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  #321  
Old 02-19-2019, 06:13 AM
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Mary Pat Campbell
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FEDERAL
CONGRESSIONAL

https://www.nj.com/south/2019/02/sex...-feedback.html

Quote:
‘Sexting’ ex-congressman Weiner deserves no pension
Spoiler:
Recently, ex-congressman Anthony Weiner was released from federal prison and transferred to a federal medical center. The New York Democrat’s next residence will be a residential re-entry facility in Brooklyn. Upon his expected release from the halfway house in in May, he will be subject to three years of supervised release and will have to register as a sex offender for the rest of his life.


The former Congressman sobbed in court and said he's hit 'rock bottom'


In September 2017, Weiner pleaded guilty to one count of transferring obscene material to a minor. What I find most disturbing is that the ex-congressman, (who reigned back in 2011 over a similar incident) is still eligible, should he reach age 62, for a sizable congressional pension that has been calculated at about $46,000 a year.

It is sad that so many of our government officials have seemingly lost the reality of right and wrong, but puzzling that Weiner could be able to live off the pension contributions of working taxpayers. Even though we elect legislators to represent us, it seems that many of them have disconnected themselves concerning this issue.

The fact is that Weiner was guilty of a truly dastardly crime and can still get a lifelong pension. This man took an oath, swearing to serve and abide by the laws of the land. He failed his responsibilities to uphold the office and to his constituents.

I can only wonder what the result would be if those constituents who elected Weiner had the opportunity to vote “yes” or “no” about him receiving a pension. It wouldn’t be unreasonable to think the vote would be “no.”

Roger Greene, Pitman
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  #322  
Old 02-19-2019, 06:14 AM
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NEW JERSEY

https://www.nj.com/politics/2019/02/...-for-them.html

Quote:
Public worker pensions are a huge cost for N.J. Here’s what Phil Murphy is considering to pay for them.

Spoiler:
Less than two years ago, state lawmakers pledged the New Jersey lottery as an asset to the public-worker pension fund, bringing some relief from its many billions of dollars in unfunded liabilities.

Now, as proceeds from lottery ticket sales are deposited into the pension fund month after month, Gov. Phil Murphy wants to know what other assets belonging to the state — roads, airports, bridges and naming rights, among others — can be sold, leased or otherwise leveraged to help fund government workers’ pensions.

The state Treasury Department is soliciting bids from financial advisers to evaluate the many assets owned by the state, New Jersey Turnpike Authority, South Jersey Transportation Authority and NJ Transit and to recommend which have potential to improve the health of the pension system.

“It’s widely acknowledged that New Jersey faces many fiscal challenges, which won’t be solved by any single magic bullet," state Treasurer Elizabeth Muoio said in a statement. "While the idea of maximizing the value of state assets has been discussed for many years, little concrete action has ever been taken. At the direction of the governor, we designed this (request for bids) to explore tangible, creative solutions to help maximize the state’s assets in order to minimize the burden to taxpayers.”

New Jersey’s pension system is among the worst funded in the country, damage done by investment setbacks and decades of underfunding by governors from both parties.

Murphy, a Democrat, has vowed to right that wrong and keep the state on track to make full pension contributions by 2023. He ran for office in 2017 without much more of a plan to fix pensions, and he has said he doesn’t want to reduce employee benefits or force workers to pay more for their benefits when it is the state that created problems by contributing too little.

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The administration’s call out to financial consultants represents another strategy — absent cutting benefits or raising employee contributions — to improve the fund as the governor confronts pensions’ rising yearly tab and pressure on the state budget. The state will contribute $3.2 billion this year, 60 percent of what is recommended by actuaries.

It also comes months after state Senate President Stephen Sweeney released a report calling for big changes to reduce the cost of government here, including possible tolled fast lanes and cutting government employee health care and pension benefits.

Sweeney, D-Gloucester, praised Murphy for following his lead in looking to state assets for help.

“The Treasury’s action is fully in line with our recommendations to analyze all of the asset holdings not only of the state government itself, but particularly of various independent authorities, including transportation infrastructure, water and sewer authorities, real estate and reservoirs,” Sweeney said in a statement. He said the Legislature stands ready to get it done, “as we did two years ago when we worked with the last administration to cut the unfunded pension liability by putting the New Jersey Lottery into the pension system.”

The lottery system guarantees the pension roughly $1 billion a year from ticket sales, and its $13 billion valuation improved the state’s ratio of assets to liabilities, as measured by the state’s own accounting rules.

The winning bidder of the state’s solicitation will have until May 15 to analyze the state’s assets — including property, buildings, roads, airports, bridges, ports, recreational facilities, transit facilities, rights of way, and air, development or naming rights — and make its recommendations.


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  #323  
Old 02-19-2019, 07:46 AM
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NEW YORK
ESG
DIVESTMENT

https://www.pionline.com/article/201...issue=20190218

Quote:
New York, pension funds diverge on addressing BDS investment


Spoiler:
New York state and the largest public pension plans there don't take a uniform approach to addressing the boycott, divestment and sanctions movement against Israel.

Gov. Andrew Cuomo issued an executive order in 2016 for state agencies under his authority to "divest their money and assets from any investment in any institution or company" identified via state research as supporting BDS and that no future investments should be made with violators of the executive order.

However, the largest public pension plans have different policies because they aren't covered by the executive order.

RELATED COVERAGE
States acting to deflate movement that seeks to hurt Israeli economy New Jersey grappling with role of divesting investments, strategiesSome states target contracting with BDS, but avoid pension fund investing requirements
"There are no statutory provisions in New York State on this issue and we do not have a board policy on it," said John Cardillo, a spokesman for the $111.1 billion New York State Teachers' Retirement System, Albany, adding that the pension system isn't an "affected state agency" under the governor's jurisdiction.

The New York State Common Retirement Fund, Albany, also isn't covered by the governor's order. However, state Comptroller Thomas DiNapoli, the pension fund's sole trustee, announced in June 2016 that the $197.3 billion fund will review its portfolio to determine if any companies in its portfolio participate in the BDS movement.

"We're putting companies engaged in BDS activities on notice that there will be consequences if their anti-Israel activities expose our investments to financial harm," Mr. DiNapoli said at the time.

The pension fund has an "engagement process for companies that may have been involved in BDS activities," but it hasn't placed any on a restricted list and hasn't divested any, said Matthew Sweeney, a spokesman for the comptroller.

The process includes monitoring by staff of BDS activities, conducting research to see which companies might be engaged in boycotts against Israel, and contacting companies to determine if they are participating or not participating in BDS activities.

If a company is involved in boycotting Israel, the New York plan's CIO will determine if the plan, through its actively managed global equity separate accounts, should prohibit new investments, freeze current investment or divest investments "in a prudent manner and time," the pension plan rules say.

Although some pension funds within the $193.7 billion New York City Retirement System have divested holdings in gun retailers and private prisons, it doesn't appear that the system has a BDS policy. Tian Weinberg, a spokeswoman for Scott Stringer, the city comptroller and fiduciary for the five pension funds within the city system, declined to comment.

https://www.pionline.com/article/201...issue=20190213

Quote:
Hilton agrees to disclose political spending; New York pension fund withdraws resolution


Spoiler:
New York State Comptroller Thomas P. DiNapoli, sole trustee of the New York State Common Retirement Fund, said Wednesday that Hilton Worldwide Holdings Inc. agreed to disclose its political spending, thus allowing the pension fund to withdraw a shareholder resolution.

"Investors have the right to know if companies are using corporate funds to influence the political process and whether they're doing so to promote the companies' best interests," Mr. DiNapoli said in a news release.

"Lack of transparency and accountability when it comes to political spending may put companies' reputations and profits at risk and can threaten long-term shareholder value," he added.

RELATED COVERAGE
US SIF: Investment in SRI grows to $12 trillion in U.S.Environment, corporate political spending top proxy season listInstitutional support grows for ESG, political spending transparency, report showsCorporate political disclosure moves firmly into mainstream
Mark Johnson, a spokesman for Mr. DiNapoli, said Hilton responded in a Feb. 8 letter agreeing to the terms outlined in a Nov. 1 shareholder proposal filed by the Albany-based $197.3 billion pension fund.

Contingent upon the pension fund's withdrawing its proposal, Hilton agreed to take several actions within 12 months of its 2019 annual meeting, including posting on its website policies and procedures for using corporate funds for political contributions, according to a company letter sent to the comptroller's office and made public by the office.

Hilton also agreed to post on its website "direct and indirect monetary and non-monetary contributions" to multiple recipients, including state and local candidates, political parties, ballot measures and trade associations," said the Hilton letter agreeing to the pension fund's request.



