Tag: Illinois

Municipal Employees’ Annuity and Benefit Fund of Chicago Dives into Private Debt

Mary Pat Campbell

Link: https://www.marketsgroup.org/news/Chicago-MEABF-Private-Debt

Excerpt:

The Municipal Employees’ Annuity and Benefit Fund of Chicago (MEABF) has added private debt to its portfolio.


The MEABF board voted to work with three managers in the sector, allocating up to $100 million. It approved up to $40 million to both Partners Group Credit Strategy and Angelo Gordon Direct Lending Fund and up to $20 million to Brightwood Capital Fund, Stephen Wolff, MEABF’s investment officer, tells Markets Group.

….

Wolff said that the MEABF board approved a dedicated allocation to private debt of 4% in early 2021 and that this search fulfilled the allocation. MEABF had $3.4 billion in assets as of July 31. He said MEABF has in the past had mezzanine investments but has not had a dedicated allocation to private debt.

….

As of Dec. 31, MEABF had a fixed income target allocation of 25% and an actual asset allocation of 21%. Its real estate target was 10%, just above its actual asset allocation of 9%. Domestic equities are its largest segment with a 26% target and a 26% allocation. International equities were at 18%, just above its 17% target. Hedged equities, meanwhile, were at 12%, above its 10% target, while private equity was at 3%, below its 5% target.

Author(s): David G. Barry

Publication Date: 21 August 2022

Publication Site: Markets Group

Reality check: New actuarial report says Illinois’ biggest pension, TRS, sunk $6 billion further into the hole in FY 2022 – Wirepoints Quickpoint

Mary Pat Campbell

Link: https://wirepoints.org/reality-check-new-actuarial-report-says-illinois-biggest-pension-trs-sunk-6-billion-further-into-the-hole-in-fy-2022-wirepoints-quickpoint/

Excerpt:

The first actuarial report is out for an Illinois pension for fiscal year 2022, which ended on June 30. It’s for the TRS, the Teachers Retirement System, which accounts for well over half of Illinois state-level pension debt.

Unfunded liabilities grew about $6 billion from $74.7 billion to $80.7 billion on a fair asset value basis. Its funded ratio worsened from 46.2% to 43.8%. The drop occurred despite a one-time, special contribution by taxpayers to the fund of $173 million that was in addition to their annual, scheduled contributions.

Expect Illinois’ other pensions to suffer similarly dismal results as their 2022 reports are published.

Author(s): Mark Glennon

Publication Date: 7 Dec 2022

Publication Site: Wirepoints

Chicago Teachers’ Pension Fund to Reorientate Portfolio to Fully Offset Fossil Fuel Investments

Mary Pat Campbell

Link: https://www.ai-cio.com/news/chicago-teachers-pension-fund-to-reorientate-portfolio-to-fully-offset-fossil-fuel-investments/

Excerpt:

The Chicago Teachers’ Pension Fund trustees in October voted to engage with fossil fuel companies to encourage them towards clean renewable energy sources and investing in viable clean and renewable energy sources to offset the fund’s fossil fuel investments. The fund plans to achieve this goal by the end of 2027.

In a statement shared to Chief Investment Officer, the fund’s CIO Fernando Vinzons wrote, “the fund will approach divestiture from a multi-pronged approach, engaging with current companies to encourage them toward a path of clean renewable energy sources, while working toward the longer-term goal of divesting from publicly traded fossil fuel holdings and investing. Divestment does not attract consensus among institutional investors. Many public pension funds are engaging with companies that produce fossil fuels, some are divesting those companies, and some, as the case with state funds from the state of such as Louisiana, are allocating away from managers perceived to be harming the domestic energy sector by endorsing programs like the Net Zero campaign.

According to a press release from the Chicago Teachers’ pension fund, Carlton W. Lenoir, Sr., executive director at CTPF, commented on the vote saying, “as fiduciaries, our trustees must invest consistent with our mission to protect and enhance the present and future economic well-being of members, pensioners, and beneficiaries, and we are confident that this action fulfills that responsibility.”

Author(s): Dusty Hagedorn

Publication Date: 7 Nov 2022

Publication Site: ai-CIO

Backlash Against ESG Investment Of Taxpayer Money Grows, But Illinois And Chicago Carry On – Wirepoints

Mary Pat Campbell

Link: https://wirepoints.org/backlash-against-esg-investment-of-taxpayer-money-grows-but-illinois-and-chicago-carry-on-wirepoints/

Excerpt:

But those scorned sectors have been the better investments this year, and tech companies have been hammered. Only 31% of actively managed ESG equity funds beat their benchmarks in the first half of 2022, compared to 41% of conventional funds, according to Refinitiv Lipper, as Reuters recently reported. So far this year, 19 of the 20 best-performing companies in the S&P 500 are either fossil-fuel producers or otherwise connected with fossil fuels.

