Tag: asset management

ESG Crime

Mary Pat Campbell

Link:https://www.bloomberg.com/opinion/articles/2024-01-17/making-esg-a-crime

Excerpt:

Oh sure whatever:

Republican lawmakers in New Hampshire are seeking to make using ESG criteria in state funds a crime in the latest attack on the beleaguered investing strategy.

Representatives led by Mike Belcher introduced a bill that would prohibit the state’s treasury, pension fund and executive branch from using investments that consider environmental, social and governance factors. “Knowingly” violating the law would be a felony punishable by not less than one year and no more than 20 years imprisonment, according to the proposal.

Pensions & Investments reports:

“Executive branch agencies that are permitted to invest funds shall review their investments and pursue any necessary steps to ensure that no funds or state-controlled investments are invested with firms that invest New Hampshire funds in accounts with any regard whatsoever based on environmental, social, and governance criteria,” the bill said.

The New Hampshire Retirement System “shall adhere to their fiduciary obligation and not invest with any firm that will invest state retirement system funds in investment funds that consider environmental, social, and governance criteria, as the investment goal should be to obtain the highest return on investment for New Hampshire’s taxpayers and retirees,” the bill said.

Investors aren’t allowed to consider governance! Imagine if this was the law; imagine if it was a felony for an investment manager to consider governance “with any regard whatsoever.”

….

I’m sorry, this is so stupid. “ESG” is essentially about considering certain risks to a company’s financial results: You might want to avoid investing in a company if its factories are going to be washed away by rising oceans, or if its main product is going to be regulated out of existence, or if its position on controversial social issues will cost it sales, or if its CEO controls the board and spends too much corporate money on wasteful personal projects. Obviously ESG in practice is also other, more controversial things:

  1. If you care about the environment, social issues, etc., you might want to invest in companies that you think are environmentally or socially good, whether or not they are good financial investments.
  2. You might incorrectly convince yourself that the stuff you think is environmentally or socially good is also good for the bottom line: You might have a wishful estimate of how quickly the world will transition away from fossil fuels, to justify your desire not to invest in oil companies. You might tell yourself “this company’s stance on social issues will cost it lots of customers” when really the customers don’t care, but you do.

But if you make it a crime for investors to consider certain financial risks then you get too much of those risks.

In particular, I suspect, you get too much governance risk. If every investor tomorrow said “okay we don’t care about the environment,” most companies probably wouldn’t ramp up their pollution: Their executives probably don’t want to pollute unnecessarily, polluting probably wouldn’t help the bottom line, and many companies just sit at computers developing software and couldn’t pollute much if they wanted to. But if every investor tomorrow said “okay we don’t care about governance,” then, I mean, “governance” is just a way of saying “somebody makes sure that the CEO is doing a good job and doesn’t pay herself too much.” If the investors don’t care about that, then a lot of CEOs will be happy to give themselves raises and spend more time on the corporate jet to their vacation homes.

Author(s): Matt Levine

Publication Date: 17 Jan 2024

Publication Site: Bloomberg

Minority- and Women-Owned Business Enterprise: Asset Management and Financial Institution Strategy Report

Mary Pat Campbell

Link: https://www.osc.state.ny.us/files/reports/special-topics/pdf/mwbe-fiscal-2022-23.pdf?utm_content=20230610&utm_medium=email&utm_source=weekly+news

Graphic:

Excerpt:

In the 2022-23 fiscal year, the Fund recorded growth in its investments with MWBE managers. Despite increased market volatility from the banking disruptions to small financial institutions and the regional banking system and the rise in interest rates, the Fund has continued its steady deployment of capital to MWBE investment managers. As detailed in the tables below, total investments and commitments of Fund capital to MWBE partners for 2022-23 was $31.5 billion.

….

While Fund management is very pleased with these results, our team is committed to retaining our long-term focus on steady, incremental growth, partnering with successful MWBE managers. The 2022-23 results illustrate another important measure of the success of the Fund’s MWBE Strategy. Of the approximate $141 billion of the Fund’s assets that are actively and externally managed, 22.3 percent is managed by MWBEs.

