,628

U.S. outsourcing clients by type: 11 Alan Biller and Associates $61,254 34 Hirtle, Callaghan $10,600 Endowment 2,136 1.8% 172.1% 12 NEPC $53,678 35 Highland Associates $10,541 Foundation 4,861 -1.2% 416.6% 13 River & Mercantile Solutions $43,000 36 Fiducient Advisors* $10,310 De ned bene t 1,834 -7.1% 63.5% 14 CAPTRUST Financial $42,920 37 Segal Marco Advisors $10,270 De ned contribution 10,756 12.7% 809.2% 15 Aegon Asset Mgmt. $39,683 38 CornerStone Partners $10,066 U.S.-client outsourced AUM by type:** 16 Cambridge Associates $36,409 39 Commerce Trust $8,858 Endowment $96,161 26.3% — 17 Bank of America $35,373 40 Aetos Alternatives $8,262 Foundation $105,901 35.3% — 18 J.P. Morgan Asset Mgmt. $33,882 41 Fund Evaluation Group* $8,000 De ned bene t $561,500 6.9% — 19 PNC Financial $30,089 42 TIFF Advisory Services $7,437 De ned contribution $246,377 54.8% — 20 Strategic Investment Group $29,426 43 Conrad Siegel $7,018 Total outsourcing employees 21,676 1.5% — Investment professionals 2,785 0.0% — 21 Meketa Investment Group $20,600 44 Angeles Investment Advisors $6,394

*Includes outsourcing assets managed with full/partial discretion or on a non-discretionary basis. 22 Wilshire Advisors $20,409 45 Verus $5,267 **AUM includes outsourcing assets managed with full/partial discretion only. 23 Fidelity Institutional $18,384 46 Gallagher Fiduciary* $4,192 Historical data may include retroactive updates. Pensions & Investments June 28, 2021 | 15

management rms that select the investment options while Wilshire handles asset allocation and man- Larger asset owners seen as next frontier for outsourcing ager structure. More large institutional investors are taking “We remain extremely excited about the prospects for the success notice of OCIO as an alternative to managing of mass-customized discretionary investment portfolios internally, according to Arnold Adler portfolios within the wealth man- industry veterans. agement channel,” Mr. Palmer said. “The OCIO industry is going up market. We’re He said Wilshire estimates that seeing more mandates of $5 billion, $10 billion the use of model portfolios in the and $30 billion,” said Rich Nuzum, president of wealth management segment ex- Mercer LLC’s investments and retirement ceeds $1 trillion, about four times business in New York, in an interview. the adoption by retirement plans, but still represents less than 10% of OCIO clients have more options for customi- wealth management assets. zation, including for fund structures and more “We believe that the development access to in-demand money managers than of new investment technologies … smaller asset owners can command, he said. will enable advisers to automate and Mr. Nuzum said he anticipates that “a lot streamline the creation of custom- more large investors will turn to OCIO, including ized models,” Mr. Palmer said. endowments, foundations, health care, insur- Wilshire had assets under ad- ance companies and family of ces.” visement of $1.4 trillion and $87 bil- Mercer managed a total of $380 billion as of lion under management as of March 31, of which $20.4 billion March 31, of which $367 billion was managed in was managed for institutional in- OCIO assignments managed with full or partial vestors worldwide with full or par- discretion for worldwide institutional investors. tial discretion in OCIO strategies, Mercer is the largest OCIO manager, according according to data the rm provided to Pensions & Investments’ annual survey of for Pensions & Investments’ annual OCIO managers. OCIO report. Wilshire did not pro- “Previously, OCIO was considered a strategy vide assets managed for retail and for small- to midsized asset owners but the size wealth management investors. of OCIO mandates de nitely is rising,” said Common denominator: OCIO Kevin J. Turner, managing director and head of For the most part, OCIO strate- investment strategy and solutions for Russell EVOLVING INDUSTRY: Rich Nuzum said the size of OCIO mandates continues to increase as the market grows. gies are the common thread of cus- Investments, Seattle, in an interview. tomization among money managers Russell managed a total of $326 billion as of £21.5 billion ($30.3 billion) in OCIO structures increased investment complexity, changing and consultants. March 31, including $183.8 billion of OCIO for two de ned bene t plans. investment needs and mature de ned bene t Ryan Marshall, managing direc- assignments managed with full/partial discre- As of March 31, The rm’s New Airways plans were the impetus for the move to an OCIO tor and co-head of multiasset strat- tion for worldwide institutional investors — Pension Scheme had £19.4 billion of assets partnership with BlackRock. egies and solutions at BlackRock Inc., New York, for example, which ranked fourth according to P&I data. and the Airways Pension Scheme had £7.4 Ryan Marshall, New York-based managing stressed that the rm’s institutional BlackRock Inc., New York, was awarded the billion. director at BlackRock and co-head of multiasset OCIO business is highly custom- industry’s most recent mega-mandate by British British Airways said in a news release that strategies and solutions, said in an interview SEE CUSTOMIZE ON PAGE 16 Airways PLC, Harmondsworth, England, to run intensi ed regulation, rising operating costs, SEE LARGER ON PAGE 16

Growth of institutional outsourcing Outsourcing manager asset mix Assets are in billions as of March 31. Weighted average of the 50 largest managers of worldwide institutional outsourced assets as of Rank Manager Assets March 31. Data in parentheses are previous year. $2,462 47 Prime Buchholz $3,002 Total worldwide assets Fixed income U.S.-client assets 48 Spider Mgmt. $2,470 38.7% Private equity $2,007 Equity (40.0%) 3.9% 49 Canterbury Consulting* $2,153 42.0% (3.2%) $1,852 (40.1%) 50 Verger Capital $2,107 $1,739 Hedge funds/ $1,628 funds of funds 51 Ellwood Associates $1,481 $1,427 3.8% $1,355 (4.3%) 52 Discretionary Mgmt. Svcs.* $1,451 $1,292 $1,247 $1,157 Equity real 53 Spruceview Capital $1,158 estate $968 3.2% 54 Sellwood Consulting $666 $869 (2.8%)

55 LCG Associates $477 Cash 2.0% 56 Gifford Fong Associates $466 (2.3%) Other 57 CIBC Asset Mgmt. $155 6.4% (7.3%) 58 Morrison Fiduciary $62 2016 2017 2018 2019 2020 2021

59 Bivium Capital $15

*As of Dec. 31. Full Partial Total portfolio Partial portfolio Outsourced discretion discretion Outsourced outsourcing outsourcing assets by 80.3% 19.7% assets by 76.4% 23.6% level of (79.8%) (20.2%) portion (77.3%) (22.7%) discretion outsourced Weighted average of Weighted average of the 50 largest the 50 largest managers of managers of worldwide institutional worldwide institutional outsourced assets as outsourced assets as of March 31. Data in of March 31. Data in parentheses are parentheses are previous year. previous year. 16 | June 28, 2021 INVESTMENT OUTSOURCING Pensions & Investments

The largest managers of total The largest managers of fully The largest managers of investment outsourcing assets discretionary assets outsourced assets invested Worldwide institutional assets — discretionary and non-discretionary Worldwide institutional outsourced assets under management, under ESG principles — in outsourced investment programs, in millions, as of March 31. in millions, as of March 31. Worldwide institutional outsourced assets under % of management, in millions, as of March 31. Number Full/partial Assets % of assets Total of discretionary managed assets with Total Rank Manager assets clients assets with full with full partial Rank Manager assets Mandates Rank Manager discretion discretion discretion 1 Mercer $366,986 1,539 $366,986 1 Russell Investments $183,809 $50,159 1 Mercer $352,307 96% 4% $39,565 $2,997 2 Cambridge Associates $345,174 N/A $36,409 2 Aegon Asset Mgmt. 2 Goldman Sachs Group $207,701 100% J.P. Morgan Asset 3 Goldman Sachs Group $207,701 542 $207,701 3 $33,882 Mgmt. 3 Aon $152,107 75% 25% $202,809 539 $202,809 4 Aon 4 Wilshire Advisors $20,409 $20,409 4 BlackRock $138,037 87% 13% 5 Russell Investments $183,809 399 $183,809 5 Fidelity Institutional $18,384 5 State Street Global $110,506 61% 39% 6 State Street Global $181,157 257 $181,157 6 State Street Global $15,757 $1,247 Willis Towers Watson Willis Towers Watson 6 $100,644 60% 40% 7 Global Endowment Mgmt. $9,985 $2,374 7 $167,740 396 $167,740 Invest. Invest. 8 Marquette Associates $8,859 $233 7 Northern Trust $100,464 100% 8 BlackRock $158,663 117 $158,663 9 Aetos Alternatives $7,732 8 Russell Investments $95,581 52% 48% 9 Northern Trust $138,915 479 $100,464 10 Agility $6,471 $6,471 9 Vanguard Group $52,008 84% 16% 10 SEI Investments $106,300 495 $106,300 10 Alan Biller and Associates $49,003 80% 20% 11 Vanguard Group $61,914 1,248 $61,914 11 SEI Investments $43,583 41% 59% 12 Alan Biller and Associates $61,254 33 $61,254 The largest managers of 12 CAPTRUST Financial $42,920 100% 13 NEPC $53,678 74 $53,678 outsourced assets 13 NEPC $41,332 77% 23% River & Mercantile invested with WMDV firms 14 $43,000 110 $43,000 Solutions 14 Bank of America $35,019 99% 1% Worldwide institutional outsourced assets under 15 CAPTRUST Financial $42,920 1,130 $42,920 River & Mercantile management, in millions, as of March 31. 15 $34,400 80% 20% Solutions 16 Aegon Asset Mgmt. $39,683 149 $39,683 Number 16 Aegon Asset Mgmt. $34,088 86% 14% Rank Manager Assets of rms 17 Bank of America $35,373 5,000 $35,373 1 Goldman Sachs Group $22,700 39 17 J.P. Morgan Asset Mgmt. $33,882 100% 18 J.P. Morgan Asset Mgmt. $33,941 78 $33,882 2 Northern Trust $4,200 18 Strategic Investment Group $29,426 100% 19 PNC Financial $30,089 4,521 $30,089 3 NEPC $3,594 23 19 PNC Financial $28,868 96% 4% 20 Strategic Investment Group $29,426 28 $29,426 4 State Street Global $3,436 6 20 Meketa Investment Group $20,600 100% 21 Meketa Investment Group $20,600 59 $20,600 5 Strategic Invest. Group $2,843 24 21 Wilshire Advisors $20,409 100% 22 Wilshire Advisors $20,409 8,339 $20,409 6 Global Endowment Mgmt. $1,945 39 22 PFM Asset Mgmt. $17,207 100% 23 Fidelity Institutional $18,384 101 $18,384 7 Agility $1,850 19 23 Sterling Capital $15,485 100% 24 SECOR Asset Mgmt. $17,411 13 $17,411 8 Marquette Associates $1,533 11 24 BNY Mellon $14,474 87% 13% 9 Aetos Alternatives $1,194 6 25 PFM Asset Mgmt. $17,207 234 $17,207 25 Agility $12,033 100% 10 PFM Asset Mgmt. $1,166 7 *As of Dec. 31

The largest managers of outsourced assets by type U.S. institutional outsourced assets under management, in millions, as of March 31.

DB assets DC assets Foundation assets Endowment assets Rank Manager Assets Rank Manager Assets Rank Manager Assets Rank Manager Assets

1 Aon $93,782 1 Mercer $74,696 1 Vanguard Group $23,730 1 Vanguard Group $10,791

2 State Street Global $74,552 2 Aon $44,266 2 PNC Financial $16,677 2 Mercer $9,930

3 Alan Biller and Assoc. $57,422 3 State Street Global $27,243 3 Northern Trust $6,291 3 Commonfund $8,427

4 Mercer $51,802 4 NEPC $21,857 4 Global Endowment Mgmt. $6,110 4 Agility $6,590

5 Northern Trust $39,929 5 Wilshire Advisors $13,375 5 Agility $5,209 5 State Street Global $6,533

6 Russell Investments $33,679 6 Russell Investments $11,531 6 Fund Evaluation Group* $4,997 6 Strategic Invest. Group $6,500

7 BlackRock $24,257 7 Callan $9,289 7 Fidelity Institutional $4,226 7 Hirtle, Callaghan $6,200

8 NEPC $19,844 8 Northern Trust $7,237 8 Commonfund $3,867 8 TIFF Advisory Services $5,215

9 J.P. Morgan Asset Mgmt. $19,813 9 Pentegra Investors $6,563 9 Russell Investments $3,790 9 BlackRock $3,849

10 Strategic Invest. Group $16,032 10 Conrad Siegel $6,238 10 Aetos Alternatives $3,756 10 NEPC $3,313 *As of Dec. 31

and model-based portfolios that ness had a total of $440 billion un- ized accounts,” Mr. Nuzum said. wealth managers — as duciaries der management. Of that total, On a smaller scale, Mr. Nuzum Customize — implement on behalf of their cli- $158.7 billion was managed in said Mercer recently has assisted Larger CONTINUED FROM PAGE 15 ents. Advisers can select models us- worldwide institutional OCIO strat- nancial intermediaries with creat- CONTINUED FROM PAGE 15 ing just BlackRock’s iShares ETF egies managed with full or partial ing investment program applica- ized and is “the bridge between funds, a blend of iShares and the discretion, according to P&I data. tions and in creating model portfo- that the British Airways move into institutional whole-portfolio con- rm’s actively managed funds or New York-based consultant lios in the huge retail markets in OCIO management “was the struction and ... mass customiza- open-architecture funds of exter- Mercer has been building custom- China and India. biggest thing to have happened to tion.” BlackRock is partnering with nal managers. ized model portfolios for nancial “I think retail investment will institutional (investment) in the nancial intermediaries to provide BlackRock is intently courting intermediaries around the world become more important because of U.K. in years.” thousands of customizable model the wealth management segment for more than 20 years based on the growing need for savings. No portfolios built with robust risk and Mr. Marshall said he expects risk tolerance, but the rm is countries I know of are raising Mr. Marshall expects more large management, something the rm the rm’s mass customization busi- keeping an eye on retail investor tax-deductible limits on savings, companies with internal investment could not do without the technical ness to double the pace of its opportunities, said Rich Nuzum, especially for retirement,” Mr. Nu- management teams to turn to OCIO support of the rm’s Aladdin risk growth in this area over the next president of the company’s invest- zum said. as de ned bene t plans mature and management system and its three years. ments and retirement business, in Mercer managed $367 billion in their funding ratios rise. worldwide institutional OCIO wealth advisory platform, Mr. Mar- BlackRock doesn’t break out the an interview. “It’s complicated for internal shall said. amount of assets wealth managers “OCIO managers may not use strategies managed with full or defined benefit plan staff to He said the services that Black- invest in the rm’s funds on behalf the term mass customization, but partial discretion as of March 31, Rock’s solutions unit provides sep- of their clients. As of March 31, many are involved in serving the making it the largest OCIO man- handle lots of regulatory issues arate into traditional OCIO man- BlackRock managed a total of $9 market. About half of our OCIO ager in P&I’s annual survey of and constant readjustments to agement for institutional investors trillion, while the solutions busi- mandates are managed in custom- OCIO providers.  the defined benefit plan,” Mr. Pensions & Investments INVESTMENT OUTSOURCING June 28, 2021 | 17