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  #324  
Old 02-19-2019, 07:49 AM
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DIVESTMENT
ESG

https://www.pionline.com/article/201...issue=20190218'
Quote:
States acting to deflate movement that seeks to hurt Israeli economy


Spoiler:
Most laws and executive orders have been in effect for less than four years, and a sampling of state action by Pensions & Investments reveals few divestitures by public pension plans.

RELATED COVERAGE
New York, pension funds diverge on addressing BDS investmentNew Jersey grappling with role of divesting investments, strategiesSome states target contracting with BDS, but avoid pension fund investing requirements
Still, the broad actions by these states have prompted some pension experts to argue that politics shouldn't interfere with the fiduciary duties of public plan managers.

"I don't like any of this," said Alicia Munnell, director of the Center for Retirement Research at Boston College.

"The appropriate place for this to play out is not the pension plans for public workers," she added. "They're trying to make foreign policy through the pension funds." Ms. Munnell said her disapproval is not restricted to states' anti-BDS laws. Any form of "social investing" law or policy restricting pension funds' investment strategies represent "diversions" from plan managers' fiduciary duties.

Although the number of anti-BDS laws and executive orders has grown, "I've heard very little from my membership," said Keith Brainard, the Georgetown, Texas-based research director at the National Association of State Retirement Administrators. "This relative absence indicates there may be more symbolism than substance."

In some cases, the laws directed at public pension plans can create tension for the plan managers.

Colorado's law requires the board of trustees of the Colorado Public Employees Retirement Association, Denver, to prepare a list of restricted companies and prohibit future investments in them and, if warranted, divest from the companies.

In January, trustees of the $49 billion plan issued a statement saying that although they will follow the law, they worry about interference with their fiduciary duties.

"Once a divestment mandate is imposed to address one issue, the resulting 'slippery slope' makes differentiation among the remaining issues contentious and divisive," they wrote.

Ordering a divestment "comes with significant associated costs," the trustees added. They cited hiring a search firm to check for possible violators, buying and selling securities, conducting due diligence for finding replacement securities or funds, and creating strategies that exclude certain investments.

Few divestitures

According to a PERA September 2018 report, the latest public document, one company was placed on its restricted list in September 2017 but removed it in April 2018. The report provided no explanation. PERA hasn't divested any companies.

Like other public pension plans subject to Israel boycott laws, PERA has a process for researching and identifying suspected violators. It hires an independent research firm, uses publicly available information, contacts asset managers and talks to peers.

A company can be removed from the restricted list "If PERA becomes aware, through further research and engagement, that a restricted company has ceased activity of economic prohibitions against Israel," according to PERA regulations. If a company remains on the list for 180 days, the law says PERA must divest.

New Jersey has a law that requires the $70.9 billion New Jersey Pension Fund, Trenton, to divest companies that violate the BDS law, which was enacted in 2016.

In November 2017, the state Division of Investment, which manages investments for the pension fund, announced the divestment of one company for "engaging in actions that are intended to penalize, inflict economic harm on, or otherwise limit commercial relations with Israel." The report didn't discuss specific actions by the company.

The division and the State Investment Council conduct research that includes "utilizing an external consultant that regularly checks for potentially prohibited companies and (that) updates its findings periodically," said William Skaggs, a spokesman for the state treasurer's office. "Those companies are not identified publicly, although the divestments are reported annually to the Legislature."

New Jersey and Colorado illustrate how the same company can receive different treatment due to different laws. The New Jersey Pension Fund in 2018 said it would divest Danske Bank, which was placed on — and then removed from — the Colorado PERA restricted list.

Iowa enacted a law in 2016 that requires the $31.4 billion Iowa Public Employees' Retirement System, Des Moines, to prohibit new investments with companies that support BDS, and, if warranted, divest existing investments.

According to a November 2018 report, the latest public document, IPERS has placed one company on a restricted list and has set a divestment date of Nov. 11, 2019. The report didn't describe why the company — DNB ASA, a Norwegian financial services company — was cited. The IPERS investment is through a collective trust.

When IPERS conducts research, it also contacts "scrutinized companies," asking them to explain their practices regarding Israel. If they are placed on a "prohibited companies list," they can be removed "based on the receipt of new information," says an IPERS website describing the system's policies.

"IPERS is also required to divest of any securities issued by companies on the list that IPERS holds directly within 18 months," according to the website. For indirect holdings, the IPERS board has discretion for divesting.

Making the list

North Carolina's 2017 law, "Divesting From Companies Boycotting Israel," requires the state treasurer to prepare a restricted company list, giving the companies a chance to explain their policies and practices before being placed on the list.

Inclusion "would make the company ineligible for state investment, may result in the company becoming subject to divestment by the North Carolina Retirement Systems, and may affect the company's ability to conduct business with the state and its subdivisions," the law says.

A company may be removed from the list if it ceases its engagement in a boycott of Israel, the law says.

According to an October 2018 state report, 13 companies are on the restricted company list, which affects both state contracting and the $98.2 billion North Carolina Retirement Systems, Raleigh.

But the pension system did not have any investments in these companies, said Stephanie Hawco, communications manager for the state treasurer's department.

In Florida, a 2016 law requires the $194.1 billion Florida State Board of Administration, Tallahassee, to create a list of "scrutinized" companies that boycott Israel or whose actions "limit commercial relations with Israel or Israeli-controlled territories in a discriminatory manner."

According to the latest public records, six companies are on the BDS list, some going back to August 2016 and one just added as of January 2019.

"There is no divesting," said Tracy Stewart, corporate governance manager of research. "Our law is a future investment prohibition law."

The law covers direct holdings. Indirect holdings — such as index funds or mutual funds — are exempt.

If companies remain on the list for 90 days or more, public fund investments are prohibited. Companies can be taken off the list — several have been removed — if they prove they have ceased their boycott of Israel, the law says.n


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  #325  
Old 02-19-2019, 10:57 AM
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Mary Pat Campbell
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https://www.ajc.com/news/local-educa...a8sG1PfeOGg-Pg

Quote:
Appeals court ruling could be costly for DeKalb Schools
Dropping retirement fund contributions breached contract, judges rule

Spoiler:
The DeKalb County School District could be forced to pay some employees about a quarter of a billion dollars after the Georgia Court of Appeals ruled it breached a contract by abruptly ending annual contributions to a supplemental retirement fund.

Unless the school district appeals the ruling to the Georgia Supreme Court, Friday’s ruling sends the case back to DeKalb County Superior Court, which will decide whether employees can join the lawsuit as part of a class action, and how much each is owed.

ADVERTISING

“Ever since the district broke its promise to us in 2009, they have fought tooth and nail for almost ten years,” Elaine Gold, a retired teacher and a plaintiff in the original lawsuit, said in a statement released by Barnes Law Group. “The district’s decision to bully teachers instead of doing what was right has dragged this case out. We feel so happy that a court finally said that what the district has been doing is wrong and that the district has to keep its promises.”

The original lawsuit, filed in 2011 by Gold and school counselor Amy Shaye, contended the school district breached an agreement that said district officials would give employees two years’ notice before reducing contributions to the Georgia Tax Shelter Annuity Plan. Instead, the school district suspended contributions abruptly in 2009, citing a budget shortfall after a 3 percent state reduction in funding for all Georgia school systems. DeKalb would lose $20 million in funding in that reduction.

The district had annually contributed 6 percent of a participating employee’s salary. During the 2009-2010 school year, DeKalb was scheduled to pay $26.5 million into the plan. If it is found to be liable for that much for each year since, the district could be responsible for about $240 million, about a quarter of its annual operating budget. District officials are working to approve a $1.1 billion budget by the end of June. The district currently has $120 million in its general fund balance.

“The district received the decision of the Georgia Court of Appeals in the Gold case on Friday,” district officials said via email Wednesday. “The district is reviewing the decision carefully and considering its next steps.”

The annuity plan, established in 1979, was an additional benefit to educators and a Social Security alternative. The fund is separate from the state retirement fund and is paid into individual employee accounts, not taxed until withdrawn.

Former DeKalb County Board of Education Chairman Tom Bowen said after the lawsuit was filed that the board did not act improperly, adding that the board had the ability to amend its policies. The suit argues, though, the board voted to waive the two-year notice a year after contributions were suspended.

In 2015, DeKalb County Superior Court Judge Gregory Adams ruled the district did not breach a contract, saying there was no provision calling for a two-year notice before reducing the contributions. But the appeals court decision cites a “governmental promise” saying no changes would take place without two years’ notice.


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  #326  
Old 02-20-2019, 06:16 AM
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CALIFORNIA
CALPERS
PRIVATE EQUITY

https://www.nakedcapitalism.com/2019...e-hearing.html

Quote:
CalPERS Chief Investment Officer Ben Meng Lied About Private Equity to State Senator Dr. Richard Pan at Joint Pension Committee Hearing
Spoiler:
CalPERS continues to tell blatant lies as if it thinks no one is paying attention.

