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Publication Date: 31 Jan 2025
Publication Site: Treasury Dept
Daily Treasury Par Yield Curve Rates – 31 Jan 2025
Category: Investments
Daily Treasury Par Yield Curve Rates – 23 Jan 2025
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Publication Date: 23 Jan 2025
Publication Site: Treasury Department
Ohio State Teachers can’t invest its way to permanent COLAs, former chief actuary says
Excerpt:
The Ohio State Teachers’ Retirement System cannot invest its way to a permanent COLA, Brian Grinnell, former chief actuary of the $97.3 billion pension fund, told Pensions & Investments.
Grinnell left the pension fund in May after more than 10 years as its chief actuary. In a Sept. 27 interview, he said his responsibilities were primarily to help STRS staff and the board understand the risks the pension fund has faced and help develop a forward-looking plan to make decisions with long-term outcomes in mind.
In his interview, he said, “I was not comfortable with the direction the plan was headed, and I didn’t feel like my continued participation would be positive.”
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The pension reform law, SB342, was one of five laws that addressed funding issues at all five of Ohio’s state retirement systems and was drafted as a result of severe stock market declines that came from the Great Recession in 2008 and 2009. Among all the state systems, STRS was the worst off in 2012 with a funding ratio of 57.6% as of June 30 of that year. Additionally, the amortization period for the retirement system’s unfunded pension liabilities under the STRS defined benefit plan had become infinite — meaning that it would never become fully funded.
Grinnell said STRS has had to contend with the challenge of being an extremely mature pension fund: Essentially, there is more money being sent out to retirees receiving benefits now relative to the future contributions the pension fund can expect from current and future teachers.
“Here’s where STRS is a little bit of an unusual situation because it is a fixed-rate plan,” Grinnell said, “so both the benefits and the contributions are essentially fixed by statute. So most plans, if they have a bad year in terms of investment performance, the contribution rate goes up the following year to fill that hole. That doesn’t happen at STRS.”
Grinnell said when a pension fund is both a mature plan and has that fixed-rate contribution and fixed benefits, it’s very difficult to recover from any kinds of market downturns. He noted that all five of Ohio’s state retirement systems have that fixed-rate structure.
“Most other public pensions do not have that kind of structure,” he said, “and I think that tends to work all right for an immature plan, a plan that’s growing and not paying out a lot of benefits relative to the contributions.”
Author(s): Rob Kozlowski
Publication Date: 2 October 2024
Publication Site: Pensions & Investments
Private Credit Characteristics
Link: https://content.naic.org/sites/default/files/capital-markets-market-buzz-private-credit-plr.pdf
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Excerpt:
The terms private credit and private letter ratings (PLRs) have unintentionally elicited some confusion
about their respective meanings. While there is no standardized definition, and the term may be used
differently by market participants, private credit generally refers to debt, or debt-like, securities that are
not publicly issued or traded. On the other hand, PLRs refer to credit opinions that are assigned to
privately rated securities by credit rating providers and are only communicated to the issuer and a
specified group of investors.
To bring some clarity, at least with respect to how the NAIC views them, these terms can be characterized
in two dimensions: 1) distribution; and 2) transparency.
Publication Date: 30 July 2024
Publication Site: NAIC Capital Markets Bureau Market Buzz
The Housing Bubble Keeps Expanding, Case-Shiller Home Prices Hit New Record
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Housing affordability continues to soar out of reach of most buyers. Not only are prices at a new record level, mortgage rates remain close to 7.0 percent.
Chart Notes
- Case-Shiller measures repeat sales of the same price over time. It is the best measure of price, but it lags. Current data is as of May which reflects sales 1-3 months prior.
- The CPI, OER, and Rent of Primary Residence are all from the BLS.
- OER stands for Owners’ Equivalent Rent. It is the rent one would pay if someone was renting instead of paying a mortgage.
