This Week’s Issue P&I 2024-05-20

SPECIAL REPORT INSURANCE ASSETS

Insurers’ stodgy reputation no longer ts

Expanded private-lending business highlights their growing appetite for risk

By ROB KOZLOWSKI

Insurance companies have spent more than a decade trying to nd returns in private markets, during a historically low interest rate environment.

But even as interest rates have

rebounded, insurers are still more willing to take on illiquid risk as they embrace newly evolved roles as private lenders.

While those higher rates have resulted in insurers re-embracing traditional xed income, the days of insurance companies being a sleepy, boring place to invest are over, experts said.

To be sure, that sleepy sentiment existed for decades due to strict regulations under state laws and the National Association of Insurance Commissioners, which require a high level

of capital ef ciency. That has often meant the signi cant majority of insurance company portfolios consists of investment-grade xed income.

As of Dec. 31, 2022, xed income

comprised 62.3% of the entire universe of af liated and non-af liated insurance company assets totaling $8.15 trillion, according to the latest NAIC Capital Markets Bureau special report on the U.S. industry’s cash and invested assets.

Common stocks comprised 13.2% of all U.S. insurance assets as of that date, followed by 8.9% mortgages, 6.6% schedule BA and other assets, 4.6% cash and short-term investments, 1.6% contract loans, 1.2% derivatives, 0.5% each real estate and

Big personnel changes were afoot in the institutional investing community recently, with CalSTRS naming Scott Chan as CIO, succeeding Christopher Ailman; Anne Ackerley stepping back from her position as head of BlackRock’s retirement group to become senior adviser; and Vanguard Group naming Salim Ramji as its next CEO, succeeding Tim Buckley.

Tussle at Ohio State Teachers continues with lawsuit by AG

By ROB KOZLOWSKI

The latest chapter in the ongoing tussle for control of the $94 billion Ohio State Teachers Retirement System opens with a lawsuit led by Ohio Attorney General Dave Yost against two trustees, alleging they have breached their duciary duties. He also wants them removed from the board.

Filed May 14 against board members Rudy Fichtenbaum and Wade Steen, the law-

suit alleges the two trustees “seek to steer as much as 70% of STRS’s current assets (about $65 billion in teacher pension funds) to a shell company that lacks any indicia of legitimacy and has backdoor ties to Steen and Fichtenbaum themselves.”

“Pension board members are required by law to act in the best interest of the teachers whose money they invest,” Yost said in a news release a day later. “I will take whatever action is necessary to protect teachers

other receivables, 0.4% preferred stocks and 0.3% securities lending (reinvested collateral). Non-traditional assets, reported by insurers as schedule BA investments, include private equity, private credit and hedge funds. That allocation had increased from 6.5% at the end of 2021 and represented a total of $534.9 billion in assets as of Dec. 31, 2022. Five years previously, at the end of 2017, the allocation to bonds was 65.3% and nontraditional assets was 5.5%.

UPS delivers $40B boon to Goldman

Leader in outsourced CIO assets gets bigger; UPS team to join GSAM

By DOUGLAS APPELL

The duciaries of United Parcel Service’s North American pension plans appointed Goldman Sachs Asset Management as outsourced CIO for the Atlanta-based delivery company’s more than $40 billion in U.S. and Canadian de ned bene t assets. UPS’s in-house investment management team is expected to join GSAM’s Atlanta of ce as part of the deal.

That legacy team will become part of a broader GSAM team managing those assets but especially on day one, they will be focused on ensuring “continuity in service and investment knowledge” in overseeing UPS’ pension assets, said Tim Braude, global co-head of multiasset solutions at GSAM, in an interview.

The UPS mandate will extend GSAM’s lead in Cerulli’s latest rankings of U.S. OCIO providers, where it led the eld with $210 billion in assets under supervision as of March 31. By the third quarter, when both UPS’ pension fund assets and its inhouse team are expected to transition to GSAM, that total could swell to more than $250 billion in U.S. OCIO assets under supervision. GSAM’s global OCIO assets under

The deadline to register for P&I’s Best Places to Work in Money Management program is coming soon. For the rules and an entry form, go to pionline.

execs on the move

CalSTRS’ Scott Chan Page 17

BlackRock’s Anne Ackerley Page 17

Vanguard’s Salim Ramji Page 21

Alternatives

PGIM’s David Hunt thinks a “gradual shakeout” of winners and losers in the private credit industry is coming. Page 4

Conferences

The 2024 Milken Conference addressed retirement readiness; geopolitical concerns; the role of generative AI; and private markets. Page 6

Endowments & Foundations

New Mastercard Foundation CIO John Barker faces a daunting task: diversifying the fund away from Mastercard stock. Page 23

ETFs

Managers are ooding the SEC for the OK to offer multishare-class mutual funds that include ETFs. Page 13

Money Management

Kevin Quirk, a founding partner of consulting rm Casey Quirk, has joined Bain Capital. Page 4

Anne Ackerley will step down as head of BlackRock’s retirement group in early July, taking on a new role. Page 17

New Vanguard CEO Salim Ramji’s experience could help the rm address areas where it has faced challenges. Page 21

Pension Funds

New CalSTRS CIO Scott Chan said the fund has the right expertise. Page 17

Special Report: Insurance Assets

Asian insurers may be eager to outsource more of their investments. Page 14

Cathay Financial CIO Sophia Cheng told conferencegoers they have no excuse not to invest sustainably. Page 14

Money managers are creating new leadership roles to address expanding insurance opportunities. Page 16

survey in progress

Responses to Pensions & Investments' annual investment outsourcing survey are due by June 7. Firms serving as outsourced CIOs to institutional asset owners are eligible to participate. Results will run July 15.

To request a survey or obtain further information, please contact Anthony Scuderi at ascuderi@pionline.com or 212-210-0140, or visit www.pionline. com/section/surveys

AG res back after Oklahoma’s ESG law halted

Legal counsel axed after unfavorable court ruling pauses controversial law

By MARGARIDA CORREIA

A court ruling that halted the enforcement of Oklahoma’s controversial anti-ESG law has led state Attorney General Gentner Drummond to re the attorney whom Drummond blamed for the unfavorable court decision.

Drummond also blasted state Treasurer Todd Russ for selecting the attorney to represent Russ and the state of Oklahoma in the legal proceeding.

“It is extremely disappointing that the counsel hired by Treasurer Russ was unable to secure a favorable ruling in defense of Oklahoma’s anti-ESG law,” Drummond said in a news release issued late in the evening on May 9. “Because of this failure, the law is now on hold and at risk of being struck down entirely.”

The lawsuit was led by an Oklahoma public pension plan partici-

pant who claimed the law is unconstitutional and jeopardizes his pension savings.

The law requires public pension funds to sever ties with rms said to discriminate against the oil and gas industry.

The cost of having to divest assets from rms perceived as hostile to the fossil fuel industry is “monumental,” the lawsuit contends, citing the Oklahoma Public Employees Retirement System, which would pay an estimated $10 million to divest assets from BlackRock and State Street, two of the state’s six blacklisted rms.

In addition to ring the outside legal counsel, Drummond removed Russ from any decision-making authority in the lawsuit.

Drummond said he had initially chosen a separate rm to serve as outside counsel but deferred to Russ after the treasurer insisted on selecting his own attorney to defend the law.

“Treasurer Russ was insistent that he be allowed to choose his own counsel to defend the lawsuit, and I

Industry issues dire warnings on 401(k) case

Decision

By ROBERT STEYER

Several large retirement and bene ts trade organizations have asked the Supreme Court to overturn a federal appeals court decision that, if allowed to stand, would unleash a “parade of horribles” on de ned contribution plan sponsors, service providers and participants.

Using terms like “absurd” and “illogical,” the groups argue that a ruling by the 9th U.S. Circuit Court of Appeals, San Francisco, against a unit of AT&T “threatens to further open retirement plan duciaries and service providers to a ood of litigation,” the group wrote in an amicus brief to the Supreme Court on May 9.

The ERISA Industry Committee, SPARK Institute, American Bene ts Council and the Committee on Investment of Employee Bene t Assets joined in the amicus brief to support AT&T Services in Bugielski et al. vs. AT&T Services Inc. et al. The Supreme Court

hasn’t decided whether to review the case.

The Supreme Court should make sure “that ERISA is not interpreted to presumptively bar plans from entering into contracts for necessary services, even where the contracts are the result of arm’s-length negotiation,” the groups wrote.

Their forceful language and dire warnings focus on the complex but crucial sections of ERISA that describe prohibited actions and de ne a party-in-interest — but also describe exemptions.

Such prohibitions include improper con-

tracts, transactions that carry a high risk to plan assets, self-dealing by duciaries and contracts that transfer to third parties the responsibilities reserved for duciaries.

A party-in-interest can be, among other examples, a duciary, plan executive or service provider. They are subject to prohibited transactions rules — absent an exemption — for lending money, furnishing goods or services, transferring assets and other activities. ERISA allows exemptions, allowing DC plans to conduct certain transactions with a party-in-interest. Loans to plan participants, transactions between the plan and a pooled investment fund, providing investment advice, contracts for life insurance or annuities and loans to employee stock ownership plans are just some examples.

In the AT&T Services case, initially led by plan participants in November 2017, a U.S. District Court judge in Los Angeles rejected their complaint in 2018 that the AT&T 401(k) plan and its duciaries committed a prohibited transaction and a violation of ERISA’s duty of prudence via its self-directed brokerage account from Fidelity Investments and its relationship with Edelman Financial Engines,

The registration deadline for Pensions & Investments’ 2024 Best Places to Work in Money Management program is less than a month away.

Money management rms have until June 7 to register for the program, which comes with a mandatory $199 participation fee.

Now in its 13th year, the BPTW program puts a spotlight on industry’s top employers and how they are elevating their workplace culture, attracting talent and developing employees. P&I honored a record 123 rms in 2023.

A two-step assessment that determines the winners of the program will be conducted by P&I partner Workforce Research Group, an independent research rm headquartered in Humble, Texas.

In the rst part, employers will complete a questionnaire that covers topics such as population demographics, practices and organizational bene ts. In the second part, employees will complete a survey designed to quantify their engagement and satisfaction with their rm.

The employee survey will account for 80% of a rm’s total score, while the employer survey will carry a 20% weight.

To participate, rms must have at least 20 U.S.-based employees and have at least $100 million of discretionary, institutional assets under management or advisement. Participants must also be in business for at least one year.

Firms may register at pionline.com/ bptw2024 to participate in this year’s program and nd frequently asked questions and answers, and sample surveys. Results will be published by P&I online and in its Dec. 9 print issue, which will include pro les and photos of the winners. n

OCIO

HARD TIMES: Oklahoma Attorney General Gentner Drummond said the state’s anti-ESG law is at risk of being nulli ed.

Richard Sharrocks

Defined Contribution

Options grow for personalized target-date funds

Capital Group joins PIMCO in the market; Principal in development

By MARGARIDA CORREIA

The ubiquitous target-date funds found in almost all 401(k) plans are stepping up their game.

Now, for just a few basis points more, retirement savers can have a personalized target-date fund, meaning the asset allocation in their funds will reect more than just their age.

These new personalized target-date funds will also factor in things like a saver’s income, their deferral rate and employer contributions in an effort to develop a more precise asset allocation that is better aligned with each saver’s unique circumstances.

Today, investors in the same vintage (or year) of a traditional target-date fund all have the same allocation to stocks, bonds and other asset classes. With a personalized target-date fund, investors will each have a different or individualized asset allocation.

“It feels like not all 35-year-olds, not all 45-yearolds, and not all 55-year-olds are the same,” said

Craig Duglin, senior vice president of institutional retirement product management at Capital Group, which recently rolled out its own personalized target-date fund called Target Date Plus.

Some 35-year-olds have a lot of savings, while others have no savings at all. Some earn high incomes and others low, making a standard asset allocation for all 35-year-olds less effective for some, Duglin said.

The rm’s new Target Date Plus addresses the issue by incorporating additional data points beyond an individual’s age, making it, in effect, a more cost-effective version of a managed account.

Cost of customization

The personalized fund costs 5 basis points more than the rm’s traditional target-date fund and factors in ve data points: an individual’s age, salary, account balance, deferral rate and employer contribution.

Capital Group’s traditional active target-date funds, which Duglin says are the least expensive in the marketplace, have an average expense ratio of 35

For European investors, defense makes sense

Investors sharpening focus to bene t society, grow long-term returns

By SOPHIE BAKER

As war rages on Europe’s doorstep and authorities across the region explicitly encourage institutional investors to support national security, some European pension funds are changing their investment policies to put more money to work in the defense industry.

Last month, Danish pension funds told Pensions & Investments that the war in Ukraine had led to a rethink of allocations to defense assets. Some had already been investing — carefully and always with a responsible investment framework in mind — in defense and aerospace companies, but the situation in Ukraine and calls from the government to bolster defenses has sharp-

All-Terrain

ened their focus on the sector. That’s not just because of the social responsibilities they recognize in helping countries to defend their borders

and citizens, but also due to the investment opportunities out there.  Now, a number of European

U.S. small caps produce lower returns, higher risk

Proposed $7.2B addition welcomed, but N.J. fund faces long road to health

By ROBERT STEYER

When New Jersey Gov. Phil Murphy proposed his budget for the scal year starting July 1, he said “we have refused to abandon our commitments to our pension system” as he proposed making a record $7.16 billion payment — the fourth consecutive full contribution required for improving the system.

Given a severely underfunded New Jersey Pension Fund, Murphy’s remarks were welcome, but achieving pension system health has a long way to go.

Even with the full payment, which must be approved by the legislature by June 30, the New Jersey Pension Fund, Trenton, would still have a funding ratio of only 52.4% for the next scal year, according to the

state Department of Treasury. The ratio fell as low as 44.7% for the 2016 scal year. The pension fund had $98.2 billion in assets as of March 31. Murphy is simply asking legislators to pay what the state is supposed to pay to a pension system that has been ignored, shortchanged and pillaged by governors and legislatures — both Democrat and Republican. Each year the state failed to make its actuarially required contribution of 100%, the underfunding got worse and the need for more money increased.

Since 1997, the state’s annual ARC was zero during four scal years; single-digit percentages for four scal years; less than 25% for six scal years; and far less than the 100% for all other scal years except the last

Since 2007, small- and large-cap stocks have seen returns move inversely with interest rates. However, small-cap stocks have generated lower returns and higher volatility than their large-cap cousins as sales and earnings growth have lagged. Over the past ve years, the Russell 2000’s 3.2% and 6.5% annualized sales and operating income growth trailed the Russell 1000 by about 430 and 470 basis points, respectively.

Slightly negative correlations: Both small- and large-cap stocks had slightly negative correlations vs. 10-year U.S. Treasury yields since the start of 2007. Looking at quarterly returns, the Russell 2000 index had a -0.04 correlation, and the Russell 1000 had a -0.05 correlation.

Returns vs. 10-year yields

Slower growth: Small-cap stocks have largely had slower year-over-year sales growth than large caps since mid-2019. In the rst quarter, the Russell 2000 had essentially at sales, while the Russell 1000 had 4.3% growth. Analysts expect small stock sales growth to trail large caps for the next two quarters.

Sales and earnings growth

More leverage: The Russell 2000, with a net debt to EBITDA of 4.3 times, has higher leverage than the Russell 1000, which has 1.5 times leverage. Smaller caps are also more vulnerable to higher short-term interest rates because they tend to rely more on oatingrate debt than larger companies. Leverage ratios**

Small caps lag: Small caps have produced lower returns and higher volatility over various periods. Over a decade, the Russell 2000’s annualized return trailed the Russell 1000 by 492 basis points. The small-cap index had a 20.3% standard deviation vs. 15.5% for the large-cap index. Risk vs. reward

STANDING STRONG: British defense contractor BAE Systems shows off its BvSIO

tracked vehicle at an industry event.