As we’ll show below, CalPERS’ Chief Investment Officer Ben Meng lied repeatedly in response to a question by a state senator, Dr. Richard Pan, both in terms of Meng’s actual statements as well as the implications Meng tried successfully to convey to Senator Pan.

It had been our intention to refrain from criticism of Meng for a while – he joined CalPERS just six weeks ago and could be excused for the ordinary mistakes of learning a new job. But his lies at the legislative hearing were quite serious transgressions and looked willful. Moreover, he directed the misrepresentations to one of the most respected members of the legislature, Senator Ricard Pan, who is a physician and has chaired the state senate pension oversight committee. Commentators have noted to us that Pan bears a seriousness about his role that strongly resembles one of his predecessors in the senate pension committee chair role, Adam Schiff, who went on to his current office as a member of Congress.

This exchange took place at a joint hearing of the Senate Labor, Public Employment and Retirement and Assembly Public Employment and Retirement committees on February 13. A prominent retiree called my attention to the relevant segment, which starts at 1:15:45.

It was gratifying to see Senator Pan ask an important question about CalPERS’ private equity strategy and do so in a way that showed he appreciated the issues involved. That made Meng’s misdirection even more disturbing.

State Senator Dr. Richard Pan: To what degree do you think what steps CalPERS is able to take, as you are in the private equity market, to try to not just maximize returns, that’s obviously goal 1, but also sometimes returns are dependent on what fees people take out as well. You often see articles criticizing the level of fees being charged by these private equity funds. So what are things CalPERS can do to lower the fees, which actually then increases the returns as well and still be able to participate in this.

CalPERS Chief Investment Officer Ben Meng: So Senator Pan, that’s very good questions. Please go to slide 15, the new proposals under discussion, under consideration at CalPERS, the Innovation/Horizon fund. So you are absolutely right, that you know….there are two points when we look at private equity as an asset class. It has delivered the best performance to us in the past. We have all the reason to believe that outperformance is going to continue. But you raise a very good point, there are certain things about private equity as an asset class that we do not like, for example, higher fees. But again the performance we are quoting is net of the fees, after all the fees it is still stands as the best performing asset class. But there are things, as you said, higher fees, lack of transparency, lack of control.

And that is exactly why we are proposing and considering on slide 15, the Innovation/Horizon, that’s the innovation that Marcie was referring to. So in order to achieve 10% return, we need the innovation. Without the innovation, it’s less likely that we can get the target.

But doing the new business model under consideration will reduce the fee, will have more transparency, not less, and will have more control, because we are bringing a lot of investment decisions in house. We have more control in terms of what type of investment, what kind of strategy we will engage, and what is the societal impact. Currently, under the existing model, we have very little say, very little control, in terms of what kind of investment, about what kind of information, the transparency they can share with us. So that’s exactly to your question. We want to continue to benefit from the higher returns, but mitigate the things that we do not like.

Senator Pan: So just to clarify, the Innovation/Horizon in slide 15, those are things are actually being done in house?

Ben Meng: It’s being considered now. So that’s the discussion. The proposal is to bring halfway in house, not all the way in house. Half in house, but we have more control, more transparency, and lower risk.

Senator Pan: So instead of just essentially hiring an outside hedge fund manager, whatever else, for some of these things you’re actually having people in house who will look at some of these things, working….

Ben Meng: Half way.

Senator Pan: I get it. Half way. [crosstalk] Partially in house. But bring some of it in house so therefore we can lower the cost and increase transparency.

This is flagrantly false. If this testimony had been made under oath, Meng would have committed perjury. The only correct thing he said about Innovation and Horizon were their names.

The Innovation and Horizon schemes do not bring any private equity activities whatsoever in house. To testify that it was happening to any degree is a blatant lie. As Stanford’s Dr. Ashby Monk stated last August, and the basic structure of the scheme has not changed since then, CalPERS is setting up new general partners that are completely external to CalPERS.

The other claims Meng made are also clearly false. CalPERS will not have more control. CalPERS in fact will not have any control whatsoever, since it will not employ anyone in these entities nor have any seats on their boards. The investment vehicles will have only powerless advisory boards that are not even selected by CalPERS!

Similarly, the only way influence CalPERS would have on having the investments meet social aims is via the broad policies it sets by contract. CalPERS could stipulate the same requirements in a separately managed fund with a large established private equity fund manager.

Finally, we debunk CalPERS’ claims regarding “greater transparency” in our companion post today. CalPERS admits that there will be no greater disclosure to beneficiaries and California citizens, when it could, as the sole investor in the new vehicles, make public the legal agreements and provide more detail on the funds’ ongoing performance.

Finally notice that Meng didn’t have to offer this barrage of lies to respond to Senator Pan. Senator Pan didn’t ask what CalPERS was doing to lower fees but what CalPERS could be doing. The committee hearing was about to end, so there was no risk of Senator Pan getting into a lengthy conversation about possible strategies. Meng could have mentioned a range of options, like co-investments, larger commitment sizes, bringing private equity in house, and remained silent on whether those were actually part of CalPERS new private equity plans. The scheme never had reducing fees as a goal, and General Counsel Matt Jacobs has confirmed that more transparency would “defeat the purpose” of this initiative. But Meng launched into a “try to fit the square peg in a round hole” sales pitch, apparently because that was what he thought he was supposed to do.

Now admittedly, Meng was put in a position where it would have been incredibly risky for him to have been forthcoming. CalPERS CEO Marcie Frost, who is clearly pushing the half-baked private equity scheme hard, was sitting at his side. And even if she hadn’t been, she would have been sure to find out precisely what Meng said to the state legislature. Frost is Meng’s boss, and Frost has shown no compunction about forcing out a high profile, impeccably credentialed hire (the fact that former Chief Operating Officer Elisabeth Bourqui showed up at the board meeting immediately after her “resignation” with a high-powered employment lawyer at her side was clearly intended to convey that Bourqui’s departure was not voluntary).

This incident shows what a terrible mistake it was for the board to eliminate having the four most important officers report to them: the CEO, the Chief Investment Officer, the Chief Actuary, and the General Counsel. All CalPERS senior executives now report to the CEO.

In private sector asset management firms, no one would ever become the CEO without having considerable investment expertise and likely direct investment management experience; you’d have no credibility with the troops or important outside constituencies otherwise. But at CalPERS, the political aspects of the CEO role are sufficiently important that it has become acceptable to have CEOs with close to zero finance knowledge. That makes it critically important for the Chief Investment Officer to be able to speak candidly to the board and external parties without fearing retribution by a know-nothing CEO.

Getting rid of these direct reporting lines amounted to the board embracing a policy of “Ignorance is Bliss.” CalPERS’ 65-68% funding ratio, even after one mini-bailout by the state (a second one is underway) shows how well this policy has worked out.


https://www.nakedcapitalism.com/2019...ty-scheme.html
Quote:
CalPERS’ Management Continues to Lie to Its Board and Beneficiaries About Its Private Equity Scheme
Spoiler:
CalPERS seems determined to make lying a central part of its brand image.

On Tuesday at its Investment Committee meeting, CalPERS management is set to make yet more claims about the supposed advantages of its new private equity scheme. We will demonstrate that not only are many of these assertions false, but on top of that, CalPERS management has also told some significant lies of omission. In addition, CalPERS keeps changing its story on key issues like how its funds will be set up. At best, CalPERS is taking a “fire, aim, ready” approach, trying to launch its plan when it hasn’t even worked out what the giant fund is doing, or else it is making a deliberate effort to confuse.

The latest round of too-obvious misrepresentations includes CalPERS depicting its program as necessary, something it has never proven and is demonstrably inaccurate, as well as falsely stating that the newfangled private equity approach will save costs (when CalPERS has effectively said the opposite) and be more transparent than its current program. The only way these claims might be true is if CalPERS had made radical changes in its approach since its December board meeting. Given the lack of any mention of significant revisions to the plan, we can only conclude that CalPERS is resorting to even bigger lies to try to get the board to approve the scheme.

CalPERS has also taken to releasing its board meeting presentations much later than it once did. Its long-established practice was to post the slides on its website a week or sometime even more before the relevant board session. CalPERS has taken to often releasing private equity materials the Thursday or Friday before board meetings that typically start the following Monday. The later publication makes it difficult for interested stakeholders to review them and decide if they should come to the board meeting and make a public comment. This timing change means that either CEO Marcie Frost is incapable of getting her executives to perform at the level they did under her predecessor Anne Stausboll, or she is deliberately undermining transparency and accountability.

