Category: Investments

U.S. Insurer Exposure to Russia, Ukraine, and Oil/Gas Companies Declines from 2020 to 2021

Mary Pat Campbell

Link: https://content.naic.org/sites/default/files/capital-markets-special-reports-Russia-Ukraine-Oil-Gas-YE2021.pdf

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Total Russian and Ukraine sovereign and corporate debt was $813.3 million at year-end 2021,
representing 97% of total exposure; the remainder comprised $28.8 million in stocks (see Table 2).
While life companies accounted for the majority of the bond exposure at $683.9 million (or 84% of total
Russia and Ukraine bonds), property/casualty (P/C) companies accounted for almost all the Russia and
Ukraine stock exposure at $28 million. About 90% of U.S. insurers’ exposure to Russia and Ukraine
bonds and stocks was held by large companies, or those with more than $10 billion assets under
management.

Author(s): Jennifer Johnson, Michele Wong, Jean-Baptiste Carelus

Publication Date: 14 Apr 2022

Publication Site: NAIC Capital Markets Special Reports

Putin, Russian Pals “Mystery” Partners In Public Pension Deals?

Mary Pat Campbell

Link: https://www.forbes.com/sites/edwardsiedle/2022/03/10/putin-russian-pals-mystery-partners-in-public-pension-deals/?sh=3057aa8524af

Excerpt:

America’s state and local government pensions invest as much as 40 percent of their assets in secretive, offshore “alternative” hedge, private equity, real estate and venture funds which warn that certain unidentified “mystery investors” pay lower fees, are provided greater information about investment strategies and portfolio holdings, have been granted liquidity preferences and receive superior net performance—all at the expense of America’s public sector workers. How many wealthy Russians are “mystery investors” in these pension deals which, according to an internal FBI document leaked last year, criminals and foreign adversaries regularly use to launder money? Wall Street refuses to say and public pensions have promised not to ask. Ironically, the invasion of Ukraine and calls to dump Russian investments to punish the country are drawing attention to the ugly fact that America’s public pensions have long consented to being kept in the dark by Wall Street, abrogating their duty to monitor and safeguard workers’ retirement savings.

….

For example, my second investigation of the Rhode Island state pension revealed in 2015 that contrary to the pension’s financial reports, 40 percent of the pension’s investments—not the 25 percent disclosed—had been allocated to secretive alternative investments.

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It’s no secret that the FBI suspects that many alternative investment vehicles are widely utilized for money laundering. In 2019, the FBI compiled a report titled “Financial Crime Threat Actors Very Likely Laundering Illicit Proceeds Through Fraudulent Hedge Funds and Private Equity Firms to Obfuscate Illicit Proceeds.” Then, a leaked May 1, 2020 internal FBI report similarly titled “Threat Actors Likely Use Private Investment Funds to Launder Money, Circumventing Regulatory Tripwires” purported to supplement the January 2019 report “by providing recent reporting of hedge funds and private equity firms used to launder illicit proceeds, and expands the threat context beyond financial threat actors to include foreign adversaries.”

Author(s): Edward Siedle

Publication Date: 10 Mar 2022

Publication Site: Forbes

AFSCME asks state board of investment to divest holdings with Russia ties

Mary Pat Campbell

Link: https://www.wandtv.com/news/afscme-asks-state-board-of-investment-to-divest-holdings-with-russia-ties/article_78c20944-9e7c-11ec-90ff-0f1777a90bee.html

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As the Russian invasion of Ukraine continues, the AFSCME union in Illinois has asked the state board of investment to divest all holdings in assets tied to Russia. 

A letter from the executive director of AFSCME Council 31 was sent to Illinois State Board of Investment Chairman Terrence Healy. Council 31 Executive Director Roberta Lynch referred to the invasion as a “genocidal slaughter of civilians.” 

….

The state investment board governs investment policy for the State Employees Retirement System, as well as to other Illinois public pension funds that AFSCME members participate in.

Publication Date: 7 Mar 2022

Publication Site: WAND

5 Commodities That Could Explode As The Ukraine Crisis Escalates

Mary Pat Campbell

Link: https://oilprice.com/Metals/Commodities/5-Commodities-That-Could-Explode-As-The-Ukraine-Crisis-Escalates.html

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#4. Copper USGS data shows that Russia produced 920,000 tonnes of refined copper in 2021, about 3.5% of the world total, out of which Nornickel produced 406,841 tonnes.

UMMC and Russian Copper Company are the other two major producers, with Asia and Europe being Russia’s key export markets.

