P&I 2024-10-21 by pensions-and-investments

Scott Chan has some big shoes to ll at CalSTRS

New CIO of the $346.5 billion fund plans to begin with bolstering investment staff and adding portfolio resiliency

y B ARLEEN JACOBIUS

In the three months since new CalSTRS CIO Scott Chan took the wheel of the $346.5 billion pension plan, he has largely stuck to the same route plotted out over the last few years while preparing for a possible default cycle and volatility.

Chan has been at the California State Teachers’ Retirement System, West Sacramento, for six years, serving as deputy chief investment of cer before he assumed the CIO post on July 1, following the retirement of long-standing CIO Christopher Ailman.

“It’s an exciting adventure,” said Chan in an interview. “I couldn’t be more excit-

ed and energized.”

Chan’s team and the board will spend this scal year crafting a shared vision on creating more value alongside its existing collaborative model, net-zero plans and diversity programs.

CalSTRS is facing a less accommodative investment environment with political and war risk among challenge. But Chan said CalSTRS’ liquidity and rebalancing tools — including leverage and wider bands around asset class targets

Fairview Capital looks back on 30 years of innovation with an eye to the future

they’re there, and that’s why we’ve chosen them to be there.”

There’s a message that JoAnn Price conveys to employees as they start at Fairview Capital Partners: “Bring all of your gifts and talents to the table.”

“Now it may take some time because everyone has a different personality to be able to do that, but over time, that does happen,” she told an audience of industry peers in September. “We want people to really present and be comfortable with their talent because that’s why

That drive for inclusion and belonging has helped build Fairview, co-founded by Price and Laurence Morse, into a $10.8 billion private equity and venture capital fund-of-funds manager that, in turn, is leaving a positive effect on the industry itself.

Since it founding 30 years ago in September, the minority-owned rm has sought to deploy and grow capital through co-investments,

Providers of mutual funds and target-date funds for dened contribution plans saw their assets under management post impressive double-digit percentage increases for the year ended June 30, during a year when markets even outperformed the previous year’s spectacular numbers.

For the 12 months ended June 30, the annual survey conducted by Pensions & Investments found that proprietary mutual fund AUM increased 17.4% to $4.2 trillion. The previous year saw AUM rise by 6.5%.

Meanwhile, proprietary target-date AUM posted an increase of 24.6% in the year ended June 30 to $3.29 trillion, a faster pace than the 12.1% increase the previous year. Among target-date funds, those using mutual funds posted a 16.9% gain in AUM to $1.36 trillion, while those using collective investment trusts posted an 18.1% gain in AUM to $1.48 trillion.

The rise in AUM across all categories re ected an extremely strong equity market for the period. For the year ended June 30, the Russell 3000 returned 23.1%, above the equally impressive return of 19% for the year ended June 30, 2023.

Greg Ungerman, senior vice president and leader of the de ned contribution practice at Callan, said his rm saw for the rst time this past year that collective investment trusts are now more prevalent than mutual funds in the

CELEBRATION: NAIC’s Robert Greene, left, with Fairview’s JoAnn Price and Laurence Morse

IN THIS ISSUE

Alternatives

Blackstone sees 2025 being a big year for the rm despite the specter of higher interest rates. Page 31

ETFs

Recent ETF lings and launches are pushing the envelope to add different assets and exposures. Page 11

Pension Funds

Canadian funds are seeing opportunities in emerging markets infrastructure. Page 6

Special Report: Megamanagers

Total assets of the world’s largest money managers rebounded to $128 trillion in 2023. Page 14

Washington

Donald Trump has promised to re SEC Chair Gary Gensler if elected. But can he? Page 4

Two P&I surveys now in progress

Responses to Pensions & Investments’ annual survey of the largest U.S. retirement funds are due Oct. 25. Sponsors with combined U.S. pension and de ned contribution plan assets of $1.5 billion or more are eligible to participate. Results will run Feb. 10.

P&I is also accepting late responses to the annual survey of investment management consultants Firms providing investment advice and related services to institutional investors are eligible to participate. Results will run Nov. 18. To request a survey or obtain further information, please contact Anthony Scuderi at ascuderi@ pionline.com or 212-2100140, or visit www.pionline. com/section/surveys

No slowdown in corporate risk transfer activity

any rst half of a calendar year.

The strong activity appears to belie any fears that a series of pension risk transfer-related lawsuits led this year may have a negative impact on volume, except perhaps for Athene Holding, the insurance company named in lawsuits this year.

Pension risk transfer activity should remain robust for the rest of the year and going into 2025, despite a series of PRT-related lawsuits, experts say.

For the rst half of 2024, total U.S. pension buyout transaction volume was $23.4 billion, up 12% from the same period in 2023, according to research rm LIMRA.

LIMRA also said there were a total of 327 buyout contracts signed in the rst half of 2024, up 16% from the year-over-year period, a record for

Ten

There have been eight such lawsuits led so far in 2024, all against companies that have completed pension buyout transactions with Athene Holdings and/or their subsidiaries, alleging a violation of duciary duties by the companies.

The urry of lawsuits began in March when two groups of AT&T retirees led separate lawsuits against the telecommunications giant and independent duciary State Street Global Advisors, alleging a violation of duciary duties related

Ten years after Bill Gross bolted from PIMCO, prompting a wave of redemptions at the bond manager he founded and fronted for decades, the rm remains a commanding player on the world’s xed-income stage.

And the erstwhile “bond king” can take credit for much of that resilience, sources inside and outside Newport Beach, Calif.-based Paci c Investment Management Co. contend.

That view likely wasn’t top of mind on the morning of Sept. 26, 2014, when Janus Capital Group — now Janus Henderson — announced that Gross would be joining the rm in a new of ce the Denver-based manager said it would set up for him in Newport Beach. The move ended a 43-year era for PIMCO.

Instead, with institutional investors spooked by the prospect of organizational instability and retail investors who saw Gross as the personi cation of PIMCO, speculation turned to just how big a body blow the rm could be facing in the wake of his departure.

In the event, net out ows from PIMCO over the 12 months after Gross’ exit came to $290 billion — painful, but not crippling for a rm reporting $1.88 trillion in assets under management as of

The U.S. Supreme Court has again been asked to create uniform guidance for the retirement industry over whether ERISA complaints should be addressed by arbitration or by trial.

The court declined to hear ERISA arbitration cases in February 2019, January 2023 and two in October 2023 from defendants arguing that retirement plan management disputes — 401(k), 403(b) and employee stock ownership plans — should be settled through arbitration.

In the latest petition, Argent Trust Co. vs. Ramon Cedeno et al., led Oct. 7, the trust company argued that two federal appeals courts “have concluded that there is nothing in

to a 2023 pension buyout transaction; and four Lockheed Martin Corp. retirees led a lawsuit against the defense company alleging similar violations related to two recent pension buyout transactions.

Similar lawsuits against Alcoa Corp., General Electric Co., ATI Inc., Bristol-Myers Squibb Co. and Lumen Technologies Inc. soon followed. The latter three also include SSGA as a defendant and the Alcoa lawsuit also includes its independent duciary Fiduciary Counselors as a defendant. All were deals transferrring more than $1 billion in plan liabilities.

Athene Holdings and its subsidiaries, meanwhile, are not defendants in any of the suits.

Plaintiffs in the lawsuits claim the buyout transactions did not meet the

requirements of Interpretive Bulletin 95-1, the U.S. Department of Labor’s Employee Bene ts Security Administration guidance related to the duciary standards of pension risk transfer transactions that requires plan sponsors purchase the “safest annuity available.”

The lawsuits allege that Athene’s product does not represent the safest annuity available as a “risk-taking insurer” owned by alternative investment rm Apollo Global Management, and by engaging in the transactions with the rm, the defendants have violated their ERISA duciary duties.

No slowdown

Megan Nichols, partner and head of pension settlement solutions at

ERISA that would preclude individual arbitration of ERISA claims.”

However, four appeals courts “have reached the opposite conclusion in invalidating ERISA plan arbitration provisions” the petition said, adding that such a “circuit split” calls for the Supreme Court to provide guidance.

One of those latter courts of appeals, the 2nd U.S. Circuit Court of Appeals in New York, ruled against Argent in May, which then asked the Supreme Court to reverse the appeals court decision. The appeals court had supported a New York U.S. District Court ruling that rejected the request for arbitration in November 2021.

(While the appeals court was considering the case, the Department of

Labor led an amicus brief supporting Cedeno. The Chamber of Commerce, American Bene ts Council and ESOP Association led amicus briefs supporting Argent).

“The important federal questions presented here (is) as follows: ERISA does not require participants to bring claims on behalf of their entire bene t plans, and nothing in ERISA precludes individual arbitration,” the Argent petition said.

Argent was the former trustee through October 2019 of an ESOP offered by Strategic Financial Services, a nancial services rm that employed Cedeno, who has been a plan participant.

Cedeno sued in November 2020 alleging Argent and other defen-

dants caused the plan to “pay more” for the company stock “than it was worth,” according to the petition to the Supreme Court.

Both the District Court and appeals court rulings said an arbitration provision in the Strategic Financial governing document was unenforceable because it restricted Cedeno’s complaint to himself rather than for planwide relief under ERISA, the Argent petition said. Without a reversal, Argent maintained that the appeals court “effectively concludes” that ERISA prohibits individual arbitration claims. This is “a decision that will have far-reaching unintended effects, even beyond arbitration matters,” the petition said.

THE LEGACY CONTINUES: Bill Gross and PIMCO’s Daniel Ivascyn

Conservative tack paying off, says N.Y. Common’s DiNapoli

Trustee of fth-largest U.S. fund talks volatility, demographics and alts

y B ROBERT STEYER

As sole trustee of the New York State Common Retirement Fund, state Comptroller

Thomas P. DiNapoli presides over the fth-largest retirement fund in the U.S., according to Pensions & Investments’ annual survey of the largest plans.

The pension fund, with assets of $267.7 billion, covers 1.24 million active members, retirees and bene ciaries.

He described how the pension fund invests in alternatives, the possible impact of Federal Reserve interest rate cuts and why the pension fund adheres to one of the lowest assumed rates of return among all state pension programs.

Statewide issues present special challenges because more money is leaving the fund than coming in through contributions due to demographics. “I guess the good news is our New York retirees are living into their 90s, so we’re happy about that,” he said. “But it means we have to anticipate paying out a lot more.”

In the rst of two parts in P&I’s latest Face to Face interview, DiNapoli discussed how the pension fund plots a course through volatile domestic, foreign and statewide economies to produce a 93.2% funded ratio, one of the highest among public plans.

Appointed state comptroller in 2007 by the Legislature, DiNapoli, who served as a state assemblyman for 20 years, has been elected to four consecutive four-year terms since 2010.

Questions and answers have been edited for context, conciseness and clarity.

The WNBA is red-hot, with new stars and rabid fans. Is private equity in its future?

y B PALASH GHOSH

Thanks to the star power of the Indiana Fever’s Caitlin Clark and Chicago Sky’s Angel Reese, the Women’s National Basketball Association is on a winning streak.

To help nance the league’s growth, some experts believe the WNBA may be ripe for investment

by private equity rms.It’s not a big leap, given that the National Football League recently decided to allow passive private equity investments.

And in the U.K., the national governing body of eight cricket teams has initiated a process to attract private equity investors, to capitalize on that sport’s soaring popularity. Women’s sports, said Shana Or-

czyk Sissel, founder and chief executive of cer of Banrion Capital Management, are “one of the most attractive emerging areas for sports investment.”

She pointed to the city of Portland, Ore., which in September was awarded the WNBA’s 15th franchise. The as-of-yet unnamed club will

growing focus on off-channel communications troubling to some

The Securities and Exchange Commission has charged more than 100 rms in recent years over failure to maintain and preserve electronic communications like staff members’ business-related texts and WhatsApp messages, a trend some SEC commissioners and industry sources say is problematic.

“The SEC has been on a bit of a crusade for the last 18 months or so,” said Adam Kanter, a partner at Mayer Brown. There seems to be very little that SEC registrants, like broker-dealers, investment advisers and credit rating agencies can do to avoid the SEC’s “crosshairs,” he added.

“The SEC seems to be setting everyone up for an expectation of perfection and that is not the way com-

ESG’s uncertain future

pliance programs work,” Kanter said, noting such programs are supposed to be “reasonably designed” to prevent violations of federal securities laws.

“But the SEC is taking a very hard line in a lot of these cases and essentially saying even if you have a rm device policy, even if you have training, robust controls, checks and certi cations, the implication from a lot

of these cases seems to be … if you are not actually preventing all of these off-channel communications, you are potentially ripe for a settlement.”

Since December 2021, the SEC has settled charges with more than 100 rms and resulting in more than $2 billion in penalties for failures to maintain and preserve electronic communications, according to an

SEC tally. In each case, the rms admitted that their conduct violated federal securities laws and have begun implementing improvements to their compliance policies and procedures, the SEC noted.

A $125 million settlement with J.P. Morgan Securities over record-keeping failures in December 2021 was the SEC’s rst public

The use of environmental, social and governance factors to make investment decisions gained steam among institutional investors during the past few years. Some states also adopted policies, such as restricting investments in targeted industries like fossil fuels. However, there’s been signi cant pushback from other states recently. With this divide and an upcoming election, it’s unclear how ESG considerations will factor into future investment decisions.

ESG adoption spotty: 39 pension funds were using ESG factors in their portfolio management process, based on responses to P&I’s top 1,000 survey. However, 92 said they weren’t.

Growing anti-ESG sentiment:

Some states have pushed back on using ESG factors. Last year, state legislatures introduced 130 anti-ESG bills, with 29 passing, vs. 32 proposed pro-ESG bills and four that were enacted, according to the law rm Ropes & Gray.

State ESG legislative actions

Slowing investor momentum: In the U.S., the number of new signatories to the United Nations’ Principles for Responsible Investment per year has slowed, including 89 last year and 37 this year compared with 107 to 188 per year from 2019 to 2022. Currently, the PRI has over 1,000 signatories.

U.N. PRI signatories added Favorable risk and

index by 40 basis points with slightly less volatility.

HOOP DREAMS: WNBA stars Caitlin Clark and Angel Reese

STEADY SHIP: New York Comptroller Thomas P. DiNapoli

Could Trump axe Gensler? Maybe not,

likely wouldn’t need to

his post.

Former President Donald Trump has said he would re SEC Chair Gary Gensler if re-elected, leaving many to ponder whether Trump could actually remove Gensler from

Trump’s pledge to re Gensler came during a speech at a bitcoin conference in July, according to Bloomberg. The crypto industry has strongly criticized Gensler’s approach to regulating digital assets, often calling it a “regulation by enforcement” approach, given the agency’s enforcement actions against many crypto rms and exchanges, including Coinbase, Kraken, Genesis Global Capital and

Gemini Trust Co.

But the question of whether a president could remove the chair of the SEC is an interesting one, since it’s never been put to the test; that’s because the chair typically steps down when they know a new president would like to replace them, sources said.

“There has not been a situation where someone has said, ‘No, I'm the chair and I'm going to stay for the remainder of my term, and you can't re me,’” said Marc Elovitz, co-managing partner at Schulte Roth & Zabel.