Background: CalPERS’ Private Equity Plan Makes No Sense…If You Assume Good Motives

Recall that the centerpiece of CalPERS initiative is that the pension fund will create two very large new entities where at least initially, CalPERS will be the sole investor in each. One vehicle will invest in late-stage venture capital, while the other will pursue the fad of “Warren Buffett style investing,” meaning much longer holding periods than the five year average for private equity funds. CalPERS too cutely calls the first one “Innovation” and the second, “Horizon”. CalPERS initially said it would allot $5 billion to each strategy; later comments suggest it plans to invest even more over time.

Remarkably, CalPERS also proposes to pay the startup costs for these vehicles, when successful private equity fund managers who strike out on their own stake their own businesses, and the fact of having such huge commitment amounts virtually eliminates the risk of establishing a venture. CalPERS’ putting up the expenses for these news fund managers is an unnecessary subsidy and raises questions not just about CalPERS’ acumen but its motives.

CalPERS’ justification for this move, which is contrary to the direction other major private equity investors are taking, of bringing more activities in house to save the huge fees and costs of private equity, makes no sense. CalPERS’ rationale has two elements, both of which are false, that it needs to be in private equity because it is the only investment strategy that will exceed its return targets, and that it needs these unorthodox entities to invest “at scale”. Neither is true.

Investing in private equity via middlemen offers unattractive returns. CalPERS is fooling itself and the public by trotting out “absolute returns,” as in misleadingly flogging private equity’s historical higher returns without factoring in its higher risks, as we discussed at Bloomberg. For instance, lotto ticket offer extremely high potential returns, but on a risk-adjusted basis, they are a bad deal. Anyone who is finance-literate knows that what counts are risk-adjusted returns, and CalPERS’ advisers, like Meketa and Wilshire, analyze CalPERS investments on that basis.

As we’ve written, private equity returns measured over the preceding decade have fallen short of their benchmarks, which is the level most professional investors set to evaluate performance. That means private equity has not been generating enough return to compensate for its additional risks. CalPERS’ own consultants forecast that private equity would not generate high enough profits to make up for the extra risk over the upcoming decade, confirming that that decline in returns is a lasting development, not a post-crisis fluke.

So what was CalPERS’ response? To cut the benchmark to make private equity performance look better than it really is.

There is no reason to think that CalPERS’ new gimmick will let it deploy more capital to private equity than conventional means.1 In fact, if CalPERS is so worried about not being as fully invested in private equity as it would like to be, it will have wasted two years plus in a status quo it says it doesn’t like thanks to this “new business model” folderol. It could just as easily have gone to one or several of the usual suspect heavyweights and set up what is called a “separate account”. On a $750 million or bigger commitment, it could not only have gotten rock bottom fees but also negotiated other special features, like its ESG (“environmental, social, and governance”) preferences.

The big reason CalPERS might have trouble putting much bigger amounts to work in private equity is environmental: too much money chasing too few deals. CalPERS has $17.1 billion in committed capital that its private equity general partners have yet to put to work. Newfangled funds won’t solve that problem. The only way to be sure to deploy more capital in private equity is to overpay. Is that what these vehicles are really intended to do?

None of CalPERS’ private equity experts can bring themselves to endorse CalPERS’ scheme. Tellingly, CalPERS private equity consultant Meketa has been kept well away this initiative. So too has CalPERS private equity staff, at least prior to November (and it’s not clear how involved they are now). Dr. Ashby Monk, who has spoken to CalPERS twice in the past six months, promptly issued a tweetstorm after his last presentation at CalPERS forcefully recommending the opposite of what CalPERS is doing, namely to bring private equity in house. Was Dr. Monk concerned that his visits to CalPERS might be construed as backing their plan and he thought it was important to lay down a marker otherwise?

Similarly, at the last board meeting, Jonathan Coslet, the Chief Investment Officer of top-tier private equity firm TPG, poured cold water on the “Warren Buffett” strategy, pointing out that very few companies were worth holding long term. Former Chief Operating Investment Officer Elisabeth Bourqui warned of the risks of this strategy….and made what appears to be a less-than-voluntary departure shortly thereafter.

CalPERS has misled the board by pretending other high-return strategies don’t exist. We’ve discussed them before. They include public market replication of private equity and simply adding more leverage to the entire portfolio (German investors, who are allergic to private equity, do this very successfully).

CalPERS obtusely ignores the most obvious solution to its private-equity dilemma: bringing private equity in house. CalPERS can get higher returns by bringing private equity in house because it would greatly lower its investment costs. Private equity fees and costs are on the order of a staggering 7% a year. While it would take some time to implement this approach, it has the potential to make private equity an attractive strategy again by boosting net returns.

CalPERS Doubles Down on Its Dishonest Sales Pitch

Even in a mere five substantive pages of slides to the board (the first is a cover page and the last is a joke), CalPERS continues to peddle misleading or flat out false information in defense of its planned private equity gimmickry. We’ve embedded the document at the end of this post.

It’s painful to see CalPERS trot out a chart going back to 1992 to try to pretend that private equity will continue to do well. One of the oldest sayings in investing is “Past results are no guarantee of future performance.” Private equity valuations are widely acknowledged to be at nosebleed levels and as we mentioned earlier, CalPERS’ own consultants forecast that the inadequate risk-adjusted returns of the past decade will continue for the nest ten years.

That chart conveniently starts after the leveraged buyout crisis of the 1990-1991 recession, when many deals went bust and private equity went into disfavor. It picks up the glory years of 1995-1999, and due to them coming relatively early in the timeframe, that period has a disproportionate impact on total returns. Those results are unlikely to be replicated absent another period of carnage in private equity.

It’s painful to see CalPERS provide a table (page 3) showing the supposed necessity of private equity when as we indicated above, CalPERS continues to falsely depicts private equity as the only hope for goosing its returns, when there are alternatives that CalPERS’ management has refused ever to present to the board. The chart is also dishonest by failing to provide any of its assumptions (time frame of analysis, various return assumptions), which looks like a deliberate effort to prevent assessment of their reasonableness.

On top of that, any forecast like the one on page 3 that shows a single outcome is deeply suspect. CalPERS should be presenting multiple scenarios and showing sensitivity analyses.

It’s painful to see finance professionals like Ben Meng and John Cole (who does have expertise, just not in private equity) engage in malpractice on page 4 by falling back on the absolute return canard that would have gotten them a failing grade had they tried that sort of thing in school. Here and generally, CalPERS refuses to acknowledge that private equity as presently constituted, no longer provides an adequate risk-adjusted return. Even industry leaders, the last people who would normally admit to problems, are signaling it will get worse, since they are warning of lower returns. CalPERS new private equity gimmicks won’t solve that problem. 2

And then we get to this page, where virtually everything is false:



The first bullet point is meant to be an uncontroversial “apple pie and motherhood” sort of statement, when CalPERS yet again is refusing to consider bringing private equity in house. Recall that even a CalPERS-friendly expert, Dr. Ashby Monk, who spoke to the board twice in the last six months, recommending that approach to public pension funds across the board, and not just large, well-resourced ones like CalPERS. What is CalPERS’ excuse for rejecting the obvious? It’s like someone with heart disease refusing to take their medicine and instead acting as if merely giving up potato chips is a cure.

The second point is a complete fabrication:

– CalPERS asserts needs its new unorthodox approach with absolutely zero evidence that it needs to go this risky and untested route. CalPERS could have put money to work in “separate accounts” with the some of the major private equity firms and already be on its way. Recall that CalPERS now has a lower private equity allocation than it once did. It has gone from 14% to 8%. Not only is CalPERS’ private equity target allocation 8%, but its investments are actually above that level, at least according to its February board materials,1 so there is no evidence that CalPERS is having difficulty putting money to work in private equity. And as we pointed out, none of the players with bigger private equity programs have whined about trouble making investments.

– CalPERS management is simply lying when it says it is “building capabilities”. CalPERS is finding a novel and unduly complicated way to continue to outsource its private equity investing. Outsourcing is the opposite of strengthening internal capabilities.

– CalPERS has admitted it will not control the new vehicle (it will have only a toothless advisory board that it doesn’t even select!) and as we explained at length, that its costs will be higher and its expected returns will be lower. So how can zero control be depicted as “more control”?

– As we described at length in a recent post. CalPERS has similarly admitted that the costs for its new funds will be vastly higher than for commitments 1/10th the size until year 10, and only then drop to a roughly comparable level. So how can increasing costs be depicted as “reduce costs”?

– CalPERS admits on the very next slide that the new plan will not increase transparency to the public , which is what “transparency” is. So how can the same transparency be depicted as “improve” transparency?

– CalPERS claims that the new vehicles will create better incentives, when we’ve demonstrated that CalPERS is allowing the fund operators to take home on the order of a cool $80 million a year, risk free, for each fund. On top of that, the heads of the team managing the “Warren Buffett” fund could extract another $50 million a year in consulting fees. So how can letting fund managers get rich even if the new strategies deliver terrible returns be depicted as “better align interests?