Author(s): Mike Shedlock (Mish)
Publication Date: 30 July 2024
Publication Site: MishTalk
U.S. Insurers’ Bank Loan Exposure Rises at a Decelerated Pace in 2023
Link:
https://content.naic.org/sites/default/files/capital-markets-special-reports-bank-loans-ye2023_0.pdf
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Executive Summary:
Bank loan investments increased to about $122 billion in book/adjusted carrying value (BACV)
at year-end 2023 from $117 billion at year-end 2022.Despite the 4.6% growth, bank loansremained at 1.4% of U.S. insurers’ total cash and invested
assets at year-end 2023—the same as year-end 2022.Approximately 70% of U.S. insurers’ bank loan investments were acquired, and 85% were held
by life companies.In particular, large life companies, or those with more than $10 billion in assets under
management, accounted for 82% of U.S. insurers’ bank loan exposure, up from nearly 80% in
2022.The top 25 insurance companies accounted for 75% of U.S. insurers’ total bank loan
investments at year-end 2023; the top 10 accounted for about 60%.Improvement in credit quality for U.S. insurer-bank loans continued, evidenced by a fourpercentage-point increase in those carrying NAIC 1 and NAIC 2 designations and a
corresponding four-percentage-point decrease in bank loans carrying NAIC 3 and NAIC 4
designations.
Author(s): Jennifer Johnson
Publication Date: 16 July 2024
Publication Site: NAIC Capital Markets Special Report
Pension Funds Are Pulling Hundreds of Billions From Stocks
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Excerpt:
Stock portfolios at large pension funds had a blockbuster run. Now, managers are cashing out.
Corporate pension funds are shifting money into bonds. State and local government funds are swapping stocks for alternative investments. The nation’s largest public pension, the California Public Employees’ Retirement System, is planning to move close to $25 billion out of equities and into private equity and private debt.
Like investors of all kinds, the funds are slowly adapting to a world of yield, where they can get sizable returns on risk-free assets. That is rippling throughout markets, as investors assess how much risk they want to take on. Moving out of stocks could mean surrendering some potential gains. Hold too much, for too long, and prices might fall.
Author(s): Heather Gillers, Charley Grant
Publication Date: 18 Apr 2024
Publication Site: WSJ
Dallas officials question lingering private investments in police and fire pension fund portfolio
Excerpt:
The Dallas Police and Fire Pension System — which as been severely underfunded for years — still has about 25% of its assets tied up in private investments.
That’s according to pension system official’s briefing during Thursday’s Ad Hoc Committee on Pensions meeting.
Those include investments in an energy fund, natural resources — and assets in real estate. The private investments were deemed “legacy” assets that the pension system still maintains.
It was risky private investments that landed the system in the situation it’s in now — with over a billion dollars in unfunded liabilities.
“Currently we’ve gotten that down to 26%,” Dallas Police and Fire Pension System Chief Investment Officer Ryan Wagner said during the meeting.
Author(s): Nathan Collins
Publication Date: 9 Feb 2024
Publication Site: KERA News
Bizarre Valedictory Interview by CalSTRS Investment Chief, Chris Ailman, Asks Private Equity to Be Nice and Share with Workers
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Excerpt:
The Financial Times made its interview with departing CalSTRS’ Chief Investment Officer Chris Ailman its lead story yesterday: Private equity should share more wealth with workers, says US pension giant. The Financial Times was too polite to say so, but Ailman could lay claim to being the best large public pension fund chief investment officer. CalSTRS, which manages the pensions of California teachers, is in the same general size league as its Sacramento sister CalPERS, and regularly outperforms CalPERS by a meaningful margin.
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It’s hard to know where to begin with this. Limited partners like CalSTRS, who are, in Wall Street parlance, the money, have not even been able to get basic disclosures from the general partners like how much in total the private equity firms hoover out in fees and expenses, despite many years of pleading. Mind you, it’s a requirement for a fiduciary to evaluate the costs and risks of any investment, yet these investors have accepted this abuse.
Limited partners don’t get P&Ls of portfolio companies. They don’t get independent valuations even though that is considered to be essential for every other type of investment. So it’s ludicrous to think that general partners will share money with one of the very weakest parties in the picture, mere workers, when they won’t give information to the limited partners.
Someone new to this topic might wonder why limited partners don’t say “no”. The reason is they perceive private equity to be necessary for them to earn enough to reduce their level of underfunding, which in the public pension fund world is typically pretty bad. To make up for the shortfalls, pension funds like CalPERS and CalSTRS have also been increasing the amount they charge to cities, counties, and other local government entities. These pension costs are taking up larger and larger proportions of these budgets, creating concern and anger.