Gensler’s term expires in 2026.

When a new party takes over the presidency, traditionally “the chair resigns right on or before inauguration hour,” said Andrew Vollmer, senior af liated scholar with the Mercatus Center at George Mason University and former deputy general counsel of the SEC.

Jay Clayton, the former SEC chair under Trump, voluntarily ended his term on Dec. 23, 2020, when President Joe Biden was still the president-elect, while Mary Jo White, who served as chair under the Obama administration, served out her term until Jan. 20, 2017 — the same day as Trump’s inauguration.

Opinions differ

If Gensler broke with tradition and decided he wanted to stay at the SEC for a future Trump presidency, opinions differ on what might ensue.

Vollmer contended in a July blog post that “the president may re any SEC commissioner without needing a cause or a reason.”

In an interview, Vollmer said that “a part of the president's constitutional power is to re what are called principal of cers of the United States,” such as SEC commissioners.

Furthermore, “there is no statute that says that the president's power to re an SEC commissioner is restricted,” Vollmer said, and absent a statute, he believes the president has the right to do so.

This differs from the Consumer Financial Protection Bureau, as its founding statute dictates that the president can only re the CFPB director for inef ciency, malfeasance or neglect of duty. In 2020, the Supreme Court ruled that the president can re the head of the CFPB at will, nding the restriction on the president's powers unconstitutional.

However, Elovitz said “it is a surprisingly complicated, nuanced and unsettled matter of law as to exactly whether the president can remove the chair of the SEC.” He added that the matter is uncertain because “it's not set out anywhere, and this issue has not come up in the past.”

It’s the president’s responsibility to designate one of the SEC’s ve commissioners as chair, as stated plainly on the SEC’s website. Therefore, some have proposed that Trump could simply name one of the two Republican commissioners as chair and keep Gensler on as a commissioner, Elovitz noted.

Vollmer recognized that possibility in his blog post as well, writing, “without removing or appointing a commissioner, the president may

shape

Art installation inspired by the Large Hadron Collider at CERN, Geneva.

Canadian funds see opportunity in EM infrastructure

Investment demand is $2T yearly, but requires ‘pragmatic’ approach

Some of the most crucial needs in burgeoning emerging markets are building or upgrading infrastructure projects — highways, railway tracks, airports, rail stations, power stations, among others. As a result, Canadian pension funds have made signi cant investments in emerging markets infratructure in recent years.

The demand is vast: A 2020 report from consulting rm McKinsey & Co. found developing countries “will need to invest more than $2 trillion a year in infrastructure just to keep pace with projected GDP growth over the next 15 years.”

In November 2022, the World Bank found India will need to invest $840 billion over the next 15 years in urban infrastructure if it is to effectively meet the needs of its fast-growing urban population.The Islamabadbased Institute of Policy Studies research organization warned that Pakistan is currently facing a staggering $124 billion infrastructure

investment de cit over the next two decades.

“Emerging market infrastructure investments represent an opportunity to own exposure to the rapid expansion of emerging economies,” said Taylor Krystkowiak, vice president and investment strategist at Themes ETFs, issuer of the Themes U.S. Infrastructure ETF. Themes ETFs and its sister company Leverage Shares have a collective AUM of $952.8 million, a spokesperson said.

A May 2024 report from Dutch asset manager Robeco, “Emerging Markets’ Second Growth Wave Is Straight Ahead,” noted that emerg-

ing markets are “expected to offer richer investment opportunities than developed peers over the next decade, driven by technological innovation, continued urbanization and shifting geopolitical and global trade dynamics.”

Robeco had $211 billion in assets under management as of June 30.

BCI’s diversified approach

British Columbia Investment Management Corp., Victoria, has extensive stakes in various emerging markets infrastructure entities.

The emerging markets, said a BCI spokesperson, “continue to be an

important part of our infrastructure and renewable resources portfolio. We see opportunities driven by economic and demographic trends, particularly in Asia and EMEA (Europe, the Middle East and Africa), across a range of themes such as digital infrastructure, renewable energy and transportation.”

BCI’s infrastructure and renewable resources program is a diversied portfolio of C$28.1 billion ($20.8 billion) of tangible real assets as of March 31. About 25% of this program is currently invested in the emerging markets. BCI made its rst direct investment in 2006, the spokesperson noted. BCI had a total of C$250.4 billion in assets under management as of March 31, 2024.

“Our global program invests primarily in core infrastructure assets that operate in stable regulatory environments and renewable resources assets that are critical to meeting the demands of a growing global population,” said the BCI spokesperson. “We target privately held assets with high barriers to entry, potential for strong cash ows, and favorable risk-return characteristics.”

Typically they anticipate a holding period of more than 20 years, the spokesperson noted.

“We also invest in publicly listed infrastructure and private infrastructure debt to complement our current holdings,” the spokesperson added.

Across emerging markets, BCI targets relatively large companies with high quality management teams. “We are growing our team to support investment strategies in Asia, notably India and Southeast Asia, as well as EMEA,” the spokesperson said. “From digital infrastructure to the energy transition, we are pursuing a range of themes that bene t from the unique characteristics and tailwinds of emerging markets such as rapid growth, increasing urbanization, high productivity, an expanding middle class, and increasing participation in global supply chains.”

BCI’s London of ce and a local presence in India “bring us closer to these markets, enhancing our ability to source new opportunities, manage our portfolio, and build relationships with partners, advisers and management teams,” the spokesperson said. For example, BCI is among the investors in the Indian operations of American Tower Corp., the U.Sbased real estate investment trust and owner of wireless and broadcast communications infrastructure around the world.

“India is growing faster than many emerging markets and has surpassed China for the world’s largest population, also overtaking the U.K. as the fth-largest economy by GDP globally,” the BCI spokesperson said. “We believe India’s economic and demographic trends will continue to drive demand for foundational infrastructure and logistics, presenting attractive prospects for investors.”

BCI has made “sizable investments” in India, the spokesperson noted, and the pension fund continues to see opportunities in the region.

“We are interested in the country’s deep track record and see opportunities in digital infrastructure,

EXEC UTIVE CONVERSATION with

PENSION RISK TRANSFER: A CRUCIAL PILLAR OF THE RETIREMENT SYSTEM

Since its creation in 2009, Athene has emerged as a leading retirement services company for pension risk transfer (PRT).1 With sustained improvements in funded status for many pension plans, PRT has grown as a solution to move pension liabilities off corporate balance sheets to insurers and thereby derisk and secure their participants’ pension benefits. As plan sponsors navigate today’s active PRT market, Richard McEvoy, Senior Vice President of Pension Group Annuity at Athene, shares current insights, the benefits of PRT for plan sponsors and participants, and his view on the recent DOL report related to PRT fiduciary guidance.

Pensions & Investments: What are some reasons that a plan sponsor should consider a pension risk transfer?

Richard McEvoy: Pension plan sponsors have experienced considerable volatility in funded status due to mismatches in asset and liability cashflows. Moreover, most employers are generally not well equipped to manage the risks associated with pension plans — investment risk, longevity risk, operational risk — given that pension plan oversight is not core to their businesses.

Pension risk transfer is a compelling solution for plan sponsors that shifts pension liabilities off the company balance sheet to an insurer with expertise in guaranteeing and managing annuity obligations to plan participants. The result is a win-win situation: The sponsor can reduce risk and focus on their core businesses, and participants can benefit from enhanced retirement security.

P&I: What are the benefits of PRT for plan participants?

McEvoy: In a PRT, an insurer guarantees plan participants’ full pension benefits and provides enhanced retirement security. PRT insurers have proven to be very effective in protecting participant benefits, with the insurance system often surpassing the traditional ERISA system in terms of security and reliability.

Insurers are highly regulated financial institutions with strong capital buffers that exceed regulatory requirements. They invest more conservatively than pension plans, typically in a diversified array of long-term, investment-grade fixed-income assets, and closely match asset and liability cash flows.

In addition, most insurers utilize separate accounts for assets backing annuity liabilities, which are shielded from general account claims. This structural protection substantially increases participant security. Athene provides the added protections of a separate account for 100% of our current PRT obligations.

Finally, all participating PRT insurers undergo rigorous fiduciary reviews before being selected for a transaction, with a primary focus on participant security. The U.S. Department of Labor provides guidance to fiduciaries on selecting the safest available insurer for PRT in the form of an interpretive bulletin, IB 95-1. The IB 95-1 framework, which was established nearly 30 years ago, has been instrumental in ensuring that plan participants are protected during PRT transactions. It requires fiduciaries to carefully evaluate a

range of factors related to an insurer’s financial strength and claims-paying ability, ultimately guiding them to select the “safest available” annuity provider.

P&I: What is your view on the recent DOL report relating to PRT guidance?

McEvoy: The DOL’s recent review of IB 95-1 was a significant event for the PRT market, and the outcome has been very positive, reaffirming the strength of its framework. The principles-based framework has provided important flexibility and allowed for industry adoption of practices like separate accounts and reinsurance. These practices have enhanced protection for participants, and we’re pleased that the DOL continues to see the merits of the existing framework.

Not a single PRT participant has experienced a benefit cut since the guidance was issued around 30 years ago.2 By comparison, over the same period, there have been over 3,000 distress plan terminations affecting over 2 million plan participants with an estimated 16 percent of those participants experiencing benefit cuts averaging 24 percent.3 This stark contrast speaks to the effectiveness of the current PRT framework and the greater security it provides.

Richard McEvoy Senior Vice President, Pension Group

Additionally, the market has developed solutions for sourcing capital from outside investors through offshore reinsurance. These solutions have contributed much needed capital to the growing PRT market. While these approaches were not conceived when current guidance was written, fiduciaries review them rigorously under the purview of the principles-based approach of IB 95-1.

P&I: What has been Athene’s approach to providing PRT solutions for corporate pension plans?

McEvoy: Athene stands out in the PRT market due to our highly experienced PRT team that is deeply committed to developing customized solutions that meet plan sponsors’ individualized needs. At Athene, protecting beneficiaries and ensuring their retirement security is our top priority. Athene is one of the largest U.S. life insurance companies, and we are highly capitalized with an investment portfolio of the highest credit quality. Our financial strength has been validated through a series of credit rating upgrades, with AM Best most recently upgrading us to an A+ financial strength rating in June.4

“Pension risk transfer is a win-win situation: The

sponsor can reduce risk and focus on their core businesses, and participants can benefit from enhanced retirement security.”

Our 2021 merger with Apollo has been another key factor in our success. This partnership has created a powerful combination of Athene’s expertise in retirement services and Apollo’s strengths in asset management and capital sourcing. Together, we can offer plan sponsors favorable economics and pricing without taking on additional risk. Since entering the PRT market, we’ve completed 48 transactions totaling over $52 billion in premiums,5 including several repeat customers. This strong track record underscores our leadership in the market and the trust that plan sponsors place in us.

P&I: In closing, can you share a participant experience that highlights the impact of PRT on retirement security?

P&I: How has the insurance industry evolved to support the demand for PRT? And how has the DOL IB 95-1 regulatory framework supported that evolution?

McEvoy: Securing retirement outcomes for pension participants requires that insurers generate safe yield to meet benefit commitments and source the capital required to absorb related investment and longevity risks. The industry has evolved, and Athene has been at the forefront, to help meet these challenges.

For example, the investment-grade fixed-income market has evolved significantly, particularly in private credit and structured products. These solutions are well aligned with the liquidity profile and diversification needs of annuity providers, helping to safeguard annuity benefits. Fiduciaries and their advisors have effectively leveraged the principles-based guidance of IB 95-1 to adapt to these industry enhancements to their fiduciary review of insurers, ultimately benefiting PRT policyholders.

McEvoy: PRT is helping to save American retirees from pension cuts. For example, when JCPenney filed for bankruptcy and the company’s assets were being sold, the company’s pension plan was going to be taken over by the Pension Benefit Guaranty Corporation, which would have resulted in plan benefit cuts for participants. Athene structured a PRT for JCPenney that preserved the pensions of 39,000 plan participants and guaranteed all of their benefits in full.

The U.S. is facing a retirement and pension crisis. PRT is a key solution, with insurers serving an important function in protecting legacy obligations and ensuring that retirees have peace of mind. At Athene, we provide solutions that help people retire remarkably, and PRT is an important part of that mission. ■

SHINING A LIGHT

Economics Nobel goes to 3 professors for research into consequences of colonialism

Daron Acemoglu, Simon Johnson and James Robinson have received the Nobel Memorial Prize in Economic Sciences for 2024, according to an Oct. 14 news release from the Royal Swedish Academy of Sciences.

Acemoglu and Johnson, both professors at the Massachusetts Institute of Technology, Cambridge, and Robinson, a professor at the University of Chicago, were awarded the prize for their “studies of how institutions are formed and affect prosperity,” the news release said.

Jacobs, principal, co-founder, co-chief investment of cer, portfolio manager and co-director of research at Jacobs Levy Equity Management.

“When focused on the extraction of resources, colonizers created inef cient economic and social institutions that persisted due to a ‘commitment problem’ — a belief that promises of political reform could not be trusted,” Jacobs said.

“Whether a population was able to mobilize and become a threat determined whether it became trapped or was able to transition to more equitable institutions.”

“Reducing the vast differences in income between countries is one of our time’s greatest challenges,” said Jakob Svensson, chair of the economics prize committee, in the news release. “The laureates have demonstrated the importance of societal institutions for achieving this.”

The three Nobel Prize laureates showed in their research that when European colonizers introduced and developed inclusive institutions, they created long-term bene ts for all, while those that extracted resources for their own short-term bene ts failed to generate long-term economic growth, said Bruce

HEALTH AND WEALTH

Jacobs said the model the laureates developed identi ed conditions in which authoritative regimes are created and where reform is likely to occur through their developed model showing the pivotal role played by political and economic conditions introduced by colonizers.

“Their research reinforces the conclusion that emphasizing democracy and inclusive institutions goes hand-in-hand with the goals of ghting poverty and promoting economic development,” Jacobs said. “China’s strong investment in generative arti cial intelligence and electric vehicles has tested that theory, but the argument remains that authoritarian nations will struggle to produce sustainable innovation.”

ROB KOZLOWSKI

Netherlands’ retirement system still the best; U.S., U.K. both drop

The Netherlands retained its top spot as the world’s leading retirement income system, with Iceland, Denmark and Israel remaining in second, third and fourth place, respectively, according to the 16th annual Mercer/CFA Institute Global Pension Index report released on Oct. 15.

Speci cally, the Netherlands had the highest overall Index value, at 84.8, with Iceland scoring 83.4, Denmark, 81.6 and Israel 80.2. Those four retirement systems earned the highest “A” overall grade in the index.

The Mercer/CFA index uses the weighted average of three sub-indices: adequacy, sustainability and integrity of the pension plans. For each sub-index, the systems with the highest values were the Netherlands for adequacy (86.3), Iceland for sustainability (84.3) and Finland for integrity (90.8).

The Dutch system continues to rank as the best in the world, featuring “strong regulations and offers participants guidance regarding their pensions,” according to the report.