On the third bullet point, CalPERS asserts it wants to take advantage of companies staying private longer and “access a higher growth segment”. But this is wishful thinking. Venture capital returns depend on getting in with an investment here and there that delivers 100x or even 1000x returns. That’s impossible with “late stage venture capital”. These are companies that are mature enough that they ought to be public…which means they can be expected to deliver public market tech stock returns. And that’s before you get to the valuation practices that lead to venture capital unicorns being overvalued on average by 48%, with every single unicorn being overvalued. So CalPERS is setting itself up to be the dumb money that buys overpriced wares.

On the final point: CalPERS acts as if long-term investing is inherently virtuous no matter what form it takes. It isn’t. In fact, CalPERS is turning finance principles on their head. Like all too many institutional investors, CalPERS treats the connection between long-term investments and higher returns as a law of nature, rather than as a financial economics teaching that they must demand higher returns for situations where their money is tied-up long-term.

The long-term investments deemed suitable for pensions are long-term bonds because the cash flows can be matched to expected actuarial payouts. Long-term uncertain investments are a negative, not a positive, for a pension fund. The monies are tied up and what the funds gets in the end may well fall short of its requirements. The only reasons for a pension fund to invest in anything other than bonds are asset class diversification (which reduces risk) and to obtain higher returns. The reason for private equity in particular is its high return potential.

CalPERS has admitted the longer holding periods of its “Warren Buffett” fund will produce lower returns than traditional private equity funds. That means the whole idea is a violation of fiduciary duty and should be scrapped. And it also means that whatever the “friction costs” are, they are more than offset by taking profits on a reasonably prompt basis.

CalPERS’ Lies About Transparency

Page 6 of the CalPERS presentation, on transparency, is an exercise in misdirection. All you really need to know is that is says, “Transparency to the Public is the same as it is for existing Private Equity Fund Investments.” Transparency of private equity now is unacceptably low. With captive vehicles, CalPERS could readily improve transparency but refuses to.

As for “transparency to staff,” CalPERS is trying to depict what is called “disclosure” as “transparency” to falsely claim a plus. This is another example of CalPERS misusing terms to try to score PR points. On top of that, as we’ll discuss, CalPERS focuses on not-useful disclosures and is silent on important ones, suggesting they’ve missed them.

CalPERS is refusing to increase transparency when it readily could. As board member Margaret Brown pointed out at the November board meeting, CalPERS could readily disclose its legal agreements involved in setting up the new investment schemes, most important, the ones with the fund managers.

Right now, private equity funds managers insist on keeping the “limited partnership agreement,” their contracts with investors, secret, making the incredible claim that the entire document is a trade secret. We’ve now published 26 on our site, and as we’ve explained, there is nothing in them that can be construed to be a trade secret.

Since CalPERS has said it will be drafting these agreements, there is no reason for them to be kept confidential, save that CalPERS is and remains anti-transparency. That has been apparent since we documented the organization in 2017 lobbying the California legislature to weaken the AB 2833 private equity transparency bill that became law. AB 2833 required private equity managers to make disclosures about portfolio company fees they receive.

It’s hard for CalPERS to pretend to be gung ho about transparency given its past behavior and its own admissions. For instance, CalPERS has given little more than handwaves about its scheme, with its initial rollout consisting of a mere four pages of napkin doodles with less than 500 words in total on them.

Similarly, in December, General Counsel Matt Jacobs confirmed board member Margaret Brown’s concern that one of CalPERS’ real objectives in devising this scheme was reducing transparency. That was when Brown had asked about disclosing the legal agreements with the new entities. This was Jacob’s response:

Well, at a high level, I suppose we could. I think that would defeat the entire purpose of the endeavor that the Investment Office is undertaking, which is that these are private investments, and they’re private for a reason, which is that the — the financial information needs to be private. And the people running them have these types of preferences.

CalPERS similarly has been obfuscatory about the legal structure of these new entities. CalPERS ought to be doing what law firms and business schools routinely do, which is presenting diagrams that show the legal entities and their relationships. CalPERS has gone from saying it would use a general partner-limited partnership structure, to claiming it would use two LLCs, presumably one for each strategy, but even then the CalPERS language is ambiguous.

The lack of explanation of how the newly-created fund managers will work is even more troublesome given that CalPERS is not just putting them in business by giving them such large amounts of capital but also bankrolling their expenses!

CalPERS is also kidding itself and the public on the level and value of the supposedly better information it will get. Since CalPERS is locked in illiquid investments and has no control over the fund managers, pray tell, what is the point of having more portfolio company information? Ironically, with conventional private equity funds, that sort of information would help make better decisions on whether to invest in a new fund by the same manager. But given that CalPERS has put itself in a position of having no control, having better information about portfolio company performance has only entertainment value.

Moreover, for the “late stage venture capital fund,” CalPERS is unlikely to get more information than it gets now as a limited partner in private equity funds (indeed, the poor and inconsistent disclosures made to Uber’s shareholders show it could even be worse). While board members of venture-backed firms do have access to a great deal of the company’s financial and operating information, buyers of late rounds of equity raising are in a different category. While they can negotiate for better information rights, that comes at the expense of pressing for improvements on other provisions that have concrete economic value, like IPO ratchets and automatic conversion exemptions.

If CalPERS has been giving accurate information about how it is compensating the fund managers, having budget information is an empty exercise too. The mere fact that CalPERS has agreed to fee levels that give each fun manager’s owner(s) close to $100 million of risk-free pay says this is another example of CalPERS abusing language. Moreover, CalPERS appears to have agreed to fee levels in advance. If that is the case, then the “budget” is merely a garbage-in, garbage-out exercise where the fund managers will generate a budget that justifies the fee that CalPERS expects to pay.3

Alternatively, even if CalPERS really does plan to negotiate a budget annually, the fact that it is publicizing paying such outrageously high compensation levels to the fund owners says CalPERS has bought into some extremely fund-manager-serving ideas. Put it another way: unless CalPERS has access to the fund manager’s full financial statements, any budget negotiations would be a sham.

More generally, what CalPERS needs above all is ongoing access to the books and records of the vehicles in which it invests and theparent private equity firm “management company” so as to prevent cheating or (more politely) unduly aggressive interpretations of the managers’ contracts. The SEC has found cheating to be widespread in private equity, so concerns about misbehavior are well founded.4

* * *
While there are clearly many employees at CalPERS who are truly devoted to helping beneficiaries and California citizens, that devotion to service is completely absent from this Tuesday private equity presentation. It’s hard to find any good explanations for the intense push to get a clearly half-baked scheme approved by the board. The unseemly eagerness is even more disturbing in light of red flags, like the admission that fees will be higher and expected returns lower than for current approaches. Those alone would lead any rational decision-maker to abandon the idea. So independent parties have good reasons to believe that something unsavory is cooking.

____

1 CalPERS’ consultant Meketa shows that CalPERS is currently above its target for private equity, with 8.3% allocated versus a 8% target. See page 4.

2 We’re skipping over other misleading items on page 4 in the interest of containing the length of the main text. Appallingly, one point depicts bad accounting as a virtue, but using bafflegab: “Provides drawdown mitigation as a result of the lag in valuations and market inefficiencies.” Um, please tell me how well that “drawdown mitigation” works in practice. CalPERS had to dump stocks at distressed prices during the worst of the financial crisis to meet private equity capital calls.

3 CalPERS has been disturbingly silent about what if any investment the fund managers will make.. The fact that CalPERS will be the “sole member” in the LLCs means the fund managers cannot be investing in it. Yet it is universally seen as important that fund managers eat their own cooking. As Nassim Nichols Taleb said, “Never trust anyone who doesn’t have skin in the game.”

Similarly, seasoned venture capital investor the Kauffman Foundation, in its classic report, , We Have Met the Enemy….and He Is Us, strongly recommended that the fund managers have substantial investments in the funds they operated, and urged investors to get proctological about the general partners’ financial wherewithall:

Additional misaligned behavior occurs when GPs choose not to invest their personal income and assets alongside LPs in new funds. It’s become the ‘market standard’ that GPs, as a group, will invest only 1 percent of committed capital in a new fund. This amount is grossly insufficient to foster alignment of interests. The Foundation expects a 5 percent to 10 percent GP commitment, and for any lower amounts we require a detailed understanding of the commitment amounts relative to personal net worth, especially for senior partners.

On the one hand, a 5% commitment on a $5 billion fund seems like an awfully big ask. On the other, one of the two CalPERS candidates whose names leaked out, former Silver Lake co-founder David Roux, is a billionaire, so it would not be unreasonable for CalPERS to seek a nine figure commitment from him.