Author(s): Comptroller Thomas P. DiNapoli

Publication Date: May 2023

Publication Site: Office of the New York State Comptroller

ESG tug-of-war leaves taxpayers shortchanged

Mary Pat Campbell

Link: https://thehill.com/opinion/finance/4028654-esg-tug-of-war-leaves-taxpayers-shortchanged/

Excerpt:

The whole ordeal picked up steam years ago with efforts initiated by progressives in states like California, which has repeatedly imposed politically motivated restrictions on its largest pension funds, CalPERS and CalSTRS. In 2000, the state forced the funds to divest from tobacco companies, a move that cost nearly $3.6 billion in investment earnings. The pension funds have faced frequent — and occasionally successful — demands from activists and legislators on the left to divest of other progressive bogeymen, like firearms, oil and gas, and private prisons.

These politically motivated demands to place social goals above the fiduciary responsibility to pensioners persist, not just in California but also in Maine, Vermont, Massachusetts and many other blue states. At a time when many state pension funds are facing enormous fiscal imbalances, these policies are worsening the problem and shifting massive burdens onto taxpayers, who will have to foot the bill for the progressive aims of policymakers.

Indeed, research shows that putting social policies ahead of fiduciary responsibility can come at a hefty cost. A study found that public pension funds with ESG investment mandates have investment returns that are 70 to 90 basis points lower than those that do not — meaning retirees are financially hurt by these investment strategies.

Not to be outdone, conservatives in red states have been fighting back with anti-ESG policies of their own. Unfortunately, rather than establishing an environment that ensures taxpayers are best served, many of these policies elevate conservative cultural preferences above fiscal considerations. Like the pro-ESG policies of the left, these anti-ESG policies have cost taxpayers considerably.

Author(s): Brandon Arnold

Publication Date: 1 Jun 2023

Publication Site: The Hill

CalPERS Chief Investment Officer Musicco and Son in NBA Playoffs Courtside Seats Next to Billionaire Warriors Owner and Kleiner Perking Partner Joe Lacob. What Gives?

Mary Pat Campbell

Link: https://www.nakedcapitalism.com/2023/05/calpers-chief-investment-officer-musicco-and-son-in-nba-playoffs-courtside-seats-next-to-billionaire-warriors-owner-and-kleiner-perking-partner-joe-lacob-what-gives.html

Excerpt:

CalPERS’ sense of privilege knows no bounds. The latest example is its Deputy Executive Officer, Communications & Stakeholder Relations Brad Pacheco unsuccessfully trying to ‘splain the very bad optics of Chief Investment Officer Nicole Musicco and her son getting NBA courtside playoff seats that are not available for purchase.

Even if Musicco was careful enough to have her receipt of these seats laundered through the box office, the pretense that a member of the general public could buy these seats is an insult to the intelligence of sports fans all over America.

….

Now one could argue that assuming Musicco bought the ticket, it’s still a sign of bad judgment for her to have gotten a courtside seat at a prized playoff game, the sort normally reserved for the connected and famous, and not state employees.2 But sports enthusiasts, season ticket resellers, and sports insiders all say no way, no how could Musicco have obtained these tickets, whether nominally purchased or not, without connected insiders making them available to her.

….

But aside from the decidedly bought-and-paid-for look, does Musicco winding up with these seats amount to a corruption problem under California law? If you read the relevant provisions with care, the answer is yes.

Musicco is at a level in the California government where she is required to make annual disclosure of outside income and her assets through a Statement of Economic Interests, more informally called a Form 700 (here is Musicco’s current Form 700). Form 700 filers are only allowed to receive a maximum of $590 in gifts from each source per year.

….

But rest assured Musicco would not have been able to collect this perk merely as a former partner in a sports-investment-happy fund; it is her status as current CalPERS Chief Investment Officer that makes her a celebrity-equivalent.