Daniel Burke was mostly organic,” Mr. Charlton U.S. de ned bene t plan OCIO said. assets were up 6.9% to $561.5 bil- Outsource NEPC had the second-highest lion as of March 31, similar to CONTINUED FROM PAGE 1 growth rate among OCIO managers growth of 7.5% the prior year. surveyed, up 90.9% to $53.7 billion Goldman Sachs’ Mr. Braude said In sharp contrast, the S&P 500 in the year ended March 31, moving “in almost every circumstance was down 6.9% the prior year, the the rm to the 12th spot in P&I’s when we’re talking with a plan AlphaNasdaq OCIO index was ranking from 18th. sponsor about closing their de ned down 3.4% and the Bloomberg Bar- Industry sources, including spe- bene t plan, they also are asking clays U.S. Aggregate Bond index cialist OCIO search consultants, about OCIO for their de ned con- was up 8.9%. said they’ve seen a spike in interest tribution plan.” Timothy J. Braude, managing di- from new OCIO investors or exist- rector and global head of OCIO at ing OCIO investors interested in Fiduciary responsibilities New York-based Goldman Sachs manager upgrades. In addition to the bene ts of Group Inc., said in an interview “There’s been a huge pick up in handing off the day-to-day man- that in 2020 “our OCIO clients ex- OCIO search activity. OCIO is gath- agement of de ned contribution perienced a very fast drawdown ering momentum,” said Bradley H. plans to an OCIO manager, plan and a very fast recovery. Equities Alford, founder and CEO of OCIO sponsors also pass on their ducia- were up 50% to 60% and we and our search rm Alpha Capital Manage- ry responsibility for the plan to the clients had a very big year. 2020 ment LLC, Atlanta, in an interview. manager, said Clinton S. Cary, Chi- was like a supercharged version of The new growth spurt in OCIO cago-based managing director and what we saw after the global nan- search and hiring activity in 2021 is STRONG: Christopher B. Philips said Vanguard had a good 2020, once it got past June. head of U.S. delegated investment cial crisis in 2008.” in sharp contrast to March, April solutions at Willis Towers Watson, “The really rapid recovery gave and May 2020 in the aftermath of lion deal with a combined equity $10.6 billion — in worldwide insti- in an interview. investors a chance to step back and the COVID-19 outbreak when value of $80 billion. The U.S. Justice tutional AUM. Given that 2020 was “a record decide what they wanted to do many asset owners shelved their Department sued to block the deal The drop was the result of the year for de ned contribution plan about moving away from in-house OCIO search plans to deal with oth- earlier this month due to concerns rm’s recategorization of some as- litigation, the threat is pushing DC portfolio management and into an er more pressing work issues, Mr. about sti ing competition. sets as non-institutional and the sponsors to consider hiring a pru- OCIO arrangement,” said Mr. Alford said. The Vanguard Group Inc., Mal- loss of a major client that returned dent expert like an OCIO manager Braude, adding that Goldman Later in 2020, the level of search vern, Pa., had its best year ever for to in-house portfolio management, that will assume the role of ducia- Sachs had “a very strong year” of activity became so frenetic that Mr. OCIO strategies in calendar year said a spokeswoman who declined ry of the plan,” Mr. Cary said. organic OCIO growth in the year Alford had to stop accepting new 2020, despite a challenging, slow to name the client. Mr. Cary said his rm and others ended March 31. OCIO searches and created a wait- search-and-hire environment be- As in prior years, the U.S. OCIO also are eyeing the enticing oppor- ing list, noting that “the crush is tween March and June, said Chris- market remains the most important tunity to offer de ned contribution 22.7% growth easing a bit so we can take on more topher B. Philips, principal and for managers, with 66.1% of world- plan OCIO services to pooled em- Total OCIO assets managed for searches now.” head of Vanguard Institutional Ad- wide institutional AUM managed ployer plans created by the 2019 worldwide institutions with full/ Mr. Alford said the majority of visory Services, in an interview. with full/partial discretion coming SECURE Act once the Department partial discretion grew 22.7% over Alpha Capital’s OCIO searches in “It was barren. No one did any- from U.S. clients as of March 31, a of Labor provides further regulato- the year, compared with a rise of 2020 and so far in 2021 were for en- thing during that period, but since slight decline from 67.5% as of the ry guidance for PEPs. 8.4% in the year ended March 31, dowments and foundations. the end of June last year, the mo- same date a year earlier. “PEPs will potentially be a big 2020, to the previous peak of $2.01 mentum for OCIO strategies has Assets managed with full/partial source of growth for the OCIO in- trillion. Mercer still at top been strong,” Mr. Philips said, add- discretion for U.S. institutional cli- dustry,” Mr. Cary predicted. Over the ve-year period ended Mercer LLC, New York, retained ing “we’ve been onboarding a lot of ents rose 20.1% to $1.63 trillion for Regarding another growing March 31, growth of worldwide its position as the largest manager new clients, some of which are the year ended March 31 and 87.2% OCIO client segment, endowment OCIO AUM was up 90.5% compared of worldwide OCIO AUM with full/ coming to Vanguard from other over the ve-year period. and foundation OCIO investors “did with 54.6% for the ve years ended partial discretion for institutions, OCIOs managers.” He said growth better (in terms of performance) March 31, 2020. up 40.9% to $367 billion in the year was pretty even across de ned Equity returns help than pension funds because of their For periods ended March 31, ended March 31. Goldman Sachs bene t plans, endowments and Sources agreed that OCIO higher exposure to equity and al- worldwide OCIO assets managed Group rose to second place from foundations. growth was strongly buoyed by very ternatives,” said C. Kane Brenan, with full discretion for institution- seventh with assets of $207.7 bil- Vanguard’s OCIO AUM managed favorable performance, especially CEO of endowment specialist TIFF al investors totaled $1.95 trillion, lion, an increase of 31.6% in the for worldwide institutions with full/ in equities. Advisory Services Inc., Radnor, Pa., up 23.8% for the year and up year ended March 31. partial discretion totaled $61.9 bil- Goldman Sachs’ Mr. Braude and in an interview. 124.5% for the ve-year period, In 2022, the top spot in P&I’s lion in the year ended March 31, up other OCIO managers said de ned TIFF’s endowment and founda- P&I data showed. ranking of OCIO managers might 40.6% over the previous year. contribution plans had very strong tion OCIO clients’ performance was After the outbreak of COVID-19 be lled by a new manager if the Among OCIO manager winners asset growth in the year ended up 25% in the year ended March 31, last year when work, home and so- merger between Aon PLC and in P&I’s ranking of 59 rms was March 31, given the fact that many he said. cial life became dif cult, “there was Willis Towers Watson PLC comes Discretionary Management Ser- DC plan participants tend to be TIFF’s OCIO assets managed recognition among asset owners to fruition. vices LLC, Merriam, Kan., which heavily invested in equity, and they worldwide with full/partial discre- that things had gotten too compli- Aon managed $202.8 billion and had the highest growth of 409.1% to greatly bene ted from market re- tion for institutions totaled $7.4 bil- cated for an internal investment Willis Towers Watson managed $1.5 billion in worldwide assets turns in the year ended March 31. lion, up 12.5% over the year ended committee to handle. On the corpo- $167.7 billion in worldwide OCIO managed with full/partial discre- Mr. Braude said Goldman Sachs March 31. rate side, employees saddled with assets managed with full/partial tion in the year ended Dec. 31 saw strong client growth from de- Total AUM managed for U.S. dealing with liabilities and other discretion for a total of $370.5 bil- The high growth rate was from ned bene t and de ned contribu- foundations rose 35.3% to $105.9 issues decided they weren’t being lion as of March 31, topping Mer- the rm’s addition of a new, large tion plans, endowments, founda- billion in the year ended March 31, paid to manage a de ned bene t cer’s total. Aon dropped to the third client for liability-driven portfolio tions and health-care companies. compared with growth of 32.2% a plan and started looking at OCIO spot this year despite 17.8% growth management. Adam J. Strumpf, se- The U.S. de ned contribution year earlier. Endowment assets options,” said Steven F. Charlton, in AUM. Willis Towers Watson nior consultant, declined to name plan segment had the largest AUM were up 26.3% to $96.2 billion as of partner and director of consulting ranked sixth, dropping two spots. the client in an email. growth in the year ended March 31, March 31, down from 54.9% growth services at NEPC LLC, Boston, in The London-based rms an- Hirtle Callaghan & Co., West up 54.8% to $246.4 billion, according the previous year. an interview. nounced their plan to unite in Conshohocken, Pa., experienced to P&I survey data. In contrast, As for the prospects for OCIO “Markets helped, but our growth March 2020 in an all-stock $30 bil- the largest decline — 20.9% to OCIO growth for DC plans was only managers, “the industry is matur- 1.8% over the prior year. ing, and with that comes the usual “Individuals in 401(k) plans did symptoms, including fee pressure, Marshall said. pension fund. TIFF managed $7.4 see their assets fall 20% to 30% if the beginning of possible consoli- BlackRock managed a total of $9 TIFF Advisory billion with full/partial they were invested in a lot of equity dation among smaller players and trillion, including $158.7 billion in Services Inc., Radnor, discretion in OCIO in the early part of 2020 but gained it rms closing or getting out of the OCIO assets managed with full/ Pa., specializes in strategies for world- back later in the year and into 2021,” OCIO business,” said Andrew H. partial discretion for worldwide OCIO services for wide institutional Goldman Sachs’ Mr. Braude said. McCollum, head of investment The growth in de ned contribu- management at Coalition Green- institutions as of March 31. endowments and clients as of March 31, tion plan OCIO adoption is still is in wich, Stamford, Conn., a division foundations and is up 12.5% from a year BlackRock ranked seventh in P&I’s its early stages, but sources said the of data and analytics company OCIO ranking. seeing an uptick in earlier. client segment is poised to boom. CRISIL Ltd. Last September, two European interest from larger To Mr. Brenan’s For DC plans an OCIO manager is a Mr. McCollum said in an inter- plans announced $1 billion-plus entities, said CEO C. point, Texas Tech duciary manager. view he expects continued growth OCIO hires. Kane Brenan in an University System, One driver behind heightened for OCIO rms at 7% to 8% annual CHANGING LANDSCAPE: interest in offering OCIO strategies levels, adding that OCIO is “one of Civil Aviation Authority Pension interview. Ryan Marshall expects to Lubbock, launched a for de ned contribution plans is the few areas of growth in the asset Scheme, London, selected Black- “Our pipeline is see more large companies search in April for an the shrinking pool of de ned bene- management industry.” Rock to manage a £4 billion growth growing between three turn to OCIO. OCIO manager to run t plans, said Amanda Walters, But he cautioned “we likely will portfolio, replacing Russell Invest- and ve times faster the university’s $1.3 principal, Casey Quirk, a practice of see shuf ing of the deck chairs as ments. Stichting Pensionfonds SNS than in 2020 and the size of billion endowment for a four-year Deloitte Consulting LLP, New York. investors consider manager chang- REAAL, s-Hertogenbosch, Nether- mandates are rising, but we also contract. “OCIO managers are looking for es and it’s likely the industry will lands, hired NN Investment Partners continue to see interest from The successful candidate is new revenue streams as de ned shrink. In a maturing industry, the to duciary management services smaller endowments and founda- expected to be selected in July. bene t plans continue to decline,” number of players always goes for the €4.3 billion ($5.2 billion) tions,” he said. — CHRISTINE WILLIAMSON Ms. Walters said. down.”  18 | June 28, 2021 Pensions & Investments HIRINGS