Consequently, ESG funds “have been hit by unprecedented outflows in the market downturn, as investors prioritize capital preservation over goals such as tackling climate change,” wrote Reuters.

Predictably, the issue has become political since state and local officials invest trillions of dollars owned by taxpayers. Republican candidates generally oppose ESG investment of public funds, and five positions — in Kansas, Iowa, Missouri, Nevada and Wisconsin — flipped from Democratic to Republican in recent races for state auditor, controller or treasurer. Of the 50 directly elected positions, Republicans won 29 and Democrats won 19, according to a recent Roll Call report.

Illinois Treasurer Michael Frerichs, however, is among the Democratic officials not backing off on ESG. “We are in it for the long term” is the title of an open letter he recently signed along with 13 other Democratic state financial officers criticizing efforts to stop ESG use of taxpayer money. The letter is astonishingly hypocritical. It says those who want to ban ESG investment of public money are “blacklisting financial firms that don’t agree with their political views.” That, of course, is precisely what ESG does.

Author(s): Mark Glennon

Publication Date:19 Nov 2022

Publication Site: Wirepoints

Upgrade will help Chicago navigate a thornier bond market

Mary Pat Campbell

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202210251432SM______BNDBUYER_00000184-0fdf-d34d-a3d7-5fff818a0000_110.1&utm_source=Wirepoints+Newsletter&utm_campaign=845146e7cd-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_895ee9abf9-845146e7cd-30506353#new_tab

Excerpt:

Last week’s Fitch Ratings upgrade of Chicago offers dual benefits for Mayor Lori Lightfoot’s administration as it pursues passage of a proposed 2023 budget and preps a general obligation issue.

Fitch’s Friday upgrade to BBB from BBB-minus, the city’s first from Fitch in 12 years, and the potential for more good rating news could help sell the City Council on supplemental pension contributions and other pieces of the budget plan viewed favorably by analysts.

The Fitch action and an overall rosier view of the city’s fiscal condition should also broaden the investor appeal of an upcoming $757 million general obligation issue in a more fickle and tumultuous market than prevailed in the city’s last GO offering in late 2021.

Author(s): Yvette Shields

Publication Date: 25 Oct 2022

Publication Site: Fidelity Fixed Income

Candidates discuss Illinois’ unfunded pension debt

Mary Pat Campbell

Link: https://www.thecentersquare.com/illinois/gubernatorial-candidates-discuss-plans-to-shore-up-illinois-unfunded-pension-debt/article_d4ee1dcc-5acc-11ed-ba1f-5f5508ee672f.html

Excerpt:

Candidates for Illinois governor are taking different approaches on how they’d tackle the state’s unfunded pension liabilities.

Illinois has among the most unfunded public sector employee pension liability. State numbers indicate around $151 billion unfunded, but some place like the American Legislative Exchange Council place the debt at $533 billion.

State Sen. Darren Bailey, who’s running against incumbent Democratic Gov. J.B. Pritzker, said he’ll use reduced state spending to pay down pensions.

“We’ll find the fat in the budget and we’ll begin to apply that to get this pension situation under control, but first and foremost, I will be sitting at the table with pensioners,” Bailey, R-Xenia, told The Center Square. “I fear that the pension debt may be that large looming problem that will sneak up on Illinois if we continue to ignore it as J.B. Pritzker has.”

Pritzker touts on his campaign website “fully funding pension contributions” as a way to reduce state pension liabilities, “going above and beyond with payments and expanding the employee pension buyout program.”

Pritzker’s campaign did not return requests for an interview.

Author(s): Greg Bishop

Publication Date: 2 Nov 2022

Publication Site: The Center Square

Fiscal Year 2022 Brings Outperformance for Illinois State Teachers’ Retirement System

Mary Pat Campbell

Link: https://www.ai-cio.com/news/fiscal-year-2022-brings-outperformance-for-illinois-state-teachers-retirement-system/

Excerpt:

The Teachers’ Retirement System of the State of Illinois has avoided a significant portfolio downswing despite the equity slowdown that has burdened asset managers with thus far in 2022. Through the second quarter, the fund has returned-1.17% net of fees, a favorable rate of return compared to other public pension systems across the country in fiscal year 2022.

At the end of FY 2022, the 40-year rate of return was 9.3%. This 40-year annualized return eclipses the system’s estimated long-term investment rate of 7%.

The net investment loss will not impact the plans’ ability to pay out benefits to its more than 434,000 members. In 2022, TRS will pay more than $7 billion in benefits to more than 128,000 members and their families.