And keep in mind that celebrity treatment, normally kept well out of the public eye, is the norm in private equity. We’ve repeatedly discussed the soft corruption of government employees getting lavish perks like trips to attractive destinations with the fund manager providing lavish entertainment (such as the Stones and Elton John for the biggest funds) and meals, all charged to the fund, meaning the investors, meaning ultimately taxpayers. Here’s a recent indiscreetly-shared example from LinkedIn, of a sumptuous banquet at Westminster Abbey, of an annual meeting for Coller Capital, one of the largest private equity secondary investment firms (i.e., they buy the existing interests of limited partners). For once, enough gold to make even Donald Trump happy!

With that largess as not unusual, no wonder Musicco has come to see special treatment as normal.

Regardless, California takes an indulgent posture toward CalPERS, ignoring sins like cooking its books and covering up employee embezzlement.7 Remember, even in its pay to play scandal, where former CEO Fred Buenrostro was caught taking paper bags of cash, it was the Department of Justice,not the California Attorney General, that successfully prosecuted him, resulting in a four-and-a-half-year prison sentence. Even though the general public will take offense at the latest chicanery, CalPERS’ status in California as too big to fail apparently means it is too big to be disciplined.

Author(s): Yves Smith

Publication Date: 18 May 2023

Publication Site: naked capilism

BlackRock, Fidelity Lose Out in $1 Trillion China Pension Market

Mary Pat Campbell

Link: https://finance.yahoo.com/news/blackrock-t-compete-free-advil-000000028.html

Graphic:

Excerpt:

China launched private pension plans for the first time last year and Beijing has ensured that domestic banks and fund managers win the vast majority of the new business in a market that may eventually grow to $1.7 trillion. Global companies including BlackRock and Fidelity International Ltd have been off to a slow start.

Given their tiny asset bases in China, most foreign money managers have so far been excluded from pilot trials in 36 cities, allowing banks like Industrial & Commercial Bank of China Ltd. and China Merchants Bank Co. to grab all the inflows. To cement their lead, the banks are offering everything from cash incentives to free ibuprofen for each new account.

“The first bite at the cake here won’t be easy” for foreign companies, said Zhou Yiqin, president of GuanShao Information Consulting Center, a financial regulations specialist.

While it’s still early days for the new pension scheme, the head start for domestic companies illustrates the daunting challenges for global firms eyeing a piece of China’s $60 trillion financial services sector. From mergers advice to stock sales and trading, Wall Street is struggling in a market that combines endless potential with stiff local competition and regulatory roadblocks.

China’s fledging private pension system is loaded with promise, as Beijing desperately tries to entice retirement savings to support an aging population. The number of people over 60 is expected to jump more than 50% by 2040, according to the World Health Organization. China’s population shrank last year for the first time in six decades.

To address the problem, China has launched three pension pillars. The first two — a compulsory state-backed plan and a voluntary corporate matching option — don’t come close to meeting the future needs of most pensioners. Savings in the government-led program covering urban employees may run out by 2032 and face a shortfall of more than 7 trillion yuan by 2035, according to Citic Securities Co. estimates.

Author(s): Bloomberg News

Publication Date: 28 Mar 2023

Publication Site: Yahoo Finance

What You Can Do To Force Your State Pension To Be Transparent About Its Investments

Mary Pat Campbell

Link: https://pensionwarriorsdwardsiedle.substack.com/p/what-you-can-do-to-force-your-state

Excerpt:

So what can you do to force your state or local government pension to be more transparent? That’s a question I asked Marc Dann, an attorney in private practice in Ohio and the former Attorney General of Ohio. (Dann is currently litigating a public records request on my behalf against the State Teachers Retirement System of Ohio.)

Say attorney Dann: “Refer to your state’s public records laws in making a request. Be as detailed and specific in the request as you can possibly be. Remember public records are only those records that may actually exist. For example, instead of asking for a list of all hedge, private equity or venture capital fund investments, ask for a prospectus, offering documents or reports provided to the pension by each investment fund (and name the investment funds—which are generally named on the state or local pension’s website).  Most states allow legal fee-shifting in public records lawsuits. So if the pension or fund resists, you may wish to consider bringing in a lawyer who agrees to be paid his fee from any recovery from the pension. Don’t forget to reach out to allied members of your state legislature or city council who can put pressure on the pensions to properly respond to the requests.”

