PI_20250210

U.S. plans reap rewards from market surge

Assets jumped 16.4%, one of the highest in decades, on the back of big equity, bond returns

y B Douglas Appell

U.S. retirement plans in Pensions & Investments’ latest annual survey reported their strongest gains in three years, even as the portfolio payoff from diversi cation hit an air pocket and persistent equity market dominance by a handful of U.S. tech giants continued to dog investment teams.

For the year ended Sept. 30, the 1,000 largest U.S. retirement plan sponsors saw their combined dened bene t and de ned contribution assets surge 16.4% to a record $15.17 trillion, up from a 7.1% gain the year before.

It was the best outing for U.S. funds in decades, with the exception of the 16.9% jump for the 12 months ended Sept. 30, 2021.

Celebrations for that prior surge, of course, were quickly cut short by the launch of an aggressive rate hiking cycle in March 2022, aimed at quashing in ationary pressures.  This time around, some asset own-

A look at trends in:

■ Fixed income: Page 16

■ ETFs: Page 16

■ Manager diversity: Page 16

■ Private equity: Page 17

■ De ned contribution: Page 17

A look at asset allocations and returns among the biggest public plans: Page 4

CalPERS CIO Stephen Gilmore’s case for a total portfolio approach: Page 39

Data and graphics begin on Page 14

For the full report, go to pionline.com/ sponsors25

Slowdown? Largest funds boosted their allocations by 57%

y B Lydia Tomkiw The P&I 1000 Private Credit

Private credit assets show no signs of slowing down in retirement plans as pension funds continue building up allocations. But chief investment ofcers point to concerns over signi cant growth in the space and new entrants that haven’t been tested through different market cycles. Credit spreads, too, are tightening.

De ned bene t funds of the 200 largest U.S. retirement plans reported $198.4 billion in private credit assets as of Sept. 30, up 57.2% from

$126.2 billion a year prior. Private credit has seen a huge leap in recent years from only $26 billion ve years ago, according to P&I data.

The growth in private credit assets continued at a steady pace, up from the 29% growth seen a year earlier.

Many investors began allocating to private credit with direct lending allocations, said David Scopelliti, global head of private markets at Mercer.

“Like Baskin Robbins, there’s 31 different avors of ice cream … I don't know if there’s quite 31 different a-

American Airlines 401(k) ESG ruling leaves lawyers troubled, perplexed

y B Robert Steyer

After a judge issued a 70-page ruling that American Airlines violated federal law in managing two 401(k) plans, the responses among retirement industry members have ranged from troubling to perplexing.

All agree that the potential impact remains uncertain on what role ESG policies can play in plans’ investment management and how ESG policies are acceptable under ERISA guidelines.

“I still nd the conclusion — and the rationale — to be a bit of a head-scratcher,” said Nevin Adams, an attorney and former chief content of cer for the American Retirement Association. “This judge connected a lot of random dots to get to

Nevin Adams

‘The dramatic increase in its weight in EM is a key reason why investors need to look at Saudi .’ Page 3

FRANKLIN TEMPLETON’S CAROLINE BARON:

IN THIS ISSUE

Courts

A 403(b) case before the Supreme Court has farreaching implications. Page 4

Defined Contribution

Employers are addressing accounts with uncashed checks. Page 4

NEST is taking a 10% stake in Australian manager IFM Investors. Page 4

Endowments

Princeton’s president defended the fund in his annual letter. Page 45

Money Management

William Blair’s Stephanie Braming is retiring. Page 6

Pension Funds

Textron CIO Charles Van Vleet will retire in April. Page 6

Ford will contribute $800 million to its global pension plans this year. Page 46

Washington

The AFL-CIO is suing to stop Elon Musk from accessing Labor Dept. data. Page 47

Two P&I surveys are now in progress

Responses to Pensions & Investments’ annual survey of de ned contribution service providers are due by Feb. 28. Firms record keeping assets for U.S. institutional, tax-exempt DC plans are eligible. Results will run April 7.

For P&I’s annual money manager survey, responses are due by March 28. Firms managing U.S. institutional, tax-exempt assets are eligible. Results will run June 16.

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

How a U.S. sovereign wealth fund could work

A lot of details need to be ironed out before it can happen, experts say

y B BRIAN CROCE

President Donald Trump wants to create a U.S. sovereign wealth fund, but launching such a fund will require intense planning, likely congressional approval and tackling complicated questions around governance, funding and asset allocation, experts said.

“Any country can set up a sovereign fund, really, but its success and long-term resilience will be highly dependent on sound governance, strong scal rules and aligned investment mandate and decisions,” said Diego López, founder and managing director of Global SWF, a consultancy and data provider focused on sovereign wealth funds and public pension funds.

Trump on Feb. 3 signed an executive order directing the Treasury and Commerce secretaries to jointly submit a plan to the president within 90 days that includes recommendations for funding mechanisms, investment

Money Management

strategies, fund structure and a governance model.

The order says that it’s in the interest of the American people for the

federal government to establish a U.S. sovereign wealth fund to “promote scal sustainability, lessen the burden of taxes on American fami-

lies and small businesses, establish economic security for future generations, and promote United States

Saudi Arabia-focused ETFs hitting the market

There’s a new set of exchangetraded funds hitting the market, with a slew of global money managers launching Saudi Arabia-focused strategies amid the kingdom’s admission to major indexes and efforts to diversify its economy.

Just last month, the $4.73 trillion State Street Global Advisors — $1.52 trillion of which is ETFs assets under management — launched its SPDR J.P. Morgan Saudi Arabia Aggregate Bond UCITS ETF, the rst Saudi Arabia xed-income undertaking for collective investment in transferable securities ETF in Europe, the rm said. The ETF tracks the new J.P. Morgan Saudi Arabia Aggregate index, and counts the sovereign wealth fund Public Invest-

ment Fund, Riyadh, with about $925 billion in assets, among its investors. Sources cited both the investment destination and the ETF wrapper as reasons for the trend of launches.

Data from research and consultancy rm ETFGI showed $2.9 billion in assets across 16 ETFs listed in Eu-

Pensions & Investments is accepting nominations for the 2025 In uential Women in Institutional Investing awards, a recognition program for women who are having an outsized impact on the professional investment and retirement market as well as driving positive change in the industry.

Honorees will be featured in the Sept. 8 issue of P&I , on an online microsite and at an awards ceremony and half-day conference on Sept 18 in Chicago.

The deadline for nominations is March 14.

To be eligible for recognition, women must be currently employed in institutional investing,

rope, the U.S., Asia-Paci c and the Middle East.

SSGA’s CEO and President YieHsin Hung said at an event to mark PIF’s $200 million investment that Saudi Arabia “is a market that we expect is going to be growing at twice the pace of the developed economies

have a minimum of 10 years of experience in the industry, and demonstrate a measurable effect and results within her workplace and within the industry.

Nominees ideally should demonstrate a

around the world.”

'Significant potential'

Deborah Fuhr, managing partner, founder and owner of ETFGI, also said that “Saudi Arabia is one of the fastest-growing markets globally, with signi cant potential for both equity and xed-income investments.”

The kingdom’s stock market stood at a market capitalization of $2.69 trillion, according to gures published on Nov. 15 by Statista Research Department. The next largest, the United Arab Emirates’ stock market capitalization, was $980 billion.

“As the largest economy in the Middle East and a key player in the global energy market, Saudi Arabia holds strategic importance for investors looking to diversify their portfolios,” Fuhr added.

The kingdom was added to the MSCI Emerging Markets index in 2019, and as of end-2024 accounted

commitment to attract, retain, support and promote women into the industry. Women across the institutional investment industry are eligible, including asset owners, asset managers, consultants and service providers.

Submissions will be evaluated by the 2025 advisory board, a select group of 2024 honorees and the P ensions & Investments’ leadership team. Entries will be grouped by years of experience for judging purposes. Last year, the program recognized 60 women. More information about the program, including frequently asked questions, can be found at pionline.com/IWII nominations n

HOT SPOT: The skyline of Riyadh, Saudi Arabia

TALL ORDER: U.S. Treasury Secretary Scott Bessent, President Donald Trump and Commerce Secretary nominee Howard Lutnick.

Uncashed checks spur tweak to 401(k) policy

Some rms are upping limit on balances that can be cashed out

B MARGARIDA CORREIA

Few things are as irritating to employers as the uncashed checks of former employees who leave small balances in their workplace retirement savings accounts.

Beth Pattillo, director of retirement andnancial programs at Leidos, estimates that the company has “several thousand dollars of uncashed checks” of former employees in the company’s $12 billion 401(k) plan, money that remains as a liability on the company’s books.

“We spend a lot of time and effort trying to nd missing participants and try and reach out to get those accounts distributed as appropriate,” she said.

To help reduce the problem, the technology company decided to change its 401(k) automatic cash-out, or “force-out,” policy.

Beginning in July, the company will roll over all account balances of former employees with more than one penny, up to $7,000, into an individual retirement account.

“We will be working with a new IRA vendor, and they will be able to take balances from one cent to $7,000,” she said. “Hopefully this reduces the uncashed checks, and we’ll be able to have a clear message to participants to reach out to the vendor for anything under $7,000.”

The company currently cashes out balances under $1,000 and rolls over balance amounts between $1,000 and $5,000 to an IRA, a practice followed by the majority, or 82%, of employers, according to Vanguard Group’s latest How America Saves report.

Employers typically cash out balances under $1,000 and don’t roll it over to an IRA because IRA vendors until recently did not take balances under $1,000, Pattillo said.

Part of the issue was that many banks weren’t willing to open an IRA with, say $40, a

National Employment Savings Trust, London, will become a 10% shareholder in the holding company of asset management rm IFM Investors, becoming the rst non-Australian owner of the infrastructure specialist.

IFM is currently owned by 16 Australian superannuation funds.

NEST and IFM expect to capitalize on signi cant U.K. private market investments and also develop new investment opportunities globally, executives said at a media brie ng on Feb. 4. NEST expects to invest around £5 billion ($6.1 billion) through IFM by 2030, including in global infrastructure debt, NEST CIO Elizabeth Fernando said at the brie ng.

NEST will also invest in IFM’s other capabilities, with a focus on

CELEBRATING UNION:

Fernando.

U.K. investment opportunities. This includes looking to invest in real assets across the U.K., building on the existing assets held within IFM

funds.

The agreement also supports NEST’s ambition to diversify and

Cornell 403(b) case before Supreme Court has broad implications for industry Courts

y B ROBERT STEYER

The Supreme Court heard oral arguments Jan. 22 about a long-running legal battle between Cornell University and former participants in two university 403(b) plans that could have broad implications for the retirement industry.

The key issue is whether contracts between plan sponsors and service providers are prohibited transactions under ERISA, as well as who is responsible for proving or disproving claims of ERISA violations and exemptions to the prohibitions.

The dispute also focuses on how much information ERISA plaintiffs need to convince federal District

Asset allocations, returns vary among biggest public pension plans

Courts to reject a defendant’s motion to dismiss. It featured a clash of amicus briefs to the Supreme Court with the Department of Labor supporting the former participants and large employer organizations, such as the U.S. Chamber of Commerce, backing the university.

The former participants, who have lost their complaint at the federal District Court and federal appeals court levels, asked the Supreme Court to establish a uniform legal standard because, they argue, different appeals courts have issued different rulings on prohibited transactions.

The university countered that there is no so-called circuit split,

The 10 largest public pension plans employ varied approaches to asset allocation, based on a review of P&I’s survey of the 1,000 largest retirement plan sponsors and an analysis of annual reports. That has led to a difference in returns, with many plans falling short of their benchmark return over the last year.

■ The plans have stark differences in exposure to equity, xed income and alternative asset classes.

■ Six of the 10 plans had the majority of their public equity allocations invested in U.S. stocks. Wisconsin Investment Board, on the other hand, allocated 0% to domestic equity.

■ The largest public plans lean heavily on U.S. bonds for their xed-income allocations: Seven of the 10 have 100% invested in U.S. bonds, and two have more than 90%.

■ Eight of the 10 pension plans reported one-year returns as of their June 30 scal year, with only two of seven plans exceeding their benchmark.

NEST’s Mark Fawcett, IFM’s David Neal and NEST’s Elizabeth

William Blair’s Stephanie Braming plans to retire in Q4

Stephanie Braming, global head of William Blair Investment Management, plans to retire in the fourth quarter, a news release said.

She joined the Chicago-based rm in 2004 and served as portfolio manager for the $10 billion William Blair International Growth and the $1.7 billion William Blair International Small Cap Growth strategies before ascending to the role of global head of investment management in 2017.

The rm's search for a successor is being led by Brent Gledhill, pres-

Stephen Poloz

ident and CEO, and Beth Satter eld, chief operating of cer. A spokesperson said the plan is to have someone in place before Braming’s departure.

“I would like to thank Stephanie personally and professionally for her numerous contributions and unwavering client focus over the last 20 years. Stephanie has been an instrumental leader and valued member of the rm’s executive team for the past seven years,” Gledhill said in the news release. “Our culture of excellence has allowed for long, successful partner careers, and we are grateful for the distinguished client

service and collegial mentorship of leaders like Stephanie.“

Braming also serves as the president and chair of the William Blair Funds and William Blair SICAV and serves on the rm’s executive committee. She was recognized by Pensions & Investments in its inaugural In uential Women in Institutional Investing special report in 2023.

“It has been a privilege to lead such a driven, dedicated and accomplished team in generating client outcomes, and I am proud of the results we have delivered together across market cycles,” Braming said in the release. “Our colleagues, cul-

ture and client results are what make William Blair an extraordinary place to work. I am excited about the rm’s future, and I have con dence that our talented teams will continue to drive client success for years to come.”

Before joining William Blair, she was a principal at Mercer Investment Consulting.

Braming could not be immediately reached for further comment about her plans.

As of Sept. 30, William Blair Investment Management had $74.8 billion in assets under management.

Special Advisor & Member of the Board of Directors - Bank for International Settlements Osler, Hoskin & Harcourt LLP

Navigating investment strategy amidst geopolitical uncertainties, dynamic market conditions, and a possible shift in the Canadian model.

• The potential risks and opportunities facing Canadian investors.

• How Canada’s world-class pensions can shape long-term economic outlooks.

• Key policy changes that could impact investment strategies.

Longtime Textron CIO Van Vleet to retire in April

y B DOUGLAS APPELL

Charles Van Vleet, assistant treasurer and CIO of Textron Inc.’s employees retirement bene ts, will step down at the end of April after 12 years on the job.

Van Vleet, in a telephone interview, said after a 44-year career — roughly half in asset management and half with plan sponsors — it was time to move on.

As another Trump era unfolds, what should Canadian investors be prepared for? The impact extends beyond tari s—structural weaknesses in Canada’s economy, evolving political landscapes, and shifts in government policies all play a role.

Join us at P&I’s Canadian Pension Management Conference to hear Stephen Poloz, Special Advisor at Osler, Hoskin & Harcourt LLP and former Governor of the Bank of Canada, share his expert insights on:

This keynote session is a must-attend for anyone looking to navigate the evolving financial landscape with confidence. Seats are filling fast—register now to secure your spot!

SUPPORTING SPONSORS:

As of Sept. 30, Textron had $14.5 billion in retirement plan assets, with $8.5 billion in de ned bene t and $6 billion in de ned contribution.

A longtime believer in the capacity of equity markets to deliver value for investors on the strength of innovations, Van Vleet will be leaving just as strong market gains in recent years have left a number of U.S. de ned bene t plans comfortably overfunded. Textron’s de ned bene t plan is very much among them. Van Vleet said Textron's pension plan assets come to 135% of its obligations to bene ciaries.

Among corporate pension plans with more than $1 billion in assets in the BNY Mellon Universe, Textron delivered top-decile returns for the seven and 10 years through Dec. 31. Van Vleet said he’s not looking to keep a hand in the industry by serving, for example, on boards after he steps down from Textron, focusing instead on hobbies such as carpentry, while considering other pursuits.

A Textron spokesman couldn't immediately be reached for comment.

CALLING IT QUITS: Textron Inc.’s Charles Van Vleet

RETIRING: William Blair Investment Management’s Stephanie Braming

CONFERENCE CALENDAR 2025

Defined Contribution East

Ft. Lauderdale | March 9-11, 2025

Nordics Pension Fund Tour Stockholm | April 8-9, 2025

Private Markets

Chicago | April 16-17, 2025

Endowment & Foundation Assets Roundtable

New York | April 29, 2025

Canadian Pension Management

Toronto | May 13-14, 2025

Insurance Allocators Roundtable

New York | May 20, 2025

Retirement Income Strategies

New York | June 10-11, 2025

UK Pension Fund Tour

London | June 10-11, 2025

Fixed Income & Credit

Dallas | September 9-10, 2025

Influential Women In Institutional Investing

Chicago | September 18, 2025

Pension Derisking

Chicago | October 7-8, 2025

Defined Contribution West Pasadena | October 26-28, 2025

WorldPensionSummit

The Hague | November 4-6, 2025

Public Funds

Austin | November 19-20, 2025

Please contact pi-registration@pionline.com. Visit www.pionline.com/conferences for more details.

2025 Conference Sponsorship opportunities are available. Contact Kimberly Jackson at kjackson@pionline.com | 978.317.5032 or Andy Jenkins at andy.jenkins@pionline.com | 703.725.6161 for more details.