Author(s): Dusty Hagedorn

Publication Date: 6 Oct 2022

Publication Site: ai-CIO

5 THINGS WRONG WITH ILLINOIS HOLDING 30% OF U.S. PENSION BOND DEBT

Mary Pat Campbell

Link: https://www.illinoispolicy.org/5-things-wrong-with-illinois-holding-30-of-u-s-pension-bond-debt/

Graphic:

Excerpt:

Pension obligation bonds, like payday loans, are a sign of mismanaged finances. Illinois not only leads the nation for using that risky debt, it owes the bulk of it.

It is bad Illinois has the nation’s worst pension crisis, but state politicians have made it worse by using risky debt to delay the day of reckoning, and done so to the point that Illinois now owes 30% of the nation’s pension obligation bonds.

….

In 2013, Illinois took a significant step towards addressing the pension crisis by passing Public Act 98-0599. This bill protected any benefits that had already been earned by employees while it amended future benefits. The bill increased the retirement age, replaced 3% compounding annual raises with cost-of-living adjustments tied to inflation and capped maximum pensionable salaries. While not a solution, this bill provided a responsible roadmap addressing the financial issues in the pension system while preserving already earned benefits.

Unfortunately, the bill was declared unconstitutional by the Illinois Supreme Court in 2015 because it was interpreted as changing promised future benefits for pension recipients, even though this could potentially result in financial ruin for Illinois. As a result, a constitutional amendment is needed to allow changes to future pension benefits.

Author(s): Aneesh Bafna

Publication Date: 10 Sept 2021

Publication Site: Illinois Policy Institute

Debt Forgiveness Won’t Shield Students from Illinois’ Pension Pinch

Mary Pat Campbell

Link: https://www.realclearpolicy.com/articles/2022/09/14/debt_forgiveness_wont_shield_students_from_illinois_pension_pinch_853360.html

Excerpt:

Families in Illinois are now burdened with the fourth most expensive in-state tuition prices in the nation, and the highest in the Midwest. 

Take U of I’s flagship Urbana-Champaign campus, with base tuition and fees now starting at $17,138 a year. In comparison, a Big-10 education for in-state students attending Indiana University-Bloomington or the University of Wisconsin-Madison costs nearly $6,000 less.

Illinois schools cost more because most other states don’t have Illinois-sized pension debt – most recently estimated at $140 billion by the Commission on Government Forecasting and Accountability. 

Illinois Policy Institute research shows state funding has declined for higher education operations by 26%  in real terms from fiscal year 2007 through fiscal year 2022, while spending on university pensions has exploded by 514%.

Another way of looking at it is the State Universities Retirement System pension payments accounted for 9% of the state’s higher education spending in 2007. Today, they account for 44% of total higher education dollars. That translates to $776 million less for colleges and universities to allocate toward services that directly benefit students in 2022.

Author(s): Amy Korte

Publication Date: 14 Sept 2022

Publication Site: Real Clear Policy

Citizens must be accurately informed for government to work

Mary Pat Campbell

Link: https://www.news-gazette.com/opinion/columns/sheila-weinberg-citizens-must-be-accurately-informed-for-government-to-work/article_5d93e9cf-73c5-54c9-b762-133f91a94824.html

Excerpt:

An example of questionable disclosure practices is found in the Illinois budgeting and financial reporting process, specifically regarding pension contributions. In 1994, then-Gov. Jim Edgar led an effort to pass a bipartisan bill to solve the state’s $15 billion pension deficit. The plan would resolve the deficit within 50 years. The plan was structured to pay down the debt very slowly in the first 15 years and accelerate at the end. This ensured that sitting politicians in the early days of the plan would not be required to make the necessary tax increases or budget cuts to pay down the debt in a meaningful way.

This program is shown in charts to look like a skateboard ramp, appropriately named the “Edgar Ramp.” The problem is, the plan doesn’t work.

It is so unsuccessful that the Illinois pension deficit has grown from $15 billion to $317 billion as of June 30, 2020, according to Moody’s Investors Service. The state’s latest bond offering document emphasizes, “The state’s contributions to the retirement systems, while in conformity with state law, have been less than the contributions necessary to fully fund the retirement systems as calculated by the actuaries of the retirement systems.”

The latest Illinois Annual Comprehensive Financial Report discloses cash-flow problems, significantly underfunded pension obligations, other post-retirement benefit deficits and multiple references to debt-obligation bonds.

Author(s): Shiela Weinberg

Publication Date: 7 Aug 2022

Publication Site: News Gazette

The Government Pension Reckoning Cometh

Mary Pat Campbell

Link: https://www.wsj.com/articles/the-government-pension-reckoning-cometh-equable-institute-report-11660084312?st=j8a7o7efyyvjtdp&reflink=article_email_share&utm_source=Wirepoints+Newsletter&utm_campaign=24f39fc2e0-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_895ee9abf9-24f39fc2e0-30506353#new_tab

Excerpt:

The California Public Employees’ Retirement System reported a negative 6.1% return for the year, which includes a 21.3% positive return on private equity and 24.1% return on real estate as reported through the second quarter of 2022. What will happen if real-estate prices start to fall and some leveraged private-equity buyouts go south amid rising interest rates?