Rising tide of private credit ‘now over’ — PGIM CEO

‘Gradual shakeout’ happening as institutions getting more savvy about the asset class

By LYDIA TOMKIW

PGIM CEO David Hunt thinks the rising tide of all private credit players doing well is “now over.”

Hunt, who is also president of the rm, believes a “gradual shakeout” of winners and losers in the industry is now underway.

“The kind of rising tide of anybody in private credit was doing well I think is now over,” he said during an interview with Pensions &

Investments on the sidelines of the Milken Institute Global Conference held May 5-8 in Los Angeles.

PGIM manages about $100 billion in private credit assets with a large focus on directly originated middle-market companies and has been investing in the asset class for more than 50 years, Hunt said.

“A few years ago, almost anybody with private credit experience could raise funds and that’s not really true anymore. Institutional investors have gotten much better at discerning who’s good at this, what the underwriting standards are, how people are originating loans,” he said, adding that he expects newer entrants to have a “tougher time” raising capital.

Hunt believes private credit has reached a stage of maturation and that investors are right to be concerned over newer entrants.

“There’s been many, many companies that have come into this space. Most of them don’t directly originate loans, they buy it from the street, many of them don’t have the workout capabilities that they need,” he said.

Hunt has noticed a shift in concerns from CIOs at pension funds saying that for many years “they wanted to talk about interest rates, the business cycle, the correlation of asset classes that went into their mix. They don’t ask me about any of those things much anymore.”

The past ve years have brought major changes from a global pandemic and two

Management

Kevin Quirk moves over

Bain Capital Money

By PALASH GHOSH

Kevin Quirk has joined Bain Capital as a partner and global head of investor relations.

At Bain, Quirk will work closely with senior leaders across the rm on the continued growth of its multistrategy alternative investments platform, said a note from Bain.

Based in Boston, Quirk is assuming his new responsibilities from Michael Ward, who remains chief operating of cer and chief nancial of cer for the rm.

Quirk was founding managing partner of consulting rm Casey Quirk, a Deloitte business.

As a principal at Casey Quirk, Quirk oversaw key client relationships and advised CEOs and executive teams of leading asset and wealth management rms on their most pressing strategic issues.

In a statement, Quirk said “As I make the transition from Casey Quirk and Deloitte, I'm proud and con dent of the senior team that will continue the work of the industry's leading strategy consulting rm.”

Changing World

We are excited to announce our keynote speaker! Scott Schwartz has spent nearly three decades in the investment management space with stints as an airline pilot & global explorer and a lifelong interest in weather and climate. His book, Investing in a New Climate: A Sustainable Approach to Investing & Living in a New Climate, showcases anecdotal ways humans have been adapting to climate change for our entire existence and how we can continue to work with our environment for a more sustainable future for all.

Krissy Davis, vice chair and the leader of Deloitte’s U.S. investment management industry practice, said in a statement: “Deloitte deeply appreciates Kevin's many contributions to our business. Since 2008, Casey Quirk has been a well-regarded and trusted brand in asset management consulting. We have a highly quali ed team of partners in our Casey Quirk practice who will continue to lead our business.” n

TOUGHER TIME: Newer entrants into the private credit space are facing increased scrutiny from investors, said PGIM’s David Hunt.

EMERGING MARKETS

A Supportive Cycle

The investment environment in the emerging markets has widened to include fast-growing companies in the technology, e-commerce and energy sectors, among others, making it more attractive for institutional allocators. The growth in manufacturing across a number of EM countries also supports the broader opportunity set. From the macro aspect, the start of an easing cycle in the U.S. and other countries should have a multiplier e ect on the EM economies and continue to help drive consumer demand.

This panel of EM experts takes a deep dive into evaluating di erent markets, sectors and assets on a case-by-case basis, while making a strong case for bottom-up active management. Should China be viewed separately from the rest of EM? Which countries are seeing greatest progress on corporate governance? How can investors deal with currency volatility? Read this timely and insightful report on the emerging markets.

Sponsored by:

What went down at the 2024 Milken Global Conference

P&I reporters hit the ground in Los Angeles for the 2024 Milken Institute Global Conference earlier this month, covering panels that tackled some of the biggest topics for institutional investors today. Among the themes: the state of Americans’ retirement readiness, geopolitical concerns, the role of generative AI and private markets, in particular private credit.

Read on for the best of the best from Milken, which concluded May 8.

Institutional investors: Volatile times call for dose of creativity Asset owners say they’re seeing both pain and gain in private markets.

With low interest rates and a relatively stable political environment in the rear window, government-owned Queensland Investment Corp. expects to invest less capital in private markets investments, said Allison Hill, state chief investment of cer for QIC, who spoke on a May 8 panel.

“We are rotating the portfolio” toward one that would provide more optionality to take advantage of opportunities that arise from a more volatile market, Hill said.

Asked whether Orange County Employees Retirement System, Santa Ana, Calif., is catching the wave or staying the course, CIO Molly Murphy, also a panelist, said: “Sometimes the wave also shows you areas when the wave moves and the water has receded.”

There is a bit of an AI wave, and areas that are getting less institutional capital are venture capital and asset-backed lending because of that wave, Murphy said. OCERS can sometimes get better returns and sometimes more capacity as a result in these managers’ funds, she said.

The pension fund is also “taking the easy, lift-all-boats-moment” and investing money in more conservative credit strategies that now pay more than they had in the last market cycle, Murphy said.

And while there are investment opportunities, such as in secondary markets, for investors that are creative, there are a couple of “pain points” in investors’ portfolios, said panelist Elizabeth Tulach, vice president, CIO at Boeing.

One pain point for Boeing are open end core real estate funds that are not distributing capital despite investors sitting in the funds’ exit queues, Tulach said.

“That’s been frustrating,” she said. “Until it resolves itself I don’t see us able to redeploy as easily as we had in the past.”

— Arleen Jacobius

Investors concerned about AI data and protecting privacy

Arti cial intelligence could be useful, but the machine learning software still has a lot to prove, said asset owners and money managers on May 8.

“We see it as the next Industrial Revolution,” said Aditi Javeri Gokhale, executive vice president and chief strategy of cer, president of retail investments and head of institutional investments at Northwestern Mutual.

Northwestern Mutual executives see companies take three approaches when considering using arti cial intelligence in their businesses,

Gokhale said. Companies either take a wait and see approach, a test and learn approach, or an “I don’t care. I’ll do whatever I need to get this AI thing” approach, she said.

Northwestern is in the test and learn camp, Gokhale said. The rm has a partnership with Microsoft and uses ChatGPT with employees and its corps of health and wealth management advisers for creating content, she said. Northwestern executives expect to incorporate AI. into its content module in 2026, Gokhale said.

“What we have to be particularly concerned about is that the data that we have, in our case, health and wealth,” has guardrails and governance structures that will help ensure accuracy and privacy, she said.

Privacy matters because right now “it is everywhere…everyone and anyone uses it,” Gokhale said. “It’s not just about using ChatGPT in a cool and innovative way….

It’s about how we protect the privacy of our clients because that is where trust can get ruined.”

Speaking on the same panel, Christopher Ailman, CIO of the $336.2 billion California State Teachers’ Retirement System, West Sacramento, said that speakers on an A.I panel spoke a lot about trust.

“They emphasized AI needs trusted data and so that people can trust the A.I’s answers,” Ailman said. However, A.I users are still experiencing AI hallucinations and in-

INCOMMUNICADO: Outgoing CalSTRS CIO Christopher Ailman said private markets GPs should be more focused on their relationships with LPs.

stances in which the software is coming back with incorrect data, he said.

“They say that they think it will control our lives, but we have to trust it and I don’t know if it has earned it yet,” Ailman said.

— Arleen Jacobius

CalSTRS’ Ailman: Relationships, getting cash back are both key

The private markets are frozen, said Christopher Ailman, outgoing CIO of the $336.2 billion California State Teachers’ Retirement System, in an interview.

Private assets are not being marked up or down, said Ailman, who will be at the helm of the West Sacramento’s investment of ce until June 30. Although the pension fund’s board has already selected although not identi ed his successor, Ailman said he still plans to stay on as an adviser through the end of the year.

Meanwhile, at CalSTRS, “We’re not getting any cash back” from investments in private markets and alternatives funds, he said.

Speaking on a May 7 panel, Ailman said that especially in private markets, few managers are interested in building relationships with investors unless they are fundraising.

“One hundred percent of GPs want to talk to us when they are raising money. Less than 10% want to talk to us when they are not,” Ailman said.

Private market investments are 10-to-15 year investments and managers should be much more focused on building relationships, having a dialogue with investors and transparency, he said. GPs are not having that honest dialogue with LPs, he added.

“Remember the deal (for an LP commitment) was never supposed to be about the 2% management fee. It was supposed to be about the 20% fee return split (incentive fee)…I already see people monetize the 2%,” Ailman said.

“The 20% is supposed to happen but … right now, in this environment, the 20% is delayed forever.”

— Arleen Jacobius

Real estate investors on this cycle: ‘It’s different this time’

Speakers on a panel at the Milken Institute Global Conference talked about the investments they are making while some wait for values to readjust, with data centers and single family homes to rent top picks.

“I’ve seen cycles but this one is different,” said Tim Sloan, vice chairman, Fortress Investment Group speaking on the panel.

Other than of ce, the rest of the real estate sectors are performing well and overall the economy is strong, Sloan said. This cycle will last longer, he said.

“Prices are not repricing as quickly as they did, for example, in the GFC,” Sloan said.

Nevertheless, he said that this is the greatest opportunity he has seen in his career, particularly in real estate lending in areas in which the regional and community banks have pulled back.

“I have said that four other times but I’ve been right four other times,” he quipped.

Data centers are another favorite to capture not only demand from ecommerce but also from arti cial intelligence.

There are obvious and less obvious reason to invest in data centers, said Joshua Morris, partner, global real estate, Davidson Kempner Capital Management. The obvious is that there is more demand than supply,

underbanked crisis,” noting nance app Cash App has become more accessible to global citizens than banks to help support nancial security. Roseman said access to capital and credit for citizens typically is based on the traditional W-2 paystub job and an individual’s credit score. Instead, he said there is an urgent need to accommodate and provide “gig economy” and contract workers with workplace retirement plans. There are more than 57 million people working in the US that do not have access to a workplace retirement account.

Gerri Walsh, president of FINRA Investor Education Foundation, said FINRA is trying to nd new ways to reach younger investors to promote and extend nancial literacy.

particularly from AI, Morris said. The less obvious is that “there is really a power gold rush” due to the power requirements of AI, he said.

“A ChatGPT search will take 10 times more power than a Google search,” Morris said. There will be a lot of excess rate of return to be made by helping to secure power for data center developers, Morris said.

Jase Auby, chief investment ofcer, $187.1 billion Teacher Retirement System of Texas, also a speaker on the panel, said that after data centers, he likes industrial storage such as cold storage.

There are many properties that are obsolete, Auby said, presenting an opportunity to build new stateof-the-art cold storage facilities.

Another interesting sector is to invest in parking lots for trucks including delivery trucks, which is a very fragmented business, he said.

“Think smaller and mundane.. those are fruitful areas,” Auby said.

Those sectors are not as niche as they used to be, said Maggie Coleman, chief investment of cer, real estate equity, global co-head portfolio management, Manulife Investment Management, who also spoke on the panel.

Coleman said that Manulife executives are thinking about sectors that could mitigate the impact of economic shocks. These sectors include single family rentals, manufactured and student housing and industrial parking.

— Arleen Jacobius

Boomers shouldn’t be faulted for not saving enough — experts

The majority of the 30.4 million baby boomers expected to retire over the next six years who are not nancially prepared should not feel ashamed or blamed for their circumstances, A panel of retirement experts and investors said May 7.

American citizens shouldn’t be saying to themselves, “I wish I would have done X … when it really is not their fault at all,” remarked Teresa Ghilarducci, a labor economist and nationally-recognized expert in retirement security.

“It is the fault of the system, not the individual,” as millions of people are approaching retirement, she said. Ghilarducci is calling for a “bold system change” by the U.S. government on how citizens obtain and acquire nancial security and wealth. Adam Roseman, co-founder of SteadyIQ, added that: “We have an

“The face of investing has changed,” pointing to young investors who are diverse, lower-income and “excited” with lower barriers to entry to the nancial markets. . —Jenn Ablan

Private credit managers say there’s room for more growth

Global investors are still looking to invest in the United States, but the next ve to 10 years will present more opportunities in global markets, including through private investing, said panelists May 6 at the 2024 Milken Institute Global Conference.

Harvey Schwartz, CEO of Carlyle, said investors globally are overallocated to the U.S., but still want to add more. Another area of important growth will be private markets, he added.

“Clearly private markets are playing a much more signi cant role in private company growth and I think that trend will continue,” Schwartz said.

Private markets are becoming a “rapid way to get exposure” to global markets, said Ron O’Hanley, chairman and CEO of State Street. He pointed to India and Saudi Arabia as opportunities. O’Hanley noted that “having alternative sources of lending are quite important,” but that private credit has not yet been tested by an economic event like the Great Depression of the 1930s or the global nancial crisis of 2008 and how private credit managers would withstand such events is uncertain.

Private credit requires “hundreds of people, not 10 people and a Bloomberg machine,” said Mike Gitlin, president and CEO of Capital Group, speaking to the crowd.

Gitlin said the majority of assets are currently with large private credit managers, but the more the industry grows and spans that opens up the potential for illiquid situations and drawdown risks. “I worry about the long tail,” he said.

Citi CEO Jane Fraser said she sees an important role for banks to play in private markets for origination and distribution. She expects private credit will continue to grow saying there is a “win-win to play for.”

Carlyle’s Schwartz joked that he and Fraser are not “frenemies” and that private markets managers need to work with banks and look for partnerships. The CLO business is dependent on working with banks, he added.

— Lydia Tomkiw

VOLATILE MARKETS: Queensland Investment Corp.’s Allison Hill told attendees that her rm expects to invest less in private markets.

Photos by Rachael B/Milken

Megatrend investing? Talk to the pioneers.

DATA MAVEN

AlphaSimplex’s Kaminski engineers success in a male-dominated eld

Kathryn M. Kaminski, chief research strategist and portfolio manager at $7.3 billion investment adviser AlphaSimplex Group, took a long and winding road to asset management and nance.

And, as a woman, she has ourished in both the male-dominated spheres of science/ engineering and asset management/ nance.

“I started my nancial career in academia with a strong interest in derivatives markets, quantitative trading and hedge fund investing,” she said in an interview.

After securing her Ph.D. in electrical engineering at the Massachusetts Institute of Technology, Kaminski moved to Sweden and taught at the Stockholm School of Economics.

“During my time in Sweden, I did a lot of research on trend-following and managed futures,” she said.

Eventually, her research there led her to coin the phrase “crisis alpha” to describe the “potential opportunities from persistent trends during periods of market stress or crisis,” she noted. Kaminski later transitioned into the industry, working with a commodity trading advisers fund-of-funds allocator specializing in managed futures investments. Managed futures, she explained, is a category of alternative investments that focuses primarily on trading highly liquid futures and forward contracts. “These markets provide dynamic exposure to a wide range of asset classes — both long and short — across asset classes including equities, xed income, currencies and commodities,” she added. “The most prominent strategy in the space is trend following — a quantitative approach to following prevailing market

KICK RETURNS

NFL might allow teams to sell 30% of franchise to private equity

Groups of private equity investors may soon be allowed to buy as much as 30% of National Football League franchises.

Proposals under discussion would let buyout rms individually acquire as much 10% of a team, according to people familiar with the matter, who asked not to be identi ed because the deliberations are con dential.

A special NFL committee is meeting to examine the league’s ownership rules. Talks are ongoing and the percentages may change, some of the people said. A spokesperson for the NFL declined to comment.

The owners will present their ndings in Nashville over three days starting May 20, during the second of four annual league meetings. In March, the committee updated owners on its ndings but delayed putting forward the matter for a vote.