Registration questions?

EMERGING MANAGERS WEEK

New York public funds create event to encourage new investment talent

New York’s largest public pension plans have joined forces to create Emerging Managers Week in February, a series of conferences that will enable asset managers to meet with the investment staff members of the public pension plans.

On Feb. 12, the of ce of the New York City comptroller will host its annual Diverse and Emerging Managers conference in New York City.

executive director of the $148 billion system, said in the news release referring to the acronym for minority and women-owned business enterprises.

This year’s conference “celebrates the critical role of diversity, equity and inclusion in our vision of pension fund excellence and re ects our commitment to access and opportunity,” he said.

“Expanding the pool of asset managers who are responsible for investing the assets of our pension funds is an essential part of our investing strategy and integral to delivering robust long-term returns for current and retired municipal employees,” Brad Lander, the city comptroller and custodian of the ve pension funds in the $286.4 billion city pension system, said in a Jan. 7 news release.

On Feb. 13, the New York State Teachers’ Retirement System, Albany, will hold its MWBE Investments and Professional Services conference in Albany. “We look forward to providing MWBE investment professionals with the opportunity to learn about our system,”  Thomas K. Lee,

The week of conferences concludes Feb. 14 with the New York State Common Retirement Fund’s annual Emerging Manager & MWBE Conference in Albany.

“Emerging managers are a critical part of a diversi ed portfolio,” Thomas P. DiNapoli, the state comptroller and sole trustee of the $274.6 billion pension fund, said in the news release. “We are constantly looking to expand our roster of quali ed managers who can bring innovation and nimbleness to our pension fund and grow within in it.”

Emerging Managers Week also has a contribution from non-New York public pension funds, albeit virtually.

On Feb. 11, the Teacher Retirement System of Texas will hold a virtual emerging manager conference and an emerging manager forum and reception.

Among the participants are of cials from the Maryland State Retirement and Pension System, the Employees Retirement System of Rhode Island, the Connecticut Retirement Plans and Trust Funds and the Illinois State Treasury.

ROBERT STEYER

Finland effort aims to foster an appreciation of work, economy and life

Finland has seen widespread success in its “Yrityskylä” educational program, part of a government drive to lead the world in nancial literacy by 2030.

Yrityskylä translates as “business village,” and the program looks to provide positive experiences about working life, the economy, entrepreneurship and society. The module consists of training for teachers, lessons on nancial literacy and a eld trip day to a dedicated learning environment.

In Finland, around 85% of all children in their last year of primary school (ages 12-13) and last year of lower secondary school (ages 15-16) participate in Yrityskylä, and the program reaches more than 70,000 students a year.

As part of the eld trip day for primary school-goers, Yrityskylä hosts a miniature city where pupils work in their own professions, receiving a salary for their work. In addition, students are taught to act as responsible consumers and citizens as part of Finnish society.

At a Yrityskylä Secondary School game venue,

Elon Musk’s testy texts with NBIM’s Nicolai Tangen released to public

The world’s largest sovereign wealth fund has made public text messages between CEO Nicolai Tangen and the world’s richest man — Elon Musk — discussing a request for an appearance by the Tesla CEO at an upcoming event for the fund.

The newly released messages between Tangen and Musk in October and seen by Pensions & Investments include Tangen’s request for Musk — now also a gure in President Donald Trump’s new administration — to appear at Norges Bank Investment Management’s Investment Conference in April.

NBIM released the messages after a freedom of information request by E24, a Norwegian newspaper, a spokesperson for NBIM said. NBIM runs the assets of the 20.03 trillion Norwegian kroner ($1.74 trillion) Government Pension Fund Global, Oslo.

“This would be very dif cult and expensive for me to attend,” Musk wrote in a message to Tangen. He followed up with: “When I ask you for a favor, which I very rarely do, and you decline, then you should not ask me for one until you’ve done something above nothing to make amends. Friends are as friends do,” Musk wrote.

On Oct. 15, Tangen responded: “Noted and fully understand. As a large shareholder we cheer for you. Good luck with everything. Best Nicolai.”

students take part in running a real company in the international market. In doing so they compete against each other in management teams, with each pupil having their own area of responsibility.

Yrityskylä is run by the Finnish government but has commercial partners including Chinese technology rm Huawei, Finnish cell phone manufacturer Nokia, and U.S. agricultural rm John Deere.

According to the United Nations Development Index, Finland ranks sixth in the world for education as of Dec. 31.

According to the World Happiness Index, Finland ranks as the happiest nation on Earth, taking the award for seven years in a row as of March 2024.

CHRISTOPHER MARCHANT

In June, the wealth fund said it would vote against Musk’s $56 billion pay package, stating that “while we appreciate the signi cant value generated under Mr. Musk’s leadership since the grant date in 2018, we remain concerned about the total size of the award ...”

NBIM’s spokesperson did not immediately respond to questions asking for clari cation on the messages and the “favor” to which Musk referred. Spokespeople for Tesla did not immediately respond to a request for comment.

A message from Musk on Oct. 18 showed a screenshot of a communication with another person about the release of text messages to the media by Tangen. Musk asked Tangen, “Did you send my text messages to the press?”

Tangen replied that there is a Freedom of Information Act in Norway, “so unfortunately everything I send and receive is automatically public information. It is our Comms and Legal dept which runs this and it is not my decision. They have not sent your personal comments, just the part which said that you were not coming to the conference. The country is obsessed about you, but this is not re ecting badly on you. Still, sorry for any inconvenience.”

SOPHIE BAKER

Bank of England rolls out a nancial literacy quiz

If you're familiar with nance, savvy on savings, and plugged in on policy, the Bank of England has the quiz for you — and there's the opportunity to win cash in the process.

The central bank is giving U.K. citizens aged 18 and over the chance to win up to £1,000 ($1,273) in cash over the next several weeks, while building their knowledge of economics and personal nance. The bank is funding the prizes, a spokesperson said, adding that the total amount of prize money awarded over the six weeks that the quiz is running for is £4,200.

The bank is partnering with social media group LADbible and other nancial content creators for its Mind Your Money quiz. Each week, the quiz will focus on a different theme, with the rst looking at savings. Other topics include budgeting, investment, in ation and monetary policy.

Quizzers rst watch a short educational video on the theme and then have to answer four questions. Those answering each question correctly will be entered into a prize draw.

“The Bank of England has an important role to play in improving nancial literacy in the U.K.,” said Andrew Bailey, governor of the bank, in a news release. “We know younger people could use more support to build their nancial literacy and this campaign aims to help them do just that.”

The quiz runs until March 1.

PEN PALS: Tesla’s Elon Musk and Norges Bank Investment Management’s Nicolai Tangen

Danny Mejia

Pierdomenico/Bloomberg

Karen

Noora Garnett, CEBS, PMP VP, Global Benefits | Human Resources Hasbro, Inc.

Ben Roberge Director, Financial & Retirement Programs Unum

Greg Ungerman, CFA Senior Vice President and Defined Contribution Practice Leader Callan

OPINION

OTHER VIEWS TERRENCE KEELEY

ESG movement braces for a reckoning

With Donald Trump returning to the White House, the ESG movement is bracing for a day of reckoning. At a minimum, it must nd a more unifying and conclusively bene cial way forward.

In preparation for the debate, proponents and critics alike would bene t from remembering its origins. United Nations Secretary General Ko Annan launched the U.N.’s Principles for Responsible Investment in 2005 to accelerate the attainment of the U.N.’s Sustainable Development Goals. ESG grew out of this U.N.-PRI initiative. Today, trillions of dollars are dedicated to ESG investment strategies, hundreds of ESG rules and regulations govern corporate behaviors, and more than 1,000 ESG shareholder resolutions have been voted upon. In elds as far- ung as asset allocation, shareholder governance, industrial practice, optimal portfolio construction and corporate behavioral theory, ESG’s in uence has been profound — far more so than its originators ever imagined. But what incontestable nancial, social and environmental progress has ESG wrought, where has it disappointed, and where should it go from here?

Terrence Keeley is the author of SUSTAINABLE: Moving Beyond ESG to Impact Investing, and CEO of the Impact Evaluation Lab and 1PointSix LLC. He is based in New York. He was formerly managing director, head of the of cial institutions group and the BlackRock Academies at BlackRock.

Where ESG has failed

While a handful of ESG funds have outperformed the broader market, as an overall investment and rating discipline, ESG has disappointed. According to Morningstar, 2022 was the worst year for ESG fund performance on record; the second worst year was 2023. ESG has not delivered on its comprehensive alpha-generating promise. In fact, rather than producing excess returns, tangible social and environmental progress and/or clear investment metrics, incontrovertible evidence shows most ESG funds have neither performed well nor produced much good.

According to asset management giant Vanguard Group, moreover, exclusionary ESG investment strategies show limited prospects for future improvement. There is a compelling explanation for this. Restricting one’s investment universe to companies presumed to be more virtuous precludes participation in many value-creation opportunities, including those which often occur when brown companies turn green. As for impact, too many ESG investment strategies are inherently contradictory. Starving brown companies of capital is the opposite way to transform them: They need more investment, not less.

The time has come for fund managers to offer more convincing proof that their numerous offerings of sustainable investment strategies will generate reliably superior returns and/or compensating societal advancements. In the absence of such proof, investors should continue to move away from ESG investment funds for — please pardon the pun — greener pastures. The case for greater ESG fund selectivity is particularly pressing among public pension plans: they more than others are under growing legislative scrutiny for potential violation of duciary laws. If one’s investment goal is to lower carbon emissions,

reduce racial income disparities, or build more low-income housing, impact investing makes much more sense. If one’s investment goal is to generate excess returns while remaining mindful of ESG factors, strategies which overweight high-quality rms in every sector are much more promising than those which divest from whole industries.

Where ESG has succeeded

So where has ESG been an unquali ed success? In propagating corporate regulations and multiplying non- nancial corporate disclosures. In Europe, the Corporate Sustainability Reporting Directive and supporting European Sustainability Reporting Standards are now in place. Coupled with California’s three climate laws and the Securities and Exchange Commission’s recent (though stayed and all-but-certain to be abandoned) climate rule, a dizzying array of ESG regulatory rules have been implemented in multiple jurisdictions around the world.

Companies have adapted to this new environment by employing chief sustainability of cers and compliance codes. As a complement to these efforts, the International Sustainability Standards Board is now laboring to establish high-quality, global baselines of sustainability disclosures. Ultimately, ISSB should be able to incorporate other market-led investor-focused reporting initiatives, including the Climate Disclosure Standards Board, the Task Force for Climate-related Financial Disclosures, the Value Reporting Foundation’s Integrated Reporting Framework and industry-based SASB standards, as well as the World Economic Forum’s Stakeholder Capitalism Metrics. In short, ambitious ESG regulatory frameworks have dramatically impacted corporate decision-making. No major rm today can ignore ESG precepts without inviting

some regulatory scrutiny, shareholder ire or, more likely, both.

Of course, all this begs the question: Have ESG rules and regulations gone too far, impeding rather than promoting optimal societal outcomes? Some regulatory excesses are obvious. Elsewhere, a crucial, real-time experiment is unfolding before our eyes. Climate disclosure rules, employee rights and supply-chain restrictions are much more demanding in Europe and the U.S. than in Asia. All other things being equal, such rules tilt the competitiveness playing eld toward less regulated rms. It’s highly unlikely consumers will favor more expensive products and services over time simply because they are regulatory compliant: Cost, quality and innovation always assert themselves over time. With acrimony high and growing in the U.S. and Europe, the political debate, which ultimately governs the regulatory agenda, is growing increasingly fraught as well. Something’s got to give.

A better way forward

Because of disappointing investment results, distortionary regulations, mounting social divisions, and a regime change in Washington, an overwhelming case can be made for overhauling the current ESG paradigm. Environmental, social and governance concerns were never intended to be forever prioritized over other societal goals, like economic growth: They were supposed to broadly advance human ourishing.

For ESG to succeed optimally, it must now evolve into something less politically explosive and more conclusively bene cial. Stated simply, values and value creation need to come into better alignment. As I have argued elsewhere, ve tenets would generate more

OTHER VIEWS SAIRA MALIK and THOMAS BRIGANDI

Targeting ‘the right schools’ devalues educational diversity

The nancial services profession should be open to anyone with a passion for it and a determination to succeed. Yet, we know that diversity in the profession is still a work in progress.

It’s a fact too that traditional perceptions of nance careers, and even hiring practices, have tended to emphasize not only certain kinds of people, but also certain kinds of academic backgrounds — “the right schools,” to be blunt.

An analysis by Peak Frameworks, which provides educational support for aspiring nance professionals, and human resources analytics rm Terrain Analytics found that just 60 colleges — so-called “target schools” — produce the vast majority of graduates selected for Wall Street rms’ investment banking analyst programs.

Outside this list of 60 colleges are “non-target schools,” which typically do not receive any on-campus recruiting or speci c attention from large institutional nancial services rms.

This recruiting framework results in not only investment banking analyst positions but also most entry level front, middle and back-of ce positions at large institutional nancial services rms being lled with recent graduates from these 60 colleges. Avoiding ‘group think’

For investment management professionals, diversity is a critical defense against “group think.” Many of the best investment opportunities have emerged when an investment professional went against prevailing opinion and looked at a situation in an atypical way — and saw potential that others had missed.

Keeley

CONTINUED FROM OPPOSITE

optimal outcomes:

■ Free markets should be allowed to work.

■ Evolving consumer, worker and societal sensitivities involving stakeholders should be respected.

■ The principle of shareholder primacy should be strengthened.

■ Evolving shareowner priorities about employees, suppliers and the environment should also be accepted.

■ Cost-effective remediation strategies that mute capitalism’s negative externalities should be pursued.

On the last point, more farsighted, less-distortionary public policies and an active NGO sector will prove much more lasting and effective than undemocratic, bureaucratic business regulation.

How might these tenets work in practice? There is a broad social consensus that we must protect our land, air and waters while simultaneously promoting better living standards. This means, among other things, we should lower our carbon and land-use footprints wherever and however they simultaneously promote growth. Environmental progress that promotes economic growth uni es rather than divides. There is also a growing need to maintain social cohesion as living standards rise. Quality of life and income gaps

The more diverse an investing team is, the better equipped it is to apply different kinds of thinking and insight to the investment process — and achieve better outcomes.

Diversity in educational experiences should be part of the mix, for an individual’s academic background is as relevant as all the other attributes and characteristics that shape their worldview.

The advantages of diverse teams

We can do better. A signi cant body of academic research supports the notion that diverse teams — comprising individuals with varying educational backgrounds, among other diverse characteristics — tend to perform better than homogenous ones. Diversity can also make our profession look more like the people we want to serve — and make our guidance and support accessible to even more people. Interestingly, although a degree from a

between the haves and have-nots cannot grow disproportionately forever without undermining social contracts. ESG’s successor must promote greater social inclusivity or environmental sustainability in incontestable yet economically value-enhancing ways, such as Bolt Threads, which has bio-engineered high-performance materials like leather substitute Mylo and silicone elastomer substitute B-Silk, both of which have negligible ecological impact.

All of this requires a wholescale review of the application of ESG rules and regulations, and greater transparency and rigor in the adoption of ESG ratings and investment disciplines. More rigorous cost-bene t analysis must govern environmental and social regulations, and more veri able impact must be proven in so-called sustainable investment strategies. Many asset owners are willing to sacri ce some investment return in exchange for true environmental and social progress — but all

premier college has typically conferred some advantages, that doesn’t seem to hold true everywhere in the business world — including its highest levels. One researcher who examined the educational backgrounds of Fortune 500 chief executives found that most did not attend an Ivy League school. In fact, some of the executives didn’t even go to college.

Target schools, of course, are excellent sources of outstanding nance professionals. But as we shed worn-out views of what a nancial services professional “looks like,” we’ll nd the future colleagues we need even more successfully if we include many more schools in our search.

Industry-wide initiatives — in particular, the CFA Institute’s Diversity, Equity and Inclusion Code project — are putting emphasis on outreach to colleges and universities not typically targeted by our profession. But advocating for educational diversity is a challenge that all of us who care about the many positive aspects of diversity should accept.

Broadening pipeline, being a mentor

What can we do to build diversity of educational experience in our teams?

Broaden the pipeline. The old refrain, “We would love to hire more diverse candidates for Wall Street but there aren’t any,” doesn’t work anymore. We need to expand our industry’s recruiting programs to consider people at schools that previously didn’t get a look.

We should attend career days at non-target schools; promote our goals for educational diversity on social media, and, when posting job openings, set expectations with our human resources departments about

costs and bene ts need to be rigorously measured and publicly disclosed. One metric aimed at eliminating “impact washing” and promoting transparency is the Impact Authenticity Score, a new rating methodology designed by the Impact Evaluation Lab and beta-tested with the Sorenson Impact Institute at the University of Utah.

The incoming Trump administration is certain to look askance at past ESG rules and demand more ef cient, more effective outcomes. They are right to do so. Regulations that penalize sustainable economic growth, stoke in ation, and/or hamper improved living standards should be discarded. Ongoing reprioritization would prove healthy. The ESG movement would also bene t from greater mindfulness of the trade-offs it necessarily engenders, regardless of its intents.