„ AbbVie Inc., North Chicago, Ill., The board approved a $20 million University regents committed up to hired Empower Retirement as record commitment to Banner Ridge Second- $25 million to Rubicon First Ascent, a keeper of its 401(k) plan. ary Fund IV, a private credit fund, and WISCONSIN PUTS $1.4 BILLION TOWARD ALTS real estate fund managed by Rubicon Empower replaced Alight Solutions an additional $5 million to an overow State of Wisconsin Investment Board, Madison, disclosed private Point Partners, and $10 million to as record keeper effective April 1, co-investment vehicle. It also commit- equity and real estate commitments during the rst quarter totaling Screendoor Partners, a newly formed according to the company’s 11-K ling ted $18 million to Systematic Growth $1.38 billion. venture capital fund of funds based with the SEC on June 21. Fund III, a Nordic fund that acquires Within private equity, the board, which manages $148.8 billion in that invests primarily in seed-stage multiple microcap companies to build and early-stage funds that emphasize assets, including the $132.6 billion Wisconsin Retirement System, „ Alameda County Employees’ larger ones, and $15 million to investments in companies founded by committed $350 million to large-cap buyout fund Hellman & Fried- Retirement Association, Oakland, Wavecrest Growth Partners II, a growth women and underrepresented Calif., committed up to $27 million to fund that invests in lower middle-mar- man Capital Partners X; $200 million to PSG Encore Warehouse, minorities, according to board ABRY Senior Equity VI. The $10.4 ket business-to-business technology managed by Providence Strategic Growth Capital; $100 million to documents. billion pension fund’s board approved companies. Atlas Capital Resources IV, a buyout fund; and $75 million to Sterling the commitment to the mezzanine debt Also, the board made commitments Group Credit Fund II, a mezzanine fund. „ Missouri Local Government fund managed by ABRY Partners at its of $5 million each to Foundation The board also committed $60 million to Charlesbank Equity Fund Employees Retirement System, May 20 meeting, recently released Capital X and Foundation Capital X, a middle-market private equity fund, and $15 million to Charles- Jefferson City, announced manager meeting minutes show. Leadership Fund III, both venture bank Equity Overage Fund X; $60 million to growth equity fund JMI hires, commitments and investments capital funds. totaling $214 million. Equity Fund X; $50 million each to Activant Capital IV, a growth equity „ Alaska Retirement Manage- The $9.4 billion pension fund hired fund, venture capital fund Hedosophia Partners IV and buyout fund ment Board, Juneau, disclosed four „ Delaware Public Employees’ Wells Fargo Asset Management to run alternative commitments totaling Retirement System, Dover, Percheron Capital Fund I; $35 million to growth equity fund Avenue about $110 million in active domestic $165 million in a report from CIO approved four commitments in April Growth Partners Fund I; and $25 million each to Shamrock Capital small-cap growth equities, said Megan Zachary A. Hanna. The board commit- totaling up to $101 million. Debt Opportunities Fund I, a private debt fund, and growth equity Loehner, deputy CIO, in an email. ted $50 million each to Almanac The $13.7 billion pension fund fund VMG Partners V. Funding comes from the termination Realty Securities IX, a value-added real committed up to $35 million to Accel The board also made follow-on commitments of $20 million to of AMI Asset Management from a estate fund, and KKR Real Estate Growth Fund VI and up to $16 million Midwest-focused buyout fund Great Range Capital Fund II and $15 similar portfolio for performance Partners Americas III, an opportunistic to Accel XV, both capital venture funds; million to lower middle-market buyout fund Seaside Equity Partners reasons, Ms. Loehner said. real estate fund; $40 million to growth and up to $10 million to venture Also, the pension fund made a Fund I. The board originally committed $35 million to each fund in equity fund Insight capital fund Meritech direct hedge fund investment of $64 2020. Partners XII and $25 HAVE SOME NEWS? Capital Partners million to Avenue Aviation Fund II million to buyout fund Franchise Fund. Also, In real estate, the board committed $150 million to Hudson Annex Fund, managed by Avenue Genstar Capital Please submit news of the pension fund Single-Family Rental Fund, an open-end value-added real estate fund Capital Group. The pension fund also Partners X, the report changes to David Schepp, made a follow-on managed by Hudson Advisors, and $100 million to Penwood Select committed $40 million to Portfolio news editor, at dschepp@ said. The board commitment of up Industrial Fund VI, an industrial real estate fund. Advisors Real Estate Fund VIII, a real pionline.com oversees the $40 million to estate fund of funds. management of $41 Flagship Pioneering billion in de ned bene t and de ned Origination Fund VII after originally million ($164 million) to an open-end support the fund’s oversight, gover- „ New Castle County (Del.) contribution plan assets. committing up to $50 million in infrastructure fund investing in nance and reporting, a spokeswoman Employees’ Pension Program February 2020. Canada, both managed by Axium con rmed. The £11 billion ($15.6 made two new private credit commit- „ The Church of Scotland, Infrastructure. billion) pension fund will use ESG data ments totaling $5 million. Edinburgh, hired XPS Pensions Group „ District of Columbia Retire- LACERA also invested $100 million and insights delivered by Northern The $516 million system’s board as investment and actuarial adviser for ment Board made two new commit- in AM Asia Strategies Fund, a relative Trust to help track speci c environmen- approved commitments of $3 million its pension funds, a spokeswoman ments totaling up to $125 million. The value, multistrategy hedge fund tal risks linked to its investments. to a private credit fund managed by con rmed. The Church of Scotland $10.3 billion pension fund committed focused on Asia managed by AM Crayhill Capital Management and $2 runs three de ned bene t funds with up to $75 million to Strategic Value Squared, and up to £26 million ($37 „ Martin Marietta Materials million to HarbourVest Direct Lending £524 million ($739 million) in total Special Situations Fund V and up to million) in a co-investment alongside Inc., Raleigh, N.C., hired Fidelity Fund, recently released meeting assets. The previous investment $50 million to Carlyle Realty Partners Silver Lake Partners, a private equity Investments as record keeper of its minutes show. adviser was Aon, with Hymans IX, an opportunistic real estate fund. rm investing in technology companies. 401(k) plan. Fidelity replaced Wells Robertson providing actuarial advice, Fargo as record keeper effective May „ New Hampshire Retirement the spokeswoman said. „ Iowa Public Employees’ „ Los Angeles Fire & Police 1, according to the company’s 11-K System Independent Invest- Retirement System, Des Moines, Pensions board in closed session ling with the SEC on June 23. ment Committee, Concord, „ Cintas Corp., Cincinnati, added hired two private credit managers to committed a total of up to $240 million The ling also said in connection committed $25 million to Industry the Fidelity Advisor International run $100 million each for the $40.4 to ve alternative investment funds, with the change, “investments were Ventures Partnership Holdings VI, a Capital Appreciation Fund to the invest- billion pension plan, con rmed according to a report of actions taken transferred from Wells Fargo-spon- venture capital secondary fund, ment options lineup of its 401(k) plan. spokeswoman Shawna Lode. at March and April board meetings. sored funds to Fidelity-sponsored con rmed Marty Karlon, director of The plan added the active interna- At its June 17 meeting, the board The board committed up to $60 funds with similar investment communications and legislative affairs tional equity fund managed by Fidelity hired ArrowMark Partners, which million to Insight Partners XII, a growth objectives.” The ling did not disclose for the $10.6 billion pension fund. Investments effective Feb. 26, the specializes in specialty nance credit, equity fund and up to $20 million to the names of the new investments. company disclosed in its 11-K ling and HPS Investment Partners, which Insight Partners XII Buyout Annex Fund. As of Dec. 31, the Martin Marietta „ Oklahoma Police Pension & with the SEC. The fund replaced the focuses on real assets credit. IPERS The board committed up to $50 Savings and Investment Plan had Retirement System, Oklahoma Dodge & Cox International Stock Fund, also plans to invest an additional $100 million to ABRY Senior Equity VI, a $738 million in assets. City, committed $25 million each to which had $57 million in plan assets million to its existing $250 million mezzanine debt fund, and $40 million Thompson Street Capital Partners VI as of Dec. 31. The Cintas Partners’ opportunistic private credit separately to Trive Capital Fund IV and $10 million „ Mediolanum International and Greenspring Secondaries Fund V, Plan had $2.7 billion in assets as of managed account run by KKR & Co. to Trive Structured Capital Fund I, both Funds Ltd. hired three managers as managed by Greenspring Associates. the same date. managed by managed by Trive Capital subadvisers, allocating a total €510 The commitments to the two private „ Kentucky Teachers’ Retire- Management, a buyout and growth million ($617 million), a spokesman equity funds were approved at a June „ Citigroup Inc., New York, hired ment System, Frankfort, committed equity rm. LAFPP also committed $60 confirmed. The manager will invest an 16 board meeting, said Ginger Sigler, Principal Global Investors as an up to $50 million to Apax Digital Fund million to Hellman & Friedman Capital initial €220 million in boutique Pzena executive director of the $3.2 billion underlying manager for its small-cap II. The $24.5 billion pension fund’s Partners X, large-cap buyout fund. Investment Management’s global pension plan, in an email. U.S. equity fund investment option in investment committee disclosed the value equity strategy. The firm takes its two 401(k) plans. commitment to the buyout fund „ Macomb County Employees’ a high-conviction approach to „ Pennsylvania Public School Principal replaced Los Angeles managed by Apax Partners at its May Retirement System, Mount investing. Mediolanum will also Employees’ Retirement System, Capital Management and Vulcan Value 20 meeting, con rmed Robert B. Clemens, Mich., committed $12 allocate €220 million to Mondrian Harrisburg, committed $80 million to Partners effective March 22, according Barnes, deputy executive secretary million to Centerbridge Partners Real Investment Partners’ value-oriented Capstone Commonwealth Fund, a to the bank’s 11-K lings June 11 with and general counsel, in an email. Estate Fund II. The $1 billion pension global equity strategy. tail-risk mitigation fund managed by the SEC. The lings also noted that fund’s board approved the commit- The rm will also partner with public Capstone Investment Advisors. MFS Investment Management was „ Los Angeles City Employees’ ment to the opportunistic real estate infrastructure manager Atlas Infrastruc- The commitment was made at the hired as an underlying manager of the Retirement System committed up fund at its May 6 meeting. ture Partners and will seed the Atlas $64.2 billion pension fund’s June 11 non-U.S. small-cap equity fund in the to $35 million to real estate fund Wolff Global Infrastructure Fund with a €70 board meeting. The board intends to plan, replacing Dodge & Cox, effective Credit Partners III, according to a „ Maine Public Employees’ million commitment. The fund inte- commit to the fund on an annual Sept. 30, 2020. report to the board of the $22.4 billion Retirement System, Augusta, grates ESG within its investment and basis. An additional $1 billion in As of Dec. 31, the Citi Retirement pension plan. approved a new commitment of up to portfolio construction processes and commitments to ve other alternatives Savings Plan had $17.9 billion in $40 million to Technology Impact has a strong focus on climate change. funds were recommended at the assets, and the Citi Retirement „ Los Angeles County Employ- Growth Fund II. Mediolanum has more than €50 meeting but weren’t approved. Savings Plan for Puerto Rico had $48 ees Retirement Association’s The $17.6 billion pension fund’s billion in AUM. million in assets. board in closed session committed or board approved the commitment to the „ Railways Pension Trustee Co. invested $551 million to four venture capital fund managed by „ University of Michigan, Ann appointed Legal & General Investment „ Colorado Fire & Police alternative investment strategies, Capricorn Investment Group at its June Arbor, committed and disclosed up to Management to provide a drawdown Pension Association, Greenwood according to a report by the $69.6 10 meeting, said CIO James Bennett. $35 million to two alternative funds option for its de ned contribution plan, Village, committed $68 million to six billion Pasadena, Calif-based pension from its $15.6 billion long-term a spokeswoman con rmed. alternatives funds, said Scott Simon, plan. LACERA committed $250 million „ Marks & Spencer Pension endowment pool, according to Participants enrolled in the CIO of the $6.5 billion pension fund, in to an open-end core infrastructure fund Trust, London, selected Northern documents from its board of regents Industry-Wide De ned Contribution an email. focusing on North America and C$200 Trust to provide ESG analytics to meeting June 17. Section, which is the DC section of the Pensions & Investments June 28, 2021 | 19 HIRINGS

£32 billion ($45.1 billion) Railways each to Cross Ocean European Core Fund on behalf of the $5.4 billion commitment of up to $400 million to Mine Finance Fund III, which looks to Pension Scheme, London, who choose Special Situations Fund IV and Vermont State Retirement Systems, TPG Rise Climate, a private equity fund nance the construction of later-stage the drawdown option will now be HarbourVest Direct Lending Fund, a according to Andy Cook, an investment that will make investments across mine projects through a combination enrolled into the Legal & General private credit fund, said CIO Dan analyst with the Vermont state buyout, growth equity and value-added of debt, equity and production-linked WorkSave Mastertrust at retirement. Gallagher in an email. treasurer’s of ce, which administers infrastructure that have a positive investments. Assets will be invested through LGIM’s Separately, the board on June 21 the retirement systems. climate impact. The Washington State Investment Retirement Income Multi Asset Fund. approved the termination of Hexavest The commitment to the private Within private equity, commitments Board oversees $171.5 billion in Participants will have their savings from a $101 million active internation- credit fund managed by Ares Manage- were made of up to $250 million to assets, including $134.4 billion in transferred into LGIM’s master trust al equity portfolio due to organizational ment was approved at a committee Insight Partners XII, and up to $200 de ned bene t plan assets. only when they want to access their changes and performance concerns. meeting June 22. million each to Warburg Pincus bene ts. They can still choose their Assets will be reallocated to Walter Financial Sector II and European „ Wyoming State Loan and own drawdown providers at retirement Scott & Partners, increasing the active „ Washington State Investment buyout fund Permira Growth Opportu- Investment Board, Cheyenne, or other strategies. It is the rst time international equity portfolio it Board, Olympia, approved or nities II. committed $60 million to middle-mar- that the trustees chose to offer a currently manages for the pension disclosed up to $1.25 billion in new Within tangible assets, the board ket buyout fund Nautic Partners X and decumulation option to DC participants. fund to about $293 million. commitments at its meeting June 17, approved a commitment of up to $100 its sidecar fund, Nautic Partners X-A, spokeswoman Tish Day said in an million each to Orion Mineral Royalty con rmed Patrick Fleming, chief „ St. Louis Public School „ Vermont Pension Investment email. Fund, which will invest in royalty and investment of cer, in an email. Retirement System made two new Committee, Montpelier, committed In its innovation portfolio, the board streaming opportunities in industrial The board oversees $23.4 billion in private credit commitments totaling $100 million to the Ares Path nder was informed of a staff-delegated and agricultural minerals, and Orion permanent funds. $10 million. The $942 million pension fund’s board approved commitments of $5 million each to Bain Capital Special Situations Asia II and Crayhill Principal Strategies Fund II at its April 19 meeting, said Susan Kane, executive director.

„ San Jose (Calif.) Federated City Employees Retirement System committed $5 million to We’ll help you get Innovation Endeavors IV. The $2.7 billion pension fund’s commitment to the venture capital fund was disclosed in materials for the pension fund’s upcoming June 17 board meeting. qualified candidates

„ Santa Barbara County (Calif.) Employees’ Retirement System committed $20 million to Deerpath in the door. Capital VI, a lower middle-market, senior direct lending fund, said Lauren Thompson, assistant CEO, invest- ments and nance for the $3.8 billion pension fund. Your next career candidate is reading Pensions & Investments. In fact, we reach the largest pool

„ Seattle City Employees’ of institutional investment industry leaders while they are making important business decisions. Retirement System committed up And we oer them the most robust array of executive and c-suite career opportunities in the to $25 million to Brook eld Strategic Real Estate Partners IV. investment community. The $3.5 billion pension fund’s board approved the commitment to the global opportunistic real estate fund at its May 13 meeting, recently released meeting minutes show. Have a position you need to fill?

„ Tacoma (Wash.) Employees’ Contact Erin Smith at 212.210.0719 or [email protected] Retirement System committed $50 million to Pantheon Global Infrastructure Fund IV. The $2 billion pension fund’s board approved the commitment to the fund Search job opportunities of funds at its meeting June 10, said Go to www.pionline.com/careers Timothy Allen, retirement director and chief investment of cer, in an email.

„ Texas County & District Retirement System, Austin, committed a total of $264 million to four alternatives funds. The $38.1 billion pension fund committed $125 million to FCP Realty Fund V, a value-added, closed-end fund managed by Federal Capital Partners that will invest in income-producing commercial and multifamily properties. In venture capital, it committed $40 million to Lux Total Opportunities and $20 million to Lux Ventures VII, both managed by Lux Capital. The plan also committed €65 million ($79 million) to to Victory European Real Estate Fund II (A), which will seek investments in Western Europe and is managed by Victory Advisors.

„ Ventura County (Calif.) Employees’ Retirement Associ- CAREERS ation made two new commitments totaling $50 million. EXCLUSIVE ACCESS TO TOP TALENT The $7.4 billion pension fund’s board at its meeting June 21 approved commitments of $25 million 20 | June 28, 2021 Pensions & Investments

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Minimum 6 years of relevant experience is required. MBA or CFA preferred. Have a position you need to fill? Please apply at https://jobs.silkroad.com/Wilshire/Careers/jobs/1075. Contact Erin Smith at 212.210.0719 or [email protected]

RFPs Search job opportunities Go to www.pionline.com/careers CUSTODIAL SERVICES RFP

The Illinois State Board of Investment (ISBI) is soliciting proposals from custodial banks quali- CAREERS fied to provide the Board with comprehensive domestic and international master trust/custo- EXCLUSIVE ACCESS TO TOP TALENT dial services for ISBI’s Defined Benefit Pension Plan.