The committee is led by Chair Clark Hunt, who owns the Kansas City Chiefs. The other members are team owners Arthur Blank (Atlanta Falcons); Jimmy Haslam (Cleveland Browns); Greg Penner (Denver Broncos); and Robert Kraft (New England Patriots). The group has been discussing the league’s ownership rules since September, when NFL Commissioner Roger Goodell created the panel.

trends based on data.”

Combining her interest in research and education as well as her experience as an allocator, she decided to co-author a book on managed futures for institutional investors to help explain how to understand and use trend-following in a portfolio, she said That book was called “Trend Following with Managed Futures: The Search for Crisis Alpha” and co-authored by Alex Greyserman.

She later joined quantitative investment rm Campbell & Co., in its research department and eventually took a role in April 2018 as chief research strategist and portfolio manager at AlphaSimplex.

“In this role (at AlphaSimplex), I co-manage our managed futures program, co-manage our research team, as well as spend some time explaining our strategy and how trend-following performs in global markets both with clients and with the media,” she said.

While her academic background in science and engineering may seem unusual for someone in nance, Kaminski points out that data is king.

“Finance is a eld of uncertainty; there is so much data and information to process,” she said. “As a result, quantitative techniques and skills remain a key focus for the direction of the industry. This is especially true as more data is becoming easier to access and process and as we see an increasing number of tools at our disposal including machine learning and AI.”

However, she concedes that she is often the “only woman in the room” in what remains a male-dominated eld. “I have a real love for mathematics and engineering,” she said. “I never let (male chauvinism) get

in my way and always tried to have a positive attitude even when something bothered me, which isn’t always easy. From this experience, I have learned that culture is the most important factor in creating a work environment that is open to everyone.”

Over the years, she has learned a lot about what biases and barriers women face in this space.

“I often point out that only a few decades ago there were few women doctors, while today it is roughly 50/50,” she said.

“What changed? Did women evolve to be competent as doctors or did culture change? Culture in the nancial industry (also) has to evolve. This change has to come from the top down, and it requires a commitment to re-evaluating our culture at every step from recruiting, to retention, to career development. As we see more and more rms commit to doing this, as we saw in medicine, we will see more and more success for women in nance.”

AlphaSimplex is an investment af liate of Virtus Investment Partners Inc, which has $179.3 billion in AUM.

Some private equity rms that have been active in buying equity in U.S. professional teams include Arctos Partners, Ares Management and RedBird Capital Partners.

The NFL has made selling teams more dif cult than other sports that have already expanded ownership rules to private equity and other investment entities.

“We’re making progress, I think there will be some changes as early as May — probably closer to October,” Goodell said at a March news conference. “They came very close to sort of outlining an approach, and the approach is something we want to make sure the membership is aligned with. Now we have a lot of work to do to take that approach into reality.”

Much like the current process for new owners, private equity rms will have to be

vetted and preapproved by the league. Under current proposals, those buyers would have to set up a fund dedicated to NFL team ownership, rather than using a vehicle that invests more broadly, one of the people said.

The National Basketball Association caps private equity ownership of any team at 30%, while a single rm may own no more than 20% of a single franchise. Private equity rms can own stakes in as many as ve teams.

“One of the things we’ve learned through this process is that these private equity rms are not only interested in potentially investing in NFL franchises but also being involved in some of the real estate development that goes along with stadium projects,” Hunt said in a March interview.

J.P. Morgan Chase & Co. has launched IndexGPT, a new family of indexes using GPT-4, the latest version of OpenAI’s deep-learning software, a spokesperson for the company con rmed.

IndexGPT — basically a way to create thematic indexes — was launched after pilot testing and about one year after J.P. Morgan trademarked the word “IndexGPT.”

The capability will be deployed in J.P. Morgan’s quantitatively selected themes (or Quest) framework — a model that builds thematic indexes for the rm’s institutional clients, the spokesperson noted.

IndexGPT is part of J.P. Morgan’s strategic indexes business, which develops systematic, rules-based trading strategies wrapped into indexes for its institutional clients. These indexes are available across the major asset classes and geographies and cover common investment themes.

The indexes, the spokesperson explained, are built using industry-standard index construction methods, including market cap weighting rules and liquidity lters.

Quest, which has been provided to clients since 2021, uses natural language processing, or NLP, to determine whether a company is related to a speci c theme. Some examples of thematic indexes include arti cial intelligence, cloud computing, genomics and esports, multiplayer video games played competitively with spectators.

Quest does this by scanning news articles written about the company, and looking for speci c keywords in these articles — keywords represent the vocabulary of the theme.

A high percentage of articles that contain linked keywords is used as an indicator that the company is thematically linked.

Under supervision of the investable index team, Open AI’s software, GPT4,  will be used to generate a static list of keywords one-time only at the creation of each thematic index. The spokesperson added that internal tests have already demonstrated that the GPT algorithm more successfully identi es keywords than prior NLP models by generating a larger distribution of keywords and a superior description of the theme.

This launch, the spokesperson noted, is part of a broader effort to apply AI techniques to support the rm’s global strategic index business over the coming months and years.

The spokesperson added that the popularity of thematic indexes will depend on market conditions, emergence of new technologies and structural trends. Regarding expectations for IndexGPT, the spokesperson noted that J.P. Morgan foresees an increase in client engagement and broader adoption of quantitative techniques applied to thematic indexes.

J.P. Morgan’s asset and wealth management business ended 2023 with $3.4 trillion in assets under management.

PALASH GHOSH

PALASH GHOSH

IT FITS: Kathryn M. Kaminski says science, engineering and investing all hinge on data.

2024 ADVISORY BOARD

Sarah Samuels NEPC

Shundrawn Thomas

Joanne Yoo Development Partners International (DPI)

Olaolu Aganga Mercer Machel Allen Metis Global Partners

Kelly Baldoni Impax Asset Management

Robin Diamonte RTX Corporation

OPINION

Gold

already pricing in tensions between China and the U.S., scal spending and war risks

The evolution of global trade following U.S. Treasury Secretary

Janet Yellen’s visit to China is at a critical juncture: either a rapprochement is agreed that avoids trade wars — China vs. America and the European Union, in particular — or a series of 1930’s beggar-thy-neighbor tariffs and non-tariff barriers are rolled out.

Secretary Yellen’s visit brought the deep divides between U.S. and China trade policy into public view. All sides almost surely are aware of the stakes here, particularly of a redux of the trade wars during the interbellum between World War I and World War II.

Post-war U.S. used its economic and military power to establish what’s commonly known as the “Washington Consensus,” which emphasized a rules-based, open, market-oriented global trading system. China never presented itself as sharing such a view, or being anything other than a Marxist-Leninist state — with no interest in integrating into such a system.

Since its accession to the WTO in 2001, China arguably has pursued a mercantilist trade policy directed by the Chinese Communist Party, which was extremely successful. While the U.S. did not threaten tariffs during or after Secretary Yellen’s China visit, it certainly left no doubt about where it stood on China’s use of export markets as a safety valve for excess industrial capacity.

For its part, Chinese rhetoric was lled with references to free and fair trade in defense of its intention to capitalize on this excess capacity in green tech — EVs, solar panels, and wind turbines in particular — going so far as to invoke a Ricardian argument of comparative advantage to justify its export strategy.

How this all plays out is unknown presently. What is clear, however, is commodity markets — particularly gold — will be forced to adapt to a new trading environment.

This could require higher industrial

commodity supplies to support the de-risking of global supply chains on both sides of any East–West divide that emerges. Or, in the event of a rapprochement between the U.S. and China blocs, a more ef cient global trading system could emerge, which is less prone to an escalation leading to trade wars or full-on confrontation (i.e., a hot or cold war).

The rally that lifted gold through $2,000 an ounce began in November, as rates markets began to price in lower Fed funds for 2024. The hype surrounding this anticipated rate-cutting cycle from the Fed propelled gold sharply higher to $2,200 per ounce — our rst major target of the year.

This lingered to the end of the rst quarter. Gold maintained its momentum into the second quarter, even after markets tempered their rate-cut expectations to one or two this year, which, incidentally, had been our expectation for months before services-led in ation became so entrenched.

Ordinarily, this would have taken the wind out of the sails of gold bulls, but, this time around, the rally continued. Why is it that even after markets reduced their rate-cut expectations to one or two rate cuts by the Fed this year demand to get long gold endured?

ments’ rising outlays generated by their industrial policies to spur renewable-energy investment and defense spending.

The second tectonic risk we see is low-level confrontation in the South China Sea, the Middle East and Eastern Europe into an expansion of full-on war. Both of these are in ation and currency-debasement threats to investors globally.

It is our high-conviction view these risks will continue to drive gold higher. Our next target for the yellow metal — $2,500 an ounce — is well within reach.

Why is it that even after markets reduced their rate-cut expectations to one or two rate cuts by the Fed this year demand to get long gold endured?

Based on our research, we conclude there are two big tectonic forces underpinning gold demand now.

The rst is scal dominance risk, a long-running theme in our research. Under such a modus operandi, the Fed and other systematically important central banks are forced to accommodate rising debt-to-GDP ratios by literally monetizing their govern-

There are other important price drivers that also support gold; to wit, physical demand ex-U.S. from central banks and Chinese households. However, these are not as powerful as the tectonic drivers discussed above.

Central banks ex-U.S. have been de-risking their U.S. dollar reserve assets via gold purchases, which has provided signi cant support to physical demand.

China’s central bank has been buying gold for its account for 17 months in a row as of March, and we expect that to continue. Chinese households also are bid for gold, following the collapse of the property and stock markets there.

These demand fundamentals — tectonic and otherwise — will persist for years as the world evolves into East-vs.-West trading blocs, which could become fault lines demarcating military adversaries.  In this evolution, gold once again will be the preferred safe haven. n

Robert Ryan is the chief commodity and energy strategist at BCA Research.

OTHER VIEWS ROBERT RYAN

Target-date funds’ duciary risks need more oversight, not less

Target-date funds now represent more than 50% of all 401(k) assets. They deserve more duciary oversight by regulatory structure and by internal policy — not less.

The insurance industry is making a major push for lifetime income annuities, and the best way to hide these high-risk high fee products is in a non-transparent target-date collective investment trust, or CIT. The private equity industry also loves target-date CITs,  where they can hide alternative investments.

the chief investment of cer for Hackett Robertson Tobe.

To correctly manage and evaluate target date funds, investors need full transparency, not only to the asset class level but to the security level within the different asset classes.

We have access to this transparency in SEC-registered mutual funds, but retirement plans need to do the extra analysis of looking down to the sub-asset classes by allocations to look at fees and performance. Some CITs have full transparency down to the security level, such as Vanguard and Fidelity, but many do not, and can hide high fees and high risks.

Target-date funds are the dominant default option or QDIA (quali ed default investment alternatives) in most retirement plans resulting in the highest level of duciary responsibility. They are the most

In Memoriam

non-transparent plan investment option and the easiest way to hide fees and play performance games. Despite the high level of duciary risk, they are speci cally designed to avoid accountability and thus need the most scrutiny.

I believe target-date funds were created to sustain higher fees with the in ux of indexing, and Wall Street continues to create ways to exploit these. These types of manipulations are dif cult in transparent SEC-registered mutual funds.

In late September 2023, former Assistant Labor Secretary Phyllis Borzi and I briefed the White House Of ce of Management and Budget and the Department of Labor on the proposed duciary rule now out this spring. I emphasized the severe duciary issues that surround contract products like annuities and private equity. I urged the need for strong duciary standards, especially as annuities and private equity are being put in target-date funds, which are QDIAs and which need the highest level of transparency and accountability.

There is a general assumption that CITs are regulated by the federal Of ce of Comptroller of the Currency.  Some CITs are regulated by the OCC, while most used in 401(k)s are regulated by one of 50 state bank regulators. This allows CITs to choose their own state regulator who may or may not

I believe target-date funds were created to sustain higher fees with the in ux of indexing, and Wall Street continues to create ways to exploit these. These types of manipulations are dif cult in transparent SECregistered mutual funds.

have lax oversight.  While SEC-mutual fund regulations are not perfect, they do control for a lot of risks and provide a good amount of transparency.

For the past few years, the insurance industry has pushed legislation and heavily advertised for lifetime income annuities.

Most large retirement plans have resisted, realizing that 100% single entity credit risk and liquidity risk is a serious duciary issue and would probably be a prohibited transaction without exemptions.

The industry’s new tactic is hiding these strategies in poorly state-regulated CIT target-date funds and hope that no one reads the ne print on these contracts.

Plan sponsors should always document in their 401(k) plan minutes the following regarding target-date funds:

Jim Simons, pioneering quant and founder of Renaissance Technologies, dies at 86

By

LYDIA TOMKIW

James Simons, pioneering quantitative investor and founder of the successful hedge fund Renaissance Technologies, died May 10 at age 86 in New York City, according to a statement from the Simons Foundation.

Known as Jim, Simons was a mathematician and chaired the math department at Stony Brook University in New York. He founded what would become the secretive quantitative hedge fund Renaissance Technologies in 1978. The current version of the rm was founded in 1982. It remains one of the most pro table hedge funds in the industry’s history and is known for the performance of its famous Medallion fund.

“Jim was an exceptional leader who did transformative work in mathematics and developed a world-leading investment company,” said Simons Foundation president David Spergel in a statement posted to its website.

Simons was born in 1938 and earned his bachelor’s degree in mathematics at the Massachusetts Institute of Technology in 1958 and then went on to a Ph.D at the University of California, Berkeley. Early in his career, Simons served as a code breaker for the U.S. government.

James Simons

Simons used math, quantitative analysis and data to analyze and nd patterns around price changes, pioneering a segment of investing. Renaissance, to this day, is known for employing mathematicians and scientists.

Renaissance’s success made him one of the wealthiest people in the world, according to surveys such as the Bloomberg Billionaires Index. Simons stepped down as Renaissance’s CEO in 2010.

Renaissance CEO Peter Brown sent a note to staff today seen by Pensions & Investments calling Simons a "visionary."

“Jim's most invigorating quality was his faith in people and in sci-

ence,” Brown wrote. “He could not have known in 1982 that the company he was founding would revolutionize the investment industry. But viscerally he grasped that by bringing together mathematicians, physicists and engineers to formalize the science of buying low and selling high (in either order) he was likely to create something of tremendous value — value that he would then use to fund philanthropic quests to make even more far-reaching contributions to society.”

Later in life, Simons along with his wife Marilyn focused on philanthropic efforts including the Simons Foundation, Simons Foundation International, Math for America and others, according to statement from the foundation. They founded the Simons Foundation in 1994 and donated billions of dollars to philanthropic efforts, especially those supporting math and science research and education.

Responses from the investing and hedge fund world began immediately. AQR Capital Management co-founder Cliff Asness posted on social media site X, formerly known as Twitter, “RIP to an absolute legend and a good man.”

The Simons Foundation did not cite a cause of death in its announcement. n

■ The plan’s investment policy statement should include provisions on selecting and monitoring target-date funds. Does it address each asset class involved in the plan including inside the funds?

■ Each asset class in target-date funds should be fully evaluated in terms of risk, fees, and performance as if they were a standalone option.

■ Assets that are not SEC-registered mutual funds or registered securities such as private equity and annuities need additional scrutiny and documentation.

■ Additional documentation, including a request for proposals (RFP), should be required if the plan is using a record-keeper vendor’s proprietary target-date funds.

■ Select an appropriate benchmark to evaluate each asset class in the funds. Compare and justify the attributes of your fund if it has differences with the benchmark.

■ Understand the different fees and compare fund family fees, bearing in mind that target-date funds have multiple layers of fees.

■ Do an RFP for target-date funds at least every ve years.

■ Carefully document the reasons that the fund was selected. Regularly monitor the funds.

■ Document any and all reasons for not removing retained funds if performance or fees has lagged peer funds. n

This content represents the views of the author. It was submitted and edited under Pensions & Investments guidelines but is not a product of P&I’s editorial team.

that will never be placed behind a subscription paywall. The P&I HTML reprint can be licensed to post to your website, share on social media, used in email correspondence, presentations and so much more.