The words of St. Bernard of Clairvaux are no less true today than they were in 1150: l’enfer est plein de bonnes volontés ou désirs — Hell is full of good intentions and desires. It is possible to promote economic growth, social inclusivity and environmental sustainability simultaneously. Values can be value-enhancing. ESG’s successor should vigorously strive for such “do well, do good” outcomes.

securing more applicants from non-target schools.

Be a mentor. It’s one thing to recruit diverse individuals into our rms — just as critical is helping them stay and succeed. Being a mentor means more than an occasional cup of coffee with a young colleague. It means lighting a professional path and showing the way to follow it; monitoring your rm’s programs for professional development and advancement, and helping young colleagues take advantage of them. And it means being a champion for people who go the extra mile — especially people whose efforts might otherwise escape notice.

Take stock of your own team. Carefully assess whether your own team re ects your goals for diversity. Among all the characteristics of diversity that you seek, have you overlooked educational diversity?

Keep in mind this: There is only constant change — with new forces shaping markets and economies, and new cohorts of investors seeking support for their distinctive needs. We can’t simply run our rms and do business in the same ways we always have. We should value colleagues with their own ways of looking at the world, its needs and its opportunities — grounded in their diverse heritages, life experiences, beliefs, values and even the schools they attended.

As we invest in our businesses and our service, let’s be sure we’re investing in people like that too. n

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

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Saira Malik is the chief investment of cer of Nuveen, based in San Francisco. Thomas Brigandi is managing director, investment research and relationship management, at RisCura Solutions (U.S.A.) LLC., based in New York.

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ETFs see promise in private assets, but hurdles remain

As private capital markets surged in recent years, the ability for private credit and private equity assets to seep into exchange-traded funds appeared all but inevitable. Now, a few funds that arrived in the fall are challenging conventions in an ETF market that champions transparency and fair value.

The global private equity market, including venture capital, is estimated at about $6 trillion by S&P Global and has traditionally only been available to institutional investors and individual accredited investors.

The fast-growing private credit market is expected to top $3 trillion in assets under management by 2028, according to Moody’s Ratings, having only passed $1 trillion at the end of 2020. Spurred by tighter capital requirements and risk aversion at traditional lenders, asset managers stepped in to secure the balance sheets at middle-market companies and for larger buyouts.

Unlike syndicated loans, where the risk is spread among several banks, these loans are often made and held by individual private credit funds. Similar to syndicated loans, however, the assets can also be packaged into collateralized loan obligations for a broader swath of investors.

On Dec. 2, asset managers Bond-

Bloxx Invesment Management and Virtus Investment Partners separately launched ETFs holding only private credit CLOs. Syndicated loan CLO ETFs added assets throughout 2024, led by the $19.9 billion Janus Henderson AAA CLO ETF with $11.1 billion in net ows and a 0.21% net expense ratio, according ETFdb. com, a VettaFi database.

The $25.4 million BondBloxx Private Credit CLO ETF, subadvised by Macquarie Asset Management, gained $17.6 million in net new assets since its launch. Focused on investment-grade exposures, the fund has an expense ratio of 0.68%.

The $16.3 million Virtus Seix AAA Private Credit CLO ETF, managed by Seix Investment Advisors, added $6.3 million in net assets since its launch. Its expense ratio is 0.29%.

Tony Kelly, co-founder of BondBloxx, said the rm’s new ETF is garnering attention from institutional investors in private credit as well as nancial advisers who are looking for a complementary holding to interval funds and other less liquid private credit vehicles.

“Having a daily, liquid ETF also adds more information to the pricing market and that bene ts smaller investors,”  Kelly said.

Further on the horizon is a potential offering from State Street Global Advisors, the SPDR SSGA Apollo IG

Public & Private Credit ETF, rst led with the U.S. Securities and Exchange Commission in September.

Unlike the public and private CLO products, the SSGA/Apollo offering, as led, would allow for a wider swath of private credit exposures through direct loans, packaged products, including CLOs, as well as private funds and closed-end investment companies, such as interval funds and business development companies. Both SSGA and Apollo Investment Management declined to comment on the ling.

Challenges for ETFs

Moving from structured vehicles such as CLOs, which are well served by the asset pricing and credit rating markets, to direct investments and fund stakes poses several challenges for ETFs.

Technically, ETFs, governed by the Investment Company Act of 1940, can hold up to 15% in illiquid assets. Often, ETFs that feature less liquid securities and exposures tend to create and redeem shares in cash — leaving it up to the asset manager to source or dispose of assets.

ETF liquidity and transparency, on the other hand, is improved when market makers can exchange underlying assets and fund shares in kind — helping to keep the ETF's market price in line with its net asset value.

Illiquid securities can be harder or more expensive for traders to hedge in the derivatives market. Less certainty in underlying asset pricing can also compel wider trading spreads.

Within private equity, some ’40 Act funds have, in the past, participated in funding or acquiring shares of late-stage growth offerings. Most prominently, shares of Meta (formerly Facebook) and Uber Technologies were available in several mutual funds prior to those companies’ initial public offerings.

These funds were unfettered by the constraints of publishing intraday net asset values and end-of-day holdings, critical information for ETF investors and traders to ensure that their shares were fairly priced — or within a reasonable range of premium or discount to NAV.

On Dec. 3, the ERShares Crossover ETF (XOVR) from EntrepreneurShares disclosed a $10 million investment in privately held SpaceX, growing to $33 million as of Jan. 31, or 10.8% of the $307 million ETF. The fund also holds a $2 million investment in Klarna.

These holdings mark the rst time that prominent nonpublic company equity exposures have been available in an ETF. Investors have rushed in, adding $178 million in net new assets to the ETF since early

December, even as the private company prices disclosed by ERShares have not moved.

The remaining assets in the ETF are publicly traded stocks tracking the Entrepreneur 30 Total Return index. These stocks ow in to (or out of) the fund through in-kind creations or redemptions. The fund only accepts (or redeems) cash in lieu of the private exposures.

“We have implemented rigorous mechanisms to carefully manage our private company exposures,” said Joel Shulman, founder, CEO and CIO of ERShares, adding that "the fund adheres to a disciplined approach, ensuring strict compliance with the 15% threshold while maintaining a well-balanced and diversi ed portfolio to protect investor interests."

A handful of mutual funds continue to own high- ying private companies, including SpaceX, while closed-end fund Destiny Tech 100, aspiring to hold the top 100 private growth companies, trades at nearly a 900% premium to its underlying net asset value, according to Morningstar, serving as a cautionary tale for the ETF market.

The question of daily valuations for private equity securities is unsettled, even as a handful of private market exchanges offer transactions and prices on unlisted stocks. Still, it

LARGEST RETIREMENT FUNDS

The 2024 P&I 1000 at a glance

Growth of DB and DC assets

Number of funds using strategy cited

LARGEST RETIREMENT FUNDS

The

P&I 1000 Fixed Income

High-rate environment has funds again seeing the allure of xed income

Assets of the Top 200 funds were up 23% in 2024, with passive assets soaring 73%

y B Rob Kozlowski

U.S. xed-income assets among the largest de ned bene t plans took a significant jump in the past year, thanks to a combination of strong returns and a number of the largest plans making strategic asset allocation changes, according to Pensions & Investments’ latest survey of the largest U.S. retirement plans.

As of Sept. 30, U.S. xed-income assets totaled $1.22 trillion among pension plans in the 200 largest U.S. retirement plan sponsors. Among 86 DB plans that responded both this year and last year, xed-income assets totaled $1.16 trillion, up 23% from a year earlier.

year ended Sept. 30, the Bloomberg U.S. Aggregate Bond index returned 11.6%. Contributing even further to the hike in xed-income assets this year and last year were signi cant changes in asset allocation.

No plan had a more signi cant change than the $54.5 billion Western Conference of Teamsters Pension Trust, Seattle. The multiemployer pension fund reported a total of $34.3 billion in U.S. xed-income assets as of Sept. 30, up 308.6% from $8.4 billion the year before.

The Data Data on DB funds with assets in fixed income begins on page 30 ; for DC funds with assets in fixed income, see page 34

For plans that provided breakdowns between active and passive U.S. xed income, active assets totaled $876.5 billion, up 21.4% from a year earlier, and passive assets totaled $302 billion, up 73% from a year earlier. Returns were strong for the period. For the

Alan Biller, chair of Alan Biller & Associates, the pension fund’s outsourced CIO since 2013, said in an interview that by the end of 2023, the pension fund had no withdrawal liabilities and its board decided to set up a dedicated bond account totaling nearly $32 billion to cover scheduled bene ts.

For a multiemployer pension fund, the withdrawal liability is vested bene ts allocable to single employers contributing to the fund that remain unfunded, according to the PBGC’s website.

“It’s actually, as far as we know, the largest dedicated account ever put together for a U.S. plan,” Biller said. “What it basically does is it’s

ETFs nding a sweet home at Alabama Retirement Systems

y B Palash Ghosh

In an effort to gaining exposure to emerging markets equities, the Retirement Systems of Alabama, Montgomery, has found that investing in exchange-traded funds is the best approach.

The pension fund had about $1.2 billion of its $48.7 billion in assets invested in ETFs as of Sept. 30, marking one of the largest such allocations to ETFs among pension funds of its size, according to Pensions & Investments' annual survey of the largest U.S. retirement plans.

Marc Green, chief investment of cer at the pension fund, said the ETFs serve primarily as a cost-ef cient and liquid way to gain beta exposure to emerging markets equity. Indeed, ETFs in the portfolio include iShares MSCI Emerging Markets (EEM); iShares Core MSCI Emerging Markets (IEMG); and DFA Dimensional Emerging Core Equity Market (DFAE).

Green said the pension fund’s total emerging market ETF exposure is currently about $1.2 billion, and ETFs overall now total about $1.4 billion.

Stocks in emerging markets are especially attractive, Green noted, as the run-up of prices in the U.S. and other developed markets have rendered those equities fully valued or overvalued.

“Emerging markets equities are still compelling investments and have a signi cant valuation discount relative to North American equities,” Green said. As of Dec. 31, the MSCI Emerging Markets Index traded at a forward price-earnings ratio of only 11.9, far below the comparable gure of 19.1 for the MSCI World index, and also below the 13.9 ratio for the MSCI World-ex U.S. index. For the one-year period through Sept. 30, MSCI

Emerging Markets index returned 26.1%, outpacing the MSCI World ex U.S. index, which returned 25%. Exposure to emerging markets equities also provides the pension fund with good diversi cation, Green noted. The retirement systems' assets are almost entirely internally managed, and with a relatively small internal investment staff of about 15 people, it would be too costly for investment specialists to research potential emerging markets investments in person,

The P&I 1000 Diverse Managers

TRS celebrating 20th anniversary helping emerging managers

Even after graduating 19 rms, Illinois fund sees loads of potential

y B Caryl Anne Francia

In the quest for capital for their rst funds, new and diverse investment managers go to the land of opportunity — Illinois. If not in person, new managers reach out through the inbox of Jose Gonzalez, senior investment of cer at the Teachers’ Retirement System of the State of Illinois, Spring eld.

mandates in its main portfolio. Gonzalez has been around for about half that time — having joined the pension fund as a senior investment analyst in 2015, and tapped in 2019 to lead the program.

“At the end of the day, I know when I retire, I’m going to look back and wonder where some of these managers are — in terms of their business cycle and how much growth they’ve achieved,” Gonzalez said. “Right now, I’m getting tingles just because it’s something that not everyone gets to get involved with.”

begins on page 29

“There’s new potential opportunities in my inbox every day,” said Gonzalez, who leads the public pension fund’s emerging manager program. “I’m not talking to people just coming back, looking for an update or checking in. I’m talking new because GPs know that Illinois has a focus here … We’ve been doing this for a long time. We’re leaders here.”

Marking its 20th anniversary this year, Illinois Teachers’ emerging manager program is said to be one of the longest running among U.S. pension funds, and boasts 19 graduated rms now receiving larger

In Pensions & Investments’ survey of the 1,000 largest U.S. retirement plans, Illinois Teachers was ranked No. 3 of plans that allocated money to rms owned by women, minorities, people with disabilities and veterans as of Sept. 30. Exceeding the pension fund were the $274.7 billion New York State Common Retirement Fund, which allocated $36.8 billion to diverse managers, and the $285.5 billion New York City Retirement Systems, which committed $23.1 billion. Of the $74 billion in assets held by Illinois Teachers at the time, $21.4 billion was committed to 46 diverse and emerging managers.

Harry Campbell/The iSpot

LARGEST RETIREMENT FUNDS

The P&I 1000 Private Equity

Execs hopeful the private equity spigot will open

‘Challenging year’ saw PE assets drop to 13.5% of Top 200 DB portfolios

y B Arleen Jacobius

Private equity was soundly trounced by the Magni cent Seven in 2024, leading to the asset class taking up a smaller portion of the largest retirement plans’ asset mixes, Pensions & Investments’ annual survey data shows.

Investors’ portfolios continued to be pummeled by somewhat improved but still lower rates of distributions of pro ts from their private equity portfolios, depriving them of capital needed to make new commitments. Many investors coped by making fewer commitments, with some selling limited partnership interests on the private equity secondary market for portfolio management and liquidity.

And Donald Trump’s election victory and his new administration’s policies may also have an impact on distributions, with some expecting an increase in exits from pro-business policies that would

boost distributions, but also wary of increased volatility from erratic policy changes that could have a chilling effect.

This year’s survey of the largest U.S. retirement plans revealed uneven growth of private equity assets. Private equity accounted for 13.5% of the aggregate portfolio of the de ned bene t plans among the 200 largest plan sponsors as of Sept. 30, down from 14.5% a year earlier, P&I data shows. At the same time, while the assets of the top 200 invested in private equity grew by 6.5% to $779.1 billion, buyouts and venture capital both fell during the 12-month period ended Sept. 30. Buyout assets were down by 4.8% to $398.1 billion and venture capital dropped by 7.4% to $53.9 billion. (This is the rst year that P&I’s survey has asked for assets speci cally invested in growth equity and co-investments, which totaled $24.9 billion and $16.8 billion as of Sept. 30, respectively.)

“2024 was an extremely challenging year for the private equity asset class ... I’m not aware of a more challenging year from a relative return perspective,” Michael Langdon, director of private mar-

kets, told the Oregon Investment Council at its Jan. 22 meeting. The council manages the Oregon Public Employees Retirement Fund, which had $105.4 billion in total assets and $101.5 billion in DB assets as of Sept. 30, according to P&I data. During the year, Oregon’s private equity portfolio dipped by 3% while its buyout portfolio grew by 3.2% to $25.8 billion and $22 billion, respectively. The fund’s venture capital assets were down 9% to $1.1 billion.

P&I 1000 Defined Contribution

According to a report for the council’s Jan. 22 meeting, OPERF’s private equity portfolio underperformed its benchmark for all time

Langdon said that 2024 was the second year in a row that private equity “meaningfully underperformed” its benchmark of the Russell 3000 plus 3%.

Early adopters of annuities in plans report progress in usage

More employers mulling offering amid aging of workforce, decline of DB

y B Margarida Correia

The State University of New York could rightfully brag. So could aerospace and defense conglomerate RTX.

Both took a bold step years ago that most employers are now just considering: They made annuities available in their workplace retirement savings plans.

SUNY has been offering annuities, including its “workhorse” TIAA Traditional xed annuity, to workers in its two dened contribution retirement plans since 1964, said Michael Consorte, SUNY’s director of university-wide bene ts.

Of the 85,000 active participants in the SUNY plans, 10% have annuitized, including a 107-year-old former professor currently receiving a monthly payment of nearly $20,000.

“She has been collecting on her annuity since she retired when she was 65,” Consorte said.

More recently, in a bid to increase the number of workers with guaranteed income in retirement, SUNY introduced a target-date fund embedded with the TIAA Traditional

annuity called the SUNY Targeted Allocation Retirement Series, or STARS. The new target-date series, which Consorte refers to as the “North Star” of its plan investments, was introduced in July of 2024 and is now the quali ed default investment option for SUNY’s two plans.

RTX was also an early adopter. One of its predecessors, United Technologies, brought its annuity product to the workforce in June 2012 with the introduction of the Lifetime Income Strategy, a target-date-like investment created by Alliance Bernstein that begins allocating money to annuities about 15 years before employees’ target retirement age.

“With the increasing trend of dened bene t pension-plan closures across the retirement landscape, we introduced LIS in 2012 to provide our employees with a strong option for guaranteed income in retirement,” said Kimberly Masucci, director of pension investments at RTX.

Both RTX and SUNY stand out from other employers in their early

adoption of annuity products. Of the 200 largest employers that completed Pensions & Investments’ annual Top 1,000 survey, for example, only 14 reported offering stand-alone retirement income options and/or inplan decumulation strategies. More employers, however, are considering adding annuities to their retirement plan investment menus as baby boomers retire in massive waves, many without the bene t of traditional pension plans. Target-date funds with built-in annuities, in particular, are gaining employer attention. Last year, for example, BlackRock rolled out its much-heralded LifePath Paycheck target-date series, an annuity-embedded target-date fund that six employers, including BlackRock, have already added to their investment menus.