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Proposals must be submitted by 3:00 p.m. CST on July 26, 2021 to: Illinois State Board of Investment / Meketa Investment Group, Inc. Jansen Hein, Chief Operating Officer / Chief Financial Officer – [email protected] AND Alli Wallace Stone, Managing Principal, Consultant – [email protected] AND [email protected]

Investment Consultant Services The purpose of this request is to solicit proposals from firms interested in serving as an invest- ment consultant to the City of Lakeland’s Public Improvement Endowment Fund Board (the “Board”). The Board is seeking a firm to provide professional investment consulting services related to the Public Improvement Endowment Fund (the “Fund”) which is intended to be a permanent fund of the City of Lakeland. Services will cover the review of investment guide- lines, asset allocation, investment manager searches, the evaluation of investment manager performance, and other miscellaneous projects. Advertise your RFP in Pensions & Investments, RFP Documents may be accessed by visiting our Website at http://www.lakelandgov.net/pur- chasing or by contacting the City of Lakeland Purchasing Division @ (863) 834-6780. Re- reach the top investment managers and service providers sponses must be received no later than 2:00 PM local time, August 3, 2021. in the money management industry. REQUEST FOR PROPOSALS Investment Consulting Services Optimize your returns. Comprehensive Compensation The Oklahoma Tobacco Settlement En- Study dowment Tr ust Fund Board of Investors Meet your next investment services partner in P&I. is seeking proposals for an Investment The Ohio Police & Fire Pension Fund Consultant to provide a broad range of (OP&F) is seeking proposals for a com- advisory services in a fiduciary capac- prehensive compensation study from ity including asset allocation studies, qualified firms. performance measurement and report- ing, continuing manager due diligence, P&I RFPs | Print. Online. Email. The Request for Proposal will be re- education opportunities for the Board, leased on or about June 25, 2021. RFP verbal and written reporting and man- responses must be returned to OP&F ager searches for all asset classes. A www.pionline.com/RFPs offices by July 23, 2021 by 4 PM (EDT). copy of the request for proposal can be obtained at the Oklahoma State Trea- To obtain a copy of the RFP once re- surer’s website at https://www.ok.gov/ leased, visit www.op-f.org or contact: treasurer/documents/TSET-Consul- tant-RFP-2021.pdf. Place your ad today. Janeane N. Mayesky Procurement Manager Questions concerning the RFP and Ohio Police & Fire Pension Fund submission of the Acknowledgment Contact Erin Smith at (212) 210-0719 for details. 140 East Town Street of Receipt Form are due by 4:00 p.m. Columbus, Ohio 43215 CST, June 30, 2021 and formal pro- [email protected] posals must be submitted no later than 4:00 p.m. CST, July 16, 2021. Proposals must be received on or be- fore the due date and time to be con- Reach a targeted audience of executive investment professionals. sidered for evaluation. Your company’s best investment strategy. Your company’s best Find the quality talent you seek for investment strategy! your team at P & I Careers - the premier destination for the industry’s most influential investors. Place your ad today! Place your ad today. Contact Erin Smith at (212) 210-0719 or [email protected] www.pionline.com/careers 212-210-0719

P020_PI_20210628.indd 28 6/24/21 6:01 PM Pensions & Investments June 28, 2021 | 21

Evelina Carborn rent plan providers. “It might be a little bit easier upfront to imple- Social bonds Emergency ment because you’re working with your current record keeper or may- CONTINUED FROM PAGE 2 CONTINUED FROM PAGE 4 be just expanding the payroll le,” But while pension fund execu- take money out of their retirement Ms. Moen said. tives said they are keen on boosting plan because I don’t think people An in-plan option, however, re- their social bond investments, they will pay it back,” she said. quires a strong employee education admit that unearthing opportuni- While there are no known of - and communication program to ties is not straightforward. Inves- cial surveys on the number of plans support it. “It’s really on the plan tors, which are currently largely offering emergency savings op- sponsor and/or consultant or pro- dependent on bond issuance by in- tions, industry observers say the viders working with the company to stitutions such as the World Bank or number is negligible. None of Willis drive the education around how more recently the European Com- Towers Watson’s plan sponsors cli- this will work,” Ms. Moen said, add- mission, are on the lookout for ents offer emergency savings ac- ing that participants would other- more investment vehicles that can counts, except “maybe one,” Ms. wise not utilize the emergency sav- help them achieve scalable alloca- Credico said. ings option. tions as well as measure and report Francis Investment Counsel’s An even greater disadvantage is on the impact of these investments Ms. Moen also reports relatively that the emergency savings af- under the SFDR regulations. It is few plan sponsors offering emer- ter-tax contributions will impact a not an easy task because the social FLUSH: Magnus Billing is keen on seeing ‘a pipeline of opportunities with scale.’ gency savings programs but says plan sponsor’s discrimination test- bond market is underdeveloped that many are thinking about put- ing. Unlike pre-tax and Roth contri- and it lacks frameworks such as the Mr. Kristensen said that the mo- focused on buying social bonds is- ting them in place. “I know that butions, which are subject to aver- Task Force on Climate-related Fi- tivation for launching a social sued by development nance insti- there are a number of employers age deferral percentage testing, nancial Disclosures, which can aid bonds allocation was similar to tutions such as the International that are currently evaluating imple- after-tax contributions are subject investors in measuring impact of launching green bond investments Finance Corporation and the World menting a program in some form,” to average contribution percentage their investments and communicat- a few years ago. “We saw a market Bank. she said. testing, a fact that throws many ing them to plan participants, in a rapid expansion. We are a large Mr. Billing said that Alecta has plan sponsors off. sources said. investor, so it was natural to dip our very few direct investments and Dual strategies “You do want to do your home- Since these standards don’t yet toes in it. We have seen exactly the wants to work with partners such as Plan sponsors have two ways in work on the front end in terms of exist, the social bonds market same thing with social bonds. They money managers and supranational which they can help employees set the ddle work with your required hasn’t reached a stage where im- have picked up quite a lot especial- organizations to invest in social up an emergency savings fund: they compliance testing annually,” Ms. pacts can be measured and com- ly in 2020,” he said. ATP’s green bonds. can establish a savings mechanism Moen said. municated to plan participants, said bond allocation is 30 billion kroner. “We think that is a necessity for as part of the retirement plan, or Luba Nikulina, global head of re- Another challenge for Mr. Kris- us going forward as we try to build they can set it up separately. An in- ‘New frontier’ search at Willis Towers Watson PLC tensen is selecting the projects to this portfolio. We will not be able to plan emergency savings fund is To avoid the issue of discrimina- in London. “When you issue a social invest in as fund executives have to have a knowledge of local conditions typically nanced with what’s re- tion testing, plan sponsors may opt bond, how do you make sure that study how bond proceeds are dis- so would rely on partners with local ferred to as “traditional after-tax for an out-of-plan emergency sav- commitments that you are making tributed by social bond issuers. “We knowledge and track record to ad- contributions,” which are not to be ings program with an outside ven- ... are genuinely improving social are looking quite a lot into ... a dress local risks,” he said. confused with Roth after-tax con- dor via their record keeper, an ar- issues…. and (that) they don’t have broad range of underlying catego- "We typically look for a frame- tributions. Participants would in ef- rangement that Ms. Moen describes unintended consequences in cer- ries on social issues. That could be work that is aligned with (our) so- fect make after-tax contributions to as “the new frontier” in emergency tain geographies?” she said. anything from water (scarcity) to cial bonds principles and that has their emergency savings funds af- savings. While a stand-alone pro- ghting extreme poverty. We have gone through an external review by ter making either pre-tax or Roth gram, separate from the 401(k) Lack of diversity been very focused on having close an independent party," Mr. Billing after-tax contributions to their re- plan, would be more cumbersome Though social bonds issuance dialogue, active ownership with is- said. tirement accounts. to set up and require separate pay- exploded in the last year, part of the suers to be assured what is behind Alecta then assesses the issuer “It acts almost like a mini bank roll les and employee logins, it problem for investors is that the the underlying projects,” he said. from an ESG perspective before ex- account or savings account within would not have the “dark cloud” of market is not diverse when it comes “We are trying to mimic the strat- amining the speci c bond, he said. your larger 401(k) plan,” Ms. Moen discrimination testing “hanging to issuers, said Kate Hollis, director, egy we had for green bonds with Then executives evaluate the ob- said. over it,” Ms. Moen said. investments at Willis Towers Wat- impact reporting with the issuers jective and what types of project or After-tax contributions for emer- Stand-alone programs, however, son PLC in London. and transparency of underlying activities the bond is nancing, he gencies are typically invested in are in their infancy, with plan spon- The social bond market in terms project data. It’s important that we added. money market or stable value funds sors waiting for record keepers to of issuance was up last year, but continue to that way. Our path is not In June, Alecta invested $100 mil- offered within the plan, she added. roll them out, Ms. Moen said. So far, more than half of that was issuance to compromise on these things,” he lion in a social bond aimed at pro- Traditional after-tax contribu- only a handful of plan sponsors from supranational organizations, added. moting healthy living in emerging tions, which predate Roth after-tax have implemented outside emer- and issuance by government enti- Mr. Kristensen added that ATP markets. The social bond, backed by contributions, were common in gency savings programs because re- ties of China and France, she said. manages its social bonds invest- the Swedish International Devel- plans in the past but fell out of use, cord keepers have not yet built the Climate Bond Initiative data for ments in-house. For the same issu- opment Cooperation Agency, was according to Ms. Moen. Over time, “solution” or partnership, she added. 2020 show that 47% of social bonds er and the same credit quality, ATP issued by a company set up by im- plan sponsors removed the option Once record keepers start rolling were issued by governments and expects the same return regardless pact investment manager respons- from their plans and are now look- out programs in the third or fourth government-backed entities and of whether the bond is labeled as Ability and will nance invest- ing to reinstate it to facilitate emer- quarter as they indicated to her this about 13% was issued by suprana- "social" or not, he added. ments that improve access to health gency savings. spring, Ms. Moen anticipates an up- tional organizations. About 37% was care and sanitation, enhance sus- “It is a little bit we’re coming full tick in the number of plan sponsors issued by corporations. Meeting demand tainable food production, provide circle in terms of plan design,” Ms. making out-of-plan savings options For more opportunities to devel- Alecta Pensionsforsakring, access to nance and reduce pollu- Moen said. available. op, more corporations need to issue Stockholm, which has a 18 billion tion through renewable energy. Probably the biggest advantage “We probably will see much more social bonds, Ms. Hollis said. Com- Swedish kronor ($2.2 billion) allo- of an in-plan emergency savings uptake in that as an option going paring the social bonds market to cation to social bonds, is also inter- Building up option is that plan sponsors can forward as a lot more of these solu- green bonds, she added that “for a ested in expanding its portfolio to Investors in the Netherlands are continue working with their cur- tions are rolled out,” she said. n long-time (the) green bond market satisfy demand coming from its also looking to build up social bond was very heavily weighted to su- bene ciaries. exposures. Oscar Jansen, expert Money Management pranationals but now it’s much However, Alecta’s CEO Magnus portfolio manager credits at APG more diverse.” The green bonds Billing thinks that social bond in- Asset Management, said the rm market increased to just over $1 vestment structures and projects wants to grow its investments to JPMAM strikes deal to acquire trillion in outstanding bonds in available to institutional investors contribute to the sustainable devel- 2020 from $345 billion in 2017. are not easily found. opment goals. timberland manager Campbell Investors that are looking to de- “It’s the supply side that is criti- APG is the in-house manager of ploy money into social bonds this cal for us. We want to see a pipeline €495.3 billion ($599.7 billion) ABP, By JAMES COMTOIS billion in assets and has more year agreed that issuer diversi ca- of opportunities with scale,” he said Heerlen, the Netherlands. than 150 employees, will keep its tion is one of the obstacles that will in an email. “It must make a differ- “As a sustainable investor we J.P. Morgan Asset Management name, brand, leadership and determine if they can get to their ence that we put capital into an in- have been active here and have agreed to acquire Portland, Ore.- Portland of ce. targets. vestment vehicle. That has conse- been able to increase our allocation based timberland and natural re- “This acquisition expands our For example, Lars Dreier Kris- quences on assets that are available to social bonds and more than dou- source manager Campbell Global alternatives offering and demon- tensen, director, hedging and trea- to us for investing.” ble the exposure compared to the from BrightSphere Investment strates our desire to integrate sury at ATP, Hilleroed, Denmark, Mr. Billing said that Alecta has previous year. We expect the mar- Group, according to news releas- sustainability into our business in said the 906.6 billion Danish kroner the same risk-adjusted return re- ket for social bonds to grow further es on June 21. a way that’s meaningful,” JPMAM ($147.6 billion) pension fund plans quirements for social bonds as for which will allow us to increase our Terms of the deal, which is ex- CEO George Gatch said in a news to invest 50 billion Danish kroner conventional bonds. Alecta will in- exposure as well,” Mr. Jansen said. pected to close in the third quar- release. across social bonds and sustainable vest depending on the credit quality He declined to provide the size of ter, were not disclosed. Campbell Global is the sixth bonds — including green bonds — of the issuer and the liquidity risk. the allocation. JPMAM will acquire Bright- boutique manager that Bright- this year. A speci c allocation to so- "We are eager to nd scalability APG evaluates issuers’ use of Sphere’s 75% ownership interest Sphere has sold in the past 12 cial bonds was not disclosed. The to preserve ef ciency. That (has) proceeds using an internal frame- in Campbell Global, and the 25% months, leaving quant manager allocation was created at the start of put some limitations for us to grow work. Currently, APG only invests ownership interest held by Acadian Asset Management as the year. But he said that the fund’s this portfolio,” he added. in bonds issued by supranational Campbell management. BrightSphere’s sole business at ability to get to its target will depend So far, Alecta, which has 900 bil- organizations. Investments match Campbell, which manages $5.3 the completion of all deals. n on the market and the issuance. lion Swedish kronor in assets, has the rm’s risk and return criteria. n 22 | June 28, 2021 Pensions & Investments