Select from news articles (print and digital), rankings, opinion pieces, editorials, awards and more.

Chris Tobe, CFA, CAIA, has over 20 years’ experience working with 401(k) investments as a consultant and currently is

Amanda Gordon/Bloomberg

Pension risk transfer activity

Total

Corporate funding & buyout indexes

Asset managers are lining up to offer ETF share class

By ARI I. WEINBERG

In recent weeks, exchange-traded funds have been launched from every corner of the investment management industry.

Eagle Capital Management debuted a $1.9 billion ETF with assets from a separately managed account strategy. First Trust Advisors rolled four closed-end funds into one ETF. And Tremblant Capital recently converted an unregistered private fund to an ETF. But the ultimate spark for the next reshaping of the ETF market may lie in a nearly 25-year-old innovation more closely associated with traditional mutual funds.

Over the past 15 months, about a dozen asset managers have queued up at the U.S. Securities and Exchange Commission to offer multishareclass mutual funds that include ETFs. Currently, the feature is only available through exemptive relief from certain aspects of the Investment Company Act of 1940. It was also explicitly excluded from the SEC’s 2019 ETF rule, which aimed to modernize the regulation of exchange-traded funds and allow them to launch without having to apply for individual exemptive relief.

That rule was groundbreaking for many asset managers and ETF issuers, but some believe it left chips on the table by excluding the share

class feature. The rule, known as 6c11 for its place in the ’40 Act, standardized the process for launching and managing both index and active ETFs and required that they make daily disclosures of their full portfolio. It also smoothed the way for ETF conversions.

Through December, 32 issuers had ipped 71 mutual funds to ETFs with $70 billion in assets at the time of conversion, according to a February paper from law rm K&L Gates and investment rm Brown Brothers Harriman. Dimensional Fund Advisors, J.P. Morgan Asset Management and Fidelity Investments, for example, have each converted billion-dollar mutual funds to ETFs.

Such conversions may just be a way station on a longer journey to greater exibility for investment product providers. Offering ETFs as a share class would remove the need for wholesale conversions. It could also allow one-way fund to ETF conversions at the investor’s preference.

Currently, the share class structure is only available for indexed products offered by Vanguard Group, which launched ETFs in 2000 and received a patent on the process in 2001.

The combination of the ETF rule and the expiration of Vanguard’s patent in May 2023 now has many issuers eyeing the share class opportunity.

In just the past few weeks, AllianceBernstein and Neuberger Berman have added their names to a list that already includes Dimensional, Fidelity and PGIM, among others. And, in early April, exchange company Cboe Global Markets led an application with the SEC to allow the trading of ETF share classes on its Cboe BZX Exchange.

Approval seems inevitable

Unlike the process for approval of bitcoin ETFs, which took years of negotiations and, separately, a very visible lawsuit by one issuer, the tail winds behind the share class structure have made regulatory approval appear inevitable, believes Aisha Hunt, founder and CEO of NextGen Fund Consulting and principal at law rm Kelley Hunt.

“This hybrid fund model will resolve what a lot of investors are looking for,” Hunt said. “It will also compel issuers to reconsider how they think about products.”

The share class extension could also go in the opposite direction, said Hunt, giving “any multibillion-dollar ETF the ability to access 401(k) distribution.” Indeed, one of Hunt’s clients, F/m Investments, applied in August to offer mutual fund share classes of its existing U.S. Benchmark Series of indexed U.S. Treasury ETFs. Hunt believes that narrow relief

on a case-by-case basis for share classes could arrive within the year, while broader relief  is further out.

Todd Rosenbluth, head of research at VettaFi, said that the potential for share class relief ties directly to the interest in fully transparent actively managed ETFs. According to FactSet Research Systems data cited by Rosenbluth, active ETFs have received $73 billion (32%) of net ows to ETFs through April while representing just 7% of the $8.6 trillion in U.S. ETF assets under management.

“Active ETFs have had good traction and increased launches,” Rosenbluth said. “Supply will increase if share class relief is approved, allowing asset managers to bring existing track records, scale and distribution resources to the ETF.”

Both Hunt and Rosenbluth agree that share class relief could also help to simplify somewhat opaque and confusing platform fees. These fees, common for mutual funds on brokerage or 401(k) platforms, are also assessed in a more roundabout way through negotiated terms between some platforms and ETF providers.

This practice recently bubbled to the surface when Fidelity shared with clients that it was planning to assess a $100 per trade surcharge on ETF buy orders for nine issuers that had not signed on to an asset-based fee.

Brokers argue that the fees, however assessed, support investments in data and technology to give ETF issuers better information about clients and activity on their platform. The fees are also a remnant of traditional mutual fund sales, as well as early “pay to play” no-trading fee ETF offerings.

“Support fees help maintain the technology and service operations needed to ensure a secure and positive experience for investors,” a spokesperson for Fidelity said. “We remain committed to providing clients choice with an open architecture investment platform.”

Representatives for other brokers and asset managers were unavailable or chose not to comment.

Housing ETFs and traditional mutual funds within the same investment company could also enhance the interoperability of taxable and non-taxable accounts, particularly for IRA and 401(k) investors. For example, a 401(k) mutual fund investment could be converted into its corresponding ETF share class when a participant chooses to leave a plan.

To be sure, there are still areas of the fund and ETF market that would be challenged by the share class model. Narrower and less liquid strategies remain dif cult to square with the always-open ETF structure.   n

INSURANCE ASSETS

Asian insurers mull asset outsourcing

Appetite for alternative investments, more stable markets supporting move to external managers

By NATALIE KOH

More stable markets compared with two years ago and the trend of diversifying to alternative asset classes could prompt Asian insurers to outsource more of their investments, sources said.

Insurers globally have been increasing their allocations to alternatives as the era of negative equity-bond correlations seem to have come to an end. A KKR survey found that insurers’ allocations to nontraditional investments are now at about 28.9% of their portfolio, down from 31.8% in 2021 but up from 20.3% in 2017.

Sophia Cheng, chief investment of cer of the $400 billion Taipei-based Cathay Financial Holdings, said the proportion of the rm’s portfolio that is outsourced, which varies between 10% to 20%, increases when the rm seeks private market managers.

Another C-level executive at an Asia-based insurer said that it makes sense for insurers with small investment teams that do not have the expertise in speci c areas, say real estate, private equity or infrastructure, to outsource these investments.

After outsourcing these specialized investments, the insurer can focus on working with their actuaries on solvency and setting the strategic asset allocation, he said.

At its core, the insurance company’s role is to provide insurance solutions to consumers, so if the cost associated with building up a new team to manage a new asset class is not justied, it makes more sense to outsource, said the executive, who declined to named because he is not authorized to speak with the media.

‘ESG

is

not

Sources also noted that some insurers — which tend to be conservative investors — will take more of their portfolio in-house when markets are volatile to have better control over their assets and be more nimble so they can make changes quickly if they need to. Cathay Financial, for instance, entrusts more of the portfolio to external managers during periods of lower global volatility, Cheng said.

Institutional investors have had a more positive outlook on markets compared with two years ago. The S&P 500 reached all-time highs in March, and structural changes, such as the growth of arti cial intelligence and the growth of the working-age populations in emerging markets, have driven positive sentiment in global markets.

No longer ‘alternative’

Many Asian insurers already have exposure to alternatives, particularly in private debt, and some are also planning to increase allocations to the asset class, sources said.

“Our conversations with Asia-based insurance clients reveal that allocations to alternatives can no longer be considered ‘alternative,’” said Robert Ronneberger, the Hong Kongbased head of investment sales for Asia at Mercer.

“It’s become rather mainstream with the majority already allocating to (alternatives). Key drivers include higher cash returns given illiquidity premia, and we should not ignore lower volatility,” he added.

Allocations to alternatives have increased compared to ve or 10 years ago, even if those by Asian insurers are still not yet on a par with their U.S. or European peers, he said.

that dif cult,’ says Cathay Financial CIO

By NATALIE KOH

With today’s strong returns across asset classes, institutional investors like Cathay Financial Holdings have no excuse not to explore meaningful sustainable investing deals, Chief Investment Of cer Sophia Cheng said.

Five years ago, when the conversation about green bonds rst started, investors were worried that they had to sacri ce returns, she said.

“After 2022, interest rates have come up so much. Almost all the xed-income assets we see offer a much higher return than in 2021 … So what are you waiting for, right?” she said in an exclusive interview during the AVPN Global Conference 2024 in Abu Dhabi on April 24.

Equity markets today are volatile, and global liquidity has pushed up valuations, she admitted. But that only means investors must put in more effort to nd the best timings and valuations to make investments.

“Compared to 2021, everything has much better returns. So you can always nd areas with better returns to compensate the overall portfolio. … I think there is no excuse for us not to explore, to support meaningful deals,” said Cheng, who is also the chair of the Asia Investor Group on Climate Change.

Cathay Financial Holdings is one of the

largest nancial groups in Taiwan and is the parent company of insurance, nancial and securities subsidiaries including Cathay Life, Taiwan’s agship insurance company. The holding company has around $400 billion in assets, of which 60% is in insurance.

The company was an early adopter of responsible investment principles, having created its responsible investment team in 2014. It is also a part of many climate and engagement initiatives and is committed to a 2050 net-zero target.

Aside from cash and derivatives, the company’s portfolio is 100% ESG-integrated, as de ned by the Global Sustainable Investment Alliance, which means it considers ESG factors during its investment analysis and decision-making processes to improve risk-adjusted returns.

Most of Cathay Life’s portfolio is in international bonds (61.8%), followed by 8.1% in domestic bonds, 6.6% in domestic equity, 5.6% in international equity, 2.6% in cash and equivalents, and the rest in loans, real estate and other assets.

“When we do responsible investments, we like to learn from global practices (such as) the Global Sustainable Investment Alliance, which provides statistics on U.S., Europe, Aus-

Asian insurers’ allocation to alternatives was in the low single digits in 2021, but is expected to rise to 10% to 15% of portfolios in the next ve years, according to a J.P. Morgan Asset Management report.

The shift toward private markets also means that insurers are now working with multiple general partners. “Given Mercer’s nature as a multimanager, our clients are very keen to diversify across multiple leading GPs instead of working with just one or two,” Ronneberger said.

That said, insurers already invested in private markets have been met with challenges such as cost, resources to access and assess opportunities, and operations, Ronneberger said.

“In many cases, the evolving regulatory landscape adds complexity to aspects such as reporting. As insurers build out their alternative allocations, these operational aspects start

MAKING THE EFFORT: ‘I think there is no excuse for us not to explore, to support meaningful deals,’ says Cathay Financial’s Sophia Cheng.

to compound,” he added.

For instance, a private debt separately managed account that is diversi ed across several general partners and hundreds of loans globally will face operational challenges such as look-through risk and regulatory reporting.

“However, the current environment’s attractiveness of private debt outweighs the reported challenges,” he said.

Mark-to-market volatility

Rapid rate hikes have also left many rms with unrealized losses on their balance sheet, which poses challenges for their investment strategies, he said. “For many of our clients, the increase in rates will have or already had an impact on asset values. Some clients have not reallocated to avoid booking losses, and other are strategic about loss harvesting.”

“Either way, assessing the mix of their current xed-income exposure and optimizing the portfolio is a priority for many insurers. As a result, there is continued focus on risk — with different nuances by region. An interesting fact about our clients in Asia is that they are more opportunistic, starting to diversify their credit exposure to include high yield, emerging market debt and structured credit,” he said.

Mercer had $489 billion assets under delegated management as of March 31.

Mark-to-market volatility has been a theme on insurers’ minds in recent conversations, said Natasha Mora, Melbourne-based managing director for Asia ex-Japan at Legal and General Investment Management.

“How to manage that mark-to-market volatility of assets and liabilities has been one of the key things. As much as you want to access (alternative assets), you want to do it in a way that mitigates the volatility on the balance sheet,” she said. LGIM managed $1.5 trillion as of Dec. 31.

tralia, and Japan markets, for example,” she said. Cathay Financial also benchmarks itself against the United Nations Principles for Responsible Investments and local stewardship principles.

Exclusions and engagement

The rm identi es certain types of business it will not invest in, such as controversial weapons, sex trades and gambling, and classies some sectors as “sensitive” industries such as tobacco, fossil fuel or other high-emitting companies.

Sensitive companies are those that require more research, engagement and monitoring before Cathay decides to invest in them, Cheng said. “Besides nancial return, we look at how

the company performs in terms of ESG, climate action, and if they have controversial issues. So we categorize these investment targets as high, mid or low risk. After we lend the loan or do the investment, we need to monitor their progress,” she said.

Cathay is active in engaging with its investee companies, she added. Companies sometimes do controversial things because they genuinely don’t know better, she said. “So we pass on international trends to them, we share our experience and we tell them why it’s important to (change their ways).”

“They decide their future. If we have a couple of years, we engage and they don’t care, then we can divest. The purpose of engagement is to encourage them to change. We want them

NEW ERA: Mercer’s Robert Ronneberger says alts have become mainstream at Asian insurers.

Kamie Photography

Measuring mark-to-market values in the opaque private markets is not as straightforward as in public markets, so as a third-party manager, LGIM works to understand their clients’ needs as well as possible, particularly because insurers have very speci c regulations to adhere to.

“There are speci c circumstances in the context of an insurer’s balance sheet,” she said. It is not only about whether the product presents a fantastic investment opportunity or maybe an impact outcome or a risk-return outcome that investors are looking for, it’s how that investment would behave on the balance sheet, she said.

Fixed-income tilt

For some insurers, the higher interest rates have helped their xed income-heavy portfolios perform.

Today’s higher rates naturally bene t insurance companies, which can invest matured assets at better yields and lock in our assets to get longer-term, stable returns, Cathay Financial’s Cheng said. “What we don’t like to see is a sudden rise and a sudden decline, because it always hurts (investors either way) . A gradual movement gives time for everyone to adjust,” she said.

Cathay Life Insurance has 61.8% of its portfolio in international bonds, compared to its 8.1% allocation to domestic bonds. The Federal Reserve’s May meeting left policy rates unchanged at 5.25%-5.5%, while Taiwan’s benchmark rate was raised in March to 2% from 1.875% .

“We had been waiting for higher interest rates for so long. … After the year 2020, we were very puzzled. The rate simply didn’t justify the risk. After the internet bubble, we had globalization, everything was made in Asia or emerging markets, so costs were down, things were cheaper.

The Taiwan interest rate is still relatively low, “that’s why we need to be a good global investor, and we need to be good in hedging,” said Cheng. “We manage our hedging costs so most of the time it is less than 1.5%.”

Mercer’s Ronneberger also observed that

to transition rather than disappear,” she said.

External managers

The company also expects all its external managers to be signatories to the UN PRI or local stewardship principles. Taiwanese companies, for instance, cannot be PRI signatories because Taiwan is not recognized as a member of the U.N., but the Financial Supervisory Commission has released stewardship principles to which local rms can adhere. Cathay has 10% to 20% of its portfolio managed by external managers, depending on market conditions.

“External managers need to answer our ESG questionnaire … because unless the fund guidelines are exactly identical to yours, it can be challenging to monitor the day-to-day portfolio movement,” Cheng said. “So we talk to these asset managers to know their values, how they do integration, and whether they follow our principles.”

This also applies to hedge funds and private equity rms, which have gone through some positive change in recent years, she observed. “Five years ago, right before COVID, I was at an alternative investment conference, and they were talking about ESG. They said ‘ESG is for mutual funds, not for us,’ and I responded ‘if you say so, you may have risk in your future and may lose your clients,’” she recalled.

“Now, they do care more,” she said.

Cheng’s team is now exploring blendednance deals, where two or more organizations invest in the same projects and are each willing to accept different returns across investors.

“I want to nd the opportunity to do one because I think it’s so meaningful. And these

some Asian insurers view xed income as an attractive source of yield on a risk-adjusted basis, particularly as risk premiums for equities reach the lowest level relative to bonds in 20 years.