Below are summaries of the annuity products that SUNY and RTX offer in their DC retirement plans.

SUNY

SUNY has been offering annuities since 1964 due to a New York state legislative mandate requiring

PIONEER: State University of New York’s Michael Consorte

TH E LARGEST RETIREMENT FUNDS

The largest retirement funds/sponsors

E LARGEST RETIREMENT FUNDS

The largest retirement funds/sponsors

LARGEST RETIREMENT FUNDS

RETIREMENT FUNDS

The largest retirement funds/sponsors

TH E LARGEST RETIREMENT FUNDS

The largest retirement funds/sponsors

TH E LARGEST RETIREMENT FUNDS

De ned bene t funds

LARGEST RETIREMENT FUNDS

De ned bene t funds

The largest DB funds by asset class

De ned bene t funds

The largest DB allocations by asset class

How P&I compiled the 2024 data

Pensions & Investments gathered information for this report, published annually since 1974, in three steps.

Questionnaires were sent to more than 1,300 fund sponsors in P&I’s database. The largest 1,000 were identi ed from completed questionnaires, follow-up phone calls and emails, and database searches.

Data for sponsoring entities that did not respond was culled from published annual or quarterly reports and Form 5500s led with the Department of Labor.

P&I’s survey generally covers the 12 months ended Sept. 30, 2024. In cases where no information was available from the fund, or the data was older than June 30, 2024, P&I , along with its partner Cognition Solutions, calculated estimates to Sept. 30.

There were a few new questions added to the survey this year. Stand-alone India and

Brazil equity and debt breakouts were added for de ned bene t plans. Private credit allocations were further broken out into options of direct lending, distressed debt, mezzanine debt and other. Growth equity and co-investments were also added to the private equity categories. On the de ned contribution side, questions about personalized target-date funds and decumulation strategies were added.

Lastly, “enhanced” equity and bond categories were eliminated, leaving only active and passive as options.

Dollar amounts generally are rounded to the nearest million; in certain tables and charts, they are rounded to billions. The aggregate asset mixes represent the weighted averages of all reported allocations for the respective funds.

All data in this special report is ©2025 Crain Communications Inc. Reproduction without permission is prohibited. 

TH E LARGEST RETIREMENT FUNDS

Fixed income

year earlier.

not an exact cash match, but an approximate, well-structured cash match to cover the scheduled bene ts of retirees, people who had retired through year-end 2023 who weren’t covered by other (much older) bond dedications.”

Biller said during 2024 the account picked up another $1 billion in assets, “so it’s now roughly a $33 billion dedication.” The pension fund reported $32.6 billion in passive U.S. xed income assets as of Sept. 30, up from zero the year before in P&I's survey.

An excellent funding ratio also has contributed to the pension fund’s ability to allocate a large portion of its assets to the cashmatched account. As of Jan. 1, 2023, the pension fund had a funding ratio of 99.2%, according to its most recent Form 5500 ling.

Serge Agres, senior investment consultant with Cambridge Associates, said in an interview that cashow matching has become popular with multiemployer plans.

While Western Conference has not needed the Pension Bene t Guaranty Corp.'s special nancial assistance that has been available to poorly funded multiemployer plans, that assistance contains restrictions on how it can be invested and has led to plans employing cash- ow matching.

“So cash- ow matching has become really popular, and what we’re seeing is a lot of those pension funds and actually applying them to the legacy portfolio as well,” Agres said.

Asset allocation changes

Other pension funds have also seen signi cant increases in xed-income assets because of changes in their asset allocations following reviews conducted because of the rise in interest rates in 2022 and 2023.

Florida State Board of Administration, Tallahassee, reported its $205.2 billion Florida Retirement System pension plan had $43 billion in domestic xed-income assets as of Sept. 30, up 45.7% from a

The change was attributable primarily to an asset allocation study conducted by the board’s investment staff and investment consultant Aon Investments USA in 2023. That study prompted the plan to raise the xed-income target to 21% from 18% and extend the duration of the portfolio to "full aggregate" by changing the portfolio benchmark to the Bloomberg U.S. Aggregate Bond index from the Bloomberg U.S. Intermediate Aggregate Bond index.

Lamar Taylor, the board’s chief investment of cer, said in an interview that a lot of what staff and the consultant looked at in the allocation study was the economic change following the COVID-19 pandemic, including in ation that resulted in higher interest rates. That meant expected higher returns from xed income. Taylor noted that the link between higher in ation and higher xed-income returns was a historic real fed funds rate with a positive term premium added on top.

“We could look at the world in terms of how we could generate higher expected returns at the current level of risk we were taking at the time, or we could look for keeping the current level of returns and reducing the risk that we were taking,” said Taylor, “and that was really where we settled out, keeping roughly the same targeted level of returns by reducing the expected forward-looking volatility of the portfolio.”

“When we used those as the predicates, then that shifted down through increasing xed income,”

Taylor said.

He said much of that stems from their expectation that the U.S. is likely to see higher in ation over the next 15 years compared to the last 15 years.

“Those building blocks of expected xed-income returns look relatively attractive,” Taylor said.

The increase in xed income was implemented throughout 2024, said Todd Ludgate, director of xed income, in the same interview.

“We took a measured approach to it,” Ludgate said. “Especially giv-

en the size of Florida, you can well imagine we have to be cognizant of not unduly moving the market. We moved over the course of many months into both internal and external managers in the targeted con guration.”

External xed-income manager hirings completed during the third quarter of 2024 included J.P. Morgan Asset Management and Allspring Global Investments, running $2 billion and $839 million, respectively, in active domestic core xed income, and State Street Global Advisors running a total of just under $1.3 billion in passive emerging markets debt and high-yield portfolios.

Also during 2023, the New York City Retirement Systems completed an asset allocation review. Among the top 200 U.S. retirement plans with DB plan assets, New York had the most assets reported in domestic xed income in the survey, at $93 billion as of Sept. 30, up 25.1% from a year earlier.

Dropping TIPS

Steven Meier, CIO of the ve retirement systems with a total of $285.5 billion in assets as of Sept. 30, said in an interview that the systems initiated an asset allocation review in 2023 because of a new state law passed in late 2022 that allowed the systems to allocate up to 35% of the overall portfolio to alternatives from the previous stat-

utory limit of 25%.

The ve retirement systems each have unique asset allocations and their own distinct boards. One common theme between all the retirement systems is a holistic approach between public and private xed income, Meier said. In the P&I survey, the retirement systems allocated private opportunistic xed-income investments to the xed-income category and not private credit.

One speci c change from the asset allocation review was the total divestment from Treasury in ation-protection securities, because the systems' TIPS exposure didn't provide the level of in ation protection they expected, Meier said.

Meier said the staff is currently reevaluating its portfolio construction, partially through the development of a suite of analytics to provide “much better quantitative analysis associated with actual performance over time.”

One example, he said, is some of the systems’ pension funds have as many as 10 high-yield managers.

“There’s a lot of overlap there,” Meier said. “Sure, this is not necessarily as painful in xed income as it is in equity in terms of active managers canceling each other out, but we do have a duplication we think is unnecessary. So I think two things as a general statement across our xed-income platform is we’re looking at potentially in-

Growth of global/non-U.S. xed income in DB plans

creasing our exposure at the margin to more passive strategies and to a much larger extent systematic or quantitative strategies.”

Another public pension fund, the $117.2 billion Virginia Retirement System, Richmond, reported $16.1 billion in domestic xed-income assets as of Sept. 30, up 29.1% from a year earlier.

Greg Oliff, VRS’ co-director, xed-income, said in an interview that the increase in assets was primarily the result of capital reallocation in addition to strong returns.

“As the equity market appreciated, we have boundaries on our benchmarks that are deemed by the board, so it’s not an autopilot reallocation, but certainly we were out to reallocate,” Oliff said. “So that was the vast majority of the uptick, and … we increased our benchmark allocation by 1% to xed income as well (to 16% from 15%),” focused on core and core-plus strategies.

“Then it also just so happens that from (Sept. 30), their absolute return was above 12%, which is wild. We had a pretty wild ride up in terms of rates, and then in that speci c window we had pretty much most of the curve, so we had a substantial kind of absolute return there,” he said.

Investment consultants who work with both corporate and public pension plans are seeing increased allocations to xed income as well.

Scott Whalen, managing director and senior consultant at Verus Advisory, which has a number of public pension funds as clients, said both the rm and its clients are showing greater interest in xed income because of the increase in interest rates.

“Through the low remedial environment, we were kind of hanging on by the skin of our teeth to stay diversi ed because you just weren’t getting anything from xed income, but it still had that diversi cation bene t,” Whalen said. “Now that you’re seeing higher rates, xed income is taking back its traditional place in the strategic asset allocation. It’s offering up a little bit more return. You have concerns from a lot of folks about the valuations with respect to equities, and so xed income just looks that much more attractive from both perspectives: In its own right, and then also relative to risk assets that may seem a little expensive.”

Matt McDaniel, U.S. pension strategy and solutions leader at Mercer, said on the corporate side, xed-income allocations are also going up because of improving funding ratios that have been the result of strong investment returns coupled with rising interest rates that lower liabilities.

Many corporate DB plans have long frozen bene t accruals and employ liability-driven investing strategies.

“As corporate plan sponsors get better funded, they tend to derisk,” McDaniel said. “One of the biggest ways they tend to derisk is removing assets from the equity portfolio or other growth assets to the xed-income portfolio, and predominately they’re buying long duration, high-quality xed income (assets like) long corporate bonds and long Treasuries."

For the year ended Sept. 30,

De ned contribution funds

1

De ned contribution funds

LARGEST RETIREMENT FUNDS

ESG ruling

CONTINUED FROM PAGE 1

the implications he seems to be predicating the decision on.”

ERISA attorney Joshua A. Lichtenstein warned “there is a real risk that this will be the rst in a new series of class-action lawsuits to be brought against plan sponsors.”

Lichtenstein, a partner in Ropes & Gray, cited two concerns: “There is a risk of more politically motivated cases, but I think the greater risk is nonpolitical copycat cases that are seeking damages” that will lure the ERISA plaintiffs’ bar, he said.

In the case of Spence vs. American Airlines Inc. et al., U.S. District Court Judge Reed O’Connor, Fort Worth Texas, ruled on Jan. 10 that American and its duciaries violated ERISA’s duty of loyalty provision, which says duciaries must put participants’ interests above employer interests.

“The facts compellingly demonstrated that defendants breached their duciary duty by failing to loyally act solely in the retirement plans’ best nancial interests by allowing their corporate interests, as well as BlackRock’s ESG interests, to in uence management of the plan,” O’Connor wrote.

“Defendants knew BlackRock was pursuing ESG initiatives through delegated proxy voting authority and related activism,” the judge wrote. “At a minimum, a loyal duciary would have monitored the situation more closely and even questioned BlackRock’s non-pecuniary investment activities.”

BlackRock isn’t a defendant.

“We always act independently and with a singular focus on what is in the best nancial interests of our clients,” a BlackRock spokeswoman wrote in a Jan. 13 email. “Our only agenda is maximizing returns for our clients, consistent with their choices.”

American Airlines didn’t respond to requests for comment.

‘Heavy on implications’

The judge’s decision is perplexing to some attorneys because Judge O’Connor said American Airlines’ 401(k) plans followed proper procedures — ERISA’s duty of prudence — in managing the plan. He relied solely on the duty of loyalty provision.

“The ruling in this case seems heavy on implications, less so on actual facts regarding actions,” Adams said.

“I can’t remember an ERISA case where the duciaries were held to have a prudent process where they didn’t prevail at trial,” he added. “At a minimum, I think folks should at least wait to see what kind of injury (or) damages are quanti ed, if any.”

O’Connor didn’t criticize the American Airlines plans for offering ESG funds. The initial lawsuit claimed American Airlines’ plans offered ESG funds, but they don’t.

“It would have been impossible for plaintiff to nd any such investment options in the plans’ core investment lineup, where he has chosen to invest, because there are none,” American Airlines attorneys wrote in August 2023 in an unsuccessful request to dismiss the complaint that was initially led by a former pilot in June 2023.

The original complaint also cited 90 other investment managers that provide investments “that are not branded as ESG funds but are managed by investment companies who have voted for many of the most egregious examples of ESG policy mandates.”

The plaintiff apparently was referring to a self-directed brokerage account.

American countered, to no avail, that the plaintiff “has never opted for a brokerage account at all, much less navigated through the countless investment options accessible through it to nd and invest in the ones he now challenges,” the airline wrote.

The lawsuit offered no performance data or cost data to support these claims, which the plaintiff subsequently dropped in favor of focusing on American Airlines relation-

ship with BlackRock.

Impact uncertain

The impact of O’Connor’s ruling is uncertain because, as the rst of its kind in a 401(k) setting, it is likely to be appealed. The judge wants information on alleged damages to participants’ investments, asking whether the plaintiff must prove damages or the defendants disprove damages.

The judge also wants to know if he should issue an injunction relating to alleged losses — or no losses — and he asks what impact a 2021 BlackRock proxy vote against certain Exxon Mobil directors had on the American Airlines plans’ investments.

“I nd the court’s nal request for briefs on whether it should issue an injunction even if no actual losses occurred to be troubling,” said Carol I. Buckmann, founding partner of the law rm Cohen & Buckmann. “In my view the court is straining to nd a basis for liability due to an underlying concern that these investments as a class are inappropriate.”

Deferring a ruling on damages is important, said Christina L. Hennecken, a partner in the Goodwin Procter law rm. “Showing loss to a retirement plan based on an investment manager’s proxy voting will be dif cult,” she said. “It remains to be seen if this theory of liability will actually result in any monetary recovery and attract copycat litigation.”

The American Airlines case provokes different responses from ERISA attorneys who represent retirement plan sponsors.

Buckmann worried about the impact of de ned contribution plan management. “I think this decision will have a chilling effect on ESG investment by employee bene t plans because it found liability despite evidence that American engaged in a prudent process,” she said.

However, other ERISA attorneys said the judge’s ruling suggests some exibility for sponsors.

“While the court did not rule on the permissibility of ESG funds or ESG investment strategy per se, the opinion does contain a detailed discussion of the circumstances under which environmental, social and governance factors may permissibly inform investment strategy,” said Brantley Webb, a partner at the Mayer Brown law rm. “I do not think the opinion spells doom for ESG investment funds or strategies in the retirement plan context.”

Lichtenstein of Rope & Gray offered a similar analysis.

“I think the near-term effect will be more

on the level of diligence and review that DC plans devote to ESG issues like proxy voting and stewardship,” he said. “I don’t think we will see changes in investments, assuming those investments were nancially motivated, not ESG motivated, when they were made.”

Caution counseled

ERISA attorney Stephen Rosenberg said sponsors — and their attorneys — should exercise caution.

“A knee-jerk reaction to one District Court opinion, particularly where it is so closely tied to very case-speci c facts, would be an overreaction,” said Rosenberg, a partner at Wagner Law Group.

If plan executives panic and drop ESG funds, the plans could wind up being sued “if it led to losses in any manner” because plaintiffs could claim that divesting was an imprudent decision under ERISA, he said.

Sponsors should act just like they would for any other ERISA litigation. “Put administrative, evaluative and expert structures in place to analyze this issue regularly in a manner that a court would be willing to later bless as having been both prudent and loyal,” Rosenberg said.

Another strategy: “Turn over the entire question of ESG-linked investments and their use to an independent duciary (who can) pass on the propriety under all of the relevant circumstances,” he said.

Because O’Connor focused on what he viewed as company executives blurring their corporate and duciary roles — he wrote they didn’t maintain “the appropriate level of separation in their dual roles” — attorney Jodi H. Epstein said this is instructive for all sponsors.

“It is preferable not to have the person who is responsible for duciary oversight and due diligence of a vendor also be responsible for the business relationship with that same vendor,” said Epstein, a partner at Ivins, Phillips & Barker. “The judge made a leap, though, in concluding that any commentary by a duciary about BlackRock’s ESG positions must have clouded that person’s duciary actions.”

Still, the case illustrates why plan executive must make sure to follow their investment policy statements and that investment managers follow the investment management agreements with the sponsors, Epstein explained. “This case provides a timely reminder to plan duciaries to become familiar with the plan’s governing documents,” she said.

INSTRUCTIVE FOR SPONSORS: Ivins, Phillips & Barker’s Jodi H. Epstein

TH E LARGEST RETIREMENT FUNDS

Private equity

Private equity

periods, including 7.2% internal rate of return compared to its benchmark of 39.2% for the year ended Sept. 30.

That was a challenging benchmark to achieve especially with the stock market rally mainly concentrated in the stocks of seven large U.S. technology companies, the Magni cent Seven, he said.

Oregon’s pension fund has a 20% target to private equity. As of Sept. 30, the pension fund’s actual investment in private equity accounted for 27.9% of the portfolio. By year end, Oregon’s actual private equity allocation had gone down to 26.5%.

Pensions fund of cials have some leeway with target ranges of 15% to 27.5%.

Pace of distributions

“We remain disappointed with the pace of distributions,” Langdon said. The mergers and acquisitions markets is slower than his team would have expected and so there are fewer realizations in the portfolio, he said. As a result, the pension fund is overweight private equity, he added.