Rounding out the top ten retirement systems were Singapore (overall score 78.7), Australia (76.7), Finland (75.9), Norway (75.2), Chile (74.9) and Sweden (74.3).

The U.S. nished in 29th place in 2024 (60.4) out of 48, dropping from 22nd place (63) in 2023.

Transamerica Institute podcast marks decade of promoting wellness

People have the potential to live longer than before, but “increased longevity is a gift and not an entitlement,” said Catherine Collinson, founding president and CEO of the Transamerica Institute.

“Everyone needs to safeguard their health and strive to secure their nancial future,” Collinson added. For everyone to achieve this, she and her colleagues have presented what people need to know in a friendly and easy-to-understand manner on air through their series “ClearPath: Your Roadmap for Life,” which marks its 10th anniversary this year.

In semimonthly podcast episodes with host Alan Waller, Collinson or a colleague at the nonpro t private foundation of Transamerica Life Insurance Co. share insights, resources and tips on subjects for improving people’s wellness — both in terms of nance and health.

Originally titled “ClearPath: Your Roadmap to Health and Wealth,” the series debuted in 2014 as a weekly four-minute segment during National Public Radio’s “All Things Considered” program. Topics primarily focused on retirement planning and health insurance coverage.

But “based on feedback from listeners, it was clear to us we had much more to talk about,” Collinson said.

As the topics expanded over the years and the staff sought more exibility for discussion time, the Transamerica Institute “took the big plunge” and became a podcast in 2021, she said. Episodes have since run usually between 12 and 15 minutes. Additionally, the nonpro t renamed the series in 2023 to “better align with the depth and breadth of the topics covered.”

The podcast series currently covers topics in retirement security, personal

Rated as a “C+” retirement system, the report noted the U.S.’ drop was primarily due to changes in methodology related to using updated data from the OECD.

The report recommends that to improve its overall score, U.S. retirement systems should raise the minimum pension for low-income pensioners; improve the vesting of bene ts for all plan members and thereby maintain the real value of retained bene ts through to retirement; reduce pre-retirement leakage by further limiting access to funds before retirement; and introduce a requirement that part of the retirement bene t be taken as an income stream.

The U.K. slipped to 11th place (scoring 71.6) from 10th place (73) the prior year, maintaining its “B” rating The report described the British retirement system as having a “sound structure, with many good features but has some areas for improvement that differentiate it from an A-grade system.”

Among other major world economies, Canada ranked 17th (68.4); France ranked 19th (68); and Germany ranked 20th (67.3). China ranked 31st (56.5) and India nished dead last at 48th place (44).

PALASH GHOSH

nance, employment as well as health and wellness. Episodes from the past year include discussions on understanding SECURE 2.0, embracing aging and spending time outdoors. As the open enrollment period approaches, the series dropped an episode on Oct. 15 about employer-sponsored health insurance plans.

Topics have been inspired by research and survey ndings from the nonpro t and its subsidiary, the Transamerica Center for Retirement Studies. Another episode looked at takeaways from the nonpro t’s annual Retirement Outlook of the American Middle Class report.

In the future, Collinson said the Transamerica institute hopes to continue growing and expanding its discussion topics, all “with the common theme of helping people live better, longer, healthier and more nancially secure lives during their time in the workforce and in retirement.”

“As the world around us changes, we expect our podcast to grow and evolve. We expect to have even more to discuss in the future, ranging from seismic shifts and megatrends to more subtle steps people can take in their lives,” Collinson noted. “We’re also considering ideas for future innovations — stay tuned.”

Besides visiting the websites of NPR and the Transamerica Institute, listeners can tune into the series through digital podcast platforms such as Apple Podcasts and Spotify.

CARYL ANNE FRANCIA

STILL THE CHAMP

THE WINNERS: MIT’s Daron Acemoglu and Simon Johnson, and University of Chicago’s James Robinson

RETIREMENT INCOME SOLUTIONS

Defined contribution plan sponsors are at a pivotal moment to provide retirement income solutions to their participants. A number of prevailing economic and demographic imperatives underscore the urgency of addressing the decumulation conundrum in an e ective way. Most plan participants are ill-equipped to meet their income needs in retirement, as several industry surveys have shown. Several underlying drivers – economic, demographic, cultural, investment and strategic – have coalesced and they point to annuities as the most viable answer to meeting this challenge for participants in retirement.

Experts from TIAA and its investment manager, Nuveen, o er a cogent and comprehensive perspective on the need and approach to lifetime income for all types of DC plans. Flexibility, fiduciary compliance and customization are all key aspects of these solutions today.

OPINION

OTHER VIEWS JEREMIAH S. LANE, KRIS NOVELL and TAL REBACK

Dynamic markets require the dynamic solutions that multiasset credit provides

Over the past 48 months, global markets have experienced volatility driven by the Fed’s tightening monetary policy, evolving geopolitical issues and broader macroeconomic factors. This has created a “non-obvious” market where investors need to look beneath the surface and across asset classes to quickly identify compelling relative value. Many investors are making static decisions based on quarters and years, while markets are moving in days, weeks and months. This disconnect risks leaving opportunities on the table, particularly for those con ned to traditional xed-income strategies.

To achieve both resilience and consistent growth, investors should embrace strategies that are exible, diversi ed and adaptable across market cycles. A multiasset credit (or MAC) approach embodies these traits efciently and at scale. In today’s elevated rate environment and slowing economic growth, we believe MAC helps capture relative value through dynamic capital allocation, offering a diversi ed risk-reward model with consistent income and the potential for principal appreciation — making it a compelling choice for those aiming to maximize returns while managing volatility.

What is multiasset credit (or MAC)?

MAC is an investment strategy that seeks to optimize and manage risk by diversifying across various global credit asset classes. A MAC portfolio includes a range of credit instruments, such as high-yield bonds, leveraged loans and structured credit. Key bene ts include:

Flexibility: MAC adapts to market conditions by shifting allocations among asset classes and geographies. For example, during periods of rising interest rates, the portfolio can be adjusted to include more oating-rate instruments to bene t from higher yields. Investing across jurisdictions also provides the exibility to take advantage of diverse economic conditions and regulatory regimes, enhancing overall portfolio resilience and return potential.

Diversi cation: MAC helps mitigate risk by reducing exposure to single asset classes or issuers. This blend of asset classes and strong credit selection can offer a better risk-adjusted return compared to traditional xed-income products. By carefully constructing a MAC portfolio, investors can potentially achieve higher returns without proportionately increasing the level of risk.

Ease of access: Historically, commingled MAC products were only available to larger institutional investors. Today MAC is accessible to a broader range of investors, providing more investors the ability to build diversi ed portfolios across multiple asset types at scale.

Liquidity: A fully liquid MAC product enables managers to be nimble during volatility and provides easier access to funds for redemptions or rebalancing.

Operational ef ciency: MAC consolidates multiple asset class exposures into one access point, streamlining due diligence, reporting, and reducing the need for multiple managers. This provides operational ef ciency for limited partners and reduces the need for LPs to engage with multiple managers for portfolio updates, reporting and administrative items.

Growth of the MAC opportunity set

The provision and globalization of credit have been key drivers of the growing MAC opportunity, underscoring the importance of exposure to this strategy. Including global direct lending and asset-backed lending, the

Jeremiah S. Lane is partner, head of U.S. leveraged credit; Kris Novell is managing director, head of asset allocation research; and Tal Reback is director, global investment strategist, at KKR, all based in San Francisco. KKR and its funds are borrowers, investors and arrangers of public and private corporate debt.

total addressable market nears $40 trillion. This growth is fueled by current macroeconomic conditions and the ongoing structural shift towards alternative credit.

Many investors experienced a rude awakening when a world of low rates rapidly became one of elevated rates, catalyzing realized losses in many portfolios. This change is expanding the universe of credit products and creating new opportunities for MAC strategies to capture value across different credit segments. The ability to take advantage of the interplay among different asset classes supports thoughtful capital allocation and portfolio management decisions for optimal yield and positioning for relative value.

Not all MAC strategies created equal

Despite the increase in MAC strategies over the past decade, not all approaches are equal. It is important to look for scaled and experienced managers that not only excel in portfolio construction and asset allocation research, but also incorporate deep fundamental credit selection into their investment processes.

We believe a MAC strategy should not rely on elevated trading with high portfolio turnover, but rather on, deep underwriting and asset allocation research that takes fundamental credit metrics into account. MAC portfolio construction should adapt based on market movements and expectations for how the market will perform. In our view, this requires integrating qualitative and quantitative inputs to assess risk/reward in each asset class.

standard deviation or variance of returns) on the x-axis and expected return on the y-axis. Portfolios on the ef cient frontier dominate those below it, meaning that for any given level of risk, they provide higher expected returns.

The ef cient frontier helps in identifying the right combination of assets that minimizes overall portfolio risk while maximizing returns. Mean-variance optimization approaches strive to generate optimal portfolios on the ef cient frontier by taking expected return, volatility, and emphasis on lower correlations among asset classes into account. This guides baseline allocations and enables a portfolio manager to calibrate portfolios that satisfy the desired risk/return appetite.

MAC in action

Continuously assessing relative value across global markets is core to dynamic asset allocation. Managers that apply relative value indicators from both spread and yield perspectives are more equipped to spot potential dislocations between assets. In late 2023, we saw xed vs. oating-rate assets nearing fair value and began increasing xed-rate exposure. Our asset allocation process identi ed European high yield as a relative value opportunity over U.S. high yield, providing a rotation into higher-quality credit with better spreads. We found that relative value indicators can be very effective and have statistically backtested each pair of assets to determine whether they have been effective in the past. Typically, these results help build conviction in the methodology and can be an essential step to making asset allocation decisions, either catalyzing an allocation shift discussion or calibration of the potential risk/return trade-off.

The ability to take advantage of the interplay among

We have seen how the continuous monitoring of asset class behaviors and metrics can help inform correlations and deviations. For instance, analyzing asset classes across markets to identify peak drawdowns, recovery timelines, variations between ratings, as well as behavior following each Federal Open Market Committee meeting, all of which can in uence portfolio decisions.

A scaled process that leverages an ef cient frontier model, quantitative framework, and research helps inform portfolio construction. In mathematical terms, the ef cient frontier is the boundary of the practical region formed by plotting risk (typically measured by

Structured credit was another relative value play, as CLO debt offered superior carry and diversi cation in late 2023. By supplementing a leveraged loan allocation with CLO BBs, investors could have captured over 300 basis points of carry while staying above the historical median. This allocation generated 100-plus basis points of alpha over the last 12 months, demonstrating the value of a robust asset allocation framework.

Ultimately, we believe a multiasset credit strategy can offer a compelling and ef cient way to navigate complex market environments, providing diversi cation, exibility and enhanced risk-adjusted returns. The MAC strategy can also be used as a portfolio tool: We have seen the bene ts of including a MAC allocation in customized multiasset solutions (or “MAS”) as many asset allocators consider incorporating MAC as a part of their semi-liquidity allocation in a broader portfolio of private and public assets. As the market continues to evolve, MAC can play a critical role in the total portfolio asset allocation, both as a strategic allocation and one that is abundant in liquidity. n

Recent lings, launches pushing the envelope in ETF innovation

y B ARI I. WEINBERG

Exchange-traded funds thrive on assets, liquidity and transparency, but recent ETF lings and launches are challenging conventional wisdom on how these three aspects come together.

With ETFs having recently passed $10 trillion in assets under management in the U.S., product issuers are constantly looking for ways to shoehorn different assets and exposures into the speci c constraints of an ETF. Particularly important for intraday trading, the market needs adequate information to price the ETF throughout the day and con dence that the underlying assets can be readily bought or sold.

Recent regulatory shifts have also played a role in de ning the realm of ETF possibilities.

For example, the modernization of ETF rules in 2019 brought about the launch of countless actively managed ETFs and leveled the playing eld for issuers. Asset managers and investment advisers had previously relied on separate and unique relief from constraints of the Investment Company Act of 1940. Issuers have also been emboldened by the early 2024 launch success of spot bitcoin ETFs, despite their decade-long push for approval by the U.S. Securities and Exchange Commission. These products now collectively hold roughly $60 billion in assets.

Bring your own assets

An under-the-radar but established trend among ETFs has been the seeding of new products with assets from institutional investors, asset managers or separately managed accounts. These transitions are often done to ease portfolio-level liquidity for the end investor while maintaining the exposure.

One such option in the U.S. is known as a 351 exchange, whereby assets from a diversi ed portfolio are contributed to an ETF in exchange for ETF shares that inherit the tax basis of the original positions. This is the method currently fueling mutual fund to ETF conversions.

Now, Cambria Investment Management, working with white-label rm Alpha Architect, is planning to launch three ETFs that would open such exchanges to any contributed portfolio that meets regulatory diversi cation standards.

The approval and launch of these products would set a new bar for ETF seeding, which was traditionally done with cash or the speci c assets needed to create the exposure. The planned ETFs would liquidate the contributed assets as appropriate in shifting to their indicated exposures. According to Alpha Architect, the exchange is tax neutral for investors — i.e. the resulting ETF shares inherit the cost basis and tax lots of the contributed securities — while adjusting the exposure.

“This type of funding is another example of how ETFs continue to democratize investing,” said Meb Faber, chief investment of cer at Cambria. “We’re opening up a transaction that was previously only

available to accredited investors through an exchange fund.”

Get liquid

Another recent product is challenging the notion that ETFs can’t t within Rule 2a-7 of the Investment Company Act, which de nes money market mutual funds.

The $40 million Texas Capital Government Money Market ETF,

launched in late September at a 0.20% expense ratio, is the rst ETF that complies with 2a-7 portfolio construction and liquidity requirements.

“This offering is part of building a full-service rm here in Texas,” said Daniel Hoverman, managing director and head of corporate and investment banking at Texas Capital.

Join P&I for an exceptional gathering of the nation’s top plan sponsors and distinguished DC industry experts.

If you’re at the helm of a DC plan, it’s imperative to anticipate and navigate ahead of regulatory policy shifts, fulﬁll ﬁduciary obligations, stay updated on plan administration protocols, keep up with investment strategy and oversight, and manage an array of other responsibilities. At DC East, you’ll have the chance to gain invaluable insights into how your counterparts are successfully tackling the complexities of retirement plan management.

WEBSITE AND REGISTRATION DETAILS COMING SOON!

Please contact Kimba Jackson kjackson@pionline.com or Andy Jenkins andy.jenkins@pionline.com for more details and availability.

Pension risk transfer activity

Assets under management at the 500 largest money managers rose 12.5% over the year ended Dec. 31 to $128 trillion, while assets of the top 20 managers rose by an even higher proportion at 15.9% to $58.2 trillion, the latest research by the Thinking Ahead Institute and Pensions & Investments shows.

The numbers are encouraging following a 2022 in which AUM among the 500 largest managers dropped 13.7%, the worst performing year since 2008.

The top 20 asset managers contained 14 U.S. managers, while the remaining were European managers. The top 20 managers’ share of total AUM also grew to 45.5% in 2023, up from 44.2% in 2022.