New standards

Portfolio management aside, new standards and regimes launched by regulators across the region have been top of mind for Asian insurers, which meant that some of their fund managers had to expand their capabilities to be aligned with their insurer clients.

For instance, the International Financial Reporting Standard 17 was made effective in January 2023, which included changes to insurers’ accounting models, such as ensuring that insurance contracts are consistently reported on across different jurisdictions, and that contracts are measured at current value.

The Korean Insurance Capital Standard also came into effect in January 2023, which required insurers to measure assets and liabilities at market value and allowed risk to be measured using shock scenarios. The Hong Kong Risk-Based Capital framework will come into force in the second half of 2024, and introduces new requirements such as governance and controls on risk and solvency assessments.

The changes are not unlike the move towards the Solvency II capital rules for insurers in the U.K., where LGIM’s Mora was based when the rules were put in place.

“It affected everything — the insurer and the asset manager working in partnership from systems to reporting through to the way we think about particularly xed-income investing and private asset investing,” she said.

Fixed-income portfolio managers, for example, could no longer think about investing from a typical xed-income strategy perspective, she said. “They have to think about everything they do within the context of riskbased capital and accounting regimes, and the impact of that portfolio management decision on the capital charges and the overall portfolio. And that’s a completely different mindset.” n

days, you have public-private cooperations,” Cheng said. For example, if a bond defaults, one party could absorb the loss. In another case, some development funds involved in the investment could say they are willing to absorb 75% of the loss.

“That means if you have a nonperforming loan or bad debt tolerance target of 1%, now you can tolerate it to 4% because someone else absorbs the 3%. Such collaboration is a good idea. We are seeing more and more cases so I am quite optimistic. Three years from now I hope to have more of such deals in Asia,” she said.

Getting started

Sustainable investing or ESG integration is not dif cult to get started with, she added. Investors can start with a list of themes or concerns they want to avoid. Some investors say they do not invest because of a lack of data, but data availability should not be a reason not to do the right thing, she said.

“We don’t need precise data to make a decision. Precise data methodologies or frameworks are for us to disclose what we are doing and for us to have a tool to (conduct) the analysis,” she added. Investors do not need to wait for “a perfect database or perfect global framework” to make good decisions, she said.

“ESG is part of our investment process. ESG re ects our sense of value,” she said. “And it’s our declaration to the world to say what type of money we don’t want to earn and what type of money we will use to ful ll our duty to inuence our investment target. … ESG is not that dif cult. Whoever says it is dif cult, ask them to call me. I can explain.” n

vate credit — or because private placements historically been investment-grade privates, you have this new style of private credit, which is more high-yield style,” Armas said.

Meanwhile, traditional xed income — which had been declining slightly in insurance asset allocations since 2010 following the global nancial crisis — increased in 2022 “as interest rates rose signi cantly and created bond investment opportunities with more attractive yields,” according to the NAIC report. The allocation to bonds at the end of 2021 had been 61.4% at the end of 2021.

“I would say the risk-taking behavior of the industry continues very similarly to what we’ve seen over the last decade, which is accepting new styles of lending to provide greater returns, ultimately to policyholders,” said Matthew Armas, global head of insurance at Goldman Sachs Asset Management, “and that very much continues.”

Insurers are particularly eager to take on the lending responsibilities formerly handled by banks that are less eager and able to do so because of stricter balance sheet requirements in the wake of the crisis. While private credit is considered to be a relatively new asset class for many institutional asset owners such as pension funds, Armas said it is a familiar place for insurance companies.

“In 2000, my rst job in the industry was at a life insurance company in a private placement team, so we were doing private credit back in 2000, and that was a very well-established market with very well-established players,” Armas said, “and it continues on today.”

Armas said that insurers’ increased appetite for risk is re ected in accessing new forms of private lending.

“The life and savings industry historically has had very sizable allocations to private assets,” Armas said. “That’s been a part of our industry, those very large allocations to things like commercial mortgage loans and debt, private placements.”

Move over, banks

However, Armas said, insurers are gravitating more toward focusing on investment-grade-style alternatives, moving into areas that banks have historically dominated.

“That lending is starting to evolve and starting to focus more on direct origination, private credit, starting to focus more on what has historically been bank-style lending and asset demand,” he said.

“So this is not new for us, right? So (we’re seeing) the increase of direct origination private credit, and let’s de ne that as levered pri-

That style has primarily been embraced because of its higher return potential. In a survey conducted by GSAM earlier this year, when asked which ve asset classes they expect to see the highest return in the next 12 months, private credit had the highest response, with 53% of survey respondents placing it in the top ve.

David Braun, managing director and generalist portfolio manager at Paci c Investment Management Co., said insurance companies have always been heavily involved in private corporate lending, which provides a signi cant illiquidity premium for insurers, and also insurers can get a negative covenant in the private markets that have given them extra protection as a lender.

“Those are all attractive to an insurance company,” Braun said.

What has moved insurance companies to new types of lending, Braun said, is the retrenching of banks that now have much more rigorous capital requirements than they did before the global nancial crisis. That retrenching was only accelerated by the regional bank crisis of 2023, he said.

The decline in public securitization has led to a boom in private securitization and these types of loans are particularly attractive to insurance companies,  Braun said.

“With asset-backed loans, a lot of that is tied to the consumer,” Braun said. “Loans on their house, other consumer loans (such as) boats, cars, whatever they’re buying. Home improvement, student loans, all that stuff we’re seeing get securitized, beyond the consumer. Aviation nance. It’s more attractive for these companies to borrow from a private lender like PIMCO on a bespoke basis, because we can negotiate.”

As of Dec. 31, 2022, PIMCO had $127.6 billion in non-af liated general account insurance AUM, according to Pensions & Investments data.

Pursuing riskier assets

Kerry O’Brien, head of insurance portfolio management for North America at Insight Investment, said that while insurers have a need for income and want to pursue riskier asset classes, they need to do so in a capital ef cient way.

“So there’s certainly a lot of that going on with esoteric asset-backed securities and the movement to securitize everything in the mar-

ATTRACTIVE OPTION: PIMCO’s David Braun says insurers have capitalized on a boom in private securitization.

Managers adding insurance-dedicated roles

New leadership roles at Blackstone, AllianceBernstein in just the last month

By ROB KOZLOWSKI

One of the surest signs that the insurance asset management industry is evolving and growing is that both alternative and traditional money managers are creating new leadership roles to address the expanding opportunity set.

Two major new roles have been announced in the past month alone.

On May 7, alternatives giant Blackstone announced that Global Atlantic Financial Group veteran Philip Sherrill is joining the rm as its global head of insurance. Following the integration of Blackstone’s credit and insurance businesses in 2023, the manager moved Gilles Dellaert, the previous global head of insurance, to the role heading that combined effort.

“Our credit and insurance business is experiencing enormous growth momentum, and we see a signi cant opportunity set ahead of us. Phil’s experience and expertise will be instrumental in taking our platform’s growth to the next level,” Dellaert said in the May 7 news release.

As of March 31, Blackstone’s credit and insurance AUM totaled $329.6 billion, of which insurance comprises over $200 billion.

On April 18, AllianceBernstein tapped American International Group veteran Geoff Cornell as its rst chief investment of cer of insurance.

Onur Erzan, head of global client group and head of private wealth at AllianceBernstein, said in an interview that Cornell’s hiring is a “new chapter of an old story for us.”

“We’ve been insurance buffs for a long time,”  Erzan said. “Insurance has been very core to AB over multiple decades and that’s why it’s close to a quarter of our assets managed on behalf of those clients.” As of March 31, AB had over $170 billion in insurance-related AUM of its total

$759 billion in AUM.

“What is new is the new structure,” he said. While AB had insurance-dedicated capabilities front to back, he said those different capabilities were in different places in the organization. Recognizing the growing strategic importance of insurance, they decided to put all those functions under one roof.

Cornell cited AB’s experience in managing the assets of parent company Equitable Holdings, which spun off from AXA Equitable Life Insurance Co. in 2020, as a reason for joining the rm.

“I think the partnership between AB and Equitable Insurance is a really attractive partnership,” Cornell said. “(Equitable) has a lot of long-dated liabilities, a lot of illiquid liabilities, and that’s a very attractive place to put assets that don’t trade that you don’t need liquidity on a regular basis.”

“I think what’s really attractive outside of Equitable is using that model to help other clients solve their needs,” Cornell said. “We can use some of the innovative thinking that we’ve done over at Equitable to solve some other insurance partners’ needs on illiquid liabilities and long-dated assets. It’s a very aligned, great partnership that would be very attractive to other clients out there.”

Oaktree Capital hire

Greg Halagan joined Oaktree Capital Management in May 2023 as managing director and its rst head of insurance solutions.

He was previously a partner and co-head of U.S. insurance investments across North America at Mercer.

Halagan said in an interview that in his new role he’s responsible for building relationships and solutions for all of Oaktree’s global insurance clients.

“The last year has been great. It’s been a great t for me,” said Halagan. “Oaktree has had a long history of

ket,” said O’Brien. There was even recently a deal to securitize IP addresses, she said.

“I don’t know if that was the rst deal to do that, but that was very interesting. You have (examples) such as record labels and music royalties.”

“So everything is being securitized,” O’Brien said. “Everything is being securitized, so insurance companies are certainly after that type of risk (and) extra yield.”

As of Dec. 31, 2022, Insight Investment had $33.6 billion in insurance AUM.

Woody Bradford, CEO and chairman of Conning, said that while some insurers are expressing interest in private equity, that is primarily con ned to the very large insurance companies.

“Most insurance companies are quite focused on income and the production of income,” Bradford said. “Hence the interest in private credit, in infrastructure debt, which generally has income, in real estate debt, which has income.”

PIMCO’s Braun noted, however, that invest-

working with insurance companies, almost 30 years, and so there’s been a really strong foundation to build from.”

Halagan said the initial embrace of further risk by insurance companies in the decade following the global nancial crisis can really be called a “ rst stage,” and that stage was about beta.

“The next stage, I think, will be more about alpha,” said Halagan, “as insurers look to partner with asset managers that provide more differentiated strategies and solutions. As a result of that, I think you’ve seen an evolution in the way that asset managers have engaged with insurance companies and become much more solutions-oriented.”

The result, said Halagan, is there is a much bigger opportunity set for managers of insurance assets than there was in the past. He added he has seen a lot of demand from the rm’s clients across the private credit strategies they manage.

While insurers used to engage mostly in traditional middle-market corporate lending, that has evolved, he said.

“Since then it has evolved into a

ment-grade corporate bonds will always make up the lion’s share of insurers’ general accounts, acting as the backbone of everything they’re going to buy and with which they’re going to fund their liabilities.

There does need to be some diversi cation in the bond portfolio, he added.

“On the margin, diversi cation is a smart move,” Braun said. “You start running into the same names in public investment-grade bonds and you want to diversify and nd other opportunities.”

Braun said he is particularly enthusiastic about emerging markets dollar bonds.

“It’s a perfect match for an insurance company in our mind for these reasons,” said Braun. “One, insurance companies are longterm investors who usually need the duration.”

Insurers are thinking long duration and emerging markets dollar bonds are largely investment-grade, and mostly long dated, he said.

“They provide you with an extra credit spread for your spread premium,” said Braun, “not for just the credit risk, but the wider bid-ask. Why not cultivate that extra bid-ask spread? There also that extra spread for that great mark-to-market volatility, a little more volatility in their spread move-

credit to BlackRock,” O’Brien said. “In both instances, Swiss Re and AIG asked me to stay on and manage the BlackRock relationship — the outsourcing and mandate management — and I declined. I was looking to stay in insurance asset management and move to an established platform.”

O’Brien said Insight Investment — which has managed insurance portfolios for over 30 years — was a perfect t for her.

“We know insurance. We know the regulations,” O’Brien said. “We know how to engage with insurance companies and understand their unique set of risks, and we’ve evolved with the clients.”

In November, Katie Cowan joined money manager First Eagle Investment Management in the newly created role of head of insurance client solutions.

number of different strategies, including opportunistic credit, asset-based nance and structured credit,” Halagan said. “And here at Oaktree, we offer all of those different strategies, and so we’ve seen a lot of growth and momentum as a result of that."

BNY Mellon hire

Bank of New York Mellon Investment Management subsidiary money manager Insight Investment also added a new insurance-related executive in March 2023. Kerry O’Brien, who was previously managing director and global head of portfolio management at American International Group, took on the newly created role of head of insurance portfolio management for North America.

O’Brien said she landed at Insight Investment as a result of the ongoing theme of insurance companies outsourcing their investment portfolios. She had left insurer Swiss Re for AIG in 2009 after the former rm began to outsource $25 billion in credit and structured products to BlackRock.

“We wake up one day (and) AIG is outsourcing $150 billion of public

ments they can ride.”

Overall, however, the talk of the industry is alternatives. BlackRock in its 12th annual global insurance report published in September, found that 89% of the 378 senior-level respondents said increasing their allocations to private markets was their top priority, with 60%

Cowan joined the manager from Guggenheim Investments, where she served as managing director, insurance relationship management and business development.

In an interview, she said she was attracted to First Eagle due to the rm’s “desire and openness to be exible and be bespoke across the spectrum of xed-income and alternatives products.”

First Eagle has 25 insurance clients, and Cowan said those clients are attracted by First Eagle’s ability to address both the xed-income side of insurance asset management as well as alternatives.

Cowan said in the alternative space, insurer clients are most interested in middle-market direct lending and real assets. She said the rm’s clients are attracted by First Eagle’s ability to be more bespoke and customize portfolios.

“I really do think that is really important in the insurance space,” said Cowan. “So much of what is done in insurance is about relationships. I really think that it’s harder to do as you scale as being part of a trillion-dollar platform.”

As of March 31, First Eagle had $138 billion in AUM, of which $3 billion was managed on behalf of insurance clients. n

planning to focus on direct lending.

Potential hurdles ahead?

There may be consequences for that interest, said Insight’s O’Brien.

“2025 will likely be a pivotal year for regulation and the NAIC wanting equal capital for equal risk,” O’Brien said. “Right now, I think the complexity of the instruments being positioned on insurance balance sheets is moving a lot quicker than the regulation is.”

O’Brien said that topic, as well as the topic of private credit in general and private equity ownership and in uence of insurance companies, provided the subject of multiple sessions at the International Monetary Fund and World Bank Group spring meetings in Washington in April. The topics had the greatest interest O’Brien has seen in more than a decade of attending those meetings. According to the NAIC, there were 132 private equity-owned insurers by the end of 2021, up from 117 at year-end 2020 and 89 at year-end 2019.

“It bears watching,” O’Brien said. “Anytime you see an asset class grow at the pace of private credit, and then you look at how much insurance companies own of private credit there’s a need to just review the risks and try to model what could be down the road.” n

CONSEQUENCES: Insight Investment’s Kerry O’Brien thinks insurance companies could soon be facing increased regulation.

ALL TOGETHER: Onur Erzan said AllianceBernstein consolidated all functions that are insurance-speci c under one roof.

New CalSTRS CIO Scott Chan ready to face ‘paradigm shift’

Challenges across many fronts require a uni ed effort, former deputy says

By ARLEEN JACOBIUS

Scott Chan, CalSTRS deputy chief investment of cer, was named the new CIO of the $336.2 billion pension fund, the nation’s second-largest public pension fund.

His rst day as CIO will be July 1, CalSTRS announced May 15, replacing longtime CIO Christopher Ailman, who is retiring on June 30. Chan will report to the board’s investment committee and the CEO.

Chan’s selection as CIO comes at a time when a massive economic shift could make it harder for institutional investors to earn their expected rate of returns. Speaking recently at the Milken Institute Global Conference, Chan outlined a “paradigm shift” in the economy, underscoring the importance for CalSTRS to be a nimble organization that resists the temptation to make big bets in hopes of earning outsized returns.