However, overall distributions to private equity investors ticked up a bit compared to 2023 and 2022, said Steven Hartt, managing principal at consulting rm Meketa Investment Group.

Global private equity exit value in 2024 jumped nearly 20% to $807.1 billion, while the number of exits fell 15% to 2,939 from the prior year, according to PitchBook.

“2023 and 2022 were pretty slow years” for distributions of money back to investors, Hartt said. “2024 was a bit more robust.”

“It wasn’t as large as 2021 but it was up from where the lows had been,” he said.

Secondary market

Secondary market deals continue to be a growing segment and 2024 was an active year, Hartt said.

The secondary market hit a record $152 billion in volume, surpassing the previous high of $126 billion set in 2021, Lazard’s secondary market report shows. The biggest sellers were nancial institutions and insurance companies, accounting for 27%, followed closely by pension funds at 25%. Fifty-one percent of the sales were for portfolio management, up from 38% in 2023, given improved pricing for fund portfolios, Lazard said. Liquidity was the next most popular reason for 33% of the sellers, down from 44%.

Indeed, some of the top 200 pension fund investors used the secondary markets during the period. OPERF had net distributions of about $2.2 billion, with $2.4 billion in capital calls vs. roughly $4.7 billion in distributions in 2024, according to its private equity report. Oregon’s distributions included about $1.2 billion of proactively generated liquidity by secondary market sales, according the report shows.

Eric Messer, investment of cer, private equity at Oregon, during the same Jan. 22 meeting, said that investment of cials through a program with private equity consultant Pathway Capital Management

have been monitoring and in some cases liquidating a legacy private equity portfolio made up of 51 general partners and 91 limited partnerships. Over the last ve years, the program has generated a total of $4.5 billion in proceeds from sales.

Even without the spike in proceeds from the secondary sale at the end of 2024, Oregon and Pathway executives have been seeing a gradual improvement in the distribution pro le over the course of the year.

Los Angeles County Employees Retirement Association, Pasadena, Calif, also sold a portfolio of limited partnership interests during the survey period, said Jonathan Grabel, chief investment of cer. LACERA’s private equity portfolio fell by 5% to $13 billion as of Sept. 30 from a year earlier, with its buyout portfolio also dropping 5% to $10.7 billion.

In May, pension fund of cials reported the sale of 17 limited partnership interests with an aggregate value of $1.36 billion. LACERA of cials are selling LP interests in funds that “were not the most strategic for us to free up allocation” for investments that are more consistent with its last private equity portfolio structure review, Grabel said.

As part of that review, the board reduced its venture capital and growth equity allocation to a range of 5% to 25% of the private equity portfolio’s net asset value from a range of 15% to 30%, re ecting market dynamics.The board also changed its allocation to private equity co-investments and secondary purchases to a range of 5% to 35%, from a range of 10% to 30%.

These LP interests LACERA sold include those in funds that are well past the end of the investment periods, funds LACERA of cials thought are at full value and funds of rms that LACERA has declined to re-up with, meaning investing in newer vintage funds, he said.

A big reason that the secondary market had a record transaction volume year is that fundraising

and the exit markets have slowed, said Matthew Swain, head of direct placements and secondaries within Houlihan Lokey’s private funds group.

Many LPs say they are selling for portfolio construction reasons and they are selling fund interests of managers in which they have low conviction or funds that are at the tail end of their lives, “but some have decided to sell, at least in part, for liquidity,” Swain said.

“There’s a half a trillion dollars (of capital commitments in funds with investment periods about to expire) about to hit a wall or a fund extension,” he said.

Investors are selling positions in buyout funds because they command a high price on the secondary market as well as LP interests in venture capital funds of managers with whom they no longer wish to invest, Swain said.

According to Lazard, the average price of early stage venture capital

and late stage venture capital increased 3.9% and 3.1%, respectively.

Fundraising hit

The slow pace of distributions sent back to investors in 2024 negatively impacted fundraising. Oregon’s $2.4 billion in commitments in 2024 was below the bottom of the council’s private equity pace range of $2.5 billion to $3.5 billion, noted Angela Schaffers, investment of cer, private equity at the same meeting.

“It will remain at the bottom range until we see distributions normalize,” she said.

Those lower distributions were a key factor in slower fundraising last year, said Chris Webber, managing director at placement agent Monument Group. Money being sent back to investors has been falling since 2019 with investors getting less money back than they there private equity pacing modeling had predicted, Webber said.

Growth of private equity in DB plans

What’s more, the number of funds in the market is at an all-time high, he said.

“There’s more competition than ever of funds looking to raise capital,” Webber said.

The asset class is more mature and investors’ private equity portfolios are pretty well established. This means that investors are only adding new managers at the edges, he said.

“There are not that many people (LPs) putting their foot on the gas and growing portfolios,” unlike 20 years ago when private equity was a burgeoning asset class, Webber said.

There is reason for hope in 2025 with transactions activity starting to pick up in the fourth quarter, he said.

Monument executives are hopeful that transactions will continue to climb and distributions pick up “ lling the coffers of LPs who have been pinching pennies,” Webber said.

Gunnar Overstrom, partner at $9.7 billion private equity rm Corsair Capital, said that for private equity, last year ended better than it started.

The market for exits got better over the course of the year, he said.

The backdrop from an economic and market perspective was quite good with in ation expectations declining over the course of the year, Overstrom said.

The election changed everything, he said.

“We are going from one of the most anti-business administrations with Biden and Harris to one of the most pro-business administrations with Trump-Vance,” Overstrom said. “If you talk to private equity dealmakers, CEOs of companies, investors ... the optimism and ‘animal spirits’ are alive and well.”

As a result, Overstrom said he expects the pent-up deal activity from transactions that didn’t happen over the last couple of years to “start to clear in 2025 and 2026.”

“LPs are responding anxiously. It’s been a bit of a one-way street,” he said.

One risk is that with this style of executive branch administration there will be more volatility, Overstrom said.

MORE ROBUST: Meketa Investment Group’s Steven Hartt Liz Linder

LARGEST RETIREMENT FUNDS

The P&I 1000 CalPERS

CalPERS’ Gilmore makes case for total portfolio approach

CIO touts 1.8% boost for plans using it over more traditional framework

y B Arleen Jacobius

CalPERS CIO Stephen Gilmore made his case for the nation's largest public pension fund to change strategy and become one of the rst in the U.S. to use a total portfolio approach, in remarks at the $519.6 billion pension fund's Jan. 14 stakeholders meeting.

The total portfolio approach would be a marked change from the traditional strategic asset allocation.

One way to improve outcomes for the pension fund is to invest the portfolio “as a whole rather than thinking about asset class by asset class,” Gilmore told the group of stakeholders, including retirement plan members, retirees and employers.

Gilmore originally unveiled his signature effort to move toward a total portfolio investment approach to the board last November, after four months on the job at California Public Employees’ Retirement System, Sacramento. His former employer NZ$76.7 billion ($43.1 billion) New Zealand Superannuation Fund, Wellington, uses the approach.

“And there are bene ts to doing that. Typically, that sort of approach at higher returns,” said Gilmore, speaking on a panel with other CalPERS division heads moderated by CEO Marcie Frost.

He noted that a survey of 26 large asset owners released by Willis Towers Watson in July revealed that over 10 years, those funds using to-

tal portfolio theory outperformed asset owners using strategic asset allocation by 1.8%.

“I don't expect if we adopt a total portfolio approach that it will add that much, but I would expect it could add an extra 50 to 100 basis points per year and that is really meaningful and we can do it,” Gilmore said.

The New Zealand Superannuation Fund earned a return of 14.90% (after costs, before NZ tax) for the scal year ended June 30.

Currently, using the strategic asset allocation approach “the board signs off on a fairly speci c portfolio and there are benchmarks for 11 different asset classes.”

CalPERS’ portfolio currently is divided into ve asset classes— public equity, private equity, xed income, private debt and real assets, according to its agenda materials for its mid-cycle asset allocation review in March.

That is the last time the CalPERS board made changes to the fund’s target asset allocation, which is 37% public equity, 28% xed income, 17% private equity, 15% real assets and 8% private debt. Staff can add 5% leverage.

“The management team tends to basically stick with those targets,” Gilmore said. “And so, the question is, who owns the targets because the team is recommending them. The board is adopting them. And the team tends to cling to them.”

With a total portfolio approach, the board is very explicitly charged with coming up with risk appetite and then delegating discretion around that, he said.

“The board currently does delegate a lot of discretion to management but management doesn't real-

ly use that discretion,” Gilmore said.

Under the total portfolio approach, the ownership and accountability of the investments is on staff, he said.

“It's actually putting more on management (CalPERS investment team) to explain what it's doing as well. So that's really what we are doing,” Gilmore said.

Board education day

Gilmore made a similar pitch a day earlier at the board’s education day assisted by Howard Marks, co-chairman of credit manager $205 billion Oaktree Capital Management, whom Gilmore said is known for his “thought leadership about balancing risk and return.”

CalPERS has invested with Oaktree.

The board is expected to select its risk tolerance to be used by staff in a total portfolio approach in November, Gilmore said. A survey  to elicit the board’s risk tolerance and

responses to risk-return trade offs to inform future education on trade offs in order to get to a consensus, he said.

Marks did double duty Jan. 14, both opening the meeting with a question and answer with Gilmore, and sitting at the table during a survey exercise to elicit the board’s risk tolerances.

During his initial remarks, Marks suggested the board think of risk differently.

“I was thinking this morning that what I'm going to try to accomplish, more than any other thing, is to make you think of risk, not as some terrible thing that has to be avoided, but as the raw material with which you have to work,” Marks said.

Marks also stressed that volatility should not be used to measure risk.

“If I accomplish only one thing today, I would like to talk you out of caring about volatility...because it is not risk.... It could be a symptom of

risk. A sign that the risk was present,” Marks said.

Sometimes, investments are volatile even though there is no risk present and sometimes “things are serene, even though there was risk present.”

Gilmore said that U.S. asset owners don’t use the total portfolio management approach, which is mainly employed by “the very best-performing, let's say, hedge funds. If you look at Citadel or Millennium, they are exceptionally good at allocating their capital.”

In response to a question by Frost, Gilmore said that the total portfolio theory is more common among sovereign wealth funds than pension funds “because sometimes pension plans have a regulatory environment which can change them more. I think if you don't face those constraints and you're really thinking at how to achieve the best risk-adjusted returns, you would be more open to it.”

Annuities

Annuities

SUNY’s then new and pioneering de ned contribution-like retirement plan program to offer annuities, Consorte said.

While SUNY offers three standalone annuities, its “workhorse”, he said, is the TIAA Traditional xed annuity because it provides the highest payouts and offers many bene ts.

Participants in SUNY’s two dened contribution plans — the $14.8 billion 401(a) plan and the $7.1 billion 403(b) plan — pay into the annuity and when they’re ready to annuitize their savings, they can annuitize all or part of the money they’ve saved.

“As you put money into TIAA Traditional, you are investing in a fund like any other option in our plan,” Consorte said.

SUNY negotiated a 3% oor of guaranteed income on TIAA Traditional, meaning the annuity will earn a minimum of 3% regardless of what the market is doing.“ All of last

year, it was paying between 5.5% and 6.5%, which is pretty good for a market-agnostic return,” Consorte said.

In addition, TIAA Traditional offers annuitants a “loyalty bonus” for years when TIAA earns a pro t. If a participant’s regular annuity payment is $1,000, they could receive a loyalty bonus of, say, 30% or an extra $300 to the regular payment, according to Consorte.

“You get these bumps along the way, but they do add up,” he said, explaining that there have been only two years in the past 20 when no loyalty bonus money was paid out.

In July of 2024, SUNY introduced the STARS target-date series, a custom target-date fund with TIAA Traditional embedded in it. STARS gradually allocates a growing percentage of assets to TIAA Traditional, increasing from a 1% allocation for the youngest users to a 44% allocation for the oldest.

Since it was introduced, STARS has accumulated more than $600 million in assets and is on track to

grow past $1 billion in 18 months’ time, if not earlier, Consorte said.

SUNY added the STARS series to help target-date fund users who weren’t annuitizing their savings and to negotiate a better fee than the one it was paying for its traditional target-date fund.

SUNY negotiated with TIAA to offer STARS for 6 basis points, a dramatic improvement over the 40 basis charged for the former traditional target-date fund in its plans.

“What’s even better is once we

hit the $1 billion break point, that would go down to 4 basis points,” Consorte said.

RTX

Being among the rst to offer an in-plan annuity investment — a feat RTX accomplished in June 2012 — wasn’t easy but worthwhile, said RTX’s Masucci.

“There was legal and regulatory uncertainty, and we had to nd the right vendor partners, but this was overcome by knowing it was the right thing to do,” she said, adding that the team had support from senior leadership.

The Alliance Bernstein Lifetime Income Strategy that the company made available in its $58.3 billion 401(k) plan allows participants to allocate a percentage of their balance to annuities held in the strategy’s Secure Income Portfolio. The gradually increasing allocations to SIP begin 15 years prior to a participant’s target retirement age.

Participants can customize their target retirement age, choosing any age between 60 and 70. They can also customize how much of their

LIS balance they want to ultimately allocate to annuities, anywhere between 0% to 100%, in 10% increments.

Let’s say a participant plans to retire at 65 and wants to have 70% of their balance allocated to SIP. The participant would see gradually increasing allocations to SIP starting at age 50 until those allocations hit 70% of their balance at age 65. If participants do not choose a retirement age, they are defaulted to a retirement age of 65. If they do not choose how much of their savings they want to annuitize, they are defaulted to a 100% “secure income level,” meaning that at retirement their entire balance will be in SIP and available for annuitization. Masucci reports high participation in the investment option. Of the 215,000 active and inactive participants in the RTX 401(k) plan, 43% have a balance in the Lifetime Income Strategy. At the end of 2024, the Secure Income Portfolio had almost $3 billion in assets, which is nearly half of the $7.5 billion in the Lifetime Income Strategy today, Masucci said.

MEANINGFUL RETURN BOOST: CalPERS CIO Stephen Gilmore

THE RIGHT THING TO DO: RTX’s Kimberly Masucci

TH E LARGEST RETIREMENT FUNDS

Illinois Teachers

Diversity

again to “scale along with them” as it begins its fth incarnation.

Every ve years since 2005, the staff takes “a deep dive into the program, and we think about what’s worked and what hasn’t,” Gonzalez noted. “Then, we think about what we can do better, what’s in store for the future and how we can make the program better.”

Since 2020, when Gonzalez outlined his goals for the program’s fourth incarnation, he said the investment opportunity he’s seeing has doubled — but “there’s only a limited amount of capital to go around, right? But there’s unlimited opportunities.”

In addition to enhancing Illinois Teachers’ efforts in hiring diverse and emerging managers, Gonzalez is encouraging and helping peers within the world of institutional investing to support these rms.

To industry peers who say “‘I can’t nd any diverse, emerging managers in small buyout, early-stage venture capital or growth,’ I’ll tell them, ‘Really? Because you’re not looking hard enough, maybe you’re not stretching your outreach, or maybe you haven’t built out your networks,’” Gonzalez added. “But it takes a long time to really build your program. We have the luxury of being around for a long time.”

The de nition of an emerging manager has varied over time, with some focusing on asset size or fundraising cycle.

When Illinois Teachers launched its program in 2005, “the main focus was to invest in promising, younger and growing investment managers that may have smaller bases and developing track records,” Gonzalez said. “We wanted to provide access to rms that — maybe while possessing a marketable investment philosophy or process — really didn’t have dedicated marketing resources to identify themselves to either plan sponsors or the investment consultant community.”

In 2009, the Illinois General Assembly signed legislation requiring that retirement systems, pension funds and investment boards use emerging investment managers “to the greatest extent feasible within the bounds of nancial and duciary prudence, and to take af rmative steps to remove any barriers to the full participation in investment opportunities afforded.”

By asset size, the law de nes an emerging manager as a quali ed investment adviser managing at least $10 million and no more than $10 billion. In terms of diversity, the law notes an emerging manager is a business that is at least 51% owned by minorities, women or people with disabilities.

The law also set an “aspirational goal” for allocators to have at least 20% of their assets held by emerging managers by Jan. 1, 2016. Having used diverse managers “well ahead of the state laws” being established, Illinois Teachers has emerging managers currently accounting for 29.1% of the fund’s total portfolio, Gonzalez said. Since inception, the program has allocated capital to 138 new and re-up commitments — 72 hires worth $4.8 billion to new relationships and 66 re-up allocations worth $6.1 billion. For the 19 rms that have gradu-

ated from the program and are currently in the main portfolio, their initial commitments totaled roughly $602 million. By graduation, the capital grew to a total of $2.6 billion, Gonzalez noted.

He added that there are no parameters written in stone for graduation, but working groups with the pension fund assess the quantitative and qualitative factors in the decision-making. While there are at least three rms in the pipeline for graduation within the next six months, among the notable rms that have graduated from the emerging manager program include Garcia Hamilton & Associates, Siris Capital Group and Clearlake Capital Group.

In a breakdown of the 138 commitments, 40 allocations worth $2.1 billion went to African American-led rms, and 45 allocations worth $4.4 billion went to Latino-led rms.

Additionally, 28 commitments worth $2.9 billion went to female-led rms, while 17 allocations worth $1.3 billion went to rms led by those from backgrounds in Asia and other non-European ethnicities.