Prices of green metals, including copper, are projected to reach historical peaks for an unprecedented, sustained period in a net-zero emissions scenario. Copper prices are sitting at all-time highs thanks to surging demand, especially in developed countries, with increasing usage in electric vehicles and wind farms, solar panels and the power grid, combined with tight supply. 

Benchmark copper prices on the London Metal Exchange are currently sitting at $10,100 per ton, not far removed from its May 2021 all-time high of 10,724.50 per ton. 

Copper is being billed as the new oil, with the ‘green’ shift in the post-COVID economy supporting higher demand for copper and other base metals since EVs use about 4x more copper than gasoline-powered vehicles. The International Copper Association estimates that the rapid rise of EVs will raise copper demand in EVs from 185,000 tonnes in 2017 to 1.74 million tonnes by 2027.

Author(s): Alex Kimani

Publication Date: 21 Feb 2022

Publication Site: OilPrice.com

Influential fund manager Green Century tells insurers to drop Big Oil

Mary Pat Campbell

Link: https://www.marketwatch.com/amp/story/influential-fund-manager-green-century-tells-big-insurers-to-drop-big-oil-11645049047?twclid=11498308136175906819

Excerpt:

Green Century Capital Management tried to use shareholder muscle to persuade at least a trio of insurance companies to drop fossil-fuel clients.

So far, the insurance firms aren’t biting; all three have filed no-action requests with the Securities and Exchange Commission.

The resolutions, in advance of proxy season this spring, call on Chubb CB , Travelers TRV and The Hartford HIG to take this bold step as private-sector efforts to curb global warming from the burning of coal, oil CL00 and gas NG00 pick up, alongside global government action.

The insurance resolutions represent the first time that shareholders have laid down this sizable challenge to this industry for what the activists say are its contributions to the climate crisis. 

Author(s): Rachel Koning Beals

Publication Date: 17 Feb 2022

Publication Site: MarketWatch

A Bitcoin mining operation in the Finger Lakes runs up against New York’s climate law

Mary Pat Campbell

Link: https://gothamist.com/news/bitcoin-mining-operation-finger-lakes-runs-against-new-yorks-climate-law

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Residents and business owners in the Finger Lakes region have been protesting for more than a year against a natural gas plant that has powered a bitcoin mining operation in the area. But the plant’s future faces even greater peril from the state as critics and officials say it flies in the face of an ambitious new state law designed to cut down on carbon emissions.

Since spring 2020, the Greenidge Generation power plant in Dresden, New York has powered a 24-7 bitcoin mining operation, wherein computer servers solve complex algorithms to collect electronic currency. It now supports nearly 20,000 computers that last year produced 1,866 bitcoins with a projected revenue of more than $100 million. The endeavor was so profitable that the company plans to double their computing power and increase power generation close to maximum capacity.

But Greenidge’s red brick smokestacks and metal transformers have long been at odds with the pristine vistas and vineyards of the Finger Lakes. Formerly a coal plant that shuttered in 2011, its revival is once again endangering the region environmentally and economically, according to some residents.

It’s also at odds with New York’s Climate Leadership and Community Protection Act, which mandates a reduction of economy-wide greenhouse gas emissions 40% by 2030 and no less than 85% by 2050 from 1990 levels. And the conflict between the state’s climate goals and a burgeoning new industry reflects a growing tension nationally between the fight against climate change and the energy-intensive pursuit of mining for cryptocurrency.

Author(s): Rosemary Misdary

Publication Date: 17 Feb 2022

Publication Site: Gothamist

States Look at Pulling Pension Investments From Russia

Mary Pat Campbell

Link: https://www.route-fifty.com/finance/2022/03/state-governments-russian-pension-divestment/362581/

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A growing number of state governments are looking at dumping public pension fund investments they have in Russia in response to the country’s invasion of Ukraine.

California, Connecticut, Colorado and Illinois are among the states where officials are looking to do so.

While the divestment efforts are meant as a show of solidarity with Ukraine and a rebuke of Russia’s attack, the amount of money potentially affected compared to the overall size of the nation’s public pension assets is relatively small. And some of the actions would involve legislation and other measures that aren’t yet finalized.

Risks with investing in Russia that preceded the war, like corruption, and shortfalls with rule of law and transparency, mean that many pension managers would have been leery of investing heavily in the country in recent years.

“For most public pension funds in the U.S., Russia exposure is probably quite modest,” Ash Williams, former executive director and chief investment officer for Florida State Board of Administration, noted during an interview at an event the National Institute on Retirement Security held in Washington, D.C. on Tuesday.