Since he joined the California State Teachers’ Retirement System, West Sacramento, six years ago as its rst deputy CIO, Chan has been responsible for its collaborative model, which is designed to lower costs and increase CalSTRS’ control over its investments, saving the pension fund nearly $2 billion so far.

CalSTRS declined to share information on who will be new deputy CIO, according to a spokesperson. Chan was not available for an interview.

sionally, as we seek innovative opportunities in ever-changing nancial markets.”

CalSTRS board selected Chan following a global search, opting to promote an internal candidate.

By comparison, CalPERS in April chose an external candidate, Stephen Gilmore, the chief investment of cer of sovereign wealth fund New Zealand Superannuation Fund, as its new chief investment of cer.

In fact, CalPERS has chosen outside candidates for the last three appointments. These appointments include Yu Ben Meng, who rejoined CalPERS as CIO in 2018 from China’s State Administration of Foreign Exchange but had previously been a senior portfolio manager at CalPERS. Meng and his successor, CalPERS former CIO Nicole Musicco, served for about 18 months each in the post.

During his tenure Ailman has often credited his team for the fund’s performance. CalSTRS returned an

stressed the importance of his team.

”Over the last several decades CalSTRS has hired staff that has stayed … and we’ve built expertise,” Chan said.

That model requires having the right expertise on staff and the support of the entire organization, he said.

“The board understands we built a staff of experts and delegated authority to us, and Chris (Ailman) and I delegated authority to the team,” he said.

Challenges ahead

Speaking on a May 6 panel at the Milken Conference in Beverly Hills, Calif., Chan said he recognized that there is a rough road ahead in asset management.

”It’s hard to inoculate our portfolio,” Chan said. “What had been tailwinds are now headwinds,” such as in ation.

”We try to create a more exible adaptable approach,” building out a

UNDERLEVERAGED: According to new CalSTRS CIO Scott Chan, ‘It’s not time to be greedy.’

CalSTRS CEO Cassandra Lichnock said in a news release that Chan has added “so much value to CalSTRS,” including helping to lead the alignment of its organizational sustainability goals such as sustainable investing and net-zero targets. Ailman plans to stay on as an adviser to CalSTRS through the end of the year to ease the transition, he told Pensions & Investments in a recent interview.

“Scott has a unique combination of deep institutional investing skills and experience plus a down-toearth leadership style, and he is committed to upholding the CalSTRS culture,” said Harry Keiley, CalSTRS board chairman and chairman of its search committee.

Keiley had reported at the May 2 meeting that the board had selected a new CIO but was waiting for the completion of background checks and acceptance of the offer before making the announcement.

‘Extremely meaningful’

”I am honored to oversee CalSTRS investments and lead our amazing team,” Chan said in the release. “Securing the retirement of our members is extremely meaningful to me personally, as the husband of a California educator, and profes-

annualized net return of 8.7% for the 10 years and 8% for the 20-year period ended June 30, outpacing its benchmarks in both periods of 8.4% and 7.9%, respectively.

“I know without question that I am leaving you in good hands,” Ailman said in his last CIO report at the May 1 investment committee meeting. “This team is excellent … I am happy to step off the ship.”

Chan has served as deputy CIO since August 2018, overseeing CalSTRS investment division and a team of more than 225 staff investment of cials. In that position, he has also been managing eight critical functions, including investment strategy and risk, global equities, xed income, real estate, private equity, risk mitigating strategies, in ation sensitive, and sustainable investment and stewardship strategies. Chan was instrumental in creating the vision and direction of CalSTRS’ collaborative model, an investment strategy bringing more assets in-house and leveraging outside partnerships to save money, a news release said. The collaborative model has saved CalSTRS more than $1.6 billion since 2017, the release said. In an interview late last year on the collaborative model, Chan also

Management

Anne Ackerley to take on new role as senior adviser to BlackRock Money

Anne Ackerley will step down as head of BlackRock’s retirement group in early July, less than three months after the launch of an annuity option for the rm’s $470 billion LifePath target-date fund series that company executives have cited as a key to BlackRock’s future growth.

BlackRock President Rob Kapito, in an internal memo obtained by Pensions & Investments, said shepherding that LifePath Paycheck option — ve years in the making — to market may count as Ackerley’s “most consequential” achievement in a career full of achievements.

He noted, however, that she should be “particularly proud” of co-founding the Women’s Initiative & Allies Network, or WIN, an internal networking initiative for women professionals at BlackRock.

more diversi ed portfolio over the last decade that includes investing about 35% of the entire fund in private market assets, Chan said.

One issue ahead is systemic risk, Chan said. “There’s been a paradigm shift in the economy.” In response, CalSTRS has built a uni ed approach to meet these challenges as a uni ed organization, he said.

”How do we align the board. How do we align the stakeholders. How do we align our staff,” he said. “We are the investment team but we deal with the whole back of ce, middle of ce of the enterprise … The issues we have seen has necessitated the uni ed approach at CalSTRS.”

The “life blood of an allocator” is to have an unlevered balance sheet to deploy capital during the worst of times, he said.

He added that right now CalSTRS is underleveraged. “It’s not time to be greedy,” Chan said.

CalSTRS of cials are seeing a subpar level of opportunities, except for on the debt side where there is a lot of investment opportunity, Chan said.

”We are fairly cautious on the equity side,” with private market transactions volumes down 40%-to-50%, he said. n

With LifePath Paycheck now in use by its rst institutional clients, Ackerley will become a senior adviser for the rm this summer, where she will continue to contribute to BlackRock’s efforts to help clients in the U.S.— roughly 35 million at present — achieve nancial security in retirement, Kapito wrote.

“Anne will continue to lend us her voice and knowledge about retirement, including how access to investment solutions and nancial tools can help address some of today’s retirement challenges,” Kapito said.

Ackerley couldn’t be reached for further comment.

Industry leader

Among the most prominent women in the upper echelons of the world’s biggest money manager, with $10.5 trillion in assets under management as of March 31, Ackerley was named as an industry leader in Pensions & Investments’ inaugural 2023 list of the most In uential Women in Institutional Investing.

The head of retirement group role that Ackerley has held since

2015 won’t be lled, re ecting the June 1 launch of new Global Product Solutions and Global Client Business structures for the rm’s retirement business.

The new structures are aimed at embedding “retirement deeper into how BlackRock thinks about clients and their needs and integrate our retirement offerings across our client and product teams, making them easier to access for clients.”

Mark Wiedman, senior managing director and head of global client business, in a separate memo obtained by P&I, said Robert Crothers, managing director and head of product and strategy, retirement group, will take on an expanded role as head of U.S. retirement, reporting to Jessica Tan. KC Boas, BlackRock’s head of retirement marketing, and her team will report to Crothers, “with joint accountability to global marketing,” Wiedman wrote.

Carrie Schroen, the head of BlackRock’s U.S. DC intermediary business and her team will join the rm’s U.S. Wealth Advisory business, reporting to Elise Terry, managing director and co-head of distribution for U.S. Wealth Advisory.

Jeremy Kish and Matthew Rauseo, managing directors and coheads of the de ned contribution institutional client business, will join BlackRock’s Americas Institutional Business, reporting to Armando Senra, head of Americas institutional business as well as BlackRock’s business in Canada and Latin America.

Finally, Sean Baker and BlackRock’s retirement insurance team will join the Financial Institutions Group team, “bringing our insurance general and separate account coverage teams together,” Wiedman wrote.

It couldn’t immediately be learned if Ackerley will remain a member of BlackRock’s global operating committee, global client business executive committee, philanthropy board or the retirement committee for BlackRock’s retirement plan. n

MAKING A DIFFERENCE: Anne Ackerley’s achievements include leadership of BlackRock’s LifePath Paycheck option as well as a women’s initiative at the rm.

DOUGLAS APPELL

Oklahoma

acquiesced,” Drummond said. “No longer will I allow professional courtesy to in uence my decisions on this matter.”

Russ red back, claiming he had asked Drummond to “be his defender for the lawsuit” but was turned down by Drummond’s chief of staff, Trebor Worthen, who recommended a different choice in counsel.

“When asking the attorney general to take my case, he refused. So, I was left with no other choice but to choose who I was most comfortable representing me,” Russ said in a news release May 9.

Russ also voiced skepticism that his decision-making authority could be removed.

“My constitutional of ce as the state treasurer makes me party to the lawsuit, and therefore I don’t believe my decision-making authority can be removed,” he said.

Russ added that while he was disappointed with the recent court ruling, he had “several facts for appeal.”

The American Accountability Foundation, a conservative nonpro t oversight group, came to Russ’ defense, saying Drummond’s actions were motivated “not by the best interest of Oklahomans, but by a close relationship with BlackRock and their lobbyists.”

“Put simply, Drummond does not want to take over to win the case, he wants to take over so that he can tank it and protect BlackRock,” AAF said in a news release May 9.

The group accused Drummond of working with BlackRock behind closed doors.

“Drummond’s open-door policy to BlackRock’s lobbyist allowed representatives of the woke corporate giant to get on his calendar on May 11, 2023, just a few days after the Oklahoma treasurer’s of ce announced the nancial institution restricted list that would ban investment with BlackRock,” the group said in the news release.

A spokesman for the Of ce of the Attorney General said Drummond was willing to take the meeting just as Gov. Kevin Stitt was and appreciated hearing about the company’s commitment to investing in Oklahoma businesses.

“Attorney General Drummond is a steadfast champion for Oklahoma’s oil and gas producers and is uncompromising in his commitment to upholding the law,” the spokesman said.

The AAF based its accusation on documents it obtained from the attorney general’s of ce under Oklahoma’s Open Records Act.

“In light of these revelations, the people of Oklahoma deserve to know whose interests the attorney general seeks to promote: the people of Oklahoma who elected him or his pals at BlackRock?” AAF President Thomas Jones said in the news release.  n

its investment adviser. Neither Fidelity nor Edelman is a defendant.

The federal appeals court ruled in August 2023 that the District Court judge erred.  A three-judge panel said the District Court judge should have determined whether revising the self-directed brokerage account contract was a prohibited transaction and should have reviewed whether the defendants adequately monitored the compensation Fidelity received through the self-directed brokerage account and Edelman.

After the appeals court rejected the defendants’ request for a rehearing, AT&T Services petitioned the Supreme Court.

In their amicus brief, the organizations paint a picture of bigger industry damage than a single plan’s use of a self-directed brokerage. They say the appeals court ruling lowers the bar for plaintiffs to survive a motion to dismiss — the rst line of defense for sponsors and providers in ERISA cases. Legal costs soar if lawsuits require defendants to provide data during the document discovery process leading to a possible trial or, more likely, a settlement.

‘Reduces the odds’

The appeals court ruling “further reduces the odds that plan sponsors and duciaries can secure dismissal of speculative claims at the pleading stage,” the amicus brief said.

The appeals court’s decision “threatens to undo the signi cant progress this Court and the Courts

of Appeals have made in providing clarity on the pleading standard for excessive fee claims,” the amicus brief said. Under this decision, “the same cannot be said for prohibited transaction claims.”

The trade groups accused the appeals court of providing “a roadmap to an almost effortless route for surviving dismissal.” They argued that “plaintiffs should not be able to circumvent the established pleading burden for excessive fee claims by repackaging their prudence claims as ones for prohibited transactions.”

The amicus brief also noted that the 9th Circuit ruling con icts with decisions by other appellate courts, necessitating the Supreme Court to establish uniformity for lower courts evaluating these ERISA issues.

The AT&T Services lawsuit was one of three led with the Supreme

Court dealing with prohibited transactions and parties-in-interest in DC plans.

In Cunningham et al. vs. Cornell University et al., participants in two 403(b) plans lost at the District Court level and at the 2nd U.S. Circuit Court of Appeals, New York.

In D.L. Markham DDS, MSD, Inc. 401(k) Plan et al. vs. Variable Annuity Life Insurance Company et al., the plaintiff lost at the District Court level and at the 5th U.S. Circuit Court of Appeals, New Orleans.

On May 13, the Supreme Court announced that it wouldn’t review the Markham case. The Auburn, Calif.-based dental practice and its 401(k) plan had sued over a $20,703 surrender charge imposed when it switched record keepers, arguing that the ex-record keeper committed a prohibited transaction. n

P&I’s Fixed Income & Credit conference will bring together a pan-institutional group of asset allocators to discuss a range of approaches to fixed income across the public and private markets. Whether for income generation, defensive or, increasingly, return allocations, asset owners and industry providers will share their timely and forward-focused strategies. Agenda topics to look forward to:

•Macroeconomic update: where are we in the credit cycle & which macro factors are having an influence on portfolios?

•Portfolio allocations: what does the optimal mix of traditional and alternative fixed income look like today?

•What does true diversification in fixed income look like today?

Emerging Markets: A Supportive Cycle

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Two leading real estate investment managers take stock of how the current market environment could play out across several segments and where they are focused, including new opportunities that may be poised to outperform over the next cycle. Panelists will also cover real estate’s new paradigm: Strong due diligence, robust investment structures and consistent management to deliver performance.

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Personalized

CONTINUED FROM PAGE 3

basis points for its most commonly used R6 mutual share class.

“Five basis points feels like a really good value for that level of customization,” Duglin said, explaining that Target Date Plus delivers essentially the same personalized portfolio that managed accounts deliver. The use of managed accounts in retirement plans has been ticking up steadily over the past decade. In 2021, almost half of plan sponsors (48.8%) offered a managed account in their workplace retirement plans, up from 33.9% in 2011, according to data from the Plan Sponsor Council of America.

Personalized target-date funds cost less than managed accounts, which run anywhere from 25 basis points to as high as 85 basis points. They also provide the personalized allocation automatically without any input from participants as managed accounts attempt but don’t always manage to do.

“Unlike managed accounts, they don’t need participants to interact and provide data and update it constantly, which has proven to be a hurdle for managed accounts,” said Rene Martel, a managing director and head of retirement at Paci c Investment Management Co.

PIMCO rolled out a personalized target-date fund called myTDF in the rst quarter of 2023, which factors in the same ve data points that Capital Group’s Target Date Plus does.

“What we try to do is to offer it very close to the cost of an off-theshelf target-date fund,” Martel said. “There’s a few basis points difference in terms of the participant cost between the personalized version and the off-the-shelf version.”

Since going live on the record-keeping platform of Voya Financial in the rst quarter of 2023, 70 retirement plan sponsors have adopted the personalized target-date fund, according to Martel.

“I think it’s a good indication that there’s interest for it,” he said.

“We're pretty encouraged after just

Shakeout

CONTINUED FROM PAGE 4

major wars no one was expecting, he said.

“I think more and more they (CIOs) are spending time thinking through geopolitical risk, and how to really make their portfolios resilient under a much wider range of scenarios than they had thought before,” Hunt said.

And there are “no right” answers to how portfolios should look, he added.

“It doesn’t t neatly into a model. But it does lend itself to a lot of really good scenario-based planning, which is what we’ve been doing with clients,” he said.

And two big changes have generally resulted from this work. The rst is a newfound appreciation for the role of liquidity and having dry powder on hand to be able to move in size when opportunities present themselves.

“We’ve argued, for example, that maybe some pensions needed a chief liquidity of cer,” he said.

The second change has been around broader diversi cation un-

a few months.”

Capital Group’s Duglin is also optimistic, saying that plan sponsor interest and curiosity are very high, with many seeing the products as an intriguing concept. Since going live with Target Date Plus on the record-keeping platforms of Ascensus and Voya in February and March, the rm has crossed into “the double-digit number of plan sponsors” adopting it, Duglin said.

Both Duglin and Martel noted that they do not have access to the participant data used to create the personalized asset allocations. The ve participant data points utilized are provided by record keepers di-

rectly to Morningstar Investment Management, the advice engine that PIMCO and Capital Group use to build the personalized funds.

“The target-date fund manager is not in possession of that personal data. It just stays at the record keeper,” Martel said.

Principal Financial Group, a record keeper with an asset management arm, is also betting on the opportunity. It is developing its own proprietary personalized target-date fund that goes a step further by also incorporating data points from individuals’ de ned bene t plans and nonquali ed deferred compensation plans.