Author(s): Edward Siedle

Publication Date: 22 Mar 2023

Publication Site: Pension Warriors on substack

BlackRock’s Red-State Woes Continue as Florida Divests

Mary Pat Campbell

Link: https://www.ai-cio.com/news/blackrocks-red-state-woes-continue-as-florida-divests/

Excerpt:

State Chief Financial Officer Jimmy Patronis announced Thursday that the Florida Treasury will begin divesting $2 billion worth of assets currently under management by BlackRock.

BlackRock managed $1.43 billion of Florida’s long duration portfolio, which includes investments such as corporate bonds, asset-backed securities and municipal bonds. Additionally, BlackRock managed $600 million of Florida funds in a short-term treasury fund, which invests in short-term and overnight investments.

Patronis cited efforts by BlackRock and its CEO, Larry Fink, to embrace environmental, social and governance investment principles as the reason Florida will pull the funds from the manager.. In the wake of the announcement, the state will freeze the $1.43 billion in long-term securities at its custodial bank.

….

“It’s my responsibility to get the best returns possible for taxpayers,” Patronis said in the statement. “The more effective we are in investing dollars to generate a return, the more effective we’ll be in funding priorities like schools, hospitals and roads. As major banking institutions and economists predict a recession in the coming year, and as the Fed increases interest rates to combat the inflation crisis, I need partners within the financial services industry who are as committed to the bottom line as we are – and I don’t trust BlackRock’s ability to deliver. As Larry Fink stated to CEOs, ‘Access to capital is not a right. It is a privilege.’ As Florida’s CFO, I agree wholeheartedly, so we’ll be taking Larry up on his offer.”

Author(s): Dusty Hagedorn

Publication Date: 2 December 2022

Publication Site: ai-CIO

19 GOP Attorneys General Slam BlackRock Over ESG Investments

Mary Pat Campbell

Link: https://www.ai-cio.com/news/19-gop-attorneys-general-slam-blackrock-over-esg-investments/

Excerpt:

A group of 19 Republican state attorneys general have written a letter to BlackRock stating that the asset manager is using state pension fund assets in environmental, social and governance investments that “force the phase-out of fossil fuels, increase energy prices, drive inflation and weaken the national security of the United States.”

The eight-page letter outlines how the group believes BlackRock is using “the hard-earned money of our states’ citizens to circumvent the best possible return on investment.”

“Our states will not idly stand for our pensioners’ retirements to be sacrificed for BlackRock’s climate agenda. The time has come for BlackRock to come clean on whether it actually values our states’ most valuable stakeholders, our current and future retirees, or risk losses even more significant than those caused by BlackRock’s quixotic climate agenda,” the letter says.

The attorneys general asked BlackRock to respond by August 19.

Author(s): Amy Resnick

Publication Date: 9 Aug 2022

Publication Site: ai-CIO

Letter to FIO and NAIC from Senate Banking Committee

Mary Pat Campbell

Link: https://www.banking.senate.gov/imo/media/doc/brown_letter_on_insurance_031622.pdf

Excerpt:

  1. What risks do the more aggressive investment strategies pursued by private equity-controlled insurers present to policyholders?
  2. What risks do lending and other shadow-bank activities pursued by companies that also
    own or control significant amounts of life insurance-related assets pose to policyholders?
  3. Are there risks to the broader economy related to investment strategies, lending, and
    other shadow-bank activities pursued by these companies?
  4. In cases of pension risk transfer arrangements, what is the impact on protections for
    pension plan beneficiaries if plans are terminated and replaced with lump-sum payouts or
    annuity contracts? Specifically, how are protections related to ERISA and PBGC
    insurance affected in these cases?
  5. Given that many private equity firms and asset managers are not public companies, what
    risks to transparency arise from the transfer of insurance obligations to these firms? Will
    retirees and the public have visibility into the investment strategies of the firms they are
    relying on for their retirements?
  6. Are state regulatory regimes capable of assessing and managing the risks related to the
    more complex structures and investment strategies of private equity-controlled insurance
    companies or obligations? If not, how can FIO work with state regulators to aid in the
    assessment and management of these risks?