4 John Cole has made CalPERS look like a mark with his rhapsodizing about the long conversations he had had with fund manager candidates about their shared values. Even readers of the business literature know full well what persuasive sociopaths populate the private equity industry. Cole should read the classic account in Barbarians at the Gate, where Henry Kravis and George Roberts had the RJR Reynolds board convinced that they were their sort of people and would be careful stewards of the company. To a man, they said they believed in the sincerity of the duo and were shocked and distressed when they did their usual asset stripping routine.


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CONNECTICUT

https://www.ai-cio.com/news/new-conn...pension-bonds/
Quote:
New Connecticut Treasurer Has a Backup Plan for Teacher Pension Bonds
Shawn Wooden taking select cues from New Jersey in maneuver’s approach.


Spoiler:
Shawn Wooden, Connecticut’s new treasurer, has created a plan he thinks will be more practical to keep bonds paid and the state’s Teachers’ Retirement Fund’s ballooning pension debt in check. The $17.9 billion retirement fund is 56% funded.

If approved by the state legislature, the treasurer’s proposal would implement the “TRF Special Capital Reserve Fund,” an emergency cushion which will pull money from Connecticut’s lottery revenue to support the $2.2 billion bond payments for commitments made in 2008 over a 30-year period.

Overall payments to the plan are currently around $1 billion per year and could go up to $6 billion by 2032 if left unchecked.

“There’s been a lot of discussion in our state over the last couple of years about this … about how unsustainable these payments are,” Wooden told CIO. He said the proposal’s goal is to keep the bondholders happy while increasing the sustainability of the retirement plan, essentially “leveling off” the payments to put full funding back on track. It also looks to quell negative views made by credit rating agencies.

The move is akin to that of New Jersey, another state with a poorly funded pension system that uses lotto earnings to help buff its retirement assets. Lotto money was also suggested to Denise Nappier, Connecticut’s former treasurer, a proposal Wooden said is still on the drawing board.

Under Wooden’s action, the teachers reserve would have an initial funding of $380.9 million of the current year’s surplus. The money will stay put unless needed to fuel the teachers’ retirement plan bonds, essentially setting off what the treasurer calls a “replenishment mechanism.” Connecticut’s net lottery revenue is projected at $371 million in fiscal 2020, surging to $509 million in fiscal 2032.

“That is the mechanism that gives us flexibility to make additional modifications so long as we provide adequate protection for bond holders. This fund is the vehicle to provide that protection by having a fund that is solely there for the benefit of bond holders,” said the treasurer.

According to Wooden, the reserve will only deploy assets to pay the bonds if needed. Once the figure drops below the $380.9 million, “lottery revenues would be transferred to bring it back up to that funding level again.”

Wooden said he has not yet decided how much will be taken annually from lotto money and put into the special capital plan as the idea has yet to be approved by Connecticut lawmakers. He also did not say if he had been considering any reported suggestions from the state task force, known as the Pension Sustainability Commission, which recently asked for an extension to submit its findings.

“The commission is not in a position to make recommendations,” he said, adding that it needs to do more work to “diligence their ideas.”

“What assets could be transferred into a trust? How would they be monetized? What’s that number,” he said.

The treasurer’s lotto concept will change a few things for the teachers’ fund.

First, it will lower the fund’s assumed rate of return, from 8% to Wooden’s “more realistic” 6.9%. It will also extend the funding window (the projected timeframe to reach full funding) more than a decade, from 2032 to 2049. The plans’ funding methodology will change from its current percent of a plan member’s pay to a level dollar amortization, to be phased in gradually over five years.

The assumed rate is in line with amortization changes to the $12.5 billion Connecticut State Employees’ Retirement System in 2017, where its rate was cut from 8% to 6.9%.

“I’ve been very critical over time over discount rates or assumed rates of return that are unrealistically high,” Wooden said, adding that the new targets are similar to “what experts really believe is achievable in the future.”

Wooden also said there would not be any changes to the principal and interest payments for the state’s pension bonds issued to help the fund in 2008.

The treasurer expects the proposal to be voted on in early June, toward the end of the current legislative session. The proposal will be in Gov. Ned Lamont’s Wednesday state budget address, a release from Lamont’s office confirmed.



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NEBRASKA

https://www.ai-cio.com/news/nebraska...ive-investors/

Quote:
Nebraska’s Chief Investor Discusses His Conservative Approach to Alternative Investors
State council also outlines private equity pacing plan with re-ups to existing managers.

Spoiler:
The Nebraska Investment Council (NIC) has approved a pacing plan for its private equity portfolio spanning the next several years, and State Investor Officer Michael Walden-Newman told CIO he couldn’t be happier with his team’s conservative strategy for private markets fund managers.

The $16 billion NIC forecasted to commit $150 million each year in private markets until 2025 to help maintain the portfolio’s 5% target towards private equity investments. The pacing plan for 2019 commitments largely involved increasing existing commitments to private equity managers following buyouts/growth and special situation strategies; Green Equity VIII ($50 million), Wynnchurch V ($50 million), and Dover Street X ($50 million).

After joining the NIC, Walden-Newman increased the minimum commitment size to private markets managers to $50 million from $30 million, with the primary reason being to limit the amount of private markets managers the council has commitments to.

“I don’t want a farmer to call from a town in Nebraska and ask me about one of our private equity managers, and not be able to recall off the top of my head what that manager does to a fellow Nebraskan,” Walden-Newman said. “If we get a portfolio that’s too big, I’m afraid that can happen.

“I want meaningful relationships, and a significant size to keep the number of managers down. We’re a very conservative investor, particularly when it comes to alternative investors.”

He also discussed the council’s approach to new or emerging markets managers, saying his team is only comfortable doing business with experienced investors.

“The NIC is not the investor for seed money, or emerging managers, instead we prefer a solid track record, with managers who have a proven ability to replicate their expertise over several funds,” Walden-Newman said. “You’re not likely to see us in a fund 1, maybe not even a fund 2, but a fund 3 or 4 could work.

“It’s just a better way to run a program with a small staff like ours.”

The NIC has made approximately $1.5 billion commitments to date across 53 different investments, according to a report.


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ILLINOIS

https://www.chicagotribune.com/news/...219-story.html

Quote:
Column: Promises, promises. Pritzker's pension fix is more smoke and mirrors

Spoiler:
Gov. J.B. Pritzker will unveil his first state budget Wednesday and there’s a lot riding on it. Illinois finances are a mess, and Pritzker promised to introduce a truly balanced budget with no gimmicks. He won the November election largely based on former Gov. Bruce Rauner’s inability to resolve the state’s financial issues. Voters are paying attention.

His noon speech from the House floor will include some Rauner shaming and applause lines. But if Pritzker is serious about the budget, there’s only one target he has to hit: pensions. So far, he’s missing it.



Pritzker’s plan to address a $134 billion and rising unfunded pension liability in the state’s five funds includes new revenue from a yet-to-be-instituted graduated income tax, extending by seven years the pension payment schedule, selling state assets, borrowing money by selling pension bonds and expanding a pension buyout program for employees.

Been there, done that.

Editorial: As Gov. Pritzker speaks: We sure hope Illinois doesn't need a border wall

The plan so far from Pritzker and his team, including Dan Hynes, a former state comptroller, is kick-the-can “lite.” More taxes, repurposed ideas to sell state assets, borrow money — again — and cross fingers and toes that investment returns in the funds exceed expectations.

Notice what’s missing from Pritzker’s plan? Any talk of amending the pension clause of the Illinois Constitution that generally would swap out the language that pensions cannot be “diminished or impaired” with language that would allow the legislature to change benefits going forward.

An amendment could guarantee that benefits earned so far would be protected; benefits going forward would be subject to change. Mostly, lawmakers have signaled they would like to slow the growth of pensions by limiting the costly 3 percent compounding raises given annually to most public retirees.

The fact that, for now at least, Pritzker won’t entertain the possibility of amending that clause indicates how very unserious he is about the problem.

Meanwhile, he wants voters to unlock the flat state income tax rate enshrined in the Illinois Constitution so he can charge different tax rates to different people. But he won’t allow voters to decide whether to unlock the pension clause, which is basically a suicide pact with taxpayers.

You’ll certainly hear during Pritzker’s budget speech the need to protect pensions and honor those promises made to employees. Behind Pritzker at the dais will be Senate President John Cullerton and House Speaker Michael Madigan, nodding in agreement. From a Democrat-majority House and Senate gathered in the chamber, you’ll hear whoops and hollers.

They won’t remind you that in 2013, Cullerton, Madigan and some 90 lawmakers — many of them still in office today — already voted to bend those promises. They voted for a pension reform bill that wisely would have extended retirement ages, slowed those 3 percent compounded cost-of-living adjustments and capped salaries for some workers. In exchange, employees would have paid 1 percentage point less into the funds. Madigan sponsored the bill, saying the changes were needed because Illinois pensions “are just too rich” for taxpayers to afford. “Something’s got to be done,” he told his colleagues during debate on the House floor, describing the pension system as in “crisis.”