are already seeing overboarding as UPCOMING WEBINARS | REGISTER TODAY an “acute issue for some female” di- Japan rectors who are highly sought, Mr. Okamura said. Executives have CONTINUED FROM PAGE 3 come across women in Japan with But struggles remain. “For a mar- ve external director roles, owning ket that has historically had quite their own business and being ad- some challenges lling these roles visers to public institutions, too. — and I’ve spoken to a lot of man- And Harding Loevner’s Ms. Sakai agement teams over the years who is “struggling with (the fact that) say they are looking and have not now, a lot of these independent di- found the right person — we now rectors are overextended — they’re ESG: Focus on Climate Change are going to see more of these issues sitting on multiple boards because, and we are concerned about that,” once they’re on one board, hun- Live, Wednesday, June 30 • 2:00 p.m. - 3:00 p.m. ET said Kei Okamura, Tokyo-based di- dreds of companies come to ask With ESG investing at the forefront for asset owners and asset manag- rector of Japan investment steward- DON’T MOVE TOO FAST: Yoko Sakai them to join theirs. We want them to ers, climate considerations are center stage. It’s no longer ‘if’ but ‘how’ ship at Neuberger Berman Group worries about tokensim if change be effective, but if a company nom- you are managing climate exposure. All stakeholders, from investors LLC. “We’re concerned companies happens too quickly. inates an independent director who and regulators to customers and employees, are pushing companies might take a mechanical approach” is overextended, do I vote against to be more sustainable and climate aware—and many are meeting the and appoint directors without the board member starting the next s- them? It’s a very tricky situation.” challenge. So how can asset owners make sense of the daily headlines necessary experience. “If those peo- cal year, while Goldman Sachs As- When a crisis does  are up at a on climate-related developments so they can best position their portfo- ple get picked, what you essentially set Management took its policy of company, the time demands on lios for long-term risk-adjusted performance? have is a board of yes men and having a woman on every corporate such individuals are huge — “which women,” he said. Neuberger Ber- board global last year and will vote is why we take overboarding into This informative deep-dive by ESG experts will reveal both the man has $402 billion in assets under against any company that doesn’t account,” Mr. Okamura said. heightened risks and growing investment opportunities of the climate management. have female representation. transition to a net-zero emissions economy. They encourage a holistic “We were in a situation where, Overblown issue view of climate across the portfolio, to look across existing sectors and Beware of tokenism until recently, about half the compa- GSAM’s Mr. Vilburn does not emerging winners. Tokenism is a “risk we have to be nies didn’t have a woman on the think there’s an issue with diverse aware of — the concept (of adding board in Japan,” said Chris Vilburn, or independent talent in Japan, per Register Now: more women, for example) to head of Asia stewardship at GSAM se. “There’s a lot of highly quali ed boards was so new, nobody really in Tokyo. In the year after the policy people, women, external directors pionline.com/ESGClimateChangeWebinar knew what we wanted,” said Rob came on a global basis, starting in for those roles. I do hear anecdotal- Sponsored by: Hardy, corporate governance direc- April 2020, the rm voted against ly from companies saying it is a tor at Capital Group Cos. in London, 521 companies on the basis of a lack very tight market for the directors which has $2.38 trillion in AUM. of board diversity — “that’s quite a they want to hire, placement agen- And as much as Yoko Sakai, di- lot of companies in Japan only.” cies saying that’s highly in demand rector of research and Japan ana- While Mr. Vilburn hasn’t yet seen right now, but we’re not really see- lyst for $80 billion manager Hard- the numbers for 2021, “we have ing places where we think directors ing Loevner LP, “would like to have seen more companies adding their have been overboarded or we have women promoted, I’m a little skep- rst woman,” with some adding concerns about them on the board. Politicizing of Investments tical of meaningful change hap- multiple women. The rm has $2.2 Companies may need to look be- Live, Wednesday, July 06 • 8:00 a.m. - 9:00 a.m. ET pening overnight. If a company trillion in AUM. yond the narrow pool of who they came up with multiple women on The independence of board know in their industry — that’s the With growing societal consensus, and increasing political pressure the board ... I’d be suspicious that members is also an area managers point,” he said. and stricter regulatory frameworks, specifically via EU regulation, the they had increased gender diversi- are approaching with caution, with However, the concept of over- question is how ‘politicized’ investing may become, and whether these ty so quickly.” numbers showing improvement: In boarding was also recognized with- frameworks leave suœcient leeway for optimal investment activity. The She said one reason for suspi- 2020, 36% of board members were in the revised codes, with a require- session will discuss with leading German pension-providing institutions cion is that for the University of To- independent, up from 27% in 2019, ment for a skills matrix to map out how to best match fiduciary duty with ESG-integration and responsible kyo’s 2021 spring admission, only T. Rowe’s Mr. Ciganer said. board directors’ expertise. investment principles. Topics will include: 21% of students are women. “It’s hard enough to nd male in- “It’s quite appropriate, and espe- The need to be aware of token- dependent directors in Japan be- cially in terms of skill set of the can- • What are the consequences of societal changes, a growing GIG ism on Japanese boards comes at a cause lifetime employment in one didates, (that) companies are now economy, and the social divide, for financial markets and pension- time when many money managers company and only knowing that having to disclose what are the providing institutions? have been upping their corporate company means it’s hard to nd skills that these diverse candidates • What new needs arise in pensions & social security, and what are governance guidelines to include, quali ed people who can act as in- have,” said Shizuko Ohmi, To- the consequences for professional investing? in some cases, at least one woman dependent directors on another kyo-based head of investment • Is there need to re-design investing in a pension-providing institu- on boards. business,” said Harding Loevner’s stewardship, Japan at J.P. Morgan tion? T. Rowe Price Group Inc. formal- Ms. Sakai, who is based in Bridge- Asset Management, which has $2.8 • What are the best and brightest approaches for balancing pension ized its gender diversity policy with water, N.J. trillion in AUM. “In discussions needs vs. political/societal/environmental “externalities”? a central tenet of voting against any The reality of smaller talent with these companies, they explain Japanese company with no female pools, requirements for increased it is a good exercise for them to board representation. The rm has diversity and independence of think about what is the strategy for Replay availale: pionline.com/WPS-Webinar $1.59 trillion in AUM. board members has led managers future growth — digital, IT innova- “Progress is slow, but inroads to caution against overboarding, tions, ESG,” she said. Skill matrixes are being made in this area — Jap- too. also makes engagement between Sponsored by: anese companies without a single “We don’t want to see directors companies and money managers female director or female of cer, sitting on too many” boards, Capital easier. “We can talk about why they for example, shrank from 55% in Group’s Mr. Hardy said. The rm is chose this kind of candidate, based Canadian Pension Risk Strategies 2019 to 50% in 2020,” Archibald aware that suitably quali ed female on what they think about the skill,” Ciganer, Tokyo-based portfolio board members may be over- Ms. Okhi said. Live, Wednesday, July 14 • 2:00 p.m. - 3:00 p.m. ET manager of the Japan equity strat- stretched due to high demand for Harding Loevner’s Ms. Sakai egy at T. Rowe, said in an email. their expertise on different boards, and Neuberger’s Mr. Okamura Risk management for pension plan sponsors is always top of mind but The fund had €1.9 billion ($2.3 bil- “with them being pulled in different agreed the skills matrix will be today, amid the COVID-19 pandemic, which has wreaked economic lion) in assets as of May 31. directions. We try to be pragmatic helpful, helping executives to see havoc around the world, it’s become more critical than ever. Hibernation about overboarding with more fo- the expertise that women in par- and pension risk transfer remain valid strategies but the approach may J.P. Morgan, Goldman Sachs cused discussions about board time ticular add and helping to address have to be di‰erent. At the same time, managing volatility has taken on J.P. Morgan Asset Management commitment and how skills evolve.” other concerns in terms of poten- renewed urgency. This Canadian Pension Risk Strategies webinar will will require at least one female Neuberger Berman executives tial skill gaps.  provide pension plan sponsors with actionable information for decision- making, planning and implementation of risk management strategies that best fit their pension plan. and policies, and evaluating them in light of the new guidance and Replay Available: pionline.com/CRISKWebinar Dive into the EBSA making determinations whether there need to be any changes,” Mr. CONTINUED FROM PAGE 2 Sponsored by: talent pool Hawes said in a phone interview. and very commonly understood “To have a deep and fulsome au- principles,” Mr. Khawar said. dit initiative coming before ducia- Recruit the best talent But Matthew H. Hawes, a partner ries have much of an opportunity to in the industry with with law rm Morgan, Lewis & fully digest and address their own Bockius, is surprised the EBSA is policies, procedures, guidelines and P&I Classi eds. asking plan duciaries about their practices is really surprising and cybersecurity practices this soon even a little bit unfair,” he said. “But after issuing the guidance. from the DOL’s perspective, they “Plan duciaries are still digest- might say, ‘None of guidance should For a full list of webinars, go to pionline.com/webinars Call 1 800 624-8387 ing this and they’re still looking at be all that surprising, we’ve always their existing practices, procedures believed that this in the scope with- Pensions & Investments June 28, 2021 | 23