Author(s): Yves Smith
Publication Date: 16 Feb 2024
Publication Site: naked capitalism
Just 2% of Philadelphia’s pension fund could boost the local economy
Excerpt:
The primary responsibility of the $8.4 billion Philadelphia pension fund is to assure the continuing financial security promised to city workers upon retirement. The welfare of city employees, along with all Philadelphians, depends on the economic and social well-being of the city itself. Therefore, the Philadelphia Public Banking Coalition has proposed that the city pension fund invest $168 million, 2% of its portfolio, in local economically targeted investments to fund projects that benefit Philadelphians.
These investments would address policy goals while achieving returns as high or higher than many of the fund’s current asset classes. Currently, the 2023 pension fund investment policy describes risky investments in options, futures, forwards, and swap agreements. And there’s a precedent for public policy considerations, for example, in limitations on investments in Russian companies, private prisons, and arms manufacturers. The current portfolio exhibits a strong real estate focus but without preference for Philadelphia projects.
Below are just a few of the possible opportunities for targeted investments that would strengthen the health of Philadelphia’s economy.
Author(s): Stan Shapiro and Peter Winslow, For The Inquirer
Publication Date: 14 Feb 2024
Publication Site: The Philadelphia Inquirer
‘Too few’ public pension funds address climate in proxy voting — report
Excerpt:
“Too few” public pension funds are addressing climate-related financial risk when it comes to proxy voting, according to a report released Jan. 23 by nonprofit organizations Sierra Club, Stand.earth and Stop the Money Pipeline.
The report, “The Hidden Risk in State Pensions: Analyzing State Pensions’ Responses to the Climate Crisis in Proxy Voting,” looked at 24 public pension funds with a collective $2 trillion in assets, including the $241.7 billion New York City Retirement Systems and state pension funds in California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Mexico, Oregon, Rhode Island, Vermont, Washington and Wisconsin.
The pension funds were graded on their proxy-voting guidelines, proxy-voting records, and data transparency.
On proxy-voting guidelines, no pension system received an A grade, but three of the five New York City pension funds covering city employees, the Board of Education and teachers, earned a B for addressing systemic risk and climate resolutions. Half of the 24 pension funds studied earned an F.
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“The findings of this analysis are clear: Far too few state pensions are taking adequate steps to address climate-related financial risks and protect their members’ hard-earned savings, raising serious concerns about their execution of fiduciary duty,” the report’s executive summary said.
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Amy Gray, associate director of climate finance for Stand.earth, said it is disappointing to see many funds not using proxy-voting strategies to address the financial risks of climate change. “This report is a stark reminder that pension funds can — and must — do so much more to wield their massive investor power,” Gray said in the news release.
Author(s): Hazel Bradford
Publication Date: 23 Jan 2024
Publication Site: P&I
The Hidden Risk in State Pensions: Analyzing State Pensions’ Responses to the Climate Crisis in Proxy Voting
Report PDF: https://stand.earth/wp-content/uploads/2024/01/The-Hidden-Risk-in-State-Pensions-Report.pdf
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Excerpt:
A first-of-its-kind report, the Hidden Risk analyzes the proxy voting records and proxy voting guidelines of the 19 public pensions that are in states where a state financial officer has indicated it is a priority issue both to advocate for more sustainable, just, and inclusive firms and markets , and to protect against climate risk.
Ahead of the 2024 shareholder season, a first-of-its-kind report “The Hidden Risk in State Pensions: Analyzing State Pensions’ Responses to the Climate Crisis in Proxy Voting,” from Stand.earth, Sierra Club and Stop the Money Pipeline, analyzes proxy voting records, proxy guidelines, and voting transparency of 24 public pension funds in the USA collectively representing over $2 trillion in assets under management (AUM).
These pensions are based in states where a state financial officer is a member of For the Long Term, a network that advocates for more sustainable, just, and inclusive firms and markets and strives to protect markets against climate risk.
The pensions analyzed include the pension systems of New York City and the states of California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Mexico, Oregon, Rhode Island, Vermont, Washington, and Wisconsin.
Author(s):
Stand.earth
Sierra Club
Stop The Money Pipeline
Publication Date: 23 Jan 2024
Publication Site: Stand.earth