Collective-bargaining agreements limit how much workers must contribute to their pensions, so taxpayers are required to make up for investment losses. Employer retirement contributions—that is, taxpayers—make up 20% of government worker compensation. That amount has soared over the past decade as pension funds tried to make up for losses during the 2008-2009 financial panic.

A recent report by the Equable Institute found that state and local pension plans now are only 77.9% funded on average, which is about the same as in 2008. But some like Chicago’s are less than 40%. Advice to taxpayers in Illinois: Run.

Author(s): WSJ Editorial Board

Publication Date: 9 Aug 2022

Publication Site: WSJ

Ken Griffin talks the pension crisis, a once-secret meeting with Pritzker

Mary Pat Campbell

Link: https://www.chicagotribune.com/opinion/commentary/ct-opinion-ken-griffin-illinois-pension-jb-pritzker-desantis-20220809-jnrzlzbpvbfcnjauz522qcvi4m-story.html?utm_source=Wirepoints+Newsletter&utm_campaign=24f39fc2e0-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_895ee9abf9-24f39fc2e0-22956053

Excerpt:

Ken Griffin, founder and CEO of Citadel, spoke in his Chicago office to Editorial Page Editor Chris Jones on Aug. 2. This transcript has been edited for length.

Gov. J.B. Pritzker has said you and he met privately and that you agreed to drop your opposition to his graduated tax proposal if he took on pension reform in Illinois. True?

The Illinois pension crisis is rooted in the issue that politicians of the moment are able to make promises to the public sector workers, where the cost of those promises are borne by taxpayers, far into the future. So we have an intrinsic lack of accountability within the state when it comes to that dynamic between the leaders in Springfield and the public sector unions. (Former Gov.) Bruce Rauner and I actually would speak about this problem from time to time because it’s pretty well known that Bruce felt the state should move to a defined contribution program for the state employees.

And there are elements of that I think are attractive, but because the state employees do not participate in Social Security, a strictly defined contribution proposal leaves the state employee, in my opinion, at undue risk of adverse events if they do not invest their money successfully. … And there’s another issue, which is that the costs of the promises made by cities and counties are not borne by the cities and counties directly, they’re socialized across the entire taxpayer base of the state. So it’s pretty easy for the behavior of a number of Illinois cities to offer incredible increases in pay in final years to boost pension benefits, and that cost comes back to all Illinois taxpayers.

So these are some of the areas in which the average man in the street is really being handed a very significant bill. And the most tragic part of this whole story is that when the state hires people early in their careers, they’re not even placing that much value on these pension plans.

Twenty-two-year-olds don’t make lifetime career decisions on pension benefits. So, from my perspective, as a state we’re much better off having higher starting salaries to attract really good people to serve in the public sector. And, as with Bruce, my advice to the governor was consistently that either the state should mirror the benefits of Social Security as a baseline or, even better, go back to the federal government and get into Social Security again. We should reverse our opt-out from decades ago. And then to the extent that a city wants to offer benefits in excess of the Social Security baseline amount, that’s pay-as-you-go through a 401(k)-equivalent program. …

The proposal that I gave to J.B. to solve the state’s pension problems is exactly what I just shared with you. … It would, in all likelihood, require us to amend the constitution for the state to head in this direction. It might be for new employees only. I’m very sensitive to a promise made and earned. That’s your benefit. That’s a very different talking point than you’re 22 years old and it’s your first day working for the state.

But, big picture, we get the state into a program that looks like what I just described. And it’s gonna accelerate, in all likelihood, the costs of the current system. It may require revenue increases.

And like many of the business leaders in this city, I was very direct. I said, “If you’re willing to engage in pension reform, I’m willing to publicly support you in a tax increase.” It wasn’t graduated versus not graduated. It was just a tax increase.

I would’ve assumed that this meeting would’ve been private for the rest of my life until J.B. decided to open the door and talk about this. What he did talk about in terms of fiscal reform for the state was to restructure the state’s (information technology) budget.

And he felt he could achieve $50 million in budget savings for the state of Illinois by taking an ax toward our IT budget for the state, and that was going to be his victory lap for fiscal discipline in the state of Illinois. Here we have a multibillion-dollar problem on the left and 50 million (dollars) on the right. I was like, “J.B., we’re not having the same conversation here.”

To be clear, that was a fracturing moment between the two of us. … He does not want to use his political capital for good. He wants to maintain that capital to maintain the certainty of staying in power.

Author(s): Chris Jones

Publication Date: 10 Aug 2022

Publication Site: Chicago Tribune