Regulation U.K. DC plans get OK for illiquid fee smoothing Goal is to help DC plans the charge cap. “However, Govern- provide clarity for schemes and aid The government in September ment believes that carried interest those schemes which wish to add launched a consultation on new invest in illiquids and not is a cost and should be subject to a illiquid asset investment into their regulations to require trustees with breach annual charge cap cap in the same way as other invest- portfolio but have felt inhibited by plans smaller than £100 million ment costs,” the government said in current rules.” ($141 million) in assets to justify a document outlining responses However, the PLSA warned that their continued existence via a new- By SOPHIE BAKER and its decision. “Some respondents other factors such as the cost and ly introduced “value for members” suggested that the Government transparency of illiquid invest- assessment. The assessment comes Performance fees incurred by should therefore not cap a cost that ments, as well as the competitive into force in the fall. U.K. de ned contribution plans in- is only incurred when and consolidating na- That assessment marked “phase vesting in illiquid assets may be members receive higher ture of the U.K. DC one and now we turn to phase two smoothed over ve years starting net returns. We have market, means the which will be looking to drive con- NEW LEADER: David T. Veal was Oct. 1, the government said. concluded that the changes “will only have solidation further and faster,” Mr. named the next CIO at the Texas Following a consultation with the charge cap and inclusion a minor impact on as- Opperman said. Employees Retirement System. industry on encouraging invest- of performance fees set allocation and there There were 1,560 DC plans in the ment in illiquid assets, the govern- within it protect mem- is unlikely to be a U.K. in 2020 and 36 authorized mul- Pension Funds ment said it will move ahead with a bers from high fees that wholesale switch into tiemployer DC plans known as mas- proposal to allow for performance do not improve value for illiquid investments.” ter trusts, which have more than fees associated with private equity, money.” Also on June 21, the £52.7 billion. The number of DC infrastructure and other alterna- The move was, in gen- Department for Work plans has been falling by between Texas state tives to be accounted for over a ve- eral, welcomed by the CLARITY: Joe Dabrowski and Pensions launched 8% and 10% each year, with the gov- year period, rather than one year. Pensions and Lifetime says the PLSA supports a new consultation pa- ernment predicting that there will The aim is to help DC plans to in- Savings Association. “We the move but welcomes per on further consoli- be about 1,000 DC plans operating plan gets its vest in illiquids without breaching support the govern- more guidance. dation in the DC mar- in ve years’ time. an annual charge cap of 0.75% of ment’s intent to facilitate ket. The latest consultation will look plan assets. DC schemes’ investment in the wid- “We know from other countries at barriers and opportunities to next CIO from The government received 35 re- est range of assets including, illiq- such as Australia that scale is the greater consolidation of retirement sponses to a March consultation on uid assets, private markets and oth- biggest driver in achieving value for plans with between £100 million the proposal, with the overwhelm- er alternative investments, and money for savers and ultimately and £5 billion in assets. The govern- ing majority of respondents sup- maintenance of the charge cap,” better retirement outcomes,” said ment wants to know in particular Austin system porting the objective of giving DC said Joe Dabrowski, deputy director, Guy Opperman, minister for Pen- about incentives for consolidation plan trustees exibility to incorpo- policy, in an emailed comment. “We sions and Financial Inclusion, in an among these plans. David T. Veal was selected rate performance fees within the therefore believe proposed calcula- introduction to the paper. “Further Responses to the latest consulta- to be the next chief invest- charge cap. tion adjustments for performance consolidation will drive better out- tion should be sent by email to the ment of cer of the Texas Some respondents proposed that fees and additional guidance on comes for members through better DWP by July 30. The government Employees Retirement Sys- performance fees should be com- costs excluded from the charge cap governance and greater investment aims to publish its own response tem, Austin, the system an- pletely or partially removed from while holding physical assets will in illiquid assets.” later this year. n nounced. Mr. Veal will join the $34 billion pension fund in Au- weighting differs from the policy The board adopted the active risk gust following the retire- weighting,” she said. budget to allow staff to move equity ment of CIO Charles Thom- Tracking Arnold B. Phillips, interim depu- investments between passive and as “Tom” Tull, who in 2020 ty CIO, said in an email that the active management. had announced plans to re- CONTINUED FROM PAGE 2 separate, annual asset allocation In July, the CalSTRS board is ex- tire this summer. Public Employees’ Retirement Sys- tracking-error limit of 0.75% pected to decide whether to adopt Mr. Tull joined the pension tem, Sacramento. Staff would like to wouldn’t be needed because the ac- active risk budgets for its xed in- fund in 2009 as director of switch to what they call an “action- tionable tracking-error calculation come as well as its sustainable in- strategic research. He was able tracking error” approach. for the total portfolio would take vestment and stewardship strategies named CIO of ERS in 2012. According to proposed invest- that into account. portfolio, said CalSTRS spokesman Mr. Veal has been CIO of ment policy changes shared with the “The asset allocation impact on Thomas Lawrence in an email. the $3.2 billion Austin (Tex- investment committee, CalPERS tracking error comes from the devi- The active risk budget gives staff as) City Employees’ Retire- would remove a requirement that ations between the total fund port- more exibility to invest in the “best ment System for the past ve the asset allocation for its entire folio and the policy benchmarks for opportunities across global markets, years. Prior to that role, he portfolio be managed within a target the asset classes de ned in the stra- regardless of the region,” the report held leadership roles with forecast annual tracking error com- tegic asset allocation,” Mr. Phillips to the CalSTRS board said. the $179.9 billion Texas pared to its benchmark of 0.75%. The said. “The asset allocation contribu- Teacher Retirement System, asset allocation limit of 0.75% im- tion is just one piece of the calcula- IT’S IN THERE: Arnold B. Phillips said the Closely related concepts Austin, where he was the di- plies that during any one-year peri- tion of both total, and actionable actionable tracking error would take into During an educational session on rector of strategic partner- od, there will be less than a 5% prob- tracking error.” account asset allocations. tracking error in November, Mi- ships and research; and ERS, ability that the active asset allocation If adopted, the total fund would chael Krimm, an investment direc- where he was the global return will fall less than 1.2%, the instead have an active risk target actionable tracking error but de ne tor at CalPERS, explained that strategist and portfolio man- existing investment policy said. “consistent with forecast tracking it differently by “ignoring the alloca- tracking error and risk budgeting ager for emerging markets. The asset allocation requirement error” of up to 1% relative to its tions within various asset classes.” are closely related concepts. Regarding Mr. Veal’s re- in the existing investment policy benchmark. The proposed method- CalPERS would include those allo- The idea of risk budgeting is ba- placement, Christopher captures the asset class deviations ology would remove alternative in- cations, he said. sically the question “of how you … Hanson, executive director in CalPERS’ total fund relative to its vestments from its calculation as CalPERS is not alone in consid- budget or allocate risk,” Mr. Krimm of the Austin employees’ asset allocation targets, said CalP- well as eliminate annual track- ering how it measures risk and the said. “That includes questions like, fund, said in an email that ERS spokeswoman Megan White in ing-error limits. value of tracking error across its what should our tracking error “our investment team will an email. portfolio. limit be?” continue to (manage) the “Any underweights or over- Different definitions CalSTRS, for example, modi ed He added that the topic of risk day-to-day operations of the weights in any asset class relative to During its June 14 meeting, Mr. its approach in 2020. In March of budgets is “really a broader topic investment program. Right the policy benchmark create track- Phillips told the investment com- that year, the board adopted a track- about plan investment strategy, now, we’re focused on the ing error because our portfolio mittee that other asset owners use ing-error approach for risk budget- more broadly.” transition of David’s depar- ing in its global equity portfolio. Rather than adopt a risk budget ture and in due time we’ll Its global equity portfolio is now like CalSTRS, per se, when it comes have more to share about in the duciary’s responsibilities.’” understand the Labor Depart- managed within an annualized to active strategies, staff has been our plans to replace (him) in In speaking with clients, Mr. ment’s expectations to see whether forecast active risk range of 10 to 50 given discretion by the CalPERS the role.” Hawes said that some of EBSA’s cy- they need to make any changes to basis points, according to the policy. board to deviate from the policy Mr Veal was unavailable bersecurity inquiries focus more on their cybersecurity practices and The $299.8 billion California State portfolio, CalPERS’ Ms. White said. for an interview. gathering information, while others policies. Teachers’ Retirement System, West “The question is how this discre- Executive search rm ask for documents and much great- Looking ahead, EBSA intends to Sacramento, had formerly had static tion should be managed/allocated,” Korn Ferry assisted Texas er detail as outlined in the guid- issue further cybersecurity guid- targets for active and passive strate- she said. “We have a continuous ERS with the search. ance. ance, Mr. Khawar said. “One of the gies, a report to the board at its CIO-level process of planning, as- Mr. Veal is a graduate of “We don’t know which direction things that we’re going to continue March 2020 meeting said. sessment, allocating and monitoring Auburn University and holds or what the avor of these audits is to do outreach about and monitor as Those targets were that 30% of of investment risk across the plan.” an MBA from the University going to be as the initiative contin- we continue along this path is CalSTRS’ U.S. equity portfolio was It is more of an ongoing activity of Michigan. Mr. Veal also ues to evolve,” Mr. Hawes said. “DOL where else guidance might be help- to be actively managed, 50% of non- than risk budgeting, she said. served for six years as a U.S. audit initiatives may start out in one ful,” he said. “I think this is going to U.S. developed equity portfolio was “We are hesitant on the term Navy of cer, where he was spot, but they can evolve over time.” be an enforcement priority for the to be actively managed and 100% of ‘budgeting’ as allocating risk is a lot twice decorated with the Navy Mr. Hawes said plan duciaries foreseeable future. It is a critically the emerging markets equity port- more nuanced than just allocating Commendation Medal. n should review the guidance and important issue.” n folio was to be actively managed. tracking error,” Ms. White said. n 24 | June 28, 2021 Pensions & Investments AT DEADLINE said Fred Reish, a partner in Faegre sured approach to reviewing it and Drinker Biddle & Reath LLP’s ben- analyzing it and providing feedback Fiduciary e ts and executive compensation through the regulatory process,” he about the way such incidents were practice group. “It’s not so much said. Ind. adds $1.4B to fund CONTINUED FROM PAGE 1 handled by BlackRock. about a person 30 years old leaving It’s far too soon to say whether Trustees of the Indiana Public At the time, BlackRock said it place, including in the ways advis- their job and putting money in an the rule will face a legal challenge, Retirement System approved a would take action to improve the ers are compensated that can sub- IRA, this is really about baby boom- Mr. Berkowitz added, but “given the $1.4 billion increase in the ject advisers to harmful conicts of ers retiring in a de ned contribu- stakes here all options do have to situation, including creating a allocation to Bridgewater interest,” the department said. tion world.” remain on the table and we’ll wait dedicated investigations team, Associates All-Weather II risk-pari- “There are a lot of career people and see how things play out.” and then retained law rm Paul, ty fund from the system’s $36.7 at the DOL still working there and Another challenge? The previous case decided in Weiss to conduct a review and billion de ned bene t plan, during it’s not clear to me that their views As it currently stands, the ve- 2018 was led by business groups provide recommendations. a June 25 meeting. would have necessarily changed part test makes it “too easy” for - such as the U.S. Chamber of Com- As a result of the review, just because of the 5th Circuit’s ac- nancial rms to avoid duciary ob- merce, the Financial Services Insti- The additional allocation brings BlackRock is taking action in four tion,” said Joshua A. Lichtenstein, ligations under ERISA, said Barbara tute, the Financial Services Round- the total invested in the risk-parity areas, Mr. Fink said: providing an ERISA and bene ts partner in Roper, Pueblo, Colo.-based director table, the Insured Retirement fund to $3.7 billion to meet a new more support for employees with New York who heads Ropes & Gray of investor protection at the Con- Institute and the Securities Indus- 10% target allocation of the LLP’s ERISA duciary practice. “So sumer Federation of America. try and Financial Markets Associa- concerns, providing more clarity system’s de ned bene t plan. I am expecting to see a pretty ful- She would like the Labor De- tion. around processes to investigate Trustees approved INPRS’ staff some rewrite of the de nition of partment to ensure all Stakeholders are misconduct, reinforcing account- recommendation to increase the who is a duciary.” rollover recommenda- also watching how the ability and continuing to invest in system’s investment in the Bridge- In 2018, a three-judge panel at tions are considered - SEC, with Gary Gensler its human resources team and water fund to up to 15%. Prior to the 5th U.S. Circuit Court of Appeals duciary investment ad- at the helm since April, processes. in New Orleans vacated a Labor vice and close the will enforce its best-in- the increase, Bridgewater’s All BlackRock has $9.01 trillion in Department rule, commonly known “loopholes” in the du- terest standard, known Weather II fund represented 6.2% assets under management. as the duciary rule, in a 2-1 deci- ciary de nition. as Reg BI. of total DB plan assets. sion because it said the department But much like with The best-interest Funding for the increase in the exceeded its legal authority. the 2016 rule, Ms. Roper standard was the cen- Bridgewater is to come from the Maine IRA bill now law The duciary rule, nalized in expects the Labor De- terpiece of a package change in the system’s risk-parity Maine Gov. Janet Mills signed 2016 under the Obama administra- partment to face a legal designed to address the allocation to 20% from 12% that into law legislation that creates tion, broadened the de nition of challenge if it broadens CINCH IT UP: Barbara obligations of bro- trustees approved at their May 7 an automatic IRA for workers when a person or entity was taking the duciary de nition. Roper would like to see ker-dealers and invest- meeting, INPRS spokesman whose employers don’t offer on duciary responsibilities and re- The Employee Bene- ‘loopholes’ closed in the ment advisers when Dmitri Kyser said in an email. retirement plans. placed the ve-part test used to de- ts Security Adminis- duciary de nition. they provide recom- termine whether an investment tration takes “judicial mendations or invest- Increasing the allocation to the Starting April 1, 2023, professional or nancial institution decisions into account when pursu- ment advice to retail investors. It employers with 25 or more All Weather fund will decrease the is a duciary. ing rule-making,” A Labor Depart- was adopted in June 2019 and went blended management fee for eligible employees must offer the The Labor Department last year ment spokesman said in an email. into effect June 2020. Shortly before INPRS from 0.261% to 0.257%, program in which participants will under the Trump administration “The 5th Circuit’s decision will the rule package took effect last system staff said in the report. make contributions by payroll reinstated the ve-part test and in shape our thinking on approaches year, the SEC said initial examina- Bridgewater’s assets under deduction. the preamble to an investment-ad- to these issues.” tions would be less onerous and fo- management in four funds for The law requires employers to vice exemption that took effect in Jason Berkowitz, chief legal and cus on “good faith” efforts because INPRS will total $4.8 billion or 13% offer the auto IRA, but they aren’t February, said the ve-part test ap- regulatory affairs of cer at the In- of the disruptions caused by the of de ned bene t assets from considered duciaries and aren’t plies to rollover recommendations. sured Retirement Institute in COVID-19 pandemic. In January, it “I think there’s concern in the Washington, expects the Labor De- announced the scope of its exam- 9.2% prior to the change in the All required to contribute money to department and in general that partment to expand the de nition inations would expand. participants’ retirement accounts. Weather fund, making the rm people go from retirement plans to to include rollovers. “We don’t feel During testimony before the INPRS’ largest DB plan manager, Participant contributions will be IRAs — a retail environment where that that’s an appropriate move, but House Financial Services Commit- followed by Paci c Investment made to a Roth IRA. Initially, there are higher costs, less protec- we’ll reserve judgment until we see tee in May, Mr. Gensler said it’s im- Management Co. (11.3%) and covered employees must tions from conicts of interest and exactly what they propose, and portant that “investors actually RhumbLine Advisers (11.1%). contribute 5% of pay, but they can there isn’t a duciary standard,” we’ll take a thoughtful and mea- have brokers take their best inter- drop out of the program at any OCERS allocates $150M time and they may contribute more or less, the law says. TCW, with $253 billion in assets partners) have a track record that is The board of the Orange County under management as of March 31, clearly attributable to them,” said Employees Retirement System Tirschwell has maintained in court lings and Allan Majotra, managing partner, committed $150 million to two Ohio fund assigns $100M in written statements that Ms. Americas, Europe, the Middle East CONTINUED FROM PAGE 3 alternative investment funds. The $17.4 billion Ohio School Tirschwell’s allegations are “with- and Asia, at placement agent 5Cap- Pension of cials on June 23 Employees Retirement System interview with Pensions & Invest- out merit.” ital Funds Placement LLC, speak- committed $75 million each to committed $100 million to Carlyle ments. “The big name brand rms “Ms. Tirschwell was properly ter- ing generally about emerging man- EQT Infrastructure V and Crayhill Credit Opportunities Fund II. won’t let anybody take their track minated as a result of repeated agers, in an email. “What is most records. Pension funds have got to compliance violations,” TCW said in important for us is (the team’s) Principal Strategies Fund II. The pension fund’s board be willing to take that risk” to invest a statement to P&I in May 2021. track record or a very high convic- approved the commitment to the Separately, OCERS approved a with new rms owned by women “TCW is proud of its inclusive tion from our side that they will be private equity pacing plan in which direct lending fund managed by and minority investment executives culture and has a zero tolerance a rst-quartile fund in the future,” it would commit $275 million in Carlyle Group at its June 17 who cannot present an audited policy for any form of predatory be- he said. 2021 and $700 million in 2022, meeting, a spokeswoman said in track record from their prior rms havior,” TCW said in a statement But isolating a single person’s as it seeks to move its portfolio an email. for this reason, said Ms. Tirschwell, soon after Ms. Tirschwell led her track record can be dif cult. There toward a 13% private equity target As of April 30, the actual a former managing director of complaint. TCW added that with is often more than one portfolio allocation. OCERS’ plan calls for it allocation to global private credit TCW’s distressed debt strategy regard to Ms. Tirschwell’s allega- manager on a fund and a single in- to make commitments of $20 was 1.8%; the target is 3%. group. tions, the rm had engaged an in- vestment can involve multiple If institutional investors contin- dependent investigative rm to ex- teams at an alternative investment million to $100 million each to 10 ue to invest mostly with the big, amine the allegations and rm, industry insiders say. Some- to 13 funds or strategies. Sonoco unloads liabilities brand-name alternative investment determine the facts. times, very senior executives such Sonoco Products Co. entered rms, she said, they will have more In 2018, TCW wound down the as investment committee members, BlackRock audits conduct into an agreement to purchase correlated returns. That’s not nec- roughly $50 million distressed debt can negotiate the use of their track The world’s largest money group annuity contracts from essarily a problem until they are fund that Ms. Tirschwell had run, records when they are hired or manager is overhauling the way it Athene Annuity & Life Co. and not all doing well. according to two letters to investors when they leave, but more junior In Ms. Tirschwell’s lawsuit, led at the time. Her departure triggered executives may have to leave with- handles employee concerns Athene Annuity & Life Assurance in January 2018 against TCW, Jess a key-person event that gave inves- out one. What’s more, junior as well about workplace misconduct, Co. of New York to transfer about Ravich, her former direct supervi- tors the right to request a redemp- as senior executives could be following an external review and $900 million in U.S. pension plan sor at TCW, and David Lippman, tion. barred for a limited time, typically accusations of inappropriate or liabilities. TCW president and CEO, Ms. A trial date on the lawsuit has yet up to a year, from reaching out to intolerant behavior. The company’s June 17 Tirschwell alleges she was red in to be scheduled. limited partners with whom they BlackRock’s CEO Laurence D. agreement with the Athene December 2017 after she had have relationships. “Larry” Fink outlined in a memo to Holdings subsidiaries will transfer lodged a sexual harassment com- A calling card None of the 52 female executives all staff its new action plan to about 8,300 participants in the plaint with TCW against Mr. Ravich, A track record is an investment surveyed for a 2020 Investec report ensure every employee feels Sonoco Products Pension Plan for then group managing director and professional’s calling card. It re- said they would start their own pri- head of alternative products. ects the particular investments vate equity rm if they left their “welcomed, included, and safe.” Inactive Participants, according to The complaint, led in state the person was involved with and current employer, down from 2.3% Mr. Fink said he found it its June 23 8-K ling with the SEC. court in New York, seeks at least $30 the results of the investment, in- in the prior year report. By compar- “disturbing” to read stories As of Dec. 31, 2019, the million and punitive damages for dustry insiders say. A veri able ison, 15% of men said that they earlier this year of “inappropriate Sonoco Pension Plan for Inactive unlawfully terminating her, breach- track record is indispensable for would start their own rm, the re- or intolerant behavior recounted Participants had $1.3 billion in ing her employment contract and anyone wishing to start a money port stated. by former employees.” Some assets, according to the plan’s violating the New York City Human management rm, industry execu- The report noted that starting a accusers also raised concerns most recent Form 5500 ling. Rights Law, which bars discrimina- tives say. private equity rm is the quickest tion on the basis of gender. “It is important that new (general route to the leadership ranks of as- Pensions & Investments June 28, 2021 | 25