“My view is that this bill will be approved by the Illinois Supreme Court,” he said back then.

Madigan, also the chairman of the state Democratic Party, was confident the court would recognize the need to save the pension systems by reforming them. Other Democrats who agreed and voted for that pension reform bill: Reps. Fran Hurley, Sara Feigenholtz, Ann Williams and Kelly Cassidy of Chicago; Sam Yingling of Grayslake; Michelle Mussman of Schaumburg; Marty Moylan of Des Plaines; and many other Democrats still serving in Springfield. Senators who voted for pension reform included Democrats Steve Stadelman of Rockford, Don Harmon of Oak Park and Bill Cunningham of Chicago, among others.

They knew pensions were unsustainable then. They should favor a constitutional amendment now.

In fact, when the Supreme Court eventually struck down the pension reform law in 2015, lawmakers should have started working immediately on changing the constitution or enrolling new employees into a third, less-expensive tier or a 401(k)-style plan. They could have floated Cullerton’s long-debated “consideration” model back up to the court; that model would have allowed employees to keep those generous COLAs but with a consequence — a smaller pensionable salary at the end of their careers.

Instead lawmakers did next to nothing. The liabilities in the funds grew by another $34 billion.

And so here we are, recycling bad ideas instead of making hard choices, entertaining the idea of risky pension bonds that would put the state in an even more vulnerable position — especially if the economy turns.

The pension system in this state is unsustainable. Taxpayers know it. Mayors across the state know it. Finance managers know it. Politicians know it. Union leaders know it. Those union leaders are simply buying time until they can cash out, leaving insolvency for the next guy.

So lawmakers will applaud and grandstand during Pritzker’s budget address. But most of them know, and actually voted a few years ago, that the system is unsustainable.

That time, they did the right thing.


Not anymore. New day. New leadership. Same old smoke and mirrors.


https://www.pjstar.com/opinion/20190...ension-reforms

Quote:
Sweeny: Illinois’ deputy governor previews Pritzker’s pension reforms

Spoiler:
We’re all waiting to know: What will the new governor say? Gov. JB Pritzker will give his first budget speech Wednesday, and everyone concerned about Illinois’ dreary financial condition is waiting to see what he will say.

We have a clue, however. On Valentine’s Day, Deputy Gov. Dan Hynes delivered a speech to the City Club of Chicago outlining some of the new administration’s priorities — specifically how to fix the state’s pension crisis. Illinois’ unfunded pension liability is nearly $134 billion, Hynes said. Local governments throughout the state are straining to meet a stiff state requirement that public pensions be 90 percent funded by June 30, 2045.

You remember Hynes — he was the state’s comptroller, first elected at age 30 in 1998, then re-elected in 2002 and 2006. A Democrat, he ran unsuccessfully for U.S. senator in 2004 and for governor in 2012.

Hynes made it clear he had not shown up to deliver Valentine’s Day cards to Chicagoland’s movers and shakers.

Illinois has a $3.2 billion structural budget deficit and is nearly $15 billion in debt. Late payment interest penalties resulting from the 2015-2017 budget impasse exceeded $1.25 billion, Hynes said.

“The state has been hit with eight credit downgrades, and five universities fell to junk credit status. We now pay more in interest on our lower-rated bonds — enough to give another 25,000 students MAP grants every year. That’s enough to provide scholarships to every undergrad at SIU-Carbondale and Illinois State University — combined,” Hynes said.

“That’s devastating, and most of it was avoidable,” he said, placing the blame squarely on the shoulders of former Gov. Bruce Rauner, although the state’s fiscal mismanagement has been a bipartisan production for decades.

Most of Hynes’ City Club speech dealt with the pension crisis, how it happened and how we can get out of it. In the mid-1990s, lawmakers passed and Gov. Jim Edgar signed a pension reform bill designed to have pensions 90 percent funded in 50 years. But for a number of reasons — overestimating the rate of return on investments, skipping payments, borrowing money to make pension payments, the Great Recession of 2008 — the “reform” is failing.

A further huge factor in this failure is that the reform law, which took effect in 1995, was backloaded, meaning the payments rise faster as we get closer to 2045.


“The original architects of this 25-year-old plan calculated that in 2020, Illinois taxpayers would pay only $4.9 billion for pensions. Instead, the plan now requires us to pay $9.1 billion. That’s nearly double what was expected,” Hynes said.


“In 1996, the state spent 3 percent of its General Fund revenues on pensions. Today, the plan calls for us to spend 21 percent of revenues on pensions. Let that sink in. Three percent; 21 percent. It’s unsustainable and frankly it’s not fair,” Hynes said.

Hynes proposed several steps to right our sinking pension ship. He made a pitch for Pritzker’s plan to enact a graduated income tax, which Hynes called a “fair tax,” and to commit $200 million a year from the increased revenue to pension payments — on top of the money the state is obligated to pay.

Passing that tax won’t be an easy lift, though. The General Assembly must pass a bill by a 60 percent majority to put the “fair tax” amendment on the ballot in 2020, and then Illinois voters have to OK it.

Hynes also proposed selling state assets and committing the proceeds to paying down pension debt. And he proposed borrowing $2 billion — if the state can get a decent interest rate — and committing the money to pensions. He also suggested expansion of a voluntary plan allowing retiring employees to take a lump sum pension payout.

In addition to these measures, Hynes recommended that the June 30, 2045, deadline for pensions to be 90 percent funded be extended by seven years.

Then he turned his attention to reducing our huge number of local government pension funds.


“We must explore smart ways to consolidate those pension funds. The state is home to 671 separate public pension funds. This results in a fractured system that often duplicates functions across funds, limits the smaller funds to a narrow range of return investments and impedes their ability to negotiate lower fees,” he said.

“These funds manage $170 billion in assets and have accrued liabilities totaling more than $355 billion. These liabilities have placed increased pressure on local governments and the state of Illinois, driving up property taxes and crowding out funding for critical local public services.”


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Old 02-21-2019, 03:25 AM
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https://patch.com/connecticut/across...roposed-lamont

Quote:
Sales Tax, Pension Changes Proposed By Lamont
Gov. Ned Lamont is proposing taxes on services that have been exempt along with other structural government changes.

Spoiler:
HARTFORD, CT — Gov. Ned Lamont rehashed one of former Gov. Dannel Malloy's ideas to have towns contribute toward teacher pensions along with a number of his own new structural reform ideas. Some ideas include new taxes on services including home renovations.

Lamont proposes that local boards of education be responsible for at least a quarter of the normal teacher pension cost that is currently paid by the state. Municipalities that have higher than average teacher salaries would pay more equal to how far off they are from the median salary. Distressed municipalities would contribute five percent of their normal cost.

Malloy made similar proposals in the past, but they failed to gain traction in the legislature. In 2017 teachers contributed six percent of their salary toward pensions while the state contributed 30 percent of their salary. Malloy proposed having towns pay about 10 percent of teacher salaries.

The move would hit affluent communities with higher teacher salaries harder. The state contributed about $24 million to Greenwich teacher pension obligations in 2017 for a system with 8,800 students while it contributed around $17 million to cover New Britain teacher pensions for a school system that had 1,200 more students.

Betsy Gara, executive director of the Connecticut Council of Small Towns said the organization is very concerned about Lamont's proposal and that it could overwhelm small town property taxpayers.

"Requiring towns to pick up millions of dollars in teachers' pension costs without giving towns any opportunity to manage these costs going forward is simply unfair," she said. "Towns have had no say in managing the teachers' pension fund or in negotiating benefits or contribution levels. In addition, binding arbitration laws limit the ability of towns to negotiate teachers' salaries, which contribute to benefit costs."

Lamont is also proposing paying off the unfunded teacher pension liability over a 30-year period instead of the current 12 year plan, which could lead to pension costs going up to $3.4 billion by 2032.

"The plan to restructure payments into the Teachers' Retirement System represents a new road map for Connecticut's fiscal future and stability, while minimizing the impact on taxpayers," State Treasurer Shawn T. Wooden said. "It also will allow scarce resources to be directed to the right priorities like economic growth, education, and infrastructure that can move our state forward.

New Taxes
Lamont would largely eliminate exemptions for the sales tax with goods and services being taxed equally. This would make the tax the same for buying a movie DVD vs. downloading one if they are the same price. It would also add taxes to services that contractors, architects and engineers provide for home renovations.

Groceries would still be kept tax exempt. There had been much discussion that groceries might be taxed, but Lamont said he has no plans to tax our groceries. (To sign up for free, local breaking news alerts from more than 100 Connecticut communities, click here.)

Random exemptions like horse boarding, boat storage and campsite rental would largely be eliminated.

State Employee Pensions
On another front Lamont wants to make adjustments to the State Employees Retirement System that would save $131 million in fiscal year 2020.