The additional data is important because individuals with a sizable de ned bene t plan may “need less

derpinned by geopolitical risks.

“I think Japan has been one of the big winners from the U.S.-China tension for sure,” Hunt said, adding that “diversi cation by geography, and by supply chain has become much more of a focus, and really understanding when you invest in a company, what does that supply chain look like?”

PGIM has expanded its international footprint in Japan and the U.K. over the last decade and Hunt is planning to dive further into another region: the Middle East.

“We will be opening of ces and being more on the ground than we’ve been before,” he said of the Middle East, adding “we believe that that’s going to be a really important growth market for us.”

Hunt also expects to see allocators continuing to consolidate the number of managers with which they work.

“I think many of them have found that in using many, many managers that they had kind of, by mistake, put together the world’s most expensive index fund,” he said. “They are much better off working with a smaller handful of people much more deeply.”

PGIM’s real estate arm recently

xed-income exposure” and those with a nonquali ed plan “may need less equity exposure” than would otherwise be the case if they didn’t have these revenue streams, said Brett Fisher, head of investment product strategy for retirement and income solutions at Principal.

“That’s where our platform will probably differ from some of the other offerings out there in the marketplace,” Fisher said.

Fisher expects the new personalized target-date offering to launch in the rst quarter of 2025. He estimates that the product will cost about a quarter of the cost of a managed account.

“I think you’ll see from Principal that the cost is in the single digits,” he said.

Selected as the QDIA

If PIMCO’s myTDF is any indication, retirement plan sponsors adding a personalized target-date fund to their lineup are likely to select it as the quali ed default investment option.

“The clients we have on the books right now most commonly offer the personalized version as the QDIA,” PIMCO’s Martel said.

A small number of plans kept the traditional target-date fund as the QDIA with the personalized version as an opt-in choice. In a few rare cases, plan sponsors chose the traditional target-date fund as the QDIA for the early part of workers’ career and then shifted to the personalized option in their later working years.

For Capital Group’s Duglin, it’s too early to predict how and whether plan sponsors will use the new funds.

While interest in the new personalized funds is high, he is betting that traditional target-date funds will continue to represent the most common QDIA selection.

“The short-term future is going to be single-glidepath QDIA solutions,” he said, referring to traditional target-date funds.

However, he added, the conversation around personalized target-date funds “always catches people’s attention and people are leaning into the conversation.”  n

acquired property north of Munich in Germany that is suitable for data center development. Hunt expects to see “an explosion” in the need for data centers.

“The biggest thing that when we’re negotiating a data center contract is making sure that we have access to a long-term supply of power. And that’s easier said than done,” he said.

Hunt sees investment opportunities around generative arti cial intelligence arising in areas including real estate, infrastructure, commodities and venture capital.

Hunt, who comes from an engineering background, recently used ChatGPT to write a keynote address for PGIM’s innovation week and says the output “wasn’t bad,” but the content was a bit “vapid.” He expects generative AI to help eliminate rote tasks and help with coding.

“A lot of the things that weren’t all that fun anyway about being an engineer are going to be automated, and the time then to work on the creative aspect of it, interpretive aspect of it, connecting dots that are hard for other people to see, that’s all going to become more important,” he said. “That’s what people are going to pay for in terms of skills.”

INDUSTRY BUY-IN: PIMCO’s Rene Martel said the rm is encouraged by the interest in its myTDF product.

Money Management

All eyes on next steps for new Vanguard CEO Ramji

First outsider to lead the $8.7 trillion manager may tackle tech, global issues

By DOUGLAS APPELL

BlackRock and McKinsey veteran Salim Ramji is the rst outsider tapped for the top spot in Vanguard Group’s 49-year history, suggesting the Vanguard board is open to change, sources said — however incremental that change may be.

Ramji’s experience at BlackRock, where he was global head of iShares and index investing, as well as his earlier run at McKinsey as the head of that rm’s asset and wealth management practice, could prove helpful in addressing some of the areas where Vanguard has faced challenges in recent years, Vanguard watchers said.

Vanguard on May 14 named Ramji as its next CEO, succeeding Tim Buckley, whose departure was announced by the $8.7 trillion manager in February. Ramji left BlackRock — the $10.47 trillion giant — earlier this year.

The incoming CEO’s priorities at Vanguard could include guring out how to build Vanguard’s global footprint and strengthen its technology, said Jim McCaughan, Miami Beach, Fla.-based U.S. practice leader with asset management strategic consultancy Inde .  McCaughan added that “Vanguard may also be looking to him (Ramji) to lead a systems upgrade — a recognized strength of BlackRock.”

George Wilbanks, managing partner at Stamford, Conn.-based executive search rm Wilbanks Partners, said Ramji’s selection to helm Vanguard is in line with recent trends:

New Jersey

CONTINUED FROM PAGE 3

three during Murphy’s governorship.

There is no quick x or even short-term x other than making sure the state keeps paying 100% of its annual ARC.“It was so hard to get to the full ARC after so many years with so many false starts, there would be a great reluctance for legislators not to make the full ARC in future years,” said Mark Magyar, director of the Steve Sweeney Center for Public Policy at Rowan University. Magyar was deputy executive director of the New Jersey Senate Majority Of ce before joining the Sweeney Center.

Even with annual ARC payments of 100%, it will take many years for the pension system to reach a reasonably healthy funded status.

According to state treasury department estimates, full ARC funding each year would produce a funding ratio of 60.7% for the 2029 scal year; 70.2% for the 2035 scal year; 80.5% for the 2041 scal year; and 90.4% for the 2047 scal year on an actuarial valuation basis.

Although there is no federal standard for an acceptable funding ratio, Magyar said the U.S. Department of Labor and ERISA can serve as a proxy for measuring public pension health even though the New Jersey Pension Fund isn’t covered by ERI-

elevating well-rounded executives with “multidimensional skills” in areas such as strategy and technology for the top spots at asset management rms. That’s in contrast to earlier generations of leadership, dominated by investment or sales professionals.

It’s a natural evolution — wanting a senior executive willing to take a more creative, “out of the box” approach to running the business better, Wilbanks said.

Door open to crypto?

Analysts were divided on whether Ramji’s appointment, effective July 8, could impact Vanguard’s stance on one high-pro le issue — the rm’s refusal to consider bitcoin and other cryptocurrency investment vehicles that BlackRock has become a dominant player in over the past year.

While BlackRock expanded its investment lineup to include cryptocurrency, “I don’t think those products are logical for Vanguard to come to market with in the near future,” said Todd Rosenbluth, New Yorkbased head of research at TMX VettaFi, a data and analytics provider.

Ramji will bring a fresh perspective to the job as Vanguard’s chief but “I expect we’re going to see a lot of continuity in terms of priorities and the products that are in focus,” Rosenbluth said.

However, Eric Balchunas, senior ETF analyst with Bloomberg Intelligence, said the possibility of Vanguard changing its views on crypto shouldn’t be ruled out. “I think the door is open now,” in light of Ramji’s pro-crypto stance.

fee philosophy, he said.

Ramji’s experiences at BlackRock — a rm with a leading technology offering and extensive global footprint — could prove useful for Vanguard, which effectively pulled the plug in recent years on efforts to extend its business to markets such as China and Australia.

Ramji’s experience at a money management giant with a strong record in international markets could make him the executive to solve Vanguard’s overseas puzzle, Rosenbluth said. Likewise, BlackRock has been a leader in supporting institutional investors with index and ETF strategies — potentially a greater focus for Vanguard going forward as well, he said.

Ramji’s role in building BlackRock’s presence in the wealth management marketplace, spurring ETF adoption there, is likely another area Vanguard will look to pursue, Balchunas said. BlackRock had $3.75 trillion in ETF assets under management as of March 31. Vanguard had $2.51 trillion in ETF AUM as of Dec. 31, according to P&I data.

Vanguard watchers say while the rm’s culture, with its almost cultlike devotion to providing a fair deal for individual investors, can be directly traced back to Founder Jack Bogle, that hasn’t left the rm immune to change.

Ramji won’t do anything radical but he’s likely to “push the company” a bit and obviously the board wouldn’t have hired him if they “didn’t want him to be him,” Balchunas said.

SA. Magyar said ERISA offers three funded ratio stoplight signals: Green is 80%; yellow is 60% to 80%; and red is below 60%.

Political battleground

New Jersey can’t x the past, but improving the present will be a challenge because the pension system is a battleground between political pressure and nancial reality.

“You can’t keep increasing benets if you are underfunded,” said Richard Keevey, referring to efforts by retirees and union members to improve bene ts. Keevey is a senior policy fellow at the Edward J. Bloustein School of Public Planning and Policy at Rutgers University.

A state Supreme Court ruling prevents the pension fund from raising cost-of-living adjustments even in periods of high in ation. The court upheld the denial of cost-of-living increases in a 2016 ruling that said a 2011 law suspending COLAs was constitutional. Then Gov. Chris Christie froze COLA increases, which was challenged by public employee unions and other plaintiffs.

Legislators haven’t changed the COLA law. However, if the funding ratio hits 80%, the law says legislators could consider raising the COLA.

As long as the state keeps paying 100% of the ARC annually, “they are moving in the right direction,” said Keevey, a former state budget director and state comptroller.

Magyar pointed out that a series

Meanwhile, the issue of potential cultural con icts shouldn’t be exaggerated, some sources said. Ramji is “de nitely a Vanguard-ian type of guy,” said Balchunas, who noted that he’s interviewed Ramji a number of

of state court rulings prevents the state from reducing pensions of existing workers. Creating a hybrid de ned bene t-de ned contribution system hasn’t received support from legislators.

Contractual right

Another state Supreme Court ruling in 2015 ruling said the governor and legislature couldn’t enforce a contractual right to make annual pension system appropriations, leaving payments up to the appropriation process.

Prior to the 2018 scal year, payments were made at the end of each scal year, creating last-minute uncertainty as to how much would be available. Now, payments are made quarterly.

times over the years. “He truly believes in indexing. He knows that back and forth. And he’s also a big ETF guy” — a product Vanguard sees as its main delivery vehicle for lowcost investing, Balchunas said. Inde ’s McCaughan doesn’t expect to see Ramji changing that low-

Murphy’s proposal to pay $7.16 billion into the pension system comes at a time when general revenues are down slightly from the year-ago period and state lottery proceeds also are down slightly.

As of April 30, total major revenues from fees and taxes for the rst 10 months of the current scal year were down 1.9% to $36.4 billion from the year-ago period.

Also, as of April 30 vs. the year-ago period, lottery proceeds of $950.7 million were off by 0.2%. If lottery proceeds come up short, the state doesn’t make up the difference.

The lottery is a pension asset thanks to a state law, and the state counts on it to provide approximately $1 billion per year for the pension system. In recent scal years, healthy lottery proceeds have helped push the annual ARC just over 100%.

The rst lottery contribution was made in the scal year ended June 30, 2018. Lottery proceeds will continue through the 2047 scal year.

“Making a full pension payment and meeting our obligations to retired public employees and their families remains a top priority for the administration,” Michael Kanef, assistant state treasurer, wrote in an email.

If the pension payment and Murphy’s budget are approved without changes, pensions will represent about 13% of the $55.9 billion budget for the scal year starting July 1. The proposed budget is about 3% higher than the budget for the current s-

The view of Vanguard as a temple built by Bogle, with tenets considered sacred and unchangeable, may be overdone in parts, Balchunas said, noting that Vanguard’s board over the decades has extended the rm’s business into areas Bogle dismissed as unnecessary — such as smart beta ETFs.  n

Palash Ghosh contributed to this story.

cal year.

The state constitution requires a budget for a new scal year to be approved by the legislature and signed by the governor by the end of a current scal year. The last time they missed the deadline, the state shut down for three days in 2017.

Proposed revenue for the next scal year is $54.1 billion, according to a state treasury department document, which says Murphy could draw down about $2 billion from the state’s surplus. The projected surplus for the scal year ending June 30 is $8.16 billion.

The department document said the state will need to raise revenues to avoid “further reductions in its fund balance,” and Murphy has proposed a fee on an estimated 600 top-earning businesses to help NJ Transit, the state’s public transit system.For the state pension system, this year’s budget negotiations will be like future negotiations as the state legislature deals with competing issues such as healthcare, public transportation, housing and maintaining services, said Marc H. Pfeiffer, an expert in municipal government policy and nance. “Every year will be a challenge,” said Pfeiffer, associate director, Bloustein Local Government at the Center for Urban Policy Research at Rutgers University.

“We hope for the best,” he added. “It depends on future governors, future legislatures and future nancial conditions.” n

LOOKING AHEAD: Salim Ramji’s experiences at BlackRock and McKinsey have Vanguard watchers anticipating that he could address the manager’s global footprint.

Rob Augustynowicz

SMALL DENT: Gov. Phil Murphy’s proposal would raise the funding ratio of the pension system to 52.4%.

Aristide Economopoulos/Bloomberg

Defense

pension funds in neighboring countries have told P&I that they, too, have updated their thinking and are looking for opportunities to add to their own portfolios by investing more and in some cases being less constrained in how they allocate cash to defense-related companies.

The defense sector has also landed on their radars amid calls from authorities for more investment in the sector, including the European Commission’s proposed European defense industry strategy, which aims to make the European defense industry stronger, more responsive and more innovative, and a push by Danish Prime Minister Mette Frederiksen to strengthen the country’s defense industry. Finland became a member of the North Atlantic Treaty Organization last year, while Sweden became a full member in March.

And now the U.K. HM Treasury and the Investment Association — which represents U.K. managers with more than £8.8 trillion ($11 trillion) in assets — have thrown the gauntlet down, with a joint message on April 23 stating that defense company investments contribute to national security, defend “the civil liberties we all enjoy, while delivering long-term returns for pension funds and retail investors. That is why the U.K.’s world leading investment management industry supports our defense sector,” with the IA’s member managers investing £35 billion in U.K. defense rms, it said in a statement.

But the key message related to environmental, social and governance factors — potentially a sticking point for some investors when it comes to investing in defense assets: “Investing in good, high-quality, well-run defense companies is compatible with ESG considerations as long-term sustainable investment is about helping all sectors and all companies in the economy succeed,” the statement said.

IA representatives were not available to comment further. None of the U.K. pension funds contacted for this story were available to comment.

While there may be more encouragement, it doesn't make things any easier in terms of the due diligence pension fund executives have to exercise. For those that are working out how to invest or continue investing in defense companies, there’s no easy answer beyond intense due diligence and analysis, sources said.

“On a general level, conventional weapons and simple small arms can also be used in violation of international rules,” said Kiran Aziz, head of responsible investments at KLP, Oslo. Total group assets are 1.02 trillion Norwegian kroner ($93.5 billion).

“Following up on this is challenging. Firstly, no one makes public an intention not to follow international norms; secondly, there will be disagreement about what constitutes a breach of norms and rules; and thirdly, it is not the producers who are the ones that investors relate to, which controls the use of weapons that have already been sold. As an investor, it is dif cult to see that we have the tools to deal with this,” she said. “But complexity does not exempt from responsibility,” she added.

Finns focus on defense

Pension funds based in Finland that responded to P&I were unanimous on the development in approach to investing in defense assets, with the war in Ukraine a clear turning point for their investment policies.

The €60.5 billion ($64.4 billion) Ilmarinen, Helsinki, last updated its responsible investment policy this year, with one changed area related to its approach to the defense sector.

“We can now invest in NATO-based defense sector companies also in case they have controversial weapons-related revenue,” said Karoliina Lindroos, head of responsible investment. “Previously all companies with involvement in controversial weapons were excluded.”

But no decision is taken lightly.

“We consider defense as a high-risk sector and investing in this sector requires undergoing an internal process prior to investing. We still cannot invest in companies that manufacture biological and chemical weapons, regardless of where the company’s headquarters are located,” she said.

the COLA to 2% from 3% for ve years beginning in 2012.