est at heart and that’s what we’re However, many U.S. district court April 13 in the case of McGowan et the Thole decision and asked plain- going to do through examination judges have ruled that the distinc- al. vs. Barnabas Health Inc. et al., in tiffs to provide “their theories of and enforcement, (and) guidance to ERISA tions between DC and DB plans are which retirement plan participants damages” caused by the defen- ensure that that rule is fully com- clear. alleged ERISA violations tied to dants. CONTINUED FROM PAGE 6 plied with as written.” For example, a federal court high-cost investments and allowing “Their alleged injuries are at best Because the rule doesn’t have The Supreme Court’s ruling, judge in Detroit on March 31 reject- high record-keeping fees. speculative, not concrete,” he wrote. speci c de nitions of terms like written by Justice Brett Kavanaugh, ed a motion to dismiss in the case of Writing that defendants’ argu- “Plaintiffs have not established “best interest” and “conicts of in- has provoked debate among ERISA Davis et al vs. Magna International ments stretched Thole “too far,” U.S. standing to pursue the claim re- terest,” the SEC’s interpretation will attorneys because of several pas- of America Inc. et al., in which par- District Court Judge Kevin McNulty garding an alternative capital pres- be what’s enforced, Mr. Reish said. sages about DC vs. DB. “Of decisive ticipants alleged a series of ERISA wrote that the Supreme Court “ex- ervation option.” A Democratic-led SEC is likely to importance to this case, the plain- violations related to alleged plicitly distinguished the case of a Attorneys also point to another focus more on the cost differentials tiffs’ retirement plan is a de- poor-performing investments and de ned contribution plan like this case, now before the 3rd Circuit investors pay and the different ned-bene t plan, not a de- plan costs. “This court declines to one here.” Court of Appeals, Philadelphia, that commission incentives nancial ned-contribution plan,” said the extend Thole to de ned contribu- Mr. Whitney pointed out that could elevate the debate over professionals receive for giving ad- second paragraph in the Supreme tion plans,” wrote U.S. District Court “courts post-Thole have generally whether the Thole decision applies vice than a Republican-led SEC Court’s June 1, 2020, opinion. Judge Nancy G. Edmunds. rejected the argument that a plain- to DC plans. would have, Mr. Reish added. DB participants receive xed Plaintiffs have standing to sue tiff’s ERISA challenge must be con- On May 18, the court agreed to “Republicans still want to protect monthly payments that “do not “because they allege actual injury ned to the individual funds in hear an appeal by Universal Health investors — it’s just, ‘Where is the uctuate with the value of the plan to their own plan ac- Services Inc. chal- line drawn and how heavily should or because of the plan duciaries’ counts and they al- ‘You will need lenging class certi - nancial intuitions be regulated?’” good or bad investment decisions,” lege injury in fact cation granted by a he said. he wrote. By contrast, in DC plans, that is causally relat- several appeals Philadelphia federal Ms. Roper said Reg BI is “too “the retirees’ bene ts are typically ed to the conduct court decisions court judge in an ER- weak and unde ned to deliver the tied to the value of their accounts, they challenge on ISA complaint led promised protections of a true and the bene ts can turn on the behalf of the plan,” to nail this by participants in the best-interest standard backed by plan duciaries’ particular invest- she wrote. down. ERISA is company’s 401(k) meaningful restrictions on harmful ment decisions.” A federal judge in plan. incentives,” in an April letter to Mr. Mr. Kavanaugh concluded that Charlotte, N.C., re- full of In October 2020, Gensler. She would like the SEC to “the plaintiffs have no concrete buffed a Thole-based questions.’ U.S. District Court clarify “best interest” and state how stake in this dispute” and no stand- request on March 31 Judge Mark Kearney it will determine whether rms are ing to sue, adding that “winning or for dismissal in the COHEN MILSTEIN rejected Universal’s adequately mitigating conicts of losing this suit would not change case of Jones et al. vs. SELLERS & TOLL’S motion for partial interest. the plaintiffs’ monthly pension Coca-Cola Consoli- KAREN HANDORF dismissal in the case Others, like Mark Quinn, San Di- bene ts.” dated Inc. et al. in based on its claim ego-based director of regulatory af- which current and that participants fairs at Cetera Financial Group, ‘Major overreach’ former participants lacked standing to Inc., a network of independently Plaintiffs’ attorneys said the alleged ERISA violations for re- which he or she invested.” sue regarding plan menu options in managed broker-dealers, said Reg court’s opinion was clear. “Efforts to cord-keeping fees and high tar- which they didn’t invest. BI de nes best interest well enough extend the scope of Thole to DC get-date costs in the company’s A rare victory “The Supreme Court in Thole so rms know what’s expected. plans are a major overreach and 401(k) plan. Sponsors’ attorneys point to a and the Constitution require plain- All the while, through the rst have generally been dead on arriv- For DC plans “where future ben- rare DC-plan victory in which a tiffs demonstrate a concrete stake year of Reg BI, there haven’t been al,” said Kai Richter, who represents e t payments would be affected by federal District Court judge cited in the outcome of each of their any major compliance issues, stake- participants in ERISA cases and is the outcome of a lawsuit, courts are the Thole decision and other Su- claims — the employees have done holders said. a partner at Nichols Kaster PLLP, more likely to nd an injury-in-fact preme Court and federal court rul- so here,” he wrote. Brynn Rail, a partner in the asset Minneapolis, in an email. suf cient” to permit standing to sue, ings in granting summary judgment The judge also granted class cer- management group at Ropes & Ms. Ross, the sponsor’s attorney, wrote U.S. District Court Judge in August 2020 against plaintiffs in ti cation for some 60,000 partici- Gray, does not expect the new ad- uses “reach” in a different way. Dis- Frank D. Whitney. The plaintiffs the case of Ortiz et al. vs American pants. Universal’s appeals court pe- ministration to make any major trict court judges who rejected the “have properly alleged they suf- Airlines Inc. et al. tition challenged class certi cation changes to Reg BI. It wasn’t includ- Thole defense by DC plans “really fered an injury-in-fact.” Two months earlier, U.S. District because the three plaintiffs invest- ed in the SEC’s semiannual regula- reached far to justify their position,” A federal court judge in Newark, Judge John McBryde, Fort Worth, ed only in seven of 37 menu options tory agenda released June 11. n she said. N.J., rejected a motion to dismiss on Texas, informed both parties about cited in their original complaint. n set management, but women aren’t Kempner. They knew about me as But the lack of a track record also tations,” he said. Cantor Fitzgerald who was killed on considering it because successfully an investor and … Davidson Kemp- hurt her attempts to raise capital TCW also marketed the fund to 9/11. forming a new private equity rm ner talked to Aurora on my behalf.” for her new fund when she was at friends and family in late 2016, and “requires a signi cant track record While Davidson Kempner pro- TCW, she said. between March 1, 2017, and No- Looking back and a certain level of seniority that vided a reference check for her, it Salespeople refused to pitch her vember 2017, TCW made about 400 Ms. Tirschwell said the dis- women are still less likely to have did not help Ms. Tirschwell secure fund, even to asset owners with solicitations to 100 potential inves- tressed investment industry was achieved.” seed funding for her rm, said whom she already had a long-stand- tors, Mr. Carieri said. more diverse when she started According to Preqin’s Women in spokesman Steve Bruce, in an ing relationship from her 11 years In May, an appellate court in working in money management Alternative Assets 2021 report, email. The rm declined to com- at Davidson Kempner because she New York reinstated a retaliation close to 30 years ago. The business even though 20.3% of employees at ment on its practices regarding the couldn’t produce a track record, she claim Ms. Tirschwell had brought was left to “the nerds,” she said. private equity and venture capital use of track records. said. At the same time, even before against TCW and Mr. Lippman and “It attracted the mis ts of Wall rms were women at the end of Her plans to form a rm, howev- she joined TCW as an employee her request for punitive damages. Street. People who couldn’t get jobs 2020, few female executives have er, went awry. she failed to qualify for pension The appellate court also ruled that being white-shoe investment bank- advanced to senior levels. Only Aurora pulled its investment, Ms. funds’ emerging manager programs the lower court had properly let ers,” Ms. Tirschwell said. “Because it 12.2% of senior private equity exec- Tirschwell said. In April 2016, Au- because TCW was backing her, stand Ms. Tirschwell’s gender dis- was a mis t crowd, it attracted a dis- utives and 13.7% of senior venture rora went out of business. When the which made the distressed fund crimination claim against Mr. Rav- proportionate number of women.” capital executives were women, seed money evaporated, Mr. more dif cult to raise, Ms. ich, based “on plaintiff’s claims that The smaller number of women Preqin data showed. Kamensky dropped out of the ven- Tirschwell said. Ravich used his supervisory posi- manager executives today will not ture, she said. TCW directed requests for com- tion to pressure her into having sex change until asset owners insist Earlier ambitions According to court documents, ment to documents it has led in with him and withdrew support for that managers promote more wom- Before joining TCW Group, Ms. Ms. Tirschwell was introduced to the lawsuit. her at work after she stopped re- en and minorities into senior in- Tirschwell said that she and former TCW by Mr. Ravich. She joined In an af davit in support of Mr. sponding to his sexual advances.” vestment roles and support those Paulson & Co. executive Dan TCW in May 2016, initially as an in- Lippman and TCW’s 2019 motion who strike out on their own with Kamensky had planned to open dependent contractor in which she for summary judgment, Joseph Next steps larger emerging manager pro- their own distressed debt rm, with would both manage and own a 51% Carieri, TCW’s Los Angeles-based Since she left TCW in 2017, Ms. grams, Ms. Tirschwell said. They Ms. Tirschwell as the lead partner. interest in a new distressed invest- head of marketing, said he told a Tirschwell said that she has not should also loosen up on the track Her former employer, Davidson ing fund, according to the trial group of executives including Mr. worked managing money. Potential record requirement, she said. Kempner Capital Management LP, court’s summary of the facts. TCW Lippman at the outset of Ms. employers tell her that they think Another obstacle for anyone at- with whom she said she had a good would own 49%, court documents Tirschwell’s relationship with TCW she is a talented investor but do not tempting to start a new alternative relationship as a managing director show. that marketing her fund wouldn’t want to hire her until her case investment rm is most asset own- in distressed debt, does not permit TCW executives said she would be easy. against TCW is over, she said. ers’ emerging manager programs portability of track records for any- have access to TCW’s “world class” “I expressed ... my belief that it This year, Ms. Tirschwell ran as a are too small, even though more one, Ms. Tirschwell said. back of ce, marketing and legal would be very dif cult to market an Republican candidate for mayor of pension funds are starting pro- A chance meeting in early 2015 services as well as other support, investment product without a track New York but dropped out in April grams than ever, she said. with a Davidson Kempner investor, she said. record or an established team,” he because she had not collected “How do you compete with man- Aurora Investment Management She became a TCW employee in said. Mr. Carieri also said it was enough signatures to get on the agers with funds with hundreds of LLC, a hedge fund-of-fund manag- the summer of 2016 with Mr. Ravich “untrue” that TCW failed to support ballot. millions or billions of dollars?” she er, eventually led Aurora to agree to as her supervisor. According to Ms. Tirschwell’s efforts to market She also is a managing director said. “Pension funds talk about di- provide her with seed capital for court documents, Ms. Tirschwell the distressed fund. of turnaround advisory rm Quest versity and … helping women and her new rm, she said. and Mr. Ravich have known each Ms. Tirschwell made more than Turnaround Advisors, and chief - minorities and giving them a leg up “One of the only reasons why I other since 1994. They dated in 140 presentations and/or meetings nancial of cer of Foundation ... but if you look at the amount of was able to raise $175 million from 2012 for approximately a year and with prospective clients and was House, an addiction treatment ser- money they allocate to those Aurora was because Aurora had remained friendly, court documents accompanied by another TCW em- vices provider founded to honor the emerging manager programs, (it is) been an investor in Davidson show. ployee “for almost all these presen- life of Peter Kellerman, a partner at quite small.” n 26 | June 28, 2021 Pensions & Investments

Insight executives are looking at pact, falling more than 10% against goods originated in the U.K. or EU data from sources including the the dollar in early trading on the before they can be distributed — on Brexit U.K.’s Of ce for National Statistics’ morning the referendum result was U.K. nancial supply chains and “the uncertainty report on the effects of the exit and revealed, and continued to be vola- over the treatment of parts of - CONTINUED FROM PAGE 1 the coronavirus on U.K. trade in tile over the coming years, dropping rms voting nancial services. The risk is that a markets in March. goods, published in May. “I was try- at points to around $1.20. However, combination of the rules, frictions “It’s harder to assess the Brexit ing to look for some useful data (in year-to-date June 24, 2016, the with their feet and ongoing uncertainty under- impact ( ve years on) because of the publication) — anything we can FTSE All-Share index gained 2.8%. mine business investment,” Mr. Roe Brexit also has affected the COVID,” John Roe, London-based see that suggests the U.K. is hurting And during market trading on said. U.K. workforce, with some head of multiasset funds at Legal & because of Brexit. The data is going Feb. 3, 2020 — the rst day after the Insight’s Ms. LaRusse said there General Investment Management, to be messy because of COVID. But U.K.’s of cial exit — the FTSE All- companies choosing to relocate is some evidence of delays in terms said in emailed comment. “The vi- you can de nitely see in the data … Share index fell slightly and the staff to the continent. of bringing goods into the U.K., rus, and associated scal stimulus, a pretty material decline” in total pound dropped to $1.30 from $1.32 Data from EY’s nancial which is affecting costs. She also has caused so much volatility that trade in goods with EU countries, on Jan. 31. services Brexit tracker show cited the rules of origin protocol as underlying trends are harder to down 23.1% between the rst quar- Compared with COVID-19, that 43% of the U.K.’s largest a risk. “There is some evidence to pick out.” LGIM runs £1.3 trillion ter of 2018 and the rst quarter of “Brexit is more of a slow burn,” nancial services rms have suggest there are frictions in the ($1.8 trillion) in assets under man- Trevor Greetham, head of multias- moved or plan to move some system, which are leading to less agement. set at Royal London Asset Manage- U.K. operations and/or staff to trade, and potentially that hurts the Mr. Roe thinks underlying trends ment in London, said in an email. U.K. economy,” she said. Europe, with the total number of will be dif cult to differentiate The rm has £147 billion in assets And Hermes’ Mr. Jackson added relocations at almost 7,600 as throughout this year because the under management. However, “a that supply chains will continue to U.K.’s COVID-19 vaccination pro- renewed bout of sterling weakness of May. be disrupted. “But I think in some gram is several months ahead of could occur if the government re- As of April, almost 450 U.K. ways, the last year has been a good other European countries and no fuses to abide by the Northern Ire- nancial services rms — in- time to have Brexit occur — there’s scal tightening is expected until land Protocol and we end up, in ef- cluding 182 investment been a global pandemic and some 2022 at the earliest. fect, in a ‘no deal’ situation,” Mr. managers — had relocated to of those supply-chain effects have Meanwhile, the U.K. and EU are Greetham warned, referring to part other European cities or not been noticed,” and markets still thrashing out nal details on of the Brexit deal that keeps the expanded European presence have gathered “all the bad news to- some areas of nancial services, border between Northern Ireland due to Brexit, according to analy- gether in one big chunk,” he added. while money managers continue to and the Republic of Ireland open. And any further bad news that sis by U.K. think tank New develop their operations in the U.K. LGIM’s Mr. Roe added: “The good causes another drop in sterling Financial. and on the continent as they work SHIFTING GEARS: April LaRusse expects news is that any cliff-risk from would actually boost domestic stock around the loss of passporting there to be more focus on Brexit once Brexit has been avoided and the is- It may also be “more dif cult prices because about 70% of FTSE rights. COVID-19 concerns have calmed down. sues that now need to be dealt with, (for the U.K.) to attract multina- 100-listed company revenues are Other executives agreed that like encouraging business invest- tional companies, but it’s too earned overseas, RLAM’s Mr. Gree- COVID-19 has muddied the impact 2021. Stockpiling of inventories in ment to stimulate productivity, are early to tell to what extent the tham said. of Brexit. the fourth quarter of 2019 — imme- slower-moving issues so the risk of U.K.’s position as a business Christian Kopf, Frankfurt-based “Brexit is important longer-term diately ahead of the of cial exit — a crisis has dwindled dramatically.” location will suffer,” said head of xed income and FX at in terms of how the U.K. functions, also would have “muddied the That was a large part of the rm’s Christian Kopf, Frankfurt-based Union Investment Institutional but it’s still less important than numbers somewhat,” Ms. LaRusse decision to take a long position on head of xed income and FX at GmbH, thinks Brexit “is largely COVID(-related) reopening,” said said. the pound sterling in November, “as priced into nancial markets by Union Investment Institutional April LaRusse, London-based head we could see that funnel of doubt now. In fact, we believe that after GmbH. of xed income at the £707.7 billion Stark differences rapidly shrinking, which in turn lagging global equities for many Insight Investment. “Fortunately — The difference in market effects made (the pound) attractive as it — SOPHIE BAKER years, U.K. equities now offer good or not fortunately — we haven’t due to COVID-19 and Brexit are was both unloved and cheap on potential, as valuations look attrac- been focused on Brexit more or less stark. At the depths of the various valuation metrics,” he said. “bad, may be good, but only mar- tive.” since the vote happened, and we COVID-19 crisis for markets — ginally bad or good,” he said. Corpo- That is especially true for mid- (then) calmed down.” When the March 23, 2020 — the S&P 500 in- ‘Kind of dismissed it’ rations got ahead of the of cial exit, cap stocks — those listed on the U.K. left in early 2020, it was a bit of dex dropped almost 35% and the The reality is that markets have managed risks and communicated FTSE 250 index — “which tend to a “non-event, mainly because we FTSE All-Share index fell 35% “kind of dismissed it,” said Andrew them well, Mr. Jackson added. Fed- perform well in economic recover- had something bigger to worry through that date. Jackson, head of xed income at the erated Hermes has $625 billion in ies. But even large caps now look about” that quarter — COVID-19. However, on June 24, 2016, the international business of Federated assets under management. cheap by historical standards,” he “I’m sure when we are less focused FTSE All-Share index fell by 3.8% Hermes Inc. in London, speaking But concerns do remain, includ- said in an email. Union has €386 on COVID there will be more focus vs. the previous day. The pound on a virtual panel event on June 17. ing the impact of “rules of origin” billion ($467.4 billion) in assets un- on Brexit,” Ms. LaRusse said. sterling bore the brunt of the im- While Brexit is relevant, it may be — the need to demonstrate that der management. n