Since 2005, the program has switched from a focus on traditional public assets — including stocks and xed income — to alternatives, including private equity, real estate and private credit. The program has terminated 14 managers, all following graduation and with public market mandates. As the program increasingly focused on private capital, Gonzalez said there has been reduced terminations.

As of Sept. 30, domestic equity accounted for 58.4% of the program’s portfolio; global income and private credit together accounted for 15.9% and private equity made up 15.6%.

Through this current incarnation and into its 25th anniversary in 2030, Gonzalez said he hopes the program continues to evolve — one way being spending more time sourcing asset classes where the program has limited exposure. For instance, he noted the program is underexposed to real estate and real assets when it comes to minority managers, compared to other asset classes.

When running an emerging manager program, having dedicated staff for sourcing, due diligence and ongoing monitoring is essential, he noted. Illinois Teachers’ team currently has a staff of three — Gonzalez and two analysts. But given the program’s growth, he noted that “we are considering expanding our team in the very near future.”

Gonzalez is also considering how it can build out its long-term institutional partnerships. For one, while still in the planning stages, the pension fund’s annual Opportunity Forum for emerging managers is looking at an in-person return after being held virtually since the start of the COVID-19 pandemic.

When it comes to arti cial intelligence, Gonzalez said he’s also monitoring how the technology could be leveraged to strengthen the program within the next ve years.

‘Tremendous upside’

In addition to queries from emerging managers, Gonzalez receives phone calls from other allocators, including endowments

Growth of assets managed by WMDVowned managers in DB plans

Among the top 200 funds; assets are in billions as of Sept. 30.

Diversity of the top 200 funds’ U.S.-based retirement staff

and foundations, that are thinking about building their own program and are seeking advice.

Each program is different, and the policy has to be built around what the allocator wants to achieve, Gonzalez said. But he added that having emerging managers is an important aspect of every investment plan because of the “tremendous upside for alpha, given that the managers are smaller and play in niche strategies.”

“I do try to push it, but I also understand that there’s certain other things that come into play with each pension and each institution,” he noted.

At Illinois Teachers, Gonzalez’ push for growth is tied to the outperformance of emerging managers due to their focus on narrower strategies and smaller markets.

“This has been evident in our performance numbers from our managers,” he added. “I would say that performance has been equal to or better than our mature, late-stage managers. The performance continues to be an important gauge for our overall success of the program.”

Additionally, Gonzalez is pushing to expand representation to address the historical lack of diversity within the industry. According to a 2024 report by the National Association of Investment Companies, between 2012 and 2022, more than 95% of pension fund investments owed to non-diverse managers.

“As we grow, we continue to correct what we feel are disparities in asset allocation by directing this institutional capital to historically underrepresented groups,” Gonzalez said. “Then, as these diverse man-

agers gain credibility, they pave the way for future managers from underrepresented backgrounds.”

Having a program around for 20 years has enabled Illinois Teachers to build out a strong network. What Gonzalez has “found more helpful is just word of mouth, and having networks with other allocators” that run similar programs.

And while there are several conferences dedicated to emerging managers — including events hosted on Emerging Managers Week during the week of Feb. 10 — Gonzalez attends the bigger ones, and sometimes speaks on panels.

“And when I attend these conferences, I’m interacting with potential opportunities because I’m seeing a vast array of managers,” he added.

Assessing diversity

Gonzalez said diversity metrics is another area he wants to strengthen.

Illinois Teachers has its own internal scoring system for measuring diversity and inclusion, made possible through the allocator’s annual survey of rms. The questionnaire collects data to assess what each manager’s workforce looks like — from ownership, down to leadership levels and the total workforce.

“In our existing relationships, we want to make sure that we’re supporting managers,” Gonzalez said. When I mean ‘support,’ we’re reaching out to them and saying, ‘Look, last year, your workforce looked really good — a diverse workforce — but I see here that maybe the past couple of years, you’re lagging here, there, or vice versa.' We want to be able to give credit to those managers that are doing well in terms of

really thinking about how to diversify their workforce.”

Before hiring a new rm, Gonzalez goes through a due diligence process that incorporates diversity metrics. Aside from asking about performance, track record and the economic distribution within the rm, he asks managers about where the rm is in terms of diversity. Even during introductory meetings, he’ll aggregate diversity data.

“That way, I can build a pipeline because I might not hire every single manager I talk to. It’s impossible, but I could say I can build a database that tells me, ‘OK, I’ve had calls and meetings with all these managers. This is kind of what the workforce looks like today,’” Gonzalez added. “But I think when it comes to diversity metrics, we’d like to aggregate data that can help us support our managers.”

Aside from looking at the rm’s ownership, Gonzalez assesses the whole rm, including retention and promotion within, diversity of thought on the investment committee and “who’s getting all the carry — is it just the owners, (or) is it being distributed to a diverse piece of the rm?”

“Obviously, ownership is going to dictate what the rest of the rm is going to look like, but there’s other factors that are important when you think about the rm as a whole,” he added. “We’re doing some work and coming up with a customized diversity metric internally that we’re going to start applying that’s more inclusive, (and) has several factors that we’re incorporating to help make a decision on truly what efforts a rm is making around diversity.”

CONTINUED FROM PAGE 13

appears more likely that growth equity companies with greater than $1 billion valuations — unicorns, decacorns, hectocorns, etc. — could inch further into the mutual fund or ETF market before traditional buyout exposures, which tend to have control owners and limited common equity available prior to a sale.

For example, Morningstar now publishes the PitchBook Unicorn 30 index, tracking the largest growth-equity exposures in the private market. Using a combination

of PitchBook data on recent funding rounds and secondary market trading, the equal-weighted index joins other providers such as Lagniappe Labs/Level ETF Ventures and OpenVC trying to track, and potentially nancialize, exposure to growth equity.

“The arc of innovation is moving toward retail exposure,” said Sanjay Arya, senior vice president and head of innovation, index products, at Morningstar. “In the last 10  years, venture-backed private markets have moved to about 9% of all equity market value.”

Most analysts, however, agree that illiquid assets and fund stakes traditionally held by venture capital and

private equity funds are a challenge to t within the current expectations for daily liquidity and transparency expectations in the ETF market.

“It’s technically possible, but important to understand the impact of the liquidity mismatch between the underlying securities and the ETF wrapper,” said Aaron Filbeck, managing director, global content strategy, for the Chartered Alternative Investment Analyst Association.

“ETF issuers want to democratize access to everything for everyone, but there are bene ts to investor protection and regulations, particularly around risk and the wide dispersion of outcomes in private markets,” Filbeck said.

TH E LARGEST RETIREMENT FUNDS

Private credit

Private credit

vors of direct lending, but there’s a large market, the middle market, the lower market, the micro market. There’s a bunch there,” he said, pointing to diversi ed direct lending vs. healthcare or venture direct lending.

Investors are increasingly looking to other segments of private credit, especially multiasset-backed nance, and while in its early days, credit secondaries are also gaining attention, Scopelliti said.

Allocations vary based on funded status, with some fully funded plans allocating to investment-grade credit in case they want to pursue a pension risk transfer, while underfunded plans are looking for yield, he said.

“A lot of those (not fully funded) investors de nitely are using private credit as a yield enhancement,” Scopelliti said. It's a "return enhancement for their broader portfolio, and we're seeing allocations move from xed income in particular.”

Other opportunities

The Public Employees Retirement Association of New Mexico began allocating to private credit in 2017 and expects an 8% to 10% net return over a market cycle and a “meaningful spread over liquid credit,” said CIO Michael Shackelford in an email, noting that so far, private credit has performed as expected.

The $17.5 billion pension fund saw one of the largest private credit increases in P&I's survey with its portfolio increasing over 500% during the survey period. The plan has a target allocation of 8%, or about $1.5 billion, and as of Sept. 30 had a 3.8% actual allocation, Shackelford said.

day,” he said.

Senior credit

The Florida State Board of Administration, Tallahassee, has invested in private credit for more than 20 years, rst starting with allocations within its private equity asset class that were more opportunistic and distressed oriented before creating a new asset class — strategic investments — after the global nancial crisis that housed credit investments, said John Mogg, senior investment of cer of active credit.

Last year, the SBA created a new asset class called active credit that includes both private credit as well as multiasset credit. Going forward, all private credit investments will be made in the new asset class.

“The asset class over the last 20 years has really grown quite a bit, and it's really become an institutional asset class. And so we decided, instead of taking a more

ture, take less risk, generate a healthy income for the pension.”

Others are also looking to senior credit.

The $59.5 billion Connecticut Retirement Plans & Trust Funds, Hartford, saw its private credit assets increase 55% to $3.1 billion for the year ended Sept. 30.

Connecticut established its private credit allocation in early 2020 with an initial target of 5%. That was revised in September 2022 to a 10% target.

The plan’s private credit portfolio targets exposure across three broad subcategories, with the most exposure in performing senior credit and the balance split between mezzanine and special situations, said CIO Ted Wright in an email. He said he continues to see opportunities to scale these positions while also potentially adding diversifying exposure in royalty nance and credit secondaries.

Growth of private credit/debt in DB plans

Among the top 200 funds; assets are

“Although spreads have tightened, we continue to see opportunities in core middle-market direct lending. We also see the opportunity set expand in asset-backednance as banks and nonbank lenders continue to access it for balance sheet optimization and capital relief,” Shackelford said.

He noted he’s keeping an eye out for degradation of creditor protections and asset/liability mismatches in retail products in the space.

Jonathan Glidden, CIO of Delta Airlines, is also looking to do more in asset-backed nance. Delta saw its private credit assets grow a little over 23% during the survey period to $1.4 billion.

Delta rst incorporated private credit as part of its strategic asset allocation in 2017 and has been growing it from 5% to a 10% target that it is now approaching, he said. The plan uses ve buckets: direct lending, corporate securitized, residential, commercial real estate, and asset-backed, Glidden said.

While Glidden too has concerns over spreads tightening, he remains positive on private credit.

“I’m optimistic for private credit relative to other asset classes to-

opportunistic approach and periodically surveying the market and forecasting where we saw the opportunities, we thought that it really made sense to have a dedicated allocation,” Mogg said, adding that within active credit there’s a targeted 4% private credit allocation and 3% to multiasset credit, which contains more liquid return-seeking credit opportunities. Florida SBA had $205.2 billion in de ned benet assets as of Sept. 30.

As part of the new portfolio construction framework for private credit — more focused on senior, top of the capital structure, lending income as well as less volatility — the plan executed a credit secondaries sale, Mogg said. Excluding those assets, Florida had $7.3 billion in private credit as of Sept. 30.

“We took the portfolio to market and sold it, and now we’ll be looking to reposition into other credit investments more in line with what the target is for this new allocation,” he said, adding, “with this new active credit asset class and the private credit mandate within that we’re much more targeted, we want to be much more income-oriented.”

Mogg added, “with rates going up… we feel it’s prudent that we can invest top of the capital struc-

The P&I 1000

1000

ers contend the latest round of gains could prove more durable, on the strength of potential innovations from arti cial intelligence in combination with an easing of regulatory strictures under the new U.S. administration that took power in January.

With the healthy returns for the 12 months through September added in, assets of the top 1,000 retirement plans rose 33.7% over the ve years through Sept. 30 — a period that included a record 13.9% drop for the September 2022 survey period.

azon.com surged to 97th place from 141st, with a 57% gain to $29.9 billion. Boeing, meanwhile, slipped to 13th place in the latest survey, on the back of a 13.1% gain in retirement assets to $134.8 billion, from 12th place the year before.

“Our portfolio construction objectives are already heavily skewed toward performing senior credit; however, the current rate environment might cause us to lean slightly more into senior strategies because of the attractive return pro le available for taking senior secured credit risk,” he said.

Wright said that signi cant growth in private credit over the last decade has led to concerns about the market growing too quickly.

“At the macro level, we believe structural changes driven by the diminished role of commercial banks in traditional credit markets continue to create a growing opportunity for private credit investment,” he said. “At the micro level, we seek to mitigate any potential concerns by remaining focused on private credit managers with a very strong, fundamental credit culture, particularly rms led by teams that have had the experience of investing through less benign market conditions.”

Slow, cautious approach

Iowa Public Employees’ Retirement System saw a 22.9% increase in its private credit assets over the survey period to $2.7 billion. While the $45.3 billion system is still underweight its 8% target, CIO Sriram Lakshminarayanan is advocating a slow and steady approach to the asset class.

“Private credit does have a place in the global nancial system, and it is not something that’s going to go away anytime soon. It’s not bad,” he said. “So it makes sense for us to think about this as a longer-term allocation and not be worried about what private credit might do in the next year or two years.”

Lakshminarayanan’s approach has been to allocate at a slow and steady pace and to make sure investment team and board understand what they are investing in because he views private credit as an “evolving” space.

“One is, don't be in a hurry. And two is, use as many partners as you can to conduct your operational due diligence,” he said, adding, “Don't be rushed into an investment where somebody’s closing a fund in a month. You know, there's always going to be available business.”

The latest year was the second in a row where markets climbed a wall of worry to deliver handsome, broad-based gains, defying expectations that the recent monetary tightening cycle would push the U.S. economy into recession.

An economic slowdown and softer corporate earnings seemed likely at the outset of the latest year but they never came to pass, noted Michael Brakebill, chief investment of cer of the $87.1 billion Tennessee Consolidated Retirement System, which includes $73.2 billion in DB assets.

Instead, “you had a huge boom in prices of pretty much everything,” led by a 36% gain for TCRS’s U.S. stock portfolio, Brakebill said. Even the plan’s xed-income holdings rose by more than 15% — “just huge numbers,” he said.

A 17.2% increase in retirement assets lifted Tennessee Consolidated to 25th place in the latest rankings, up from 30th the year before.

Stable top 10

The upper echelons of the latest rankings were decidedly stable, with no change in the top 10. The Federal Retirement Thrift Investment Board remained top of the pack with a 21.9% gain to $954.3 billion, followed by nine public pension plans from California, New York, Florida, Texas, Washington and Wisconsin, posting gains of between 11.5% (New York State Common) and 19.8% (CalPERS).

The broader rankings, however, continued to offer hints of change to come, with de ned contribution plans sponsored by big technology rms with large, skilled workforces making steady progress toward returning corporate plans to the top 10 for the rst time since Boeing nailed down 10th place in P&I’s 2021 survey.

Among them, Microsoft’s DC plan jumped to 43rd place from 58th the year before, on the back of a 43% gain in retirement assets to $60.8 billion; Alphabet’s DC plan climbed to 64th place from 78th, powered by a 44% rise to $44.6 billion, and Am-

Alongside the stellar returns for U.S. equities, index returns for asset classes powering the top 1,000’s gains for the latest year included international developed market and emerging market equities, up roughly 25% apiece; emerging market debt, up 18%; hedge funds, up 12.6%; U.S. and global bonds, up roughly 11% each; leveraged loans/private credit, up 9.6% and cash, yielding 5.5%.

Real estate, still working its way through COVID-related ripple effects such as the impact of remote working on of ce demand, was the only sizable market segment to see a decline, of roughly 3.5%, for the year.

In a sense, the latest period offered a mirror image of the September 2022 survey results, which saw double-digit declines for equity and xed income but resilience for private market exposures — helping the biggest, diversi ed plans outpace their smaller counterparts.

For the survey through Sept. 30, by contrast, private equity lagged, with gains of just over 5% — a drag for a year where the S&P 500 index was jumping 36.4% and its growth index was surging 42.2%, said Mark Brubaker, a Pittsburgh-based senior consultant, managing director and corporate sector leader with institutional consultant Verus Advisors.

That effectively made diversication — the proverbial “free lunch” of institutional investors — an empty meal for the latest year, with smaller plans that generally have more exposure to public markets posting stronger growth than the biggest funds. De ned contribution plans with more of a U.S. home country bias and relatively heavy equity allocations likewise outpaced the gains of well-diversi ed de ned bene t plans.

For the latest survey, the 200 biggest U.S. plan sponsors reported a 15.6% gain in combined assets to $10.92 trillion, 80 basis points shy of the top 1,000 growth. The top 100 and top 50 grew 14.9%, a full 1.5 percentage points below the pace of the broader universe.

Meanwhile, the 200 biggest plan sponsors reported a 22.1% gain in de ned contribution assets to $3.89 trillion, outpacing the 12.2% rise for de ned bene t assets to $7.03 trillion. Some analysts attributed that gap, in part, to greater home country and “recency” bias, which pro-

Green said. Alabama also has stakes in other ETFs across some broad sectors. According to a recent 13F-HR ling, as of Sept. 30, the pension fund also owned SPDR S&P 500 (SPY); SPDR S&P Midcap 400 (MDY); Vanguard S&P 500 (VOO); Vanguard Small Cap Value (VBR); iShares MSCI EAFE ETF (EFA); iShares Core S&P Small-Cap ETF (IJR); and iShares Core S&P 500 (IVV).

For exposure to xed-income markets, the pension fund has invested in iShares 1-3 Year Treasury Bond (SHY); iShares 7-10 Year Treasury Bond (IEF), iShares Core U.S. Aggregate Bond ETF (AGG), Vanguard Short-Term Corporate Bond Index (VCSH) and Vanguard Total Bond Market Index Fund ETF (BND).