Author(s): Bill Lucia

Publication Date: 1 March 2022

Publication Site: Route Fifty

Riverside County’s Unfunded Pension Gap Closes

Mary Pat Campbell

Link: https://patch.com/california/lakeelsinore-wildomar/rivcos-unfunded-pension-gap-closes-report

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It noted the county’s retirement apparatus is now 76.4 percent funded, compared to 71 percent a year ago. The key metric that reflects a sound pension system is considered 80 percent funded status.

The county’s unfunded pension gap is $2.24 billion, compared to $2.49 billion estimated in the prior year, according to PARC.

Publication Date: 1 Mar 2022

Publication Site: Patch.com

Deep Learning for Liability-Driven Investment

Mary Pat Campbell

Link: https://www.soa.org/sections/investment/investment-newsletter/2022/february/rr-2022-02-shang/

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This article summarizes key points from the recently published research paper “Deep Learning for Liability-Driven Investment,” which was sponsored by the Committee on Finance Research of the Society of Actuaries. The paper applies reinforcement learning and deep learning techniques to liability-driven investment (LDI). The full paper is available at https://www.soa.org/globalassets/assets/files/resources/research-report/2021/liability-driven-investment.pdf.

LDI is a key investment approach adopted by insurance companies and defined benefit (DB) pension funds. However, the complex structure of the liability portfolio and the volatile nature of capital markets make strategic asset allocation very challenging. On one hand, the optimization of a dynamic asset allocation strategy is difficult to achieve with dynamic programming, whose assumption as to liability evolution is often too simplified. On the other hand, using a grid-searching approach to find the best asset allocation or path to such an allocation is too computationally intensive, even if one restricts the choices to just a few asset classes.

Artificial intelligence is a promising approach for addressing these challenges. Using deep learning models and reinforcement learning (RL) to construct a framework for learning the optimal dynamic strategic asset allocation plan for LDI, one can design a stochastic experimental framework of the economic system as shown in Figure 1. In this framework, the program can identify appropriate strategy candidates by testing varying asset allocation strategies over time.

Author(s): Kailan Shang

Publication Date: February 2022

Publication Site: Risks & Rewards, SOA

City Of Chicago Shunning Fossil Fuel Investments. Who Benefits? Russia. – Wirepoints

Mary Pat Campbell

Link: https://wirepoints.org/chicago-shunning-fossil-fuel-investments-as-nation-struggles-with-higher-energy-costs-wirepoints/

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The timing on Wednesday was impeccable. I was looking at the price of oil, which was up four percent that day and about to pass $100/barrel. Energy stocks were up over one percent despite a horrible day for the rest of the market.

That’s when an email popped up with a story in Crain’s headlined “Chicago moving to divest from fossil fuels.”

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So, with inflation raging, gasoline moving towards $4.00/gallon and Russia murdering Ukrainians with the help of American oil purchases, Chicagoans can take comfort knowing that the city will refuse to invest in oil and other fossil fuel production and thereby “will be sending a message that Chicago is permanently leaving dirty energy in the past and welcoming a clean energy future for generations to come.”

That’s from Chicago Treasurer Melissa Conyears-Ervin. She and members of the City Council, with Mayor Lori Lightfoot’s support, are pushing for an ordinance to mandate that the city divest its funds from fossil fuel companies, as Crain’s reported.

In fact Conyears-Ervin had already made oil and gas divestment office policy. The new ordinance would make the change permanent going forward. Her office has already removed $70 million in fossil fuel-associated bonds from the city’s portfolio, she says.

How wise has it been lately to be shunning fossil fuel investments? Here’s a chart comparing performance year-to-date of the S&P 500 to XLE, an ETF basket of mostly oil and gas companies. While the market in general is down some 10% the oil and gas stocks are up over 21%.

Author(s): Mark Glennon

Publication Date: 25 Feb 2022

Publication Site: Wirepoints

New Inflation Rate High of 7.5% Could Affect Real Return on Investments

Mary Pat Campbell

Link:https://content.naic.org/sites/default/files/capital-markets-hotspot-New-Inflation-High-Feb-2022.pdf

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While U.S. insurance companies have adapted to investing in a world of low interest rates, they are now
also facing the challenge of investing in a high inflationary environment whereby yields may not be
providing adequate returns on investment on an inflation-adjusted basis. Using a similar approach to
estimating real interest rates in Chart 1, we estimate how corporate bond yields are holding up against
high inflation

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Graph 3 shows similar data for BBB-rated corporate bonds. With BBB yields generally higher than A
yields, the difference between the two measures has been negative for a shorter period of time. Real
yields did not turn negative until May 2021, and they dipped to almost -1% in December 2021.

Author(s): Michele Wong and Jennifer Johnson

Publication Date: 15 Feb 2022

Publication Site: NAIC Capital Markets Bureau Hot Spot