“The year 2022 can be described as a disaster, a really dif cult year for all investors, asset managers, and asset owners,” said Jessica Gao, director of Willis Towers Watson’s Thinking Ahead Institute.

“In 2023 the market recovered. It bounced back. A lot of investors saw growth and recovery,” she said.

Gao also predicted that alternatives such as infrastructure, private equity, and real assets will continue to attract attention going into 2025.

The report also found that 73% of managers increased resources deployed to technology and big data and 55% to cybersecurity.

“Some of these large asset managers have been spending a lot of money developing into this area, speci cally integrating the use of AI, and it’s going to be something we see even more impact from in the years to come,” said Gao.

Among separate geographies, North America experienced the largest growth in AUM in 2023 with a 15% increase, followed closely by

Special Report

Europe (including the U.K.) with a 12.4% rise. Japan saw a slight decline, with AUM decreasing by 0.7%. Managers from the Rest of the World category saw a moderate increase in AUM of 3.2%.

Equity and xed income remain the dominant asset classes, comprising 77.3% of total AUM (48.3% equity and 29.0% xed income).

However, this marks a slight decrease of 0.2% compared to 2022. Investments in passive strategies in 2023 accounted for 33.7% of the total, marking a 6.1% increase in their share of investments. Actively managed assets represent 66.3%, which is a 2.9% decrease from 2022.

“The move into passive is not a new trend. It’s a continued phenomenon, connected with a fee squeeze, because investors are now even more conscious about how much they pay for their external management,” Gao said.

The largest growth in asset class was seen in alternatives, which increased by 22.4%. Cash holdings also grew substantially, by 15.2%.

U.S. equities averaged a positive return of 6.9%. The MSCI Emerging Markets and MSCI Asian (ex Japan) indexes lagged recovery, with average negative returns of -3.1% and -4.8% respectively in 2023.

Looking forward, Gao identi ed geopolitics as another key area for investors to be more focused on as we enter 2025. The last 18 months have seen an escalation in global issues, ranging from ongoing military con icts in Ukraine and the Middle East, to trade tensions between the U.S. and China.

“Geopolitical risks, these are at the forefront of asset owners’ minds. Managers need to help their clients and themselves better manage risks arising from geopolitical tensions,” said Gao.

ESG trends

Environmental, social and governance-related AUM increased by 15.5% in 2023, and the

proportion of ESG investments within portfolios surged to 29.6%, marking the highest level in the past three years.

According to the report, the gradual acceptance of ESG factors as nancially material has reached a point where most investors now view them as essential tools for generating long-term value. However, the next step is the shift toward sustainability, a broader term that prioritizes both nancial and non- nancial considerations with a long-term, inter-generational focus, the report said.

“Investment managers across the world all have different positions on ESG, on risk management, and how they actually manage different levels of demands for sustainability,” said Gao.

Only 79 asset managers ranked in the report provided workforce diversity data, a huge drop from the 157 that provided such data in 2022. From those that provided data, an average of

24% of senior management positions were held by women, while making up 41% of the total workforce. Women and minority groups still had a “relatively low representation in senior management positions” according to the report, despite seeing a marginal increase since 2022.

“The industry has worked on diversity for many years. It has improved a lot, but a reason that it hasn’t come as far as it could, especially in the senior positions, is the retention (of diverse employees) hasn’t been great. That’s at least partly down to company policy and culture,” Gao said.

“The imbalances (also) start at the level of graduate intake, so it may also be that a more holistic approach is needed going forward,” Gao said.

Top managers

There was no change to the top ve money managers, and all recorded an increase in AUM over 2022. BlackRock recorded more than $10 trillion in assets under management, a 10.9% increase in AUM year-onyear.

BlackRock has been the largest asset manager since 2009 when it acquired Barclays Global Investors; followed by Vanguard, in second since 2012, with $8.6 trillion AUM, a 12% yearly increase; and Fidelity Investments completing the top three for four consecutive years, showing a 13.6% increase to $4.6 trillion in AUM. State Street Global Advisors remained in fourth place, with a 10.4% rise in AUM to $4.1 trillion, and J.P. Morgan Asset Management in fth, with an 11.5% increase in AUM to $3.4 trillion.

The biggest positive AUM jump in the top 500 was the U.S. rm Geode Capital Management, which showed a 24.4% rise to $1.2 trillion, and went from ranked 54 in 2022, to 23 in 2023. The passive manager had also jumped up 30 spots in the ve years from 2017 to 2022.

The largest ranking gain in Europe belonged to Schroders, which jumped up eight places to 35 following a 9.6% rise in its AUM to $819 billion. In July, Schroders and

er Phoenix Group launched

markets manager.

The P&I/Thinking Ahead Institute World 500

MEGAMANAGERS

246

248

249

250

253

254

255

Distribution of assets of the P&I/ Thinking Ahead Institute World 500

Munnell to step down as director of Center for Retirement Research

y B MARGARIDA CORREIA

Retirement policy expert Alicia Munnell will step down from her position as founding director of the Center for Retirement Research at Boston College on Dec. 31 after more than two decades of leadership, the CRR announced in a news release Oct. 10.

Deputy Director Andrew Eschtruth, who has been with the research organization since its founding in 1998, will become the next CRR director.

Before coming to Boston College, Munnell served as a member of the president’s Council of Economic Advisers and assistant secretary of the Treasury for economic policy. Prior to that, she spent 20 years at the Federal Reserve Bank of Boston, where she became senior vice president and director of research.

Munnell will remain with the CRR as a senior adviser.

David Quigley, Boston College provost and dean of faculties, lauded Munnell for “building the CRR

DISTINGUISHED CAREER: Center for Retirement Research’s Alicia Munnell

into the nation’s leading research center on retirement policy.”

“Alicia Munnell is a distinguished economist whose scholarship has had a profound and lasting impact on strengthening the U.S. retirement system and household nancial security throughout her career in government service and during her past quarter-century here at Boston College,” Quigley said in the news release.

Endowments and Foundations

Munnell thanked Boston College for creating what she described as “the perfect environment for policy research.”

“The success of the center can be traced directly to the tremendous backing of Boston College, which has been with us every step of the way,” she said in the news release. CRR commended Eschtruth for helping the center grow from a “small startup to a nationally recognized institution.” The research center also noted his extensive experience in managing relationships with funders and the media as well as the knowledge he’s gained from his years as a policy analyst in the federal government.

Eschtruth will be supported by senior researchers Jean-Pierre Aubry, Anqi Chen, Laura Quinby and Gall Wettstein, who on average have been with the CRR for more than a decade.

“The CRR is in good hands,” Munnell said. “I’m con dent it will continue to thrive for decades to come.”

Harvard endowment returns 9.6%

y B ROB KOZLOWSKI

Harvard University’s endowment posted a return of 9.6% for its scal year ended June 30, and the value of the portfolio increased to $53.2 billion from $50.7 billion the year before.

The latest positive investment return followed a 2.9% gain for the prior scal year and a 1.8% loss for the scal year ended June 30, 2022.

For the most recent scal year, the return was strong enough for assets to increase even after the $2.4 billion the endowment contributed to the university’s operating budget for the period.

N.P. “Narv” Narvekar, CEO of Harvard Management Co., which oversees the Cambridge, Mass.-based university’s investments, said in his annual letter to the Harvard com-

ETFs

CONTINUED FROM PAGE 11

“Clients can gain exposure to a money market at a reasonable fee.”

Unlike most money market mutual funds, however, the ETF does not maintain a $1 net asset value per share. Priced initially at $100 per share, the ETF value tends to increase daily based on interest accruals. It will primarily hold overnight repurchase agreements, as well as Treasury bills and notes and agency debt when available.

munity that the university now relies on endowment distributions to pay for nearly 40% of its annual operations, up from just over 33% when Narvekar joined in December 2016.

“The endowment’s orientation toward strong investment returns has been tempered by the imperative for budgetary stability,’’ he said in his letter. “We believe that has resulted in a lower tolerance for risk than many of our largest private university peers, which can cause lags in ebullient environments, but also provide protection during downturns.”

As of June 30, the endowment’s actual allocation was 39% private equity, 32% hedge funds, 14% public equities, 5% each bonds/Treasury in ation-protected securities and real estate, and 3% each cash and other real assets.

Over the years, xed-income ETFs have inched closer and closer to the $6.3 trillion world of money market funds without crossing over. Ultrashort xed-income ETFs have become a favorite near-cash vehicle for a variety of investors, but do not earn the accounting treatment as “cash or cash equivalent,” and were often not permitted by policy to be owned in corporate treasury or used in collateral management for securities nance.

The entry of ETFs into the 2a-7 world may have both corporations and institutional investors rethinking how they manage cash.

Stay private

The proposed SPDR SSGA Apollo IG Public & Private Credit ETF from State Street Global Advisors is likely the most controversial of recent lings to challenge notions of ETF liquidity.

While primarily holding investment-grade xed-income securities, the ETF will also seek to invest no more than 15% of its assets into private credit investments sourced by Apollo Global Securities, according to the prospectus. These could include investments in private funds, interval funds, or business development companies, with Apollo itself providing intraday liquidity to the private credit sleeve. Moreover, the fund may invest up to 20% of its assets in high-yield securities.

“This is uncharted territory for ETFs, and for good reason. There's

for scal year

Narvekar said “rounding results in a total percentage greater than 100%.”

Harvard’s return fell short of the median return of 10.7% among the 25 college and university endowments whose most recent scalyear returns have been tracked by Pensions & Investments as of Oct. 17.

Narvekar said private equity returns lagged public equities for the second year in a row and reminded readers that “in FY22, private managers did not reduce the value of their investments in a manner consistent with declining public equity markets at the time.”

Narvekar said as a result, “those private asset managers did not subsequently increase the value of their investments in the context of rising public equity markets in scal years 2023 and 2024.” n

an inherent contradiction between how the private markets operate and the ETF model,” said Kirsten Chang, senior industry analyst at research rm VettaFi. Chang questions how a fair price would be determined for the private credit exposure.

The SSGA ling was followed by lings from BondBloxx Investment Management and Virtus Investment Partners looking to offer ETFs investing in private collateralized debt obligations, following on the asset-raising success of the $13 billion Janus Henderson AAA CLO ETF, which invests in registered CLOs. Such barrier-breaking ETF lings seek to dispel the narrative that ETF innovation is slowing. The move into both highly liquid and less liquid investments, as well as novel ways to seed products, could spur a new wave of ETF proposals. In the crosshairs: private equity and venture capital investments, which occasionally make their way into mutual funds, but remain elusive for ETFs.

Public Funds

DC MUTUAL FUNDS/

Allocations to U.S. equity,

see biggest growth

entire de ned contribution plan system.

“That’s really a testament to more and more plan sponsors, as well as the asset management community, recognizing the great scale they bring with their quali ed plan status,” said Ungerman.

“I think in a number of asset classes, we’re past the tipping point where CITs are materially cheaper than mutual funds,” he said, “and I would point not only to target-date funds, but index funds as well as xed-income or core-plus funds, kind of across the board.”

Trading flows, maturing plans

Bond funds (39%), large-cap U.S. equity funds (34%) and money market funds (16%) were the biggest sources of trading in ows during the second quarter of 2024, according to asset allocations measured by the Alight Solutions 401(k) index. The biggest sources of trading out ows for the second quarter were target-date funds (50%), midcap U.S. equity funds (16%) and emerging markets funds (11%).

The index covers changes not including typical contribution ows from more than 2 million de ned contribution plan participants with over $200 billion in record-keeping accounts with Alight Solutions.

Also in the rst half of 2024, the Alight Solutions 401(k) index said that total transfers as a percentage of participants’ starting balances was 0.74%. For the six months ended June 30, 2023, that total was 0.35%.

Robert Austin, research director for Alight Solutions, said that trading activity has remained low for a second year in a row because typically plan participants don’t trade very much when the market is going up.

“People are very content to open up their statements and look at their balance and say, ‘Hey, I got a 10% increase. That’s great,’” said Austin. “They don’t think, ‘Oh well, I could have had 12% if I did something different.’ If we think about 2022, or you know some (other market downturns), you see you have -2% or -10% or -12%, and you’re actually thinking, ‘Oh, I don’t want to invest to get negative returns. I want to take action and go into something much, much safer.’”

David O’Meara, senior director at Willis Towers Watson and head of de ned contribution investment strategy, said that participants will engage in trading activity far less during a market upswing, especially those with large allocations in target-date funds.

However, he said, “Target-date funds have now been the default option for over 15 years. For most plans we’re seeing that there are more mature participants in target-date funds, and they’re starting to engage with the plan investments and they will occasionally trade out of target-date funds.”

“As they get closer to retirement and want to personalize their asset allocation, we’re seeing that a bit more,” said O’Meara.

Overall, while target-date funds are the biggest source of new contributions, they’re also the biggest

source of participant out ows, primarily from those closer to retirement age, O’Meara said.

Callan’s Ungerman said the growing maturity of the entire 401(k) plan system is leading to some companies seeing net out ows out of their plans.

“The 401(k) plan came into existence in 1978, so we’re inching up on 50 years, and I think many plan sponsors are recognizing — especially at the large- to mega-size plans — the demographics of their plans are pretty mature,” Ungerman said.

Now that those employees with the largest balances are beginning to retire, companies are recognizing from a cash- ow standpoint that those balances are not necessarily being replaced by new participants rolling in balances from prior employers’ plans.

High equity allocation

As of June 30, the average allocation of U.S. DC assets in proprietary mutual funds was 40.4% domestic equities (up from 39.5% a year earlier), 33.1% target-date funds (32%), 8.8% non-U.S./global equities (9.8%), 7.4% domestic xed income (7.6%), 5% balanced/asset allocation (5.5%), 3.6% money market (3.8%), 1.2% real assets (1.3%), 0.4% non-U.S./global xed income and 0.1% other (both the same as the year before).

For the 2024 P&I survey, the rankings of the top ve managers of proprietary mutual funds used by DC plans remained the same as last year.

Vanguard Group was again the

top-ranked manager of proprietary mutual funds used by DC plans, with $1.32 trillion as of June 30, up 21.7% from the year before. Within proprietary target-date funds, Vanguard reported $555.1 billion in CIT AUM (up 16.7% from a year earlier) and $435.6 billion in mutual fund AUM (up 21.5% from the year before), tops in both categories.

John James, managing director

and head of Vanguard’s institutional investor group, declined to comment on speci c asset classes and their in ows.

He said in an email that “at Vanguard, we continuously research new product offerings within and outside of the target-date space to determine whether they present an opportunity to better serve the long-

CITS MORE PREVALENT: Callan’s Greg Ungerman

DC MUTUAL FUNDS/TARGET-DATE FUNDS

Assets of proprietary target-date strategies used by DC plans by target year

term needs of our investors. We consider whether every potential new investment product will have enduring investment merit that can improve client outcomes and whether it will ful ll the longterm needs of our clients.”

Ranked second is Fidelity Investments, which vaulted above $1 trillion in proprietary mutual fund AUM for the rst time, reporting $1.06 trillion as of June 30, an increase of 24.9% from a year earlier.