Author(s): Sen. Sherrod Brown

Publication Date: 16 March 2022

Publication Site: U.S. Senate Banking Committee

SEC Adopts Amendments to Proxy Voting Advice Rules

Mary Pat Campbell

Link: https://www.ai-cio.com/news/sec-adopts-amendments-to-proxy-voting-advice-rules/

Excerpt:

The U.S. Securities and Exchange Commission Wednesday adopted amendments to its rules governing proxy voting advice, representing another step forward in what has been a fraught regulatory process.

SEC Chair Gary Gensler, in a statement said, the final amendments aim to avoid burdens on proxy voting advice businesses that may impair the timeliness and independence of their advice. The amendments also address misperceptions about liability standards applicable to proxy voting advice, Gensler says, while preserving investors’ confidence in the integrity of such advice.

“I am pleased to support these amendments because they address issues concerning the timeliness and independence of proxy voting advice, which would help to protect investors and facilitate shareholder democracy,” Gensler says. “It is critical that investors who are the clients of these proxy advisory firms are able to receive independent and timely advice.”

As outlined in a press release distributed after the vote by the SEC, Wednesday’s final amendments rescind two rules applicable to proxy voting advice businesses that the Commission adopted in 2020. Specifically, the final amendments rescind conditions to the availability of two exemptions from the proxy rules’ information and filing requirements on which proxy voting advice businesses often rely.

Author(s): John Manganaro

Publication Date: 14 July 2022

Publication Site: ai-CIO

PSERS Considers Suing Aon for Miscalculating Returns

Mary Pat Campbell

Link: https://www.ai-cio.com/news/psers-considers-suing-aon-for-miscalculating-returns/

Excerpt:

At their board meeting last week, Pennsylvania’s Public School Employees’ Retirement System voted to hire law firm Blank Rome to help determine if it should sue Aon, an investment consultant the pension fund hired.

The potential suit concerns a calculation error Aon made that caused PSERS to inaccurately report its returns in December 2020. While initially the nine-year performance figure was reported to be 6.38%, a correction showed that it was in fact lower, and thus below the threshold needed to prevent increased contributions. When the miscalculation was revealed in March 2021, the pension fund’s beneficiaries were forced to increase their payments.

PSERS paid Aon $7.2 million for investment advice over the course of almost a decade. Currently, Aon is still employed by PSERS. Both the FBI and the SEC are investigating the miscalculation. PSERS is also under investigation for gifts given by Wall Street firms to PSERS employees.

Author(s): Anna Gordon

Publication Date: 16 May 2022

Publication Site: ai-CIO

Public Pensions’ New Quandary: Coping With Geopolitical Turmoil

Mary Pat Campbell

Link: https://www.governing.com/finance/public-pensions-new-quandary-coping-with-geopolitical-turmoil

Excerpt:

Arguably, trustees and investment teams need a serious conversation with portfolio managers who are overweight in companies and countries that could foreseeably lose favor and stock exchange value. To ground that dialog, some form of risk analysis is required. One protocol could be as primitive as routinely identifying which major corporate equity and debt holdings in a system’s portfolio have cost and revenue exposure of more than 10 or 15 percent in such potentially at-risk regimes, and prodding managers to trim down those geopolitically vulnerable positions unless there is a clearly compelling undervaluation thesis. Another sensible approach would be to require underweighting of major companies relative to a benchmark index, based on their percentages of autocrat-nation revenues.

Ultimately at a fiduciary level, if a pension fund’s total worst-case exposure to all earnings and income derived from autocratic nations is an insignificant fraction of its total portfolio, the composite risk is probably not worth losing sleep over, on purely financial grounds. But politics could still enter the theater stage for pension boards that ignore this issue.

Pension consultants and risk advisers have a new role to play in this dialog. ESG investing is now under fire, so a healthy ESG+G discussion is especially timely. If nothing else, informed advisers can help investment teams and trustees identify where their portfolios might contain a blind-side risk that hasn’t received enough attention.

Author(s): Girard Miller

Publication Date: 10 May 2022

Publication Site: Governing