Before 2012, retirees received an automatic COLA of 3%.

The key reasons for the change are the geopolitical situation and the security landscape.“Responsible investing approaches evolve over time and we observed the changing operational and security context and moved forward to update our approach,” Lindroos said. Executives at the pension fund have observed defense-related discussions in Europe and in Finland; for example, the Finnish Sustainable Investment Forum in partnership with the Finnish

S&P 500 Total Return index for the same period. The defense sector index gained 15.46% for the 12 months ended Feb. 23, 2022.

Timo Loyttyniemi, CEO at €22.8 billion Finnish state pension fund Ver, Helsinki, said the plan started internal discussions over clarifying its policy right after the Russian aggression in Ukraine started Feb. 24, 2022.

Executives changed some wording in VER's policies to allow for in-

SECURITY IMPORTANT: According to Ver’s Timo Loyttyniemi, choosing to invest in defense-related stocks was a ‘very easy and straightforward decision to make.’

Venture Capital Association organized an event on weapons and defense sector-related investing last year, Lindroos added.

Defense stocks up

Many of the Danish pension funds that said they had altered their stance on defense assets in the wake of the Ukraine war from a social responsibility point of view also said there are opportunities to be found in the sector — a view shared by other European funds.

The S&P 500 Aerospace and Defense Sub-Industry Total Return index gained 28.09% for the period Feb. 24, 2022, through May 6, compared with a 25.13% return for the

of June 30, 2023.

Reformers blame costs, fees

vestments in the defense industry in general.

The rst decision was not to exclude defense-related investments.

“Now the thoughts are more on how to nd positive investment opportunities and how companies are transforming themselves,” Loyttyniemi said. Controversial weapons are excluded from the investment universe, however.

Overall, it was a “very easy and straightforward decision to make. Security is absolutely a key element and priority for the societies. Defense is part of security,” he added.

And Helsinki-based Varma, with €60.9 billion in assets, revised its principles of responsible investment

in 2022, a spokesperson said.

“The catalyst was war in Ukraine,” she said. The change saw Varma apply “enhanced high-risk sector due diligence to these investments, suggesting a more nuanced and rigorous approach to engaging with (the) airspace and defense sector.”

Executives have identi ed industries that pose signi cant sustainability challenges and subject them to enhanced monitoring and special scrutiny, she added.

For defense speci cally, Varma analyzes the industry, products and services, and client base of such companies. Investments are permitted as long as business related to controversial weapons does not exceed 5% of a company’s activities. “Additionally, these activities must serve the purpose of con ict prevention and defense of sovereignty in compliance with international arms control treaties,” she said.

Compliance with international treaties and conventions is also critical, and Varma engages with companies to try to rectify situations where an investee rm has violated local laws or international agreements.

Controversial weapons

Norway’s KLP is monitoring the defense sector, Aziz said.

The pension fund is invested in the aerospace and defense sector as de ned by MSCI, “which clearly shows stronger returns than the rest of the market from the end of 2021 after Russia’s invasion of Ukraine. As governments around the world once again nd themselves in an arms race, market shares in the military industry are skyrocketing,” she said.

Executives reviewed its investments in 2021, deciding not to invest in companies that produce weapons that violate fundamental humanitarian principles through their normal use, Aziz said. That led to the exclusion of 14 companies.

Sweden’s AP4, Stockholm, with 499.6 billion Swedish kronor ($45.9 billion), does not invest in cluster weapons and mines, nor companies that are directly involved in weapons of mass destruction, said Magdalena Hogberg, head of allocation, liquid markets and analysis. “We do however hold investments in other parts of the defense sector and have from

against private interests attempting to hijack their retirement accounts.”

Yost’s lawsuit, led in the Ohio Court of Common Pleas in Columbus, followed receipt of an anonymous letter alleging a “hostile takeover” of the pension fund by private interests.

That letter, obtained by Pensions & Investments, and titled “Summary of Concerns,” alleges former Ohio Deputy Treasurer Seth Metcalf and his colleague Jonathan Tremmel have been leading the charge of a self-proclaimed reform movement for the past four years in order to take control of tens of billions of dollars of pension fund assets. Neither Metcalf nor Tremmel could be reached for comment.

Anger over COLA cuts

The reform movement spearheaded by retired and active teachers in Ohio stemmed from anger over the board voting to eliminate the COLA every year between 2017 and 2022, after previously cutting

Reform measures signed into law in 2012 made changes to the workings of each of the state’s ve retirement systems.

For Ohio STRS, that meant giving the board the responsibility of determining the annual COLA based on its actuarial consultant af rming it would not materially impact the scal integrity of the pension fund.

Also, employee contributions were raised to 14% from 10%.

Notably, the employer contribution remained unchanged at 14%, another source of angst for teachers.

Following stock market declines in 2008 and 2009, the amortization period for the retirement system’s unfunded pension liabilities under the STRS de ned bene t plan became in nite, according to legislation passed and now on the books.

The law noted in an uncodi ed section that modifying future COLAs was “the most effective means for restoring the long-term solvency” of the de ned bene t plan.

As of June 30, 2012, the funding ratio was 57.6% and rose to 81.3% as

But members of a grassroots movement since 2021 have blamed what they deem as excessive operating costs and investment management fees for the lack of a permanent 3% COLA.

That movement has included reformers running for pension fund board seats and winning those seats.

The board has 11 members, and reformers currently hold a 6-5 majority.

Their majority was further solidied on May 11 when the results of the latest board election favored reformer Michelle Flanigan, who will unseat the board’s current chairman Dale Price, effective Sept. 1.

The term of trustee Steen, named in Yost’s lawsuit, holds a seat appointed by Gov. Mike DeWine that will expire on Sept. 27.

Flanigan and other reform trustees have publicly advocated for gutting the investment staff and moving to all index funds.

The anonymous summary of concerns received by DeWine on May 8 alleges that the reformers’ grassroots movement for reducing investment

costs is really a concerted effort by Metcalf and Tremmel to get a puppet board installed to invest in their strategy.

According to the summary, the two men founded an investment rm called QED Management and pitched a strategy in 2020 they called “OhioAI” to then-board member Bob Stein.

The strategy, which purports to utilize AI-based trading strategies to generate outsized returns, was pitched as a way to x the pension

fund’s “problems,” according to the summary of concerns. The pitch proposed investing between $25 billion and $45 billion in the strategy, the letter said.

At the time, according to the summary, STRS Chief Investment Of cer Matt Worley dismissed the idea, saying the investment did not meet the pension fund’s standards.

Questions about QED QED Management, the summary alleges, was not registered as an investment adviser, had no clients or track record, and did not own any of the technology they said they had in order to utilize their alleged strategy.

The board decided not to pursue the investment after Cliffwater, the pension fund’s alternatives consultant, strongly recommended in February 2021 against considering the strategy.

Trustee Stein resigned from the board in May 2021, just one month after winning re-election and explained the resignation by citing his desire in a letter to the Ohio Ethics Commission to “further explore the QED strategy,” according to the summary of concerns.

Since then, the summary alleges,

TAKING ACTION: Ohio Attorney General Dave Yost’s suit alleges a breach of duciary duties by two trustees.

time to time increased exposure to the industry. One such example was an increased exposure to companies likely to bene t from increased spending on defense following Russia’s invasion of Ukraine in 2022,” she said.

As with Danish pension funds, investors in other parts of Europe put a hard stop on investing in controversial weapons.

PGGM has almost €350 million invested in the defense sector on behalf of Pensioenfonds Zorg en Welzijn, Zeist, Netherlands, which has €237.8 billion in assets. The investments are part of passive allocations, a spokesperson said.

“PFZW participants’ hesitations about investments in defense companies contribute to a speci c policy to exclude investments in companies that produce (parts of) controversial weapons. This regards weapons of mass destruction (nuclear, biological, chemical) and anti-personnel mines, cluster bombs and depleted uranium munitions. The above-mentioned mandates have not changed over the years and are still in place,” he added.

AMF, Stockholm, with 790 billion kronor in assets, has “noted the changed tone in the broader discussion… (but) our internal conversation around responsible investment hasn’t changed based on this,” a spokesperson said.

The fund has no direct investments in the defense industry — “not due to any ESG restrictions though; we can invest in such companies,” the spokesperson said.

And The Hague, Netherlands-based Pensioenfonds Metaal & Techniek, which has €84.5 billion in assets, “is not principally against investing in the defense industry,” but does not invest in companies that are involved in the production of controversial weapons and weapons for civilian use, a spokesperson said. “If companies within the defense industry meet the regularnancial and sustainability requirements of PMT's various investment portfolios, they can in principle be invested in.”

The pension fund implemented a new exclusion policy on April 1, banning investment in companies involved in blinding laser weapons and those that leave undetectable

a campaign by Metcalf and Tremmel in league with the advocacy organization Ohio Retirement for Teachers Association has been led in order to call the investment management of the pension fund into question and create a majority of board members through carefully orchestrated campaigns that would eventually approve the enormous investment with QED Management.

Before ling suit, Attorney General Yost said on May 9 that he was beginning an investigation of the pension fund board’s “susceptibility” to such a takeover and said he is “actively exploring” the applicable du-

fragments in the body. Companies involved in the sale of small arms for civilian use have also been excluded.

Interest in defense-related exposures is growing among exchange-traded fund investors, too, with the VanEck Defense UCITS ETF breaking the $500 million mark in the year following its launch on March 31, 2023. The ETF had $678 million in AUM as of May 6. Year-todate returns were 23.16% as of that date.

“When we launched the fund a little over a year ago, it was still in the environment where the ESG focus was … making a lot of institutional investors reluctant to look at investing in the defense industry,” said Martijn Rozemuller, CEO of VanEck Europe, the European arm of the global asset manager, which had a total $101.9 billion in AUM as of March 31.

Governments across Europe, mainly in the Netherlands and Germany, were already urging pension funds to rethink their stance toward investing in the assets, he said.

“Over the last 12 months there’s de nitely been a shift, but we also do have to be cautious on being overly enthusiastic” about pension fund involvement, he said, adding that as far as he is aware, there is no European pension fund with direct investment in the ETF.

Rozemuller thinks about onethird of investors are retail, onethird will be independent wealth managers, and the remainder is family of ces and private banks.

“Insurance companies and pension funds are the hardest category — I think it will take longer before they have adjusted their rules of engagement,” Rozemuller said. “But I know they are looking at it. A big question is whether they need to use an ETF for this or just invest directly in the underlying companies,” he added.

The manager is organizing an event aimed at the Dutch pension fund industry for the summer, he said.

Despite the extra work needed for pension fund engagement, the defense ETF has still “been pretty much our most successful launch in the last 10 years in Europe,” Rozemuller said. n

ciary removal statute to address any potential breaches by members of that board.

In an interview, Robin Ray eld, executive director of the Ohio Retirement for Teachers Association, denied any coordination with QED Management, saying he and his administrative assistant are the only staff at the organization.

“When there’s $90 billion at stake, whoever’s going to lose that argument, they’re not going to go quietly,” Ray eld said. “Wall Street is not going to allow Ohio retired teachers to have their money. Wall Street wants to keep it.” n

P&I Events Calendar

Endowments and Foundations

How new Mastercard Foundation CIO plans to diversify its portfolio

By PALASH GHOSH

The new chief investment of cer of the $47 billion Mastercard Foundation faces the daunting task of diversifying away from its only holding — Mastercard shares.

John Barker was named CIO at Mastercard Foundation Asset Management Corp. in January, after serving as chief investment of cer at Mass General Brigham, Boston, and as a managing director at $50.7 billion Harvard Management Co., which oversees Harvard University’s endowment.

Based in Toronto, MFAM was formed in 2023 by the Mastercard Foundation as a separate asset management company with a mandate to construct and manage a diversi ed portfolio for the foundation, one of the largest private foundations in the world.

For now, after consulting with the boards of both MFAM and the Mastercard Foundation, Barker plans to sell off 13% to 15% of the portfolio’s stock holdings on an annual basis for the next seven years according to a nonbinding memorandum of intent between Mastercard and the Mastercard Foundation. MFAM will invest the proceeds to create a diversi ed portfolio composed of public and private assets across all global geographic regions, he noted.

The investment portfolio will help to fund the philanthropic mission of the Mastercard Foundation, which works with about 400 organizations and supports initiatives in 33 countries to advance education andnancial inclusion in Africa and among Indigenous youth in Canada.

In an interview, Barker said he relocated to Toronto from Boston because the Mastercard Foundation

CHARGING INTO ACTION: New CIO John Barker said that while the foundation’s assets will continue to consist mainly of Mastercard stock, ‘we will have diversi ed the portfolio to some extent.’

provided him with an “incredible once-in-a-career opportunity” to build a portfolio and to build a team to oversee that portfolio. “The icing on the cake was the chance to work with the MFAM board, which is comprised of highly accomplished investment professionals,” he said.

At MFAM, Barker said he will focus on setting up an organization to provide great risk-adjusted returns.

“By the end of the year, a majority of our assets will still consist of Mastercard stock, but we will have diversi ed the portfolio to some extent,” he said.

The Mastercard Foundation’s portfolio will measure itself against a globally diverse benchmark, he said, but they are still in the “early stages” of determining which benchmark to use.

Barker’s team currently has about 10 people, with a majority of them on the tech, operations and nance side. But over the next six months to

a year, Barker said he will build out the investment side — which will likely consist of 10 to 15 people.  “We will primarily have external fund managers to start with and embrace co-investments with these managers,” he said. “And then we may opportunistically manage capital in-house.”

MFAM will also engage with third-party managers on ESG principles, which will govern all directly held investments, MFAM said in a May news release.

Barker also said his past tenures at Harvard and Mass General, with more than $20 billion assets, have prepared him well for his new role at Mastercard. “I have learned a tremendous amount about investing from the many great colleagues I have worked with previously,” he said. “One of the most important things I learned was that long-term relationships with investment managers matter, especially in working through market changes and communicating constantly with managers.”

Toronto, like Boston, has a "very deep well of investment talent and organizations" focused on the long term, Barker said.

Foundations in Canada are run similarly to those in the U.S., he noted. “Investment structures at Canadian foundations are not too different from those at foundations in the states,” he said. Moreover, annual payouts at Canadian foundations were 3.5% for many years, but recently reached 5%, matching the gure for the U.S.

For now, Barker added that he will remain a devoted fan of Boston sports teams like the Red Sox and Bruins, rather than adopt the Blue Jays and Maple Leafs. n

CONTINUED FROM PAGE 1

supervision, meanwhile, would climb to almost $370 billion from $325 billion as of March 31.

The huge UPS mandate — one of the largest on record — continues the trend of increasingly large and complex plan sponsors seeking robust outsourced solutions for the management of their pension portfolios,” Braude said.

Two years ago, Braude noted, a mandate the size of UPS would have been an outlier but that’s no longer the case “in terms of some of the mandates that we’ve onboarded recently” — including London-based

BAE Systems’ transfer last September of just under $30 billion in U.K. pension assets to GSAM — “and some of the conversations that we continue to have with other large asset owners,” he said.

“The world continues to get more complicated — from a regulatory perspective, from an economic perspective, from a market perspective,” Braude said. At the same time, corporate sponsors “are narrowing their focus on their core strengths ... and so it’s not surprising to us that this is the way asset owners are moving,” he said.

GSAM’s deep liability-driven investing capabilities, its extensive open architecture platform and the rm’s investment capabilities across public and private markets will all be

brought to bear in managing the mandate, the release said.

The appointment by UPS followed a competitive search process.

A separate statement provided by a UPS spokesperson said: “As part of our continued focus on our core business and the things that drive value for our customers, we have made a strategic decision to shift the management of some UPS pension funds to Goldman Sachs. The internal UPS team members who have managed these funds in the past will have an opportunity to join Goldman Sachs. This change will not affect or alter any bene ts plan participants receive or how the plans are administered.” Goldman Sachs oversaw more than $2.8 trillion in assets under supervision as of March 31. n