Within proprietary target-date funds, Fidelity’s mutual fund AUM totaled $308.1 billion as of June 30, up 21.5% from the year before, while CIT AUM totaled $114.2 billion as of June 30, at from the previous year. A Fidelity spokesperson declined to comment on ows.

Ranked third for proprietary mutual funds used by DC plans, Capital Group reported $552.3 billion in AUM as of June 30, up 9.5% from the year before.

wards the higher-end of its smidcap allocation range.”

“We also continue to experience particularly strong in ows into our EuroPaci c Growth and New Perspective strategies, Growth Fund of America, Washington Mutual Investors Fund, Bond Fund of America, and American Balanced Fund,” he said.

The EuroPaci c Growth and New Perspectives offerings were the two largest international equity mutual funds used by DC plans, with $69.9 billion and $22.5 billion, respectively. The American Balanced Fund was the largest balanced/asset allocation fund with $32.9 billion in DC plan assets.

Ranked fourth among managers of proprietary mutual funds used in DC plans was T. Rowe Price Group, which reported $258.6 billion in AUM as of June 30, up 8.6% from the prior year.

Among proprietary target-date funds, T. Rowe Price reported $134.3 billion in mutual fund AUM, up 10.1% from a year earlier, and $264.7 billion in CIT AUM, up 27.5% from the year before.

Among proprietary target-date funds, Capital Group reported mutual fund AUM totaling $259.7 billion, up 19.2% from a year earlier, and CIT AUM totaling $16.7 billion, up 60.4% from the year before.

Ralph Haberli, president, institutional retirement client group at Capital Group, said the rm is seeing strong in ows into its active target-date funds across both mutual funds and the CIT structures.

“Over the last decade, managers in our global equity strategies have exed more into U.S. equities, positioning the series to more of a U.S. equity tilt compared to peers, which has been additive to results within U.S. equity markets, outpacing non-U.S. equity by about 8% annualized over the last 10 years,” said Haberli. “While the series continues to have less nonU.S. equity exposure compared to peers, it has seen a modest increase in its non-U.S. equity exposure over the past couple quarters. It’s also currently positioned to-

Michael Davis, head of global retirement strategy at T. Rowe Price, said the manager’s target-date fund platform is showing strength, driven by strong performance, retirement plan conversions, as well as significant participant ows.

“Additionally, we are starting to see increased participant in ow activity across our stable value complex, which is likely to gain momentum as money market rates adjust to recent Federal Reserve actions,” said Davis.

Ranked fth among managers of proprietary mutual funds used by DC plans was BlackRock, which reported $134.4 billion in AUM as of June 30, up 14.4% from the prior year.

Among proprietary target-date funds, BlackRock reported $76.7 billion in AUM, up 19.6% from the year before, while CIT AUM totaled $256.6 billion in AUM, up 20.9% from a year earlier. BlackRock spokespeople did not respond to requests for comment.

An updated resource for defined contribution plan sponsors on the latest research, best practices and key considerations for implementing lifetime income solutions — which include insurance or guarantees — within retirement plans. Each section offers practical guidance for setting plan objectives, designing plans, and evaluating the different approaches to delivering lifetime income to participants.

PIMCO

Sept. 30, 2014.

For the year, PIMCO’s AUM dropped 21.7% to $1.47 trillion. Those redemptions re ected, of course, Gross’ record as a towering, innovative bond market investor, but also the fact that he was an industry guru — media savvy long before that phrase became rmly lodged in the public lexicon.

Investors poured over Gross’ monthly investment outlooks and followed his appearances on business news broadcasts, bolstering the view that the bond king was, effectively, PIMCO.

Hiring the ‘best of the best’

But industry veterans who worked with Gross or followed his tenure at PIMCO say that beneath the ashy exterior lurked a king who well understood the value of a team and the importance of building a business and investment strategy that could last.

“Yes, he loved to be on TV; yes, I think he loved the attention,” but he worked hard as well to make sure analysts and investors could see how deep and impressive PIMCO’s bench was, said Eric Jacobson, director of manager research, U.S. xed-income strategies for Morningstar Research Services.

“He was constantly trying to hire the best of the best and everybody around him were rock stars in their own right,” said Jacobson, who gures he’s been following PIMCO now for roughly a quarter of a century.

And at the end of the day, “he did an amazing job of helping to build a world-class investment company,” he said.

In an exclusive interview the day before the 10th anniversary of Gross’ resignation, Daniel J. Ivascyn — group CIO who was promoted from deputy to succeed the bond king —

likewise noted the importance Gross placed on bringing together an impressive group of investors at PIMCO.

Despite a reputation for making very bold macro calls, Gross “always understood that it was about the team … about having more resources in creative, maybe nontraditional areas of xed income to drive returns,” Ivascyn said.

And Gross himself was an avid consumer of the broad-based expertise he helped assemble. He would be the rst person in the of ce and “in very active fashion” would see all the specialty areas of the rm and look for their best ideas, eyeing them as “structural sources of return,” Ivascyn said.

Gross retired from Janus Henderson in early 2019 to focus on managing his foundation’s assets.

Gross, in comments forwarded by a spokesman, said he was “especially proud to have been on the ground oor of helping to create a rm that continues its great standing for more than 50 years.”

The bond king’s departure, meanwhile, didn’t mark a before-and-after dividing line for the workings of the rm.

Today, at the margin, there’s more of a focus on portfolio management teams as opposed to earlier years, when funds might have been associated with a single name — the “Bill Gross total return fund” or the “Ben Trotsky high yield fund.” But the greater team focus now may simply re ect the fact that markets are becoming increasingly complex, Ivascyn said.

PIMCO has found that having small, tight-knit groups of portfolio managers running the rm’s strategies results in “very, very positive outcomes.” However, each team has a “PM 1” to ensure someone there is making the decisions, avoiding “wishy-washy” outcomes, Ivascyn said.

As of mid-2024, PIMCO reported AUM of $1.88 trillion, back to the

level it had when Gross jumped ship in September 2014 — a feat some analysts said shouldn’t be downplayed.

PIMCO’s ability to absorb Gross’ departure and retain its status as a respected industry leader can be seen as proof that, even if he was the face of the rm, it was never a oneman show, said Mark McKeown, San Diego-based principal and head of xed-income research with Meketa Investment Group.

Ivascyn said when Gross left, it was clear PIMCO was going to see out ows. “When bond kings leave rms, and founders leave rms, there’s going to be some assets that go either with him or leave because of that type of change.”

Victim of its own success

Morningstar’s Jacobson agreed but added that PIMCO’s own success in the years coming out of the global nancial crisis may have exacerbated those out ows. Few rms gathered a lot of assets following the 2008-’09 nancial crisis and “I can’t think of any as dramatic or high pro le as PIMCO,” he said.

happened or how good a job PIMCO did with the overall client base at informing those investors that “PIMCO was more than Bill Gross, I was pretty con dent there would be a lot of that newer money leaving,” Jacobson said.

Out ows were further aggravated by a spate of high-level management turnover, punctuated by the departures of CEO and co-CIO Mohamed El-Erian in January 2014, and his successor as CEO, Douglas Hodge, two years later.

El-Erian couldn’t be reached for comment.

Ivascyn said under Emmanuel Roman, the Man Group executive

The rm attracted more than $160 billion in U.S. xed-income in ows in 2009 alone, P&I reported in early 2010, citing data from eVestment. That was more than four times the amount captured by any other manager.

Certain strategies had amassed hundreds of billions of dollars between 2008-’09 and when Gross left.

“As an outsider, I thought of some big proportion of that money as hot money — not necessarily market timers, but in the sense of retail investors chasing a story and a name, and who likely put their money in there because of what they knew about Bill Gross,” Jacobson noted.

That meant that no matter what

renewable energy and road transportation,” the spokesperson added. “BCI has two investment professionals based in Mumbai to support deal ow and to manage our investments.”

BCI’s other investments in India include Summit Digitel, one of India’s largest mobile tower installation companies and a provider of telecom and wireless communications; Cube Highways, an infrastructure investment trust; and Data Infrastructure Trust, Summit Digitel’s holding company. “With the acquisition, DIT is positioned to become the largest tower portfolio in India and the largest platform of telecom towers globally, excluding China,” the spokesperson said.

BCI also holds investments across Latin America focused on electric transmission, power generation, timberlands, agriculture and road infrastructure.

In 2006, BCI made its rst direct investment outside of North America and Europe through Transelec, a power transmission company in Chile. In 2016, BCI made its rst stand-alone renewable energy investment in Isagen SA, a hydroelectricity platform in Colombia. In 2017, the pension fund manager made its rst investment in Uruguay through

LUMIN, a timberlands and forest products company. And in 2021, BCI, alongside some partners, acquired assets to form Vista Hermosa Inversiones Forestales, a company focused on sustainable management of timberland assets in Chile.

Krystkowiak of Themes ETFs said that among emerging market economies, India and Southeast Asia have the greatest potential for both economic expansion and improvements in infrastructure to support future growth. “Expanding electrical grids throughout the region are ex-

pected to drive signi cant demand for copper and other industrial materials,” he said.

CPPIB’s investments

The Canada Pension Plan Investment Board, Toronto, has also invested in various infrastructure-related entities in the emerging markets.

As of March 31, in India, CPP owned APL Apollo Tubes, a maker of structural steel tubes, which are widely used in infrastructure projects; Indus Towers, which provides infrastructure services to mobile

… macro calls are important, the secular thinking is important, but the low-hanging fruit are structural inef ciencies or market inef ciencies tied to either people making less-optimal decisions from a behavioral perspective, or — more importantly — taking advantage of non-economic actors within the xed-income markets.”

At the end of the day, ‘(Bill Gross) did an amazing job of helping to build a world-class investment company.’

MORNINGSTAR RESEARCH SERVICES’ ERIC JACOBSON

who joined PIMCO as CEO in 2016, the rm’s operations have “gotten back to normal.”

And that, hopefully, will mean less drama when the next generational leadership shift occurs.

“When we have future succession, when we have future change in the organization, (we’ll) strive to have it go more smoothly than it did 10 years ago, to state the obvious,” Ivascyn said.

Gross’ influence Meanwhile, Gross’ in uence continues to be felt at PIMCO today. For example, at a client event in late September, Ivascyn said he spent time in his prepared remarks “quoting Bill from a client conference in 2003, where he talked about every institution needing good structure. And what he meant by that was that

network operators; NHPC Ltd., a hydroelectric power generator; and Powergrid Infrastructure Investment Trust, which owns, constructs, operates, maintains and invests in power projects.

In Mexico, CPP owns Grupo Aeroportuario del Pací co and Grupo Aeroportuario del Sureste, both airport operators. “As an active, global infrastructure investor, we currently hold 29 investments, including toll roads, ports, utilities and digital assets across 13 countries in both developed and emerging markets,” CPP stated in its 2024 annual report.

As of March 31, infrastructure accounted for 8% of the pension fund’s C$646.8 billion in assets. Infrastructure investments, CPP stated in the report, delivered a net return of 2.6% in scal 2024. “The portfolio experienced mixed results, with gains driven by toll road investments, partly offset by lower performance in select logistics and utilities investments.”

(The total fund returned a net 8% in that scal year.) For the ve-year period, the infrastructure portion returned an annualized net return of 5% (versus an annualized 7.7% for the total fund)

CPP declined to comment on its emerging markets infrastructure investments.

Challenges

But there are challenges in investing in emerging markets infra-

Gross and the PIMCO team “were talking about these portable alpha strategies and structural inef ciencies before I joined the rm (in 1998) — and it’s one of the reasons why I wanted to work at PIMCO,” Ivascyn added. “A lot of things don’t change (and) we continue to try to leverage the great work” that Gross and other veterans, including Chris Dialynus and Dave Edington, did way back in the day. Another tie with PIMCO’s past that Ivascyn cited is William Thompson, CEO from 1993 until his retirement in 2009 and now adviser and chair emeritus for the rm. With investment consultants increasingly favoring strategies managed by teams as opposed to star managers, it’s an open question as to whether PIMCO could crown another bond king in the future.

Ivascyn, an in uential investor himself as lead portfolio manager on PIMCO’s $160 billion income strategy, suggested he isn’t holding his breath on that score, noting that it’s hard to say exactly what the title of bond king implies. After all, he said, there’s no “stock king” or “commodities king.”

Still, if anyone has a justi able claim to that title, it’s Bill Gross, he said.

In his comments, Gross said he was “never a king in my mind — always insecure and happy only when the previous day’s performance showed positive ‘alpha.’”

structure assets.

“Considerations around regulatory and political stability, currency volatility, approval timelines, and contractual certainties can be barriers for infrastructure investors in many emerging markets,” the BCI spokesperson said. “We are seeing progress on more investmentfriendly policy frameworks in certain regions as the regulatory regimes evolve and mature. We are also seeing engagement in constructive discussions to address gaps in attracting capital for infrastructure development.”

The BCI pension fund takes a “pragmatic approach” to investing in emerging markets, spending “considerable time assessing the local investment landscape and building relationships with local partners to deepen our knowledge of the region and understand potential risks.” As a long-term investor, it can take many years of due diligence before BCI directly invests in a new market, the spokesperson added.

“We continue to closely monitor the macroeconomic and political landscapes across emerging markets as part of our ongoing asset management efforts,” the BCI spokesperson noted. “As active investors, spending time on the ground is at the forefront of our approach. Our investment teams travel regularly to emerging markets to meet with and engage our partners and portfolio companies.”

INVESTMENT NEEDED: Aerial view of Mumbai’s Coastal Road project.

Bhushan Koyande/Hindustan Times

ERISA 401k and 403b plan sponsor fiduciaries are required to perform documented due diligence on all service providers paid through plan assets including your RPA. Ensure that your advisor is qualified and is the right RPA for your organization and workforce while fulfilling required ERISA documented due diligence from a trusted and independent source.

Self- duciary model makes for nimble decision-making

Q | What are the external forces that affect the Common Retirement Fund’s planning for the future?

A | The big challenge for us in recent years has been the volatility of the markets. Obviously, that’s very much in uenced by macroeconomic trends, global economic trends. Clearly, the instability in many regions of the world as well has an impact on the environment. And here at home, the political environment is a fair amount of unpredictability and instability.

That being said, because we are a large institutional investor, what we tend to do is spend a lot of time on developing our asset allocation and then sticking with it. So, to a certain extent, we don’t really react to anything that may be happening globally or in the U.S. because we’re just so big.

We monitor what’s happening because you have to. And I think there certainly are tactical decisions we can make now and then that does have an impact as far as where we’re putting money. We pay close attention to what’s happening, but at the end of the day, we kind of stick to whatever our plan is; I think that has served us well.

Q | Are there instability issues that are so severe that you decided to divest or to stop investing?

A | I think they’re probably few and far between. When Russia invaded Ukraine, is an example. Not that we had very much invested in Russia anyway, but we said we’re freezing, and we’re going to try to get out of all those (investments).

In terms of domestic issues that we felt compelled us to change strategy, when the Sandy Hook shootings happened in Connecticut. ... We looked at our portfolio, we saw we did have some investments in gun manufacturers, and we took the view that — always looking at it from the perspective of duciary and impact on returns — that long term as an investment choice to have money in gun manufacturers is problematic and risky.