Fixed-income ETFs, Green indicated, proved their mettle during the historic sell-off in the spring of 2020 in the wake of the COVID-19 outbreak. Amidst huge market volatility and declining liquidity,

vided participants with heightened exposure to U.S. large caps as the market embarked on the latest leg of its bull run.

Brubaker said that, simply put, over the past year “those that were heavily invested in public equities did the best, and those that were overallocated to privates … didn’t fare as well.”

Private markets

P&I’s latest survey showed allocations by the DB plans of the 200 biggest U.S. retirement plans to a number of private market segments faltering, including private equity buyouts, down 4.8% to $398.1 billion; venture capital, off 7.4% to $53.9 billion; and hedge funds, slipping 2.6% to $148.5 billion.

But other market segments remained in demand, including private credit, up 57% to $198.4 billion and infrastructure, up 20% to $112.7 billion.

Aaron Chastain, an Atlanta-based principal and senior consultant with NEPC, said the steady appeal of private credit likely re ects its relatively attractive balance of risk and returns. “A lot of particularly large plan sponsors … still have return needs for their growth portfolio but are wanting to incrementally derisk as they get better funded. I think we’re seeing a little bit more focus on private credit as that middle ground,” offering high returns with both superior safety and shorter duration than something like private equity, he said.

Consultants say they’re urging clients to continue considering additional allocations to private markets this year, even if they’re grappling with persistent denominator effect pressures, in pursuit of vintage year diversi cation. Some plan sponsors say it will be far easier to do so if and when distributions on existing investments become healthier.

Tennessee Consolidated’s Brakebill said he sees reason for optimism now on that score. Recent updates from the plan’s private markets managers have pointed to healthier returns, he said. “One would think that valuations in the public markets are good enough that we should have a pipeline of distributions set to come,” setting the stage for the market to improve and clear, Brakebill said.

“If it takes a year, it takes a year, but it seems like it’s underway right now,” he said.

What now?

Despite the past year’s pleasant beta backdrop, meanwhile, a number of veteran CIOs have been left elding questions from their boards and investment committees as to what they’re thinking now on

xed-income ETFs continued to trade ef ciently and provided some measure of stability to a battered market.

ETFs are not only transparent and highly affordable (with expense ratios as low as 0.07% in some cases) but they also provided excellent liquidity, are easily and quickly tradable and allow exposure to a wide range of asset classes, sectors and regions, allowing a portfolio to have greater diversi cation, he noted. However, Green indicated that the pension fund currently owns no actively managed ETFs, nor do they have any plans to signi cant-

E LARGEST RETIREMENT FUNDS

questions such as U.S. market dominance, or “American exceptionalism,” as well as the right amount of exposure to have to the Magni cent Seven tech giants — Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla — dominating U.S. equity benchmarks such as the S&P 500 and the Russell 3000.

“The big story for us as an asset owner is diversi cation is lagging,” a considerable headwind for a portfolio that’s 100% actively managed and consequently Mag Seven light, noted Paul Colonna, president and CIO of Lockheed Martin Investment Management Co., which oversees Lockheed Martin Corp.’s more than $85 billion in retirement assets — roughly 70% in DC and 30% in DB.

Lockheed responded last year by employing a long-standing “beta balancing” process, in partnership with a rm that rolls up all of Lockheed’s active manager exposures and allows it to ll gaps with a completion portfolio. That program was buying more of the Mag Seven over the past year, Colonna said.

Despite that adjustment, Lockheed’s portfolio remained underweight those tech giants, which ultimately offset the broad-based gains Lockheed’s investment team made last year “everywhere except U.S. large-cap tech,” he said.

For now, Colonna suggested, a stiff upper lip looks to be the best response.

“We should be prepared for years where — if six stocks are going to control the whole thing and nobody cares about anything outside the U.S. — we’re not going to perform well,” he said.

Over the longer term, maintaining a focus on valuations should prove the right thing to do, Colonna said.

An estimated 11.5% gain in retirement assets buoyed Lockheed Martin to 26th place in the latest rankings, up one step from the year

ly increase their exposure to ETFs anytime soon.

Overall, the pension fund has a relatively low allocation to alternative assets. As of Sept. 30, the fund had almost 87% of its assets allocated to traditional asset classes — nearly 63% in equity, 15.5% in xed income and 8.2% in cash. Green explained that this is linked to the high fee structures typically associated with investing in private and alternative assets. And given how the performance of private assets has lagged public markets, it didn’t make much sense to add to alternatives, he added.

$835.1 billion. (This is the rst year P&I eliminated enhanced equity and xed income categories, partly boosting active.)

Verus’ Brubaker said with the Magni cent Seven accounting for more than 30% of the index over the past year, some clients, at the margin, have been moving assets out of passive and into active to improve diversi cation and reduce risk.

NEPC’s Chastain said that urge to diversify away from an overconcentrated S&P 500 index has led clients to seek out more active strategies with less reliance on the Mag Seven, including global equity strategies offering broader opportunities to seek alpha.

The latest survey shows global equity assets, active and passive, surging 21% over the year through Sept. 30 to $361.4 billion.

before.

Charles Van Vleet, CIO of Textron Inc.’s $14.5 billion in retirement assets, said the Mag Seven have proven a challenge for him as well as he works with boards, investment committees and shareholders that pay close attention to benchmarks such as the S&P 500.

Last year, Textron’s answer to that Mag Seven problem was to boost allocations to 140-40 extension strategies, which maintain a beta of one by adding 40% in long positions offset by 40% in short positions — allowing managers to “address the Mag Seven and still have capital playing the other 493” S&P components, Van Vleet said.

That, in turn, has made Textron’s allocation to U.S. large-cap equities — which Van Vleet had made increasingly passive over the years, even as he sought alpha in less ef cient international and emerging market stock markets — a bit more active for now, helping to lift the $8.5 billion DB portfolio’s U.S. large-cap active assets to $949 million at the close of 2024 from $763 million the year before.

He called the Wellington Management global 140-40 extension fund Textron uses “a great performer” with an elegant design aimed at remaining sector neutral vis-à-vis the benchmark — effectively making each sector team a hedge fund for its portion of the portfolio. He said the other extension strategy Textron uses, managed by J.P. Morgan Asset Management, has likewise done well.

Analysts say the challenges posed by the Magni cent Seven have prompted other asset owners to shift some of their still largely passive U.S. equity allocations to active.

According to the latest survey, allocations among the 200 largest plans to active U.S. equities rose 34.2% for $339.1 billion, while passive U.S. equities rose 16.8% to

Green said he does not have the sole authority to invest on behalf of the pension fund. Rather, the investment staff and investment committees make investments in accordance with the investment policies established by the respective boards of control of RSA.

As or Sept. 30, 2024, RSA comprised three de ned bene t plans — the $31.9 billion the Teachers’ Retirement System, the $16.5 billion Employees’ Retirement System, and the $372 million Judicial Retirement Fund — and they also administer several other smaller funds as well.

game-changer.”

“Additionally, I would explore digital currencies, domestic companies with minimal international supply chain exposure and technologies related to space exploration, asteroid mining and satellites,” she said. Others said potential policy changes aren’t keeping them up at night. Such factors shouldn’t matter “when it comes to our portfolio construction,” said Jonathan E. Glidden, CIO of Delta, in an email. “The world is always uncertain,” which makes the best approach one of running a fairly regime-diversi ed portfolio and leaning hard on alpha, he said.

Other market segments posting sizable gains for the latest year include passive U.S. xed income, which jumped 73% to $302 billion.

Chastain said with credit spreads over Treasuries narrowing last year, some investors have concluded that they’re no longer getting paid to hold credit. Switching into passive Treasuries leaves them positioned more cautiously to lean into credit again in the event of market dislocations.

Policy uncertainty

If asset owners came to the past two P&I survey periods arguably more cautious about their immediate investment prospects than proved necessary, they appear to be more mixed now, coming into what is arguably a period of unprecedented policy uncertainty.

With a newly installed administration in Washington suggesting more fundamental changes to come in the way government and regulatory oversight is conducted, some observers contend that approaches for diversifying institutional portfolios could require some tweaks along the way.

The potential for signi cant policy changes “could lead many allocators to rethink their strategies,” said Robin L. Diamonte, chief investment of cer of RTX’s $103.3 billion in retirement assets.

RTX isn’t necessarily one of them. With a fully funded corporate de ned bene t plan that’s 80% hedged, on the strength of a substantial bond portfolio, Daimonte suggested RTX is well situated to ride through any policy volatility.

But “if I were managing an underfunded plan or one where strong returns were necessary, I would likely focus on venture capital, private equity and public equity investments, particularly in sectors bene ting from arti cial intelligence,” which she termed a “true

For the scal year ended Sept. 30, TRS, ERS and JRS posted annual returns of 21.1%, 21.2% and 22.2%, respectively.

Tom Bailey, London-based head of research at HANetf, a European ETF issuer, said that ETFs are increasingly becoming a “go-to tool” for pension funds due to their transparency, cost-ef ciency and liquidity.

“For institutions managing large and complex portfolios, the ability to trade throughout the day and make precise allocation adjustments is invaluable,” Bailey said. “ETFs offer straightforward access

“The headline risk will be higher than ever” but at the end of the day all of the hour-by-hour, dayby-day reworks will just be noise, said Stephen DiGirolamo, Pittsburgh-based managing director with Wilshire Advisors.

“There are no true indicators that are easy to invest on,” no tactical plays, so more than ever the best way forward is to continue to play the long game, DiGirolamo said. Lockheed’s Colonna said that trying to glimpse whatever forest can be found, as opposed to focusing on policy trees, could prove the best way forward.

“We don’t feel like anyone really has a great sense of being able to predict all of the possible changes (that could emerge from Washington) so we tried to simplify it down” and look at what’s actionable and makes sense, and the answer was volatility, Colonna said.

So, Lockheed’s team is going long volatility, buying VIX futures, guring that’s a reasonable way to position the portfolio for the coming six to nine months, without being able to know the ins and outs of every policy angle, he said.

At least for now, some asset owners say it’s a good time to be cautious.

“I’m still in ‘wall of worry’ mode,” saidTennessee Consolidated’s Brakebill. “I’m not a doomsayer” but the market has had a fantastic run, valuations are stretched and individual investors’ appetite for risk is extremely high — typically bearish signs, he said. “I think you should be investing right now with eyes wide open.”

For the longer term, however, some investors remain unabashedly bullish.

The S&P 500 “has compounded 12% the last 10 years,” noted Textron’s Van Vleet, adding “why would you walk away from that?” And the next 10 years promise to be equally good if not better, he said, pointing to the promise of innovations in areas such as arti cial intelligence, gene editing technology, weight loss drugs and fusion.

to a wide range of exposures, so we expect to see pension use increase further.”

Bailey further indicated that his rm has seen “signi cant interest” from pension funds in Austria and Germany, with these institutions recognizing the practical advantages of ETFs in meeting their investment objectives.HANetf has about $5 billion in AUM.

Regarding whether other pension funds will move more into ETFs, Green said: “I am uncertain on that, but on short-term reallocations I think they are used quite extensively.”

‘WALL OF WORRY’: Tennessee Consolidated Retirement System’s Michael Brakebill

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market mentality that has shifted, she said.

“I think that there’s more appetite for institutions to take those small balances,” she said.

Upping the limit

Leidos is also increasing the limit on how much money can be rolled over to $7,000 from $5,000, an increase permitted under the SECURE 2.0 Act.

“We actively want to keep former participants in the plan, but we also want to streamline our plan to follow updated guidance just so it is easy for administration,” Pattillo said.

The reasoning echoes that of many other employers as they move to increase the force-out limit to $7,000, one of the most popular optional 401(k) design provisions in SECURE 2.0, according to a recent report from Alight Solutions.

Almost 2 in 5 employers (39%) have already increased the force-out limit to $7,000, with another 26% likely to add — or de nitely adding — the feature this year or next year.

Rob Austin, vice president and head of thought leadership at Alight, said the measure helps employers reduce the cost of tracking former employees.

“Many employers are paying fees to record keepers based on participant count, so the more participants they have, the higher their fees would be,” Austin said.

In addition, employers fear that many of these former workers could become missing participants, a risk that’s reduced when there are fewer people to track.

“It’s tough to keep track of these people and eventually they might become a lost participant,” Austin said, explaining that employers have a duciary responsibility to locate missing participants or those who can no longer be contacted.

Employers, for example, must document efforts to nd participants, including tracking communications and search methods used, he said.

David Stinnett, principal and head of strategic retirement consulting at Vanguard, agrees that a higher limit on force-outs reduces the risk of missing participants.

“The likelihood of having up-todate and current address and demographic information on former employees probably gets harder

and harder to do the longer the time is from when you separated from service,” Stinnett said.  “You can get lost participants because you have an account in the plan, but you have an out-of-date address for someone.”

Auto portability

Employers can also get at the issue — at least partly — by joining an automatic-portability service known as the Portability Services Network. If an employee moves to an organization that is part of the network, his or her retirement account balance will automatically be transferred to his or her new employer’s retirement plan, even if the amount is less than $1,000 and the new employer allows small-balance roll-ins.

Employees moving to organizations that are not part of the network also get help. The Portability Services Network will attempt to nd and match any old 401(k) accounts the employee may have with other PSN member plans. The network will check each month to see if the employee’s new employer has become part of the network or if the employee ultimately moves to another employer that is part of the network.   Since the PSN launched in December 2023, more than 15,000 employers have signed up for the service.

While the number represents a modest 6% of all employers, interest in the service is growing, according to Alight’s research.

More than half of employers (52%) reported they were either very or moderately interested in the clearinghouse service, Alight’s research showed.

Leidos’ Pattillo is not among those interested in joining the clearinghouse, at least not for now.

While she “loves the concept,” the PSN does not accommodate Roth balances, a deal breaker for Pattillo.

“The issue is that under the IRS regulations right now, if there’s an account with Roth balances, Roth accounts can’t be part of that portability network,” she said.

Pattillo explained that the employees across all ages and savings levels have both pretax and Roth monies in the company’s 401(k) plan.

“We are not interested in utilizing a service that cannot be available across all of our participants,” she said, explaining that not making the service available universally could be misinterpreted.

“I don’t want to have to say, ‘I’ll do it for you, but I won’t do it for you because you have this kind of account.’ It would have an unintended and incorrect message that would look like I’m saying, ‘Don’t do Roth,’ Pattillo said.

CONTINUED FROM PAGE 3

for 4.16% of the index — the fth-largest of the 24 country constituents, and behind China, Taiwan, India and South Korea.

“Saudi Arabian equities have grown in prominence in the investable emerging markets equity universe, backed by fundamental economic reforms,” said Caroline Baron, head of Europe, Middle East and Africa ETF distribution at Franklin Templeton.

Changes under Saudi Arabia’s Vision 2030 initiative to diversify the economy away from dependency on oil include improving regulations and the business environment, according to the International Monetary Fund.

The kingdom’s equities “may offer

both an interesting growth opportunity and potential diversi cation to an emerging markets allocation,” Baron said. “Saudi Arabia is becoming one of the core single country exposures within emerging markets.”

Saudi Arabia was the fourth-largest country constituent of the FTSE Emerging index as of Dec. 31, at 4.59% and behind only China (30.8%), India (22.15%), and Taiwan (20.31%). South Korea is classi ed as a developed market by FTSE Russell.

“The dramatic increase in its weight in EM is a key reason why investors need to look at Saudi,” Baron added. The kingdom was added in March 2019, and recently pushed Brazil into fth place in terms of country weighting.

Franklin Templeton launched its Franklin FTSE Saudi Arabia UCITS ETF at the end of last year. Sources

UNNECESSARY FEES: Alight Solutions’ Rob Austin

Endowments & Foundations

Princeton president defends fund in annual letter

Eisgruber’s missive goes deep on mission, returns

and tax proposals

y B CARYL ANNE FRANCIA

As the spring semester begins at Princeton University, President Christopher Eisgruber wants to be loud and clear — not just on the issues faced by endowments, but also how they function.

“Few people understand how endowments work and the public bene ts they create,” Eisgruber wrote in his annual “State of the University” letter published Jan. 29.

Fundamental to his letter this year is bringing clarity on how endowments work — and shaking off concern over the university’s most recent scal year.

While some think an endowment functions like a savings account that institutions can “dip into” to pay for emergency costs or special projects, Eisgruber noted the fund “is nothing like a savings account.”

Instead, an endowment is like a retirement annuity that provides yearly income for the university’s operating budget by paying out more than 5% each year for costs such as salaries, nancial aid and infrastructure.

Managed by the Princeton University Investment Co., the endowment on June 30 had $34.1 billion in assets, and returned 3.9% — the lowest among other Ivy League institutions during the scal year.

Eisgruber noted the fund’s most recent performance pales in comparison to the record 46.9% return during 2021 — when the economy rebounded from the COVID-19 pandemic, and the endowment reached a record high of $37.7 billion.

He added that the 2021 high is now offset by the 2024 return and two years of investment losses in between — returning -1.5% in 2022, and -1.7% in 2023.

And while the past four scal years saw “extreme” swings in returns, Eisgruber noted the university’s nancial planning anticipates signi cant volatility.