Currently the state is scheduled to pay 20 percent of unfunded pension obligations for state employees by 2032 with the rest being paid off by 2046. Lamont wants to put it all on one schedule to pay it off by 2046.

He also wants to have cost of living adjustments for future retirees tied to market returns where living adjustments would go up by one percent in bad investment years and up to five percent if investments exceed targets by more than three percent.

He would also remove mileage reimbursements from pension calculations.

These provisions would be subject to negotiations with the state employee union.

Controlling Healthcare Costs
Lamont and Comptroller Kevin Lembo are proposing to negotiate maximum prices it will pay healthcare providers, hospitals and others for services. Lamont gave an example where a knee replacement might cost $50,000 at one hospital and $24,000 at another.

"Connecticut is going to call the shots on healthcare quality and cost," Lembo said. "The healthcare market should be driven by transparent prices for quality products and successful outcomes for patients, not by arbitrary pricing schemes that seek to squeeze the state and individual consumers out of anything they're willing to pay for care."


https://www.courant.com/politics/hc-...gly-story.html
Quote:
Gov. Ned Lamont proposes pension reforms, sales tax expansion; questioned by towns, unions

Spoiler:
On the eve of his budget address, Gov. Ned Lamont announced plans Tuesday to restructure teacher pensions and state employee benefits, along with expanding the state sales tax to collect an additional $800 million over the next two years.

Lamont’s plan for the teachers’ pension fund includes using $381 million from the state’s current budget surplus to shore up the account and asking towns to pitch in to help pay for the pensions, a controversial proposal that failed two years ago. Payments would also be stretched out over a longer period of time, reducing payments in the short term but increasing the overall cost.


inRead invented by Teads

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From tolls to the grocery tax, here’s what’s in and what’s out of Gov. Lamont’s budget
"We need to think about these long-term obligations as we would a mortgage,” Lamont said in a statement. “You wouldn’t pay off your mortgage in a decade, and Connecticut shouldn’t try to do the same with its pension obligations. Stretching out our payments over a longer period of time will allow us to avoid market volatility and bumps, and provide the breathing room to make critical investments in workforce and economic development, transportation, and education so we finally get Connecticut growing again.”

Lamont is also seeking to curtail benefits for future state retirees, tying cost of living increases for pensions to the performance of the stock market and eliminating mileage reimbursements from pension calculations, a perk that is almost exclusively used by state legislators.

Even before the plans were formally unveiled to the legislature during Lamont’s budget presentation Wednesday, opposition was already growing from small towns and unions.

“Shifting 25 percent plus of teachers’ pension costs plus an additional percentage for salaries that exceed the median will overwhelm property taxpayers in many small towns,” said Betsy Gara, executive director of the Council of Small Towns. “Requiring towns to pick up millions of dollars in pension costs without giving towns any opportunity to manage these costs going forward is simply unfair."

To begin to address the underfunding of the teachers’ pension fund two years ago, the percentage of their pay teachers contribute toward their pensions was raised from 6 percent to 7 percent. While towns pay teachers’ salaries and health care, the state administers teacher pensions. The average annual pension for teachers retiring in the past fiscal year was $51,657, according to the state Teachers’ Retirement Board.

Some of the proposed changes to state employee benefits would require approval by state employee unions, which said they were not keen on additional givebacks after concessions in 2009, 2011 and 2017.

“To be clear, we will not be part of asking for still more sacrifices from state employees, who have already given so much for the people they serve,'' said Larry Dorman, a spokesman for the State Employees Bargaining Agent Coalition, which represents state employees in a variety of unions. “We will, however, continue working with the Lamont administration and the General Assembly on 'win-win’ solutions for achieving efficiency and that will benefit everyone.”

The plan for teachers’ pensions calls for extending the payments over 17 additional years — in much the same way that the state legislature resolved an underfunded plan for state employees in 2016. The concept is similar to adding extra years to pay off a mortgage, which would eventually cost more in the end. With less money allocated through the years than required, the teachers’ pension fund is only at about 56 percent of the funding needed.


inRead invented by Teads

ADVERTISING
Lamont’s plan calls for using nearly $381 million of the budget surplus from the current fiscal year toward teachers’ pensions. It also reduces the assumed annual rate of return the state will see on its teachers’ pension investments from 8 percent to 6.9 percent, “setting reasonable expectations for how markets will perform" and reducing unfunded pension liabilities, the governor’s office said.

“This has been a problem for many years,” said state treasurer Shawn Wooden, who worked with Lamont on the pension plan. “This is one of the most critical issues facing the state budget. We have to get something done, and this proposal accomplishes that.”

On the sales tax, Lamont reiterated Tuesday an earlier pledge to expand the state sales tax to capture “the digital economy and expenditures on consumer-related services.” The sales tax expansion would raise $292 million in the first year of the budget and $505 million in the second year.

“Equal tax treatment levels the playing field and discourages the purchase of certain items in lieu of others," the governor’s office said Tuesday. "For example, it doesn’t make sense to apply the full sales tax to the purchase of a movie on a disc, but not the electronic downloading or streaming of the same film. Nor does it make sense to tax the materials you need to repair or renovate a home, but not on the architect, engineer, or contractor who do the work.”

Sales tax exemptions on groceries and prescription drugs will be maintained, but dozens of other exemptions “for example, exemptions for horse boarding, boat storage or the rental of a campsite” will be eliminated, Lamont’s office said. “There is no rhyme or reason to many of these exemptions, and they artificially manipulate the market.”

Senate Republican leader Len Fasano said he opposes extending the sales tax to non-prescription drugs, such as aspirin, allergy pills and cough medicine. He also opposes a sales tax on veterinarian bills.

“The taxes raised my eyebrows and made me uncomfortable,” Fasano said. "Taxes and tolls are not something I can embrace. But I think he has some good things in his budget'' including saving money on state employee medical costs.

Fasano said he also understands Lamont’s plan to stop the long-running practice of allowing mileage reimbursements for state legislators to be calculated into their pensions.

“It’s not a lot of money, but I certainly understand the point,” Fasano said. “It should be a reimbursement, perhaps, but not added into the pension.”



https://www.ctnewsjunkie.com/archive...funded_pension
Quote:
Lamont Will Need to Confront ‘Iceberg’ of Unfunded Pension Liabilities

Spoiler:
A week ago Gov. Ned Lamont told the Greater Waterbury Chamber of Commerce that one of the things that surprised him when he got a good look under the hood of state government was the “scale of the fiscal crisis.”

He said he knew the state was facing a fiscal crisis with all the work that has been done on the issue over the last few years, but he didn’t really know how bad it was.

“But maybe I thought that this was an iceberg that was a little over the horizon,” Lamont said.

He knew the state faced large unfunded pension deficits, but he figured the crisis maybe was a little further away.

“As we got into the books and were looking at the numbers — we’ve got to hit it head on right now,” Lamont said.

He said the state employee pension is going up $100 million a year “for us the taxpayers to pay” and the teachers pension fund is in critical condition. He said the problem is immediate.

The contributions to the teacher’s retirement system are scheduled to go up sharply and it could “put us on a razors edge” in terms of fiscal stability, Lamont said.

He said Connecticut’s bonded debt and long-term liabilities are eating up about 30 percent of the general fund.

“We can’t afford to do it all,” Lamont said.

The annual contribution to the Teachers Retirement System is about $1.3 billion, but it could grow to $6.2 billion by 2032 because of years of underfunding. After 2032, the required payment would drop precipitously but officials are more concerned about how to handle the steep cost curve leading up to 2032. Connecticut didn’t start setting aside money to pay for teachers until around 1982.

The pension fund, according to the last valuation, has enough assets to cover 56 percent of its long-term obligations.

Another complication is that in 2008 Connecticut borrowed $2 billion to shore up the fund. That bond is expected to be paid off by 2033. When that borrowing was approved, Connecticut pledged in a bond covenant to contribute the minimum annual payment to the fund for 25 years. Only in extreme circumstances would Connecticut be allowed to skip the payment.

“What I can promise you is I want to put the state Lottery into the teacher’s pension fund,” Lamont told the retired teachers on the campaign trail.

He said the Lottery revenue will help shore up the pension fund, which is underfunded by about $13 billion. He said they also need to find a way to increase the investment returns earned by the fund.

Former state Treasurer Denise Nappier also pitched using the Lottery to shore up the teacher’s retirement fund.

State Treasurer Shawn Wooden, in an interview with Hearst Connecticut Media, said he will suggest that Lamont extend the period that the state pays off pension-related bonds, while leveling off payments that are currently on track to balloon to $2 billion to $3 billion a year over the next four years in the teachers’ fund alone.

Wooden declined to offer more details on that idea earlier this month.

The state will get a clearer understanding from Lamont on Wednesday about how he plans to tackle the pension crisis.


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