And I think the added layer of understanding that many of our system members work in schools. It just seemed not to be a place we wanted to be.

So that was an example of where, within our public equity portfolio, we made the decision to divest what we had and put a freeze on doing new purchases.

In both those cases, you’re not talking about huge percentages of our portfolio. Doing that did not, from our perspective, have any great investment risk. But we felt those are smart decisions from an investment perspective, and certainly ones that I could easily defend.

Q | What is the impact of the Fed’s recent interest-rate cut on your investment management?

A | It probably doesn’t change it a whole lot. Obviously, it will have an impact. We just adopted the asset allocation formally earlier this year. There was some assumption that the rates were going to start to moderate, but I wouldn’t say that had a huge impact on asset allocation.

Q | New York enacted a law in 2023 that allows the Common Retirement Fund and other state pension funds to expand their use of alternatives. What have you done?

A | We have put more in private equity and real estate and reduced public equity. I

think it would be fair to say much of that was a consequence of where we were at anyway. We were pleased to have the enhanced exibility.

Q | Real estate, relatively recently, has not been so good.

A | I actually think the assets there are going to perform well over time, but just because valuations going down, I don’t think the investments went bad, just that their values went down. We’re sticking to our commitment … Even though real estate was the only part of our portfolio that had negative (returns) at the end of this scal year (March 31), we’re going to take the long view that we want to continue to invest there. We do think it’s going to come back, and we don’t want to miss out on opportunities that are there now won’t be realized for ve or seven years. But sitting still is not a smart strategy.

Q | Real estate isn’t a monolith. What are the areas that you find to be the most attractive now and in the future?

A | I’d say we’re doing more in areas that we hadn’t been as much in logistics (and) warehouses. We are starting to do some investing in data centers and real estate related to data centers. Residential has challenges, but we think there are opportunities, especially affordable housing (because) there’s a big need for it.

Q | What about crypto?

A | We stay away from it. Clearly, there’s not the transparency, the regulation or oversight. So we’re not we’re not comfortable going there.

Q | When you make an allocation revision, please describe the process.

A | The staff does an analysis, and they work with our advisers, so if there needs to be a rebalancing, if it looks like we’re getting out of whack with where we want to be, they will make an evaluation. It usually would transpire over a period of weeks, and then it will come to me for a nal sign off. The monitoring is continuous, though, so if it gets to the point where they wanted, they feel the need to do a rebalancing, it’s pretty much been baked into the analysis.

Q | The Common Retirement Fund’s annual assumed rate of return is 5.9%, one of the lowest among state pension plans and lower than many that are less well-funded. Why?

A | We have been ramping down the assumed return over a period of time … I wouldn’t call it a pessimistic viewpoint, but certainly a conservative viewpoint, that over the long term for us, positioning us with a more conservative number would make sense. We’re a mature plan. Our contributions are less than our payouts, and I believe it was the right decision. I think I think we’re positioned appropriately, so I’m not anticipating a change there. I think it was smart to be a bit more conservative because there’s no 100% guarantee we make the 5.9% every year.

Q | Are there issues in New York that make pension management different than your peers?

A | We have more money going out than we have contributions coming in. I think that would be typical of any mature system. I guess the good news is our New York retirees are living into their 90s, so we’re happy about that.

But it means we have to anticipate paying out a lot more. Obviously, what sets New York apart from the other plans, except for Connecticut and North Carolina, is that we have a self-duciary model.

That structure enables us, in some cases, to move a little more quickly, perhaps, than some of the other structures. It doesn’t mean what people sometimes think, which is that I sit there, and I read The Wall Street Journal or P&I and I say buy this, sell that.We have a very elaborate process, very professional staff, consultants, advisers and partners. We have a lot of checks and balances before decisions are made. But I do think that structure has beneted us in terms of the speed with which we could sometimes act. We act deliberately. It’s given us a strength to protect the fund.

Keep in mind one of the things that people don’t fully appreciate about my role is that they tend to focus on the investment side. The real power actually is the ability to set the contribution rates, which for other funds are done legislatively or not done independently of the broader government. That’s been another source of strength to keep our funded status, our funded ratio, so strong.

Q | Do the legislators or governors try to impose their will on issues related to investment strategy?

A | It doesn’t happen a lot. It’s usually not successful. It’s not like we’re unconstrained. And I think the other piece sometimes folks don’t realize is that we are audited by the Department of Financial Services. There is some level of regulatory oversight. Every ve years, they do a deep dive audit.

Q | How much influence does the Legislature have on pension fund management? For example, legislators passed, and the governor signed, a law basing a retirees’ pension calculations on the average of their three highest consecutive annual earnings instead of the five highest. This covers more than half of the state employees, known as Tier VI employees, who were hired since April 2012.

A | It creates more pressure on us to have the money to pay for bene t enhancements. We don’t set the bene t level. We have to come up with the money to pay for what the bene ts are. So, there was certainly more pressure. Newer employees are looking at what older employees have and are saying, ‘Wait a minute.’ And there have been issues of recruitment and retention that enhancing the bene ts hopefully will address.

We said very clearly, ne, if you want to do

it, but there is a cost. We did raise the contribution rates that we announced (in September) for the payments due in February of 2026 to give them time to prepare.

But there is a slight increase … and a significant part of that, but not all of it related to the bene t enhancement for Tier VI. It would be fair to say there will be, as we as we head to the next legislative session, continued pressure for even more bene t enhancement.

Q | What are other pressures?

A | You also have the pressure from the retiree groups that have said you’ve done something for the active employees. New York has a COLA (cost-of-living adjustment) that has certain caps and limitations. Given how signi cant in ation has been in recent years, the retiree groups are saying that COLA needs to be revisited. So, I think there’s going to be continued pressure. And obviously the Legislature wants to be responsive to their constituents.

My only concern is, and my cautionary word to them — and to the governor — is (it’s) all well and good to try to keep everybody happy. But be mindful, there’s a price tag attached to it … I want to keep the plan as closely funded to 100% as possible. We’re certainly doing the goal of our hard work to get the investment return to exceed our long-term goal as consistently as possible. But if bene ts keep getting enhanced, if the only option to keep the plan well-funded is to raise contribution rates, I’m going to do it … I’m on the receiving end of whatever they do. We just always want people to know what the cost is.

Q | What other factors affect pension fund management?

A | The pace of retirement. One of the consequences of COVID is more people retiring, and I think that’s still the pattern, more than we had anticipated. The challenge there, when you have a spike in retirements, the more recent retirees, obviously, their pensions are higher because they’ve been at a higher salary. And what we’re also seeing at the state level and the local level is that as part of contract negotiations (there) have been signi cant salary increases.

What I’ve had to explain to the employers is that their billing is re ective of what their payrolls are. They may, at times point to us: “Why are you raising the rates as well?” Part of it is your bill is higher because you’ve given some generous contracts out in some cases. You’ve spent a lot of money on overtime, which also has an impact on nal average salary in many cases. These are factors that we don’t control. 

with New York Common’s Thomas J. DiNapoli

Retirement Income Solutions: Delivering Lifetime Beneﬁts

Wednesday, October 23 | 2:00 pm ET

Deﬁned contribution plan sponsors are at a pivotal moment to provide retirement income solutions to their participants, given the prevailing economic and demographic imperatives that underscore the urgency of addressing – in the most e ective way possible – the decumulation conundrum. A majority of plan participants are ill-equipped to meet their income needs in retirement, as several industry surveys have shown. A host of underlying drivers – economic, demographic, cultural, investment and strategic – have coalesced and they point to annuities as the most viable answer to meeting this challenge for participants in retirement.

At this webinar, TIAA – which has long provided in-plan guaranteed income to nonproﬁts – as well as its investment manager Nuveen, o er a cogent and comprehensive perspective on the need and approach to lifetime income for all types of DC plans. Flexibility, ﬁduciary compliance and customization are all key aspects of these solutions today. You’ll also hear practical details on how to consider the investment allocation and investment vehicles; best practices that can deliver participant-friendly features and targeted education; and selecting an annuity provider – all from industry teams with long experience in implementing annuities for DC plans.

The Case for Alternatives in DC Plans

Available on demand

Momentum has been building to include alternative investments in DC plans. Plan sponsors are looking at the strong, long-term returns that alternative investments — such as private equity, private debt and real estate — have generated, and they aim to harness their benefits, including diversified returns, low correlation with traditional assets and robust yields, for their plan participants. Alternatives can be integrated into DC investment lineups via several paths, including target-date funds, managed accounts, CITs and other professionally managed options. While there have been a number of supportive developments to encourage usage of alternatives in DC plans, including clarification by the U.S. Department of Labor, a number of challenges persist relating to cost, transparency, liquidity and suitability. P&I’s multi-sponsor webinar highlights the current considerations and solutions for alternative investments in DC plans, including their role in diversified portfolios; appropriate vehicles; use cases; and the legal, regulatory and fiduciary concerns that plan sponsors must address.

REPLAY | pionline.com/Alts-in-DC-webinar24

Ongoing risks

Some of the risks CalSTRS’ portfolio will encounter include political risk with a presidential election on the horizon and the risk of war with a number of hot spots across the globe, said Stephen P. McCourt, managing principal and co-CEO of Meketa Investment Group, CalSTRS’ general investment consultant, at the Sept. 25 investment committee meeting.

CalSTRS’ board built in exibility in the portfolio with leverage and liquidity tools to allow the pension fund to nimbly invest through in a crisis, Chan said at the same meeting.

There was a signi cant drawdown in 2022 equity markets during which CalSTRS was able to move capital into equity derivatives, a form of leverage, to rebalance its equity portfolios and capture excess value until the market snapped back. CalSTRS has the ability to add 10% leverage the total portfolio.

“As we know the market really came back very, very quickly,” Chan said. “Things can happen more quickly than they had in the past and we have tools to create a more resilient portfolio.”

CalSTRS’ starting point is its mission of securing nancial futures and sustaining the trust of California’s teachers, including his spouse, Chan said.

“How do we achieve our mission? One, we take a very long-term approach. That’s how we will succeed,” he said

CalSTRS of cials are also developing a very diversi ed portfolio across geographies, asset classes, sectors, risk factors, “you name it,” Chan said.

And CalSTRS is developing “an expert investment staff” to serve as “trusted stewards” who are positioning the portfolio based on dynamic market conditions, he said.

Next generation

On his rst day as CIO, Chan established a new division called total fund management to make the pension fund more resilient, exible and dynamic, and promoted June Kim, formerly director of global equity, to the head the division as senior investment director.

Kim was the rst promotion in a leadership transition CalSTRS has been undergoing since Chan moved up to the top investment job.

In September, Chan named David Murphy director, taking over for Kim as head of CalSTRS’ $144.9 billion global equity portfolio, and Rosie Lucchesini-Jack as director of the $41.2 billion xed-income portfolios, replacing Glenn Hosokawa, another long-tenured investment of cial who had retired after 25 years at CalSTRS.

Charles Fitzpatrick was named

‘How do we achieve our mission? One, we take a very long-term approach . That’s how we will succeed.’

C al STRS’ SCOTT CHAN

interim director of in ation sensitive, taking over from 31-year veteran Paul Shantic, who retired at the end of September, and Sally Stocks was promoted to senior portfolio manager in real estate, a new role. Some leadership changes did occur before Chan was named CIO. In September 2023, for example, Julie Donegan had been promoted to real estate investment director from interim real estate director, becoming the rst female executive to take on the role. She took over from Mike DiRe, who was appointed senior investment director of private markets in January.

“I am very excited for the next generation here,” Chan said at the same investment committee meeting after describing what he called the leadership transition.

“I’m in the middle of the generation that is retiring and the new generation,” Chan said at the meeting.

“For me passing the baton, passing the torch ... doesn’t happen overnight.”

Chan noted that many of the new generation were mentored and coached by those who have since retired as well as current top executives.

CalSTRS is focused on creating the opportunity for advancement, said Mindy Tirapelle, CalSTRS spokeswoman, in an emailed response to questions. “We have developed mentorship and succession planning programs to provide coaching and career opportunities to employees.”

Diversification pays off Chan was also at the helm of the second-largest public pension fund in the nation in July when CalSTRS announced its scal-year returns in which the pension fund outperformed its benchmarks in all time periods. CalSTRS earned a 8.4% net return for the year, 8.5% for the ve years, 7.7% for the 10 years, 7.6% for the 20 years and 8.1% for the 30 years ended June 30.

“Our strategic asset allocation explains 90% of our return and we, as a staff, try to add value and create more return than our benchmark,” he said in the interview.

Chan said he prefers to look at a longer time period, like ve years, rather than the one year when analyzing performance.

“I look at the one-year as one mile in a marathon,” he said.

According to public pension fund returns tracked by Pensions & Investments, CalSTRS ranks below the 9.8% median for the one year but was 13th for the ve-year period and ninth for 10 years.

Another signi cant reason for CalSTRS’ 8.5% net return in the veyear period is the plan’s focus on moving about $50 billion in assets into private markets and alternative assets during last ve or six years, he said at the meeting.

CalSTRS has been increasing its private markets allocations over that period including in 2021 adding a 5% private credit allocation. After its last asset-liability management review in 2023, CalSTRS lowered its public equity allocation by 4 percentage points to 38% to increase its allocations to private assets, including a 2-percentage-point increase to 14% to fund its private credit direct lending strategy, a 1-percentage-point increase to its private equity allocation to 14% and a 1-percentage-point increase to its in ation-sensitive allocation to 7%.

Over the past ve years, diversication really paid off.

“There were surprises and bumps,” including the pandemic in scal year 2021, he said. “That was a de ning year where diversi cation really paid off,” Chan said.

During the ve-year period, the board took steps to give staff more exibility including approving in January entire portfolio leverage of up to 10% to smooth out cash ows and wider ranges around its asset class target allocations.

The portfolio’s outperformance means that the team was able to add value above the benchmark and part of this is the collaborative model, Chan said in the interview.

Chan is also looking to bring more assets in-house.

In the private markets, CalSTRS is “unlikely to build an internal Blackstone,” but its collaborative model has a wide array of strategies that give CalSTRS more control, such as co-investments, joint ventures and minority or majority ownership interests or revenue-sharing with money managers, Chan said. Since 2017, the collaborative model as well as the contribution of its expert staff has saved CalSTRS $1.6 billion in fees and created more than $10 billion in value added to the fund, he said.

“It was part the collaborative model ... but part our expert staff selecting better managers and beating the benchmark,” Chan said.

Risk transfer

Aon, said the lawsuits don’t appear to have had much impact on the overall PRT market.

“I think when the lawsuits did hit earlier this year, we weren’t sure what to expect if it was going to slow things down because there was a scenario where you could really see it slowing things down signi cantly, and that really didn’t happen,” said Nichols. “I think the market as a whole this year we’re expecting to nish around $45 billion to $50 billion (in volume), so at similar levels to what we saw last year or higher.”

Nichols said she has not seen a lot of companies pull back from transactions as a result of the litigation, but Athene may very well have been affected by the lawsuits.

“You can certainly see an impact on Athene’s business,” she said. “They went from writing 20% to 30% of the market annually, and they didn’t write (one) $1 billion (transaction) yet this year.”

Kent Mason, partner with law rm Davis & Harman, said he believes the lawsuits could not survive motions to dismiss, and there is no legal standing for the complaints.

“The defendants are also very appropriately challenging the standing of the plaintiffs to sue,” said Mason. “In order to sue, a plaintiff must have been harmed in some way. None of the plaintiffs have lost a penny; they have continued to receive bene ts when the bene ts are due, so the plaintiffs do not have standing to sue. Without standing, their complaint must be dismissed.”

In response to the lawsuits, an Athene spokesperson said, “These complaints are entirely baseless attempts by class action attorneys to enrich themselves at the expense of retirees. Every pension group annuity participant whose bene ts have been guaranteed by Athene has received and will receive their promised bene ts in full. In each pension group annuity transaction for which Athene has been selected, there has been a robust review process carried out by a duciary and their independent advisers who are experts at assessing insurer safety.”

Sean Brennan, executive vice

president and head of pension group annuities and ow reinsurance at Athene, said in an interview that the rm is a safe and secure provider of annuity bene ts.

Brennan said 95% of its xed-income portfolio is investment-grade, in line with the industry.

Regarding criticisms that an insurance company like Athene relies too much on alternative asset classes like private credit, he said there has been a misperception that public investment-grade xed income is safer, and that private credit — or as Brennan calls it, private investment-grade, is riskier.

“That’s been challenged by data over decades,” said Brennan. “Public investment-grade is thought of as more liquid, but when you need that liquidity it’s often when markets are the most stressed. What we’re seeing now is a recognition that public doesn’t mean safe and private doesn’t mean risky.”

Brennan said the real question is: “What is the underlying credit, and is it appropriate for the liquidity prole I need?”

AM Best is a global credit rating agency and the largest specializing in the insurance industry and recently upgraded Athene to an A+ rating, aligning it with other insurance giants.

He also noted that credit rating is not the sole determiner of “safest annuity available” as de ned by 951, and he said the bulletin correctly lists other aspects of an insurance company’s pro le that should de ne it as “safest.”

“When I look at what plan sponsors are evaluating, it’s how strong is this insurance company? How much capital do they have? What is their historical ability to raise capital? How have their investments performed from a risk and return perspective? And I think when sponsors have looked at that, they’ve said Athene is the safest available annuity provider, and I think that’s absolutely right,” said Brennan.

More attention

That concept of “safest available annuity” de ned by Interpretive Bulletin 95-1 has been getting more attention since a review of the bulletin was mandated by SECURE 2.0, the retirement security package Congress passed in December 2022.

Among the concerns raised by stakeholders at an ERISA Advisory Council meeting in July 2023 to address IB 95-1 was the growing role of private equity in the PRT market.

EBSA found in a June report that IB 95-1 “continues to identify broad factors that are relevant to a duciary’s prudent and loyal evaluation of an annuity provider’s claims-paying ability and creditworthiness. EBSA also nds that it is desirable for guidance in this area to remain principles-based.”

The agency also said in the report that further explorations into the

study it more in depth,” said Moran. “We need to engage a broader number of constituents, and so it wasn’t de nitive in anything other than this is a really important topic we need to spend more time on, and I think this is something we’re going to continue to follow as they continue down this journey.”

“But in the meantime, I think for a lot of plan sponsors, it’s business as usual,” said Moran.

Matt McDaniel, U.S. pension strategy and solutions leader at Mercer, said the EBSA report means that the 95-1 that has stood for decades re-

developments in the PRT market and insurance industry “is necessary to determine whether some of the Interpretive Bulletin’s factors need revision or supplementation and whether additional guidance should be developed.”

Michael Moran, senior pension strategist for Goldman Sachs Asset Management, said in an in interview that the report means it’s business as usual for corporate plan sponsors seeking to complete PRT deals.

“I don’t want to say they (EBSA) kicked the can down the road, but it was them acknowledging this is an important issue and we need to

mains the best guidance for duciaries.

“It left us basically in the same state of play we were in before, and that’s the formal guidance from 951,” said McDaniel, “and that hasn’t changed. There are any number of things that sponsors might reasonably look at above and beyond those 95-1 requirements, and many of them still do when they’re going through and selecting insurers.”

“But it really hasn’t fundamentally changed the way that we advise sponsors on those transactions or that sponsors and duciaries are doing to make those insurer selec-

tions,” said McDaniel.

Large transactions continue Pension buyouts show no sign of slowing down. Well after news of the lawsuits broke, news of multibillion-dollar transactions still arrived.

The largest transaction of 2024 thus far was a Sept. 11 group annuity contract purchased by International Business Machines Corp., Armonk, N.Y. to transfer $6 billion in U.S. pension plan liabilities to Prudential Insurance Co. of America.

On Jan. 1, Prudential will take on the responsibility of paying bene ts to about 32,000 retirees and beneciaries covered by the IBM Personal Pension Plan that represent “certain pension bene ts that began to be paid prior to 2016.”

The announcement of the IBM buyout came almost exactly two years after a previous buyout, in which the company purchased group annuity contracts from Prudential and Metropolitan Life Insurance Co. to transfer a total of $16 billion in U.S. de ned bene t plan liabilities.

Those transactions, which closed Sept. 13, 2022, combined to make up the second-largest pension plan buyout in U.S. history.

As of Dec. 31, IBM’s U.S. pension plan assets totaled $24.44 billion, while projected bene t obligations totaled $19.85 billion, for a funding ratio of 123.1%, according to its most recent 10-K ling.

While he wouldn’t comment on the IBM transaction, GSAM’s Moran said a large pension surplus allows corporate plan sponsors the freedom to explore multiple avenues of reducing risk.

Multiple reports show that the aggregate funding ratios of U.S. corporate pension funds has remained above 100% throughout 2024, thanks primarily to strong market returns. One report released on Oct. 2 was Wilshire Advisors’ estimate that the aggregate funding ratio of U.S. corporate plans reached 101.6% as of Sept. 30.

“The PRT market remains robust,” said Moran, “and a lot of that’s driven by where funded levels have gone and sponsors can take actions without having to make a contribution into the plan. This makes it easier to do things, so things remain robust in terms of the activity level.”

display of its new enforcement initiative. Since then, dozens of rms, including Goldman Sachs ($125 million); Morgan Stanley ($125 million); Ameriprise Financial Services ($50 million); LPL Financial ($50 million); Raymond James & Associates ($50 million); Invesco Distributors ($35 million); Moody’s Investors Service ($20 million); and S&P Global Ratings ($20 million), have settled similar charges.

The SEC isn’t alleging these rms, nor the dozens of others, are engaging in fraud by not preserving business-related texts, according to Marc E. Elovitz, co-managing partner at Schulte Roth & Zabel. “What they’re saying is there’s these books and records requirement and we’re not going to be able to investigate fraud unless we get access to all this stuff,” Elovitz said.

Often in the announced settlements, the SEC says broker-dealer rms’ employees communicated

through personal text messages about their rm’s business, or that investment adviser rms’ employees sent and received off-channel communications related to recommendations or advice made or proposed.

The SEC in multiple instances has also said that the rms’ failures involved employees at varying levels of authority, including supervisors and senior managers.

Commissioner dissent

The SEC has said in statements touting the enforcement initiative that record-keeping requirements are foundational to investor protection and the SEC’s ability to investigate other forms of misconduct.

cord-keeping violations, including one Sept. 24 in which they said, “It does not appear that rms have an achievable path to compliance,” and urged “our colleagues to reconsider our current approach to the off-channel communications issue.”

But while supporting the record-keeping requirements themselves, the SEC’s two Republican commissioners — Hester M. Peirce and Mark T. Uyeda — said the agency’s enforcement strategy is misguided.

The two commissioners have issued joint public dissents on multiple SEC orders announcing re-

late in an investigation they discover that there are relevant text messages, but the rm in question hadn’t retained them.

“As communication has gone more and more to text, it has become more and more relevant to investigations,” the attorney said.

‘At the moment we’re left with reading tea leaves on all these enforcement actions.’ MAYER BROWN’S ADAM KANTER

The Republican commissioners as well as several attorneys who counsel rms on off-channel communications said the SEC’s record-keeping rules are the product of simpler times, before text messages became the preferred method of communicating for many.

One such attorney, who is a former SEC enforcement of cial and asked not to be identi ed, said it can be frustrating for SEC staff when

“Sometimes the more interesting communications are not done on email, they’re done via text.”

Added Kanter: “At bedrock, there’s a good reason for why the SEC is doing what they’re doing.”

Continued focus

Sources said it’s wise for rms to take stock of their record-keeping policies and ensure there’s ongoing monitoring, offer training to staff and invest in technology that can support capturing employee texts if need be.

“That implementation of the policy and ongoing monitoring can look really different depending on the type of rm, but it may include some steps to review communications, speaking to people about compli-

ance, imposing discipline if there are violations,” the attorney said.

It’s widely expected that the SEC’s focus on off-channel communications will continue.

“I’m not sure that there will be a series of sweep investigations like we’ve seen over the past couple of years, but I do think it’s going to be a typical part of an SEC exam,” the same attorney said. “And I think questions about text record keeping will come up in typical enforcement investigations as well.”

Peirce and Uyeda have called for modernizing the SEC’s record-keeping rules, but there’s nothing imminent slated on the SEC agenda.

Several sources said SEC guidance on this issue would be helpful to detail to rms exactly what they should be doing to avoid an SEC charge.

“I think that would be appreciated,” Kanter said. “Because at the moment we’re left with reading tea leaves on all these enforcement actions and wondering what could we have possibly done in addition to what we’re already doing to avoid ending up in this kind of a position.”

95-1 STILL BEST GUIDE: Mercer’s Matt McDaniel

Eric Forberger

Fairview

venture capitalists as well as diverse and emerging managers. Its staff, now at a total of 25, also would endure economic crises, the COVID-19 pandemic and the racial reckoning following the death of George Floyd — during which Morse said the rm “had an open door to everyone.”

“We have always been comfortable in speaking clearly about who we are, what we do and how we have done that successfully,” Price noted. “And that is very important for rms like ours to do.”

But Fairview couldn’t have come this far without the support of partners. In their rst two years, the co-founders went across the country to approach primarily public pension funds, they said in a reside during a celebratory dinner in New York.

The conversation was facilitated by Robert Greene, president and CEO of the National Association of Investment Companies, which represents diverse-owned private equity rms and hedge funds. Price served as the Washington-based trade association’s president before launching Fairview in 1994.

In an interview as she was honored in Pensions & Investments’ 2023 In uential Women in Institutional Investing program, Price described reaching the milestone year as phenomenal and amazing. To her point, she had more to celebrate aside from the rm’s anniversary.

Earlier this year, Fairview released its 10th annual report on the state of women- and minority-owned managers in private equity and venture capital. And in April, New York Life announced it bought

WNBA

start play in the 2026 season and will be owned by investment rm RAJ Sports, which is already a co-owner of the Sacramento Kings of the NBA, as well as the controlling owner of the National Women’s Soccer League’s Portland Thorns.

RAJ Sports, part of RAJ Capital, an alternative investment rm based in Newport Beach, Calif., founded by brother and sister duo Alex Bhathal and Lisa Bhathal Merage, could not be reached for comment.

Noting that it’s “pretty unusual” for a private equity rm to buy a franchise outright — as RAJ Sports did with the Portland club — she expects to see more private equity funds allocate a portion of limited partner capital to WNBA franchises “as they look for ways to diversify portfolios and improve overall returns.”

Valuations and other metrics

Metrics surrounding women’s sports are only growing stronger, said Greg Portell, senior partner and global markets lead at global strategy and management consulting rm Kearney.

“Valuations in sports come down to three elements: revenue, fan interest and scarcity of assets,” he said. “The WNBA has seen unprecedented jumps in revenue and fan engagement, which bring more excitement to owning a franchise,” he said. “Investors are betting that these trends will continue, which draws fresh capital to the sector and raises valuations.”

a minority stake in the rm — an expansion from the insurer’s initial $200 million commitment in 2021, which stemmed from a conversation with a senior investment person at the Ford Foundation.

Morse and Price said progress like this paves the way for success for the rm’s next generation of leaders, including managing partner Kola Olo nboba. A self-described “retired, reformed physician” from Nigeria who obtained an MBA from the Massachusetts Institute of Technology, he joined the rm almost 18 years ago after serving as an engagement manager at McKinsey & Co. He said working at Fairview “was by far the best professional decision I made in my life.”

“We have a saying at Fairview — originally coined by Larry Morse, but we’ve all adopted it — which is ‘we chose you, and you chose us,” Olofinboba said in opening remarks at the event. “You don’t get to be 30 at all as an organization without the support of a village of wonderful people,” he added.

An appropriate name

The initial investment thesis of Fairview was to “aggregate as much capital as we possibly could to talented, diverse fundraisers” who have demonstrated their ability to work pro tably with diverse people across the U.S., Morse said. Separately, he noted that they wanted a name echoing the rm’s intention and commitment to inclusivity in its investment practices.

The idea for Fairview was proposed by an industry peer to Price while she led NAIC.

Among the trade association’s members, venture capital rm Syncom Capital had traveled “all over the country looking for a man” to take on a project to launch a fund-

Private equity ownership of sport franchises has been increasing for the past decade across all leagues across the globe so it “would not be surprising to see more private equity ownership in the WNBA too,” said Nola Agha, professor of sport management at the University of San Francisco and a sports economics consultant. A representative for the WNBA could not be reached for comment. In early September, WNBA Commissioner Catherine Engelbert told CNBC that “there’s a lot of capital coming into women’s sports” and “now we’re getting calls, many calls, from people, private equity, everybody who wants to invest in women’s sports.”

The 2024 season was key for the WNBA, which has existed for 28 years.

On July 24, the WNBA inked a new 11-year media rights deal that renewed partnerships with Disney and Amazon Prime Video and also added a new rights holder, NBCUniversal. The total deal is reportedly valued at about $2.2 billion.

In addition, this past season the WNBA attracted an all-time record of more than 54 million unique viewers across various media networks, including ABC, CBS and ESPN. The Aug. 18 game between the Seattle Storm and Clark’s team, the Indiana Fever, drew 2.2 million viewers on ESPN — the highest gure ever for a WNBA game.

The WNBA also said it recorded 2024 attendance of about 2.35 million, the highest total attendance in 22 years, and up 48% from last season.

The league had 154 sell-out games, a 242% increase from last season’s g-

of-funds platform for diverse managers, but there was little appeal in running a startup, Price said. Herbert Wilkins, managing general partner of Syncom, approached her with the opportunity during a 1992 meeting with the NAIC board of directors.

And while she said she loved her job, she knew the industry well and understood the particular need for diverse people in this space to raise capital. A 2021 study by the John S. and James L. Knight Foundation found that diverse groups managed only 1.4% of capital within the $82 trillion asset management industry.

Price noted the opportunity was well known by professionals including Morse, who was founding principal of TSG Ventures and involved as a member of NAIC. The trade association president invited Morse to talk over lunch one day, and “literally in the middle of the conversation, I just stopped, and I said, ‘Larry

ure of 45. The Fever’s total home attendance of 340,715 fans marked a single-season record for a WNBA team, and a 36% improvement over the prior record. Indiana itself saw a 319% year-over-year surge in attendance, tops in the league.

Dwarfed

by NBA

Despite all the attention now surrounding the WNBA, the league remains well behind the NBA in terms of nancials.

The most valuable franchise in the WNBA, the Las Vegas Aces, is reportedly valued at $140 million — a gure dwarfed by the priciest NBA club, the $8.3 billion Golden State Warriors.

Salaries lag as well. The average annual NBA salary is expected to reach $11.9 million next season, up from $9.7 million in 2023-2024.

By comparison, the WNBA average annual salary was $147,745 in 2023, with the top players earning about $250,000 in 2024.

David Berri, professor of economics at Southern Utah University, who also co-wrote a book on women’s sports titled “Slaying the Trolls! Why the Trolls are Very, Very Wrong About Women and Sports,” noted that investors are still valuing men’s sports teams higher than women’s teams.

Berri pointed out, for example, that the aforementioned $2.2 billion media rights deal the WNBA secured a few months ago was just a small fraction of a $76 billion media deal the NBA signed.

Why invest in the WNBA?

So what would make a WNBA team an attractive investment for a

pension funds, including the $3.7 billion City of Dallas Employees’ Retirement Fund, the $33 billion Los Angeles Fire & Police Pensions and the $267.7 billion New York State Common Retirement Fund. Another investor has been the $56.8 billion Connecticut Retirement Plans & Trust Funds, which has committed $1.7 billion to the rm through March 31, according to agenda materials for a Sept. 11 meeting. The Hartford-based allocator’s portfolio had 8.4% exposure to the rm through 10 investments, including the Fairview Constitution III fund, which since its 2007 inception had an internal return rate of 17.85% and distributed to paid-in capital ratio of 2.5.

would you be willing to consider being my partner?’”

Morse took six months to think about the offer, noting that he knew little about the fund-of-funds model and that he needed time to evaluate if “this thing has a legitimate shot at getting successful” before risking his career. But as he and Price got to know each other more — even visiting their churches — Morse concluded that “we should do it.”

Price said that she and Morse “had to be comfortable with getting mostly no’s” in the early days. But support came from within NAIC — a member pointed the two co-founders to Bigler Crossroads. The Connecticut-based fund-of-funds manager helped in the early days, lent them its back of ce and in uenced the location of Fairview’s headquarters, currently in West Hartford. In the ensuing years, Fairview would receive commitments from

private equity rm or any investment rm?

“Private equity investors look for strong growth in asset value,” the University of San Francisco’s Agha said. Teams in the WNBA, as well as the National Women’s Soccer League, are attractive investments, she noted, “because they are historically undervalued, but have both reached in ection points which suggest strong future growth.”

George Pyne, founder and CEO of private equity rm Bruin Capital and nonexecutive chairman of Courtside Ventures, which specializes in early-stage sports, media and technology investments, said the WNBA presents an early stage investment with much upside potential. Bruin Capital has no ownership in a WNBA team, he said.

The WNBA has no domestic or international competitors that could take their top talent, he added.

Some bene ts of owning a sports team are not necessarily nancial.

“While there are economic benets, a big attraction for owning a sports team is the prestige that comes with it,” Portell explained.

“The (rapidly) rising popularity of the WNBA is an investment positive, but even with recent success, the WNBA remains one of the more affordable leagues for investors.”

And the growth of the WNBA also makes it an appealing investment, he noted. “Assets like the NBA, NFL and MLB are mature and don’t come for sale very often,” Portell added. “In contrast, the investor base for women’s leagues including the WNBA are becoming increasingly diverse,” with more women owning teams.

In addition to retirement funds, support has also come from people like billionaire philanthropists Steve and Connie Ballmer through a total $250 million investment to Blackowned rms in 2022. In the same year on the endowments front, the Ford Foundation and the $405.4 million Visa Foundation announced a partnership with the rm to deploy capital to its Fairview Foundations Emerging Managers Fund. The strategy invests in funds and directs co-investments backed by diverse venture capital and private equity managers.

Spinning out with grit

Morse said the rm’s portfolios include emerging managers and venerable managers of long tenure, which he noted work in a dynamic space within venture capital.

“Yes, there are rms that have been in business 10, 20 (and) 30 years. But if you look over time at those rms, any number of talented people have spun out of those rms and formed emerging manager rms,” Morse said.

He noted that these rms may

However, Portell pointed out that it “would be a mistake for any sports investment to be considered something that is easy to move out of quickly.” But as the league grows and develops, there could be more turnover among owners, he said.

New franchises

The WNBA recently awarded new franchises to the Bay Area (the Golden State Valkyries, who begin play next year) and to Toronto — increasing the number of teams in the WNBA from 12 to 15. The league reportedly wants to add a 16th team by 2028.

Pyne of Bruin Capital, who formerly served as president of media rm IMG Sports and Entertainment, as well as the chief operating of cer and board member of NASCAR, noted that private equity rms might need a longer time horizon and some patience with such an investment in order to realize attractive returns.

The WNBA may also be following on the same trajectory as its elder brethren, the NBA. From 2019 to 2023, revenue in the WNBA doubled from $100 million to $200 million, said Berri of Southern Utah University. In the NBA’s third decade — the same decade the WNBA is in now — its revenue also doubled to $200 million in a few years, adjusted for in ation, he noted.

“This suggests the WNBA is on the same path as the NBA,” Berri said. “From 1970 to today, NBA franchise values have gone from being in the millions to the billions. If the WNBA does the same — and I think they will — then now is the time everyone should want to invest.”

ANNIVERSARY GALA: Fairview’s 30th anniversary dinner

Gary Pope dinner.

have not been called “emerging managers.” The term’s de nition varies depending on factors such as location and asset class. Including that of Fairview’s, some de nitions cap the asset size at no more than $500 million.

But emerging managers are “just new iterations, if you will, of a particular rm — in some cases, prosecuting a slightly different strategy,” Morse added. “Maybe they intuited some segment where they thought they could be dominant that others weren’t paying attention to.”

Requiring a level of grit, determination and resolve in order to survive, some who lack those qualities “will leave the playing eld early” after a period of time, he said. “But those that have made up their minds that this is a business they want to be in, they’re going to do everything it takes to build an enduring franchise.”

From watching different investment professionals as they launched their own rms, Morse said he’s observed these people exhibit certain sorts of qualities, and “over time, you develop a certain measure of pattern recognition about what those things are.” And that’s helped not only in identifying who to invest in but also in developing Fairview as the rm itself in the early years.

Letting employees speak

Just as they were seeking capital for the fund-of-funds platform, Morse and Price were also building their business. “And so all the things we had to do, as we looked at the rms that we were investing in, we also had to invest in our rms and build it,” Price said.

Of the employees Fairview hires, Morse doesn’t expect them to just sit in silence. Instead, “we want to know what you think, and you have to be

Gensler

transfer the position of chair from Gensler to a different commissioner.”

However, Elovitz pointed out that doing so would make Gensler “one of three Democratic-appointed commissioners,” still giving Democrats the majority vote, which would be “completely unacceptable” for a Republican-led administration.

“Either they get rid of (Gensler) or they don't,” Elovitz said. “And I can't imagine them not getting rid of him.”

Gensler faces scrutiny

Given criticism at both the industry and congressional level, it’s highly unlikely that Gensler would ght to stay at the SEC, Elovitz said.

Both Elovitz and Vollmer agreed that Gensler has been a particularly controversial leader of the SEC.

“I think (SEC) chairs get a huge amount of attention” and generally attract a good deal of scrutiny, Voll-

comfortable enough stepping out and risk saying things inside your mind,” he said.

“Sometimes, they might not come out exactly the way you intend them to come out,” Morse added. “It might not be the brightest idea that anyone’s ever heard. In time, you get comfortable speaking your mind about things and understanding that’s value.”

When the rm entered its 20th year in business, the co-founders initiated their succession plans. This has involved both promoting employees to the managing partner role, and the two co-founders beginning to “recede, step back and — at some point — remove ourselves from the platform,” Morse said.

Starting in 2015, co-founders promoted Olo nboba, who now oversees investments, business development and governance activities.

“Over the next 30 years, I look forward to building on the solid foundation of the rst 30,” he told P&I after the dinner.

He was joined by Alan Mattamana, who leads co-investments, and Aakar Vachhani, who was one of the authors of the annual report on diverse managers in private equity and venture capital. The three of them have been at Fairview for more than 15 years.

“We were charged with building a successful business, but we were also charged with building an institution that would survive beyond us,”

Morse said. “We were very conscious about that from day one — that attracting the right talent and people, giving them the opportunity to grow, and the two of us stepping out of the way when necessary — being conscious of the act that at a certain point in time, it would be necessary to have the next generation step forward.”

mer said, but “Gensler has come under much more re” because of how he’s handled the job, Vollmer added, calling the chair a “regulatory zealot.”

“There is a lot of frustration with (Gensler) from the private funds industry,” according to Elovitz, who said the “asset management industry and private funds (industry), in particular, have just been really bombarded with this barrage of rule-making proposals that were really problematic.”

After facing signi cant pushback, the SEC said in its most recent regulatory agenda that it plans to reissue two proposed rules. One of those rules proposed requiring investment advisers and broker dealers to "eliminate or neutralize" con icts of interest that arise from the use of certain technologies — including arti cial intelligence — in investor interactions, while the other proposed implementing a swing pricing requirement for any open-end fund, other than a money market fund or ETF.

The agency is also facing a host of lawsuits, as industry groups and oth-

Blackstone’s credit and insurance unit could hit speed bump on rates

y B ARLEEN JACOBIUS

Blackstone executives are looking to 2025 as a lower cost of capital from declining interest rates to touch off a real estate recovery, more realizations, easier fundraising, higher secondary market returns but potentially lower absolute returns in private credit.

However, even lower private credit returns could still outperform relative to liquid xed income, they said.

“In anticipation of improving markets, we substantially increased our investment pace starting in the Q4 of 2023,” investing $123 billion in the past 12 months, “one of the most active periods in our history and double the prior year comparable period,” said Stephen A. Schwarzman, Blackstone chairman, CEO and co-founder, during the rm’s Oct. 17 earnings call.

“We’ve been planting the seeds of future value at what we believe is a favorable time,” Schwarzman said. “In terms of future harvesting, the third quarter marked the highest amount of overall fund depreciation in three years.”

With the cost of capital moving lower, Blackstone executives expect a new commercial real estate investment cycle of increasing values and improving investor sentiment toward the sector, Schwarzman said. There’s been an increased interest in the sector from Blackstone’s in-

ers have sued the SEC over several rules nalized in 2023, including the controversial climate disclosure rule. That rule, which the agency voluntarily halted in April, would require public companies to disclose an array of climate-related information in their periodic reports and registration statements.

When asked who they would like to see run the agency, a representative from a nancial services trade association said, “I think we would like to see a chair who takes a more deliberate, analytical, data-driven approach to rule-making” but didn’t give any names.

Who’s next?

Republican SEC Commissioners Hester Peirce and Mark Uyeda have both been oated as possible chairs under Trump, as both have been critical of Gensler’s leadership at the SEC.

At a September House hearing where all ve commissioners testied, Peirce and Uyeda often agreed with Republicans’concerns about the way Gensler runs the agency, espe-

vestors, with redemptions down in September about 90% from their January 2023 peak, he said.

Blackstone reported $1.1 trillion in assets under management as of Sept. 30, a 3% increase from three months earlier and up 10% from a year earlier.

The rm’s AUM was pushed up by in ows of $41 billion in the third quarter and $167 billion over the past 12 months.

Fundraising has not been easy over the past 2½ years, said Jonathan Gray, Blackstone president and chief operating of cer.

“Remarkably, as a rm, the last 12 months, we raised $167 billion in a tougher period of time,” Gray said. “It feels like it’s going to be a better environment, but certainly more realizations working their way through the system will free up capacity from our big (institutional) customers.”

The key will be distributions back to investors “picking up as we move into next year as the IPO (initial public offering) market gets better, as we have more sales,” he said.

It’s a virtuous cycle in that as more capital moves back to them, institutional investors can commit more capital, Gray said.

In real estate, Blackstone has been a net buyer over the past nine months, Gray said. “We do think that the sentiment is improving, but it’s still negative.”

Gray said he expects to see more exits in real estate into next year as

cially when it comes to digital assets.

When asked about her concerns regarding the SEC’s approach to digital assets, Peirce responded, “I think the rst problem is that we’ve used enforcement as our leading foot instead of using regulation,” suggesting several ways the agency could provide more clarity for the industry.

Uyeda also criticized Gensler on the issue, contending that the SEC “has a wide range of existing tools” it could use to address the ambiguity surrounding digital assets.

“It’s not surprising that the context in which Trump said (he would re Gensler) related to digital assets because that has been a signature issue for Gensler,” according to Elovitz.

Both Elovitz and Vollmer said that Trump may consider either Peirce or Uyeda to chair the agency, but the former president’s decisions are unpredictable.

If Vice President Kamala Harris wins the election, it’s unclear if she would keep Gensler as the chair of the SEC. President Joe Biden appointed Gensler back in 2021, but

debt becomes more available at a lower cost.

Blackstone’s largest business is now private credit and insurance, which surpassed private equity AUM in the third quarter. Blackstone’s credit and insurance business had $354.7 billion in AUM as of Sept. 30, up 7% from June 30 and up 22% from Sept. 30, 2023. Private equity had $344.7 billion at the end of the third quarter, up 4% from the end of the prior quarter and a 12% from the end of the year-earlier quarter.

“We have one of the largest, if not the largest, businesses in direct lending, CLOs (collateralized loan obligations), real estate debt and private investment-grade credit,” Gray said. “Total in ows across the combined platform were over $100 billion in the last 12 months.”

Blackstone’s noninvestment-grade private credit strategies could still generate excess returns relative for clients relative to liquid markets even with lower interest rates, he said.

“And when you look in the investment-grade space ... the idea that we can deliver 185 basis points over comparable single-A-rated credit is also very encouraging,” Gray said. But he added, “There will be some pressure on absolute returns as spreads and base rates come down, but relative returns, that durable premium (over liquid xed income), I think, will continue.”

Harris has started to signal her support for bolstering the crypto industry, of which Gensler has been a staunch critic.

“We will encourage innovative technologies like AI and digital assets, while protecting our consumers and investors,” Harris said at a Sept. 22 event in New York, according to vice presidential press pool reports.

The Harris campaign has also said in private settings that the vice president is “interested in hitting the reset button” on digital assets, Ripple Chief Legal Of cer Stuart Alderoty said at Georgetown University on Sept. 17.

In a May interview with CNBC, Gensler indicated that he would continue to lead the SEC after the election if given the opportunity.

“This is a terri c job where we can actually help Americans, investors and issuers, for decades to come,” Gensler said in an interview with Andrew Ross Sorkin on CNBC’s “Squawk Box.” “So my term is well into 2026, and if I have the honor to continue to serve, I look forward to it.”