“It is not surprising that the massive gain in 2021, which in effect pulled forward earnings that would otherwise have been booked in later

also highlighted the diversi cation the kingdom brings to investors in terms of sectors. Franklin Templeton has a total $1.5 trillion in assets under management.

The Saudi Arabian market’s “high weighting to nancials and materials (offer) exposure to major companies in the region and low weighting to sectors such as IT and communication services,” which Baron said are overweights in most major benchmarks.

The $1.85 trillion rm Invesco — $484 billion of which is assets under management in ETFs and index strategies as of Dec. 31 — launched a Saudi Arabia UCITS ETF in 2018 “in anticipation of (the kingdom) joining the MSCI EM index,” said Christopher Mellor, head of EMEA ETF equity product management. The rm also launched a Kuwait-focused product around the same time, “as a way for investors to…vary

years, would be followed by a series of more muted returns,” he added.

“We cannot, however, assume that long-term returns will be as robust as those that university endowments have seen over the past two decades, when Princeton’s returns averaged 9.9%.”

“Despite these uncertainties, Princeton’s nancial condition remains strong,” Eisgruber wrote.

Vocal on endowment issues

Eisgruber wrote that he will be spending more time in Washington in light of endowment funds being the “subject of worrisome taxation proposals” by congressional lawmakers.

“Rarely, if ever has it been so important for university presidents to speak up for higher education,” Eisgruber wrote. “It is also, of course, an unusually fraught time for university presidents to make statements.”

While endowments are among the institutional investors targeted by U.S. President Donald Trump’s executive orders, Eisgruber noted that his letter would not address those as “there is much that we do not yet know about their implications.”

While not calling out speci c lawmakers in the letter, Eisgruber said he will discourage the passage of a bill — now in the House Ways and Means Committee — that would increase a federal endowment tax.

In 2017, Trump signed the Tax Cuts and Jobs Act, which imposed a 1.4% endowment tax for institutions with more than 500 students, and endowments exceeding $500,000 per student. In the letter, Eisgruber said the act “breached” an “American tradition” of exempting charitable endowments managed by nonpro t organizations.

More recently on Jan. 15, Rep. Troy Nehls, R-Texas, introduced the Endowment Tax Fairness Act, which would raise the endowment tax on “certain private university endowment pro ts” to 21%.

If a larger tax is imposed on endowments, it would “damage higher education and our country,” Eisgruber said.

“Endowments at America’s leading research universities support world-leading teaching and research programs that strengthen the nation’s economy and enhance its security,” he added. “If endowments are

their exposure to what is now part of their emerging markets universe. It’s purely an access product,” he said.

A Saudi Arabia-focused exposure also gives geographical diversi cation, Mellor added. “I think investors are taking more of a country-by-country approach to emerging markets, partly caused by the scale of China and disappointing performance of China the last few years.”

More investors are looking at speci c China exposures paired with an emerging markets ex-China exposure, or emerging markets ex-China and India. “If you’re starting to go down that route, maybe you’re taking a view on the top ve countries — and Saudi Arabia is on that list,” Mellor said.   Popular wrappers

The second reason for the urry

routinely subject to threats of conscatory or punitive taxation, it’s much harder to make long-term commitments that depend on annual endowment spending, such as expanding nancial aid or investing in emerging areas of science that are critical to the nation.”

And Eisgruber said he invites questions from lawmakers regarding institutions such as Princeton.

With the advancement of online communication methods such as email and social media, he noted there’s been increased opportunity and demand for academic leaders to make statements on current events. Traditionally, Princeton has exercised “institutional restraint” or neutrality in regard to issues such as strikes and divestment, and with the current polarized political environment, it “behooves us to be even more restrained in the future,” Eisgruber noted.

“The worst choice, however, would be to remain silent,” he added, calling for peers at other institutions to speak up for the value of “teaching, research and a college degree.”

“We need to describe and defend

of Saudi-focused ETF launches is the appeal of the investment vehicle itself. While Saudi Arabia has opened and improved in terms of access and nancial markets infrastructure, it remains a tough trading nut to crack due to various requirements, sources said.

ETFs make “investing very easy — one trade, one settlement on your local exchange in your currency, instant diversi cation in one trade,” and no need for special accounts, Fuhr said.

ETFs offer “a simple, exible, quick way to get access to a specific area and this exposure with Saudi Arabia is no exception,” Franklin Templeton’s Baron agreed. “Setting up Saudi equity custody, even for institutional investors, can take time and be costly and so the ETF can help alleviate those issues whilst offering full transparency.”

the vital, vibrant activity taking place on our campuses,” Eisgruber said. “We need to explain why diversity and inclusivity are essential to the excellence of our campus communities and the achievement of our educational mission.”

Inclusion and belonging Eisgruber did not address the executive orders pertaining to DEI. But he did commend Princeton’s initiatives to “ensure that talented faculty, students, and staff from all backgrounds can thrive.”

As part of the university’s efforts to promote socioeconomic diversity, Princeton’s trustees set a target in 2024 to have at least 70% of the undergraduate student body on student aid. Among the students who entered the university in the current academic year, over 71% are receiving nancial aid — and 21% are eligible for Pell grants, which Eisgruber noted are given to students coming from lower-income households.

During the week ended Jan. 31, Princeton will release its annual diversity report, which the university

Invesco’s Mellor said expense and complications may hold back investors from trading directly on the Saudi Arabia stock exchange — the Tadawul Stock Exchange — and choose an ETF instead. While Saudi Arabia’s ascension to emerging markets indexes from frontier markets re ected an easing of requirements, “it’s easier, but by no means easy,” he said.

Investing directly “can be expensive and complicated to do, very often unless you have a very clear view on a particular stock, taking an active position on a stock within a certain market isn’t what (an investor is) looking to do,” Mellor added.

Building momentum

The spotlight is also shining on Saudi Arabia because of sports and the kingdom’s winning bid to host the FIFA World Cup in 2034. Fifteen

has produced beginning with the 2020-2021 academic year.

The report will include information on whether students in the graduating class would recommend enrolling in the university to a high school senior of the “same background, ability, interests, and temperament,” Eisgruber added. Data broken down by categories including race, ethnicity and gender.

The president noted that the annual report “shows disparities in the student experience across demographic groups.” But while the data may provoke criticism from groups, he said it informs the work the university and other higher education institutes to enhance the inclusivity — such as hosting conversations on “dif cult topics.”

“All of this will require hard conversations — but dif cult discussions are essential to the defense of our mission and policies,” Eisgruber wrote. “They are also the core of what universities do: we insist that even the most sensitive topics be examined on the basis of facts and careful analysis.”

stadiums in ve host cities — Riyadh, Jeddah, Khobar, Abha and Neom — will house thousands of soccer fans and 48 teams.

“This will be the rst time the tournament is held in Saudi Arabia and the second time in the Middle East,” following Qatar’s hosting in 2022,” ETFGI’s Fuhr said.

The kingdom is also “pulling in superstar athletes like Ronaldo, Neymar, and Benzema” for its local soccer teams, said Rony Abboud, chief marketing of cer at Trackinsight, a Pensions & Investments partner that provides a global ETF selection and analysis platform.

“They’re also playing it smart globally, staying neutral in big conicts and keeping good relations with both the East and the West. All of this makes Saudi a hot spot for investors, and it’s no surprise fund issuers are jumping in to meet the demand,” he said.

BRINGING CLARITY: Princeton University President Christopher Eisgruber

Ford to contribute $800 million to global pension plans this year

y B ROB KOZLOWSKI

Ford Motor Co., Dearborn, Mich., expects to contribute about $800 million to its global pension plans in 2025.

The auto company disclosed the contribution information in its 10-K ling with the SEC on Feb. 6. The ling did not break down how Ford plans to make contributions by region in 2025, but it did say the company is under no legal obligation to make contributions to the U.S. plans based on current assumptions and regulations.

In 2024, Ford contributed $1.1 billion to its global pension funds, according to the ling. The total was slightly higher than the $1 billion in expected contributions Ford had expected for the year, as disclosed in last year’s 10-K ling.

As of Dec. 31, Ford’s U.S. pension plan assets totaled $29.502 billion, while projected bene t obligations totaled $30.555 billion, for a funding ratio of 96.6%, up from 96.2% a year earlier. Also as of that date, the discount rate for the U.S. plans was 5.65%, up from 5.17% the year before.

The U.S. pension plans’ actual allocation as of Dec. 31 was 51.2% corporate bonds; 27.7% U.S. government xed income; 12.6% hedge funds; 4.4% real estate; 3.5% U.S. equities; 2.9% private equity; 2.1% non-U.S. government bonds; 1.8% international equities; 1.5% mortgage/other asset-backed investments; -0.2% derivatives; -1.9% other; and -5.6% cash, cash equivalents and re-

purchase agreements.

Also as of Dec. 31, Ford’s non-U.S. pension plan assets totaled $21.751 billion, while the PBO totaled $21.245 billion, for a funding ratio of 102.4%, up from 95.6% the year before. Also as of that date, the discount rate for the non-U.S. plans was 4.51%, up from 3.98% a year earlier.

The non-U.S. pension plans’ actual allocation as of Dec. 31 was 55.5% non-U.S. government xed income; 14.7% insurance contracts and other; 8% U.S. equities; 7.9% corporate bonds; 5.2% international equities; 3.6% hedge funds; 1.7% each private equity and real estate; 1.4% mortgage/other asset-backed investments; 1% other bonds; 0.1% each derivatives and U.S. government xed income; and -0.9% cash, cash equivalents and repurchase agreements.

tially when providing data and testimony during discovery.

Harm to plans

asking the Supreme Court to uphold the lower-court decisions in Cunningham et al. vs. Cornell University et al.

The former participants appear to be seeking “an automatic ticket to go past the motion to dismiss,” said Justice Brett M. Kavanaugh, referring to amicus briefs led by several large employer organizations. These briefs paint a “pretty bleak picture,” Kavanaugh said.

According to amicus briefs supporting Cornell, the former participants’ assertions could lead to an “expanded litigation threat (that) would be nearly limitless because every college and university relies on third-party service providers,” Kavanaugh said.

“It’s not a blank check,” responded Xiao Wang, director of the Supreme Court Litigation Clinic at the University of Virginia School of Law, representing the former participants.

Wang said the pro-Cornell decisions from a New York District Court and the 2nd U.S. Circuit Court of Appeals in New York con ict with prohibited-transactions rulings by several other federal appeals courts.

The pro-Cornell rulings cited insuf cient information offered by the former participants in their issuing and upholding Cornell’s motion to dismiss. Wang said the former participants’ request for information was thwarted by the university, indicating that the courts should have rejected the motion to dismiss and to allow discovery.

Motions to dismiss are the rst line of defense for plan sponsors and service providers in ERISA cases. Their expenses increase substan-

Justice Samuel A. Alito Jr. worried that all plaintiffs had to do is “plead something innocuous” get past a motion to dismiss.

“What exactly is the injury” to participants via the university’s actions, Justice Clarence Thomas asked.

The harm to the plans was the university’s hiring of two record keepers that did more than provide record-keeping services, Wang said.

“They bundled them with investment products, and those investment products, in turn, had operating expenses,” he said. “Those operating expenses were then shared via revenue sharing to the plan to pay for record keeping.”

The bundling resulted in the record keepers “pushing” their own actively managed products, “leading to higher expense ratios and, therefore, greater record-keeping fees,” Wang said.

Much of the oral arguments centered on how courts can reconcile two sections of ERISA — one that describes prohibitions and the other that describes exemptions.

Prohibited transactions include self-dealing by duciaries, improper contracts and transactions that carry a high risk to plan assets because of contracts that transfer to third parties responsibilities reserved forduciaries.

ERISA’s exemptions include providing investment advice, loans to plan participants, loans to employee stock ownership plans and contracts for life insurance or annuities.

“Petitioners’ view is that pleading the mere fact of a service provider transaction defeats a motion to dismiss and the case goes forward,” said

Regarding the allocation to cash, cash equivalents and repurchase agreements, Ford said in its 10-K ling those are “primarily short-term investment funds to provide liquidity to plan investment managers and cash held to pay bene ts, offset by repurchase agreements valued at $2.6 billion in U.S. plans and $700 million in nonU.S. plans.”

Under the “other” designation, the ling said, “For U.S. plans, amounts related to net pending security (purchases)/sales and net pending foreign currency purchases/ (sales). For non-U.S plans, $2.7 billion of insurance contracts, primarily the FordWerke plan, and amounts related to net pending security (purchases)/sales and net pending foreign currency purchases/ (sales).” n

Alternatives

Graham Capital names Man Group’s Foehrenbach co-CIO

y B LYDIA TOMKIW

Jens Foehrenbach was named co-CIO and president of alternatives rm Graham Capital Management.

Foehrenbach will oversee the hedge fund’s investment activities along with co-CIO Pablo Calderini, according to a Feb. 7 news release.

Previously, Foehrenbach spent over 16 years at Man Group where he was most recently head of public markets for discretionary investments. He had also served as CIO of Man Group Solutions and Man FRM.

A spokesperson for Man Group declined to comment on who will ll Foehrenbach’s role.

As part of the move, Calderini, who has served as Graham’s CIO since 2010 and as president and CIO since 2012, has been promoted to vice chairman. Foehrenbach will report to Graham’s founder and chairman Kenneth G. Tropin and will also serve on the rm’s executive, investment and risk committees. He will based in the rm’s Rowayton, Conn. headquarters.

“As we begin our 31st year of trading, building a team of the best people has remained key to our rm’s success, and Jens brings a wealth of experience to the rm,” Tropin said in the release.

Graham has $20.3 billion in assets under management as of Feb. 1. The rm was founded in 1994. n

Nicole A. Saharsky, a partner at law rm Mayer Brown, representing Cornell.

“That can’t possibly be right,” Saharsky said, adding that plaintiffs need to show wrongful conduct, unnecessary services or unreasonable fees for a complaint to survive a motion to dismiss. Otherwise, “it would force settlement of meritless litigation.”

When Justice Ketanji Brown Jack-

NEST/IFM

CONTINUED FROM PAGE 4

increase its allocations to private market assets to 30% from 17% of its portfolio in the coming years.

Mark Fawcett, CEO of NEST Invest, con rmed at the brie ng that nancial terms of the private deal

son asked Saharsky who must prove fees are unnecessary, the lawyer said the burden falls to plaintiffs in an ERISA lawsuit.

The former participants led their initial lawsuit in August 2016.

Among their various allegations, they accused university duciaries of allowing excessive record-keeping fees, arguing that the contracts with two record keepers were prohibited transaction provisions of

were not disclosed. The deal is expected to close by the middle of this year, subject to shareholder and regulatory approvals.

“The rst thing we’re going to be investing in (through IFM) is an infrastructure debt fund. One of the really attractive things about this partnership is the ability to co-create a product that meets the needs of NEST participants, but will then

ERISA. The record keepers, TIAACREF and Fidelity Investments, are not parties in the case.

The oral arguments addressed only the issue of prohibited transactions — whether a plaintiff can state a claim by alleging an ERISA provision “or whether a plaintiff must plead and prove additional elements and facts not contained in the provision’s text,” according to a court document.

also work for IFM’s other clients and shareholders,” Fernando added.

NEST is multiemployer de ned contribution plan, or a master trust, with about £49 billion in assets. IFM’s existing owners manage retirement savings of more than £580 billion, while the manager runs about A$230 billion ($141.3 billion) in assets.

BIG DECISION: Supreme Court Justices at the Trump inauguration

Chip

Jens Foehrenbach

AFL-CIO sues to keep Musk from Labor Dept. data

Washington y B COURTNEY DEGEN

The American Federation of Labor and Congress of Industrial Organizations, along with four of its af liated unions and the Economic Policy Institute, led a lawsuit  to stop Elon Musk and his “Department of Government Ef ciency” team from accessing Department of Labor data.

The lawsuit, led Feb. 5, alleges that giving Musk and his team access to the department’s information systems violates federal law, as those systems include “highly sensitive data,” including medical and bene ts information of certain federal workers as well as “investigative and litigation records of the Bureau of Labor Statistics data crucial to an accurate understanding of the state of our economy.”

“Elon Musk has absolutely no business raiding the Department of Labor to obtain the sensitive personal information of workers,” AFL-CIO President Liz Shuler said in a Feb. 5 news release. “It’s outrageous that

Fund

CONTINUED FROM PAGE 3

economic and strategic leadership internationally.”

Trump oated that the fund could be used to acquire a stake in TikTok, the social media platform owned by Chinese company ByteDance.

Several U.S. states already have sovereign wealth funds — government-controlled investment funds that enable excess capital to be invested — including those backed by energy and mineral resources, such as the $80.5 billion Alaska Permanent Fund Corp., Juneau, the largest in the U.S. Countries with signi cant commodity exports such as Norway, China, Saudi Arabia and Kuwait also have massive sovereign wealth funds, with trillions of dollars in assets among the group.

Sovereign wealth funds generally are created out of budget surpluses or revenues from natural resources, like oil.

However, the U.S. is $36 trillion in debt.

“Unlike the beginnings of many SWFs, the U.S. federal government is not starting with a budget surplus and that may create some pushback in Congress and across other stakeholders,” said Zeeshan Ahmedani, partner at law rm A&