pore $1.50 for every $1 they raise For now, Mr. Ito said, work on ty allocations considerably higher steady decline in government out- from donations or other sources, launching the University Endow- than the 50% target of Japan’s high- lays for national universities have Endowment NUS currently boasts an endow- ment Fund is continuing, with a est pro le asset owner, the ¥177.7 seen the ranks of young research- ment of $4.8 billion — by coinci- government experts committee trillion Government Pension In- ers and doctoral students in Japan CONTINUED FROM PAGE 1 dence, roughly the size of Harvard looking to reach conclusions by the vestment Fund, Tokyo. For example, dropping rapidly over the past 10 select group of top Japanese re- University’s endowment in 1990 end of July on the fund’s payout ra- the reference portfolio for Singa- years, along with the country’s search universities in the form of when Jack Meyer took the helm at tio and its risk tolerance levels — pore’s GIC Corp., with estimated share of top research papers pub- matching funds for money they Harvard Management Co. When Mr. including the composition of the assets of more than $400 billion, lished globally. raise for their own endowments, Meyer departed 15 years later, in- fund’s reference portfolio. has a 65% equity weighting while The nancial weakness of Japa- said Takahiro Ueyama, a To- vestment gains and continued do- The government committee won’t two big sovereign wealth funds — nese universities is a major reason kyo-based executive member of the nations had swelled the endow- decide the fund’s asset allocation the $77 billion, Juneau-based Alas- for that decline, reecting — in part Cabinet Of ce’s Council for Sci- ment’s size to $25.9 billion. As of its mix, Mr. Ito said. Instead, the invest- ka Permanent Fund and the — their failure to tap into support ence, Technology and Innovation June 30, 2020, scal-year close, Har- ment management team elded by NZ$58.6 billion ($41.7 billion) from alumni and other private — chaired by Prime Minister Yoshi- vard’s endowment remained the the Japan Science and Technology Auckland-based New Zealand Su- sources of funding, Mr. Ueyama hide Suga. world’s largest with $41.9 billion. Agency will begin addressing that perannuation Fund — both have said. Government documents show Legislative changes due to be en- “That is the scheme,” Mr. Ueyama topic in August, with investments set equity allocation targets of 80%. that even top private universities in acted after the next regular session said. More than just showering uni- to commence in March. Japan, such as Tokyo-based Keio of Japan’s parliament starts in Janu- versities with money, the program A major step toward the start of A model fund University, report endowment-like ary will lay the legal groundwork is designed to help them restruc- investment operations was reached Against the backdrop of an asset funds of well under $1 billion, while for national universities in Japan to ture their nances, leaving recipi- recently with the June 1 selection of owner universe in Japan that re- the country’s biggest public univer- set up endowment funds with the ents better positioned to sustain the Masakazu Kita — managing execu- mains heavily invested in domestic sities, such as University of Tokyo, operational capabilities of their high level of research needed to go tive of cer with Norinchukin Bank, bonds despite rock-bottom yields, have little more than $100 million. counterparts in the U.S. and Eu- toe-to-toe with top ranked univer- one of Japan’s most experienced in- Mr. Ito said the University Endow- Against that backdrop, Japan’s rope, Mr. Ueyama said. The past 10 sities around the world, he added. vestors in alternative asset classes ment Fund could have an impact on ¥10 trillion University Endowment to 15 years have seen a number of Final selections have yet to be — as the endowment fund’s chief the country’s broader investment Fund gambit offers the potential to universities set up funds to accept made and the government is ham- investment of cer, Mr. Ito noted. culture by showing the feasibility of make a signi cant difference while donations but they’ve operated un- mering out requirements — includ- One Tokyo-based investment higher allocations to equities, global highlighting the urgency of doing der considerable constraints and ing targets for growing their en- consultant, who declined to be assets and alternatives, including so, Mr. Ueyama suggested. made only marginal contributions dowments — that universities will named, welcomed the selection of private equity and real estate. “I have been deeply involved to their sponsors’ nances, he said. have to accept to tap into the giant the veteran alternatives investor as The University Endowment with the reform of the national uni- The University Endowment Fund endowment fund’s investment a valuable injection of expertise in Fund will hopefully be “a model for versity system in our country” and plan will effectively apply, on a gains. Current plans call for any- a process which, he contended, has Japanese universities’ endow- while much has been done so far broader scale, the formula Singa- where from four to eight top re- so far been dominated by people ments,” although each university the huge amount of money being pore’s government has used to ac- search institutions to be chosen, Mr. with scant experience in managing will be free to follow its own invest- marshaled for the current program celerate the buildup of endowment Ueyama said. portfolios. ment strategy, Mr. Ito said. certainly makes it stand out, Mr. funds at institutions of higher learn- Within ve to 10 years, those Meanwhile, the reference portfo- Government documents detail- Ueyama said. So it’s going to be a ing there, led by the National Uni- leading Japanese research univer- lios of top overseas institutional in- ing the reasons for the fund’s cre- turning point for Japan’s universi- versity of Singapore, Mr. Ueyama sities should be able to boast their vestors the government’s experts ation said growing nancial con- ties to evolve into world-class uni- said. With the help of a government own multibillion-dollar endow- committee has spoken with or stud- straints resulting from Japan’s versities, he said, adding “it is prob- policy giving universities in Singa- ment funds, Mr. Ueyama said. ied in recent months all boast equi- aging demographic pro le and a ably the last chance for us.” n Pensions & Investments June 28, 2021 | 27 CHANGES AHEAD On June 22, the U.K.’s Financial saw is shareholders of the company Conduct Authority proposed cli- not only have a right but a responsi- Climate mate-related disclosure rules for pub- bility to speak out,” he said. Minnesota State Board of Investment, St. Paul, is searching lic companies, money managers, life When it comes to climate risk and CONTINUED FROM PAGE 3 for one or more consultants for ve-year contracts. An RFP posted insurers and FCA-regulated retire- the energy transition, “we truly be- on the board’s website June 14 said board members are sched- mate risks and how they will approach ment plan providers to align with ex- lieve that these companies are going uled to select consultant(s) at its Aug. 25 meeting. The contracts energy transition, other industries, in- isting Task Force on Climate-related to be part of the solution. The proxies of the SBI’s existing consultants, Aon Investments and Meketa cluding airlines and railroads, were Financial Disclosures standards. led are to some extent encouraging Investment Group, expire in 2022, said Mansco Perry III, executive not immune. Even Walmart Inc. got In the U.S., “I think people are still the companies not to be a follower” director and CIO, in an email. He added that the existing consul- the message, through a resolution picking and choosing what they want but instead be proactive, said Mr. tants may rebid. Proposals are due by noon CDT July 8. As of led by Rhode Island Treasurer Seth to disclose. When it’s mandatory, it is Geissinger, who anticipates more fre- March 31, SBI managed a total of $116.9 billion, including $84.5 Magaziner asking how it will reduce going to be a challenge. From an in- quent shareholder demands on com- billion in combined assets for de ned bene t plans and $9.7 refrigerants that contribute to climate vestor perspective, if the SEC moves panies to do more. “We are going to billion in participant-directed plans, with the balance managed in change. While the rst climate-related forward like its European counterpart, keep asking,” he said. While compa- other state funds. refrigerant resolution won just 5.5% of it should make it easier to compare nies are not compelled to act on share- the votes, it squeaks by the threshold across the board,” Ms. Chim said. “It’s holder resolutions, regular ongoing Milwaukee County Employees’ for it to be considered next year. not going to be without a ght.” engagement by investors is much HAVE SOME NEWS? Retirement System is searching “It has been a big year for climate,” Having all companies report their harder to ignore. Please submit news for private credit managers to which said Liz Gordon, executive director of climate risks and strategies for deal- This proxy season, investors also of changes to David the system plans to commit $30 corporate governance for the $254.8 ing with them would be huge prog- ramped up pressure on companies to Schepp, news editor, at million to $65 million. The $1.8 billion New York State Common Re- ress, observers say. “Investors are in- make sure that their corporate stances dschepp@pionline. billion pension fund will only consider tirement Fund, Albany. terested in having better on climate risk and lobbying activity com evergreen commingled strategies, “This proxy season saw a lot of standardization of reporting. That’s an line up. “The real change is going to according to an RFP on the county’s movement. I think we are seeing real ongoing hot topic,” said Dayna Harris, come with policy change. That’s why website. According to its most recent available investment report, recognition by investors of the risk partner with Farient Advisors, a Los it’s so important that their lobbying as of April 30, the pension fund did not have any allocation to and opportunities. We are also seeing aligns with that,” said Ms. Gordon of private credit. Proposals are due at 5 p.m. CDT on July 16. a growing response from companies New York State Common. State Comp- Investment consultant Marquette Associates is assisting. who are also seeing the risk of not re- troller Thomas P. DiNapoli is trustee of sponding” to investors’ concerns, Ms. the pension fund and has a goal to Oklahoma Tobacco Settlement Endowment Trust Fund, Gordon said. transition the portfolio to net-zero Oklahoma City, is searching for an investment consultant. The Just ask Exxon Mobil Corp.’s board greenhouse gas emissions by 2040. $1.5 billion endowment trust fund’s board of investors issued an directors. Frustration with the compa- RFP because current consultant NEPC’s contract will expire Nov. ny’s inaction addressing climate risk Widely supported proposal 30, said Lisa Murray, chief investment of cer. The RFP is available and energy transitions led New York While there was a proliferation of on the state treasurer’s website. Proposals are due at 4 p.m. CDT State Common, the $469.8 billion Cal- shareholder proposals for climate-re- on July 16. ifornia Public Employees’ Retirement lated lobbying disclosure this proxy System, Sacramento, and $299.8 bil- season, perhaps the most dramatic re- Danvers (Mass.) Contributory Retirement System is lion California State Teachers’ Retire- sult came from a shareholder propos- searching for a U.S. small-cap value equities manager to run $9 ment System, West Sacramento, to al led with Norfolk Southern Corp. million on behalf of the $143 million de ned bene t plan. back hedge fund rm Engine No. 1's by the Quaker investment rm Graystone Consulting, the retirement system’s investment winning bid to replace two of them Friends Fiduciary Corp. consultant, is assisting with the search. The strategy will be with independent directors experi- It won support from 76.4% of voters benchmarked against the Russell 2000 Value index. Only separate enced in clear energy and energy for a report on if and how the compa- accounts will be accepted. The RFP is available from Susan M. transitions. ny’s lobbying activities, including Little, retirement assistant, via email at [email protected]. through its trade associations, align Proposals are due by 4 p.m. EDT July 20. Support from Washington with the goals of the Paris Agreement. Investors are also getting signi - While Norfolk Southern supports the Vancouver, Wash., is searching for an investment consultant for cant backup from Washington. While ACKNOWLEDGMENT: Liz Gordon believes Paris Agreement, its trade associa- its $133 million 457 plan and $2 million 401(a) plan. The city is they welcomed the Biden administra- companies are recognizing the risks of not tions have lobbied against the agree- seeking a consultant to provide ongoing evaluation of the plans’ tion’s move to rejoin the Paris Agree- responding to investors’ climate concerns. ment’s goals on global temperature investment options, provide ongoing overall reviews of the plan and ment among other signals, one game increases, and the company’s board assist the city with any RFP processes for record keepers or changer is expected to be new cli- Angeles-based executive compensa- does not adequately oversee the mis- investment manager, an RFP on the city’s procurement website mate-related disclosure mandates tion and corporate governance con- alignments, said Jeffery W. Perkins, ex- shows. . The city is currently undergoing a transition to ICMA-RC as from the Securities and Exchange sulting rm that helps companies, ecutive director of the Philadelphia its single record keeper for the plans to be completed in September. Commission, with a proposal expect- large public pension funds and mutu- rm that manages $600 million in as- The RFP is available on the city’s procurement website. Registration ed by October. The proposal is aimed al funds review proxies and prepare sets for 420 Quaker-af liated organi- is required. Proposals are due at 3 p.m. PDT on July 21. at having companies disclose their votes on executive pay packages. zations. level of climate-related risk and links “Your carbon footprint is a big deal” “We think if a company is saying Cape May County, Cape May Court House, N.J., is searching for to long-term nancial prospects. to investors, she said. When executive something privately, they ought not to a third-party administrator for its $17 million 457 plan. The county The White House also supports leg- pay comes up, what companies are be doing something differently. It’s issued an RFP for a rm to provide record keeping and administra- islation passed by the House June 18 doing about climate risk “is a discus- something the industry has resisted,” tive services, said Peter T. Scott, senior duciary consultant, that would require public companies sion point whether it should be con- said Mr. Perkins, whose organization retirement services, at Centurion, a Marsh & McLennan Agency to disclose ESG metrics and how they sidered. There is concern about is part of the Interfaith Center on Cor- company, which is assisting with the search. Current administrator connect with long-term strategies. whether companies are doing porate Responsibility’s climate lobby- AIG Retirement Services is invited to rebid, he said. The RFP is Any new SEC disclosure require- enough.” ing initiative. “The current engage- available on the county’s procurement website. Registration is ments would apply to public compa- ment really reects our sense of required. Proposals are due at 2 p.m. CDT on July 28. nies, but the private sector needs to Pressure on Exxon urgency around the climate risk, and get ready, to meet investor demand, Christian Brothers Investment Ser- business risks,” he said. California Department of Human Resources, Sacramento, said Elaine Chim, head of private eq- vices, Chicago, a $10 billion asset man- Friends Fiduciary Corp. has always will launch a search in July for a third-party administrator for the uity for Americas and Asia-Paci c at ager for Catholic institutions, wanted voted to uphold Quaker values, “but state’s $18.5 billion Savings Plus program’s 457(b) and 401(k) Apex Group Ltd., a global nancial Exxon Mobil to produce an audited we also make the business case. The plans, spokeswoman Nicole Shaw said. The department will issue services provider in New York. As sus- report on the nancial impacts to the fact that large institutional investors an RFP due to the upcoming expiration of current administrator tainable investing grows, so does the company under a net-zero emissions were behind this, to me that sends an Nationwide Financial’s contract, she said. The rm will be eligible push for better disclosure of strategies scenario by 2050. Initially hoping for undeniable message to the company. to rebid. The RFP will be posted on the California state procure- and results. “Investor pressure is de - 30% support for the rst-time resolu- I’ve seen the market move to where ment website on or after July 1, Ms. Shaw said. Proposals will be nitely one driver. The other one is reg- tion, “we were ecstatic” with the we have always been,” Mr. Perkins due at 3 p.m. PDT on Sept. 1. ulatory,” said Ms. Chim, who expects near-majority vote of 48.9%, said Chief said. He expects the level of urgency U.S. regulators to follow a similar Investment Of cer John W. Geissinger. on climate-related lobbying “to do For a comprehensive database of search and hiring activity, visit P&IQ at route now being taken in Europe, with “I think this proxy season really re- nothing but increase. Investors feel PIonline.com/piq. mandated disclosure rules in the minded everyone that the sharehold- the need to make these changes now,” works. ers are the owners. I think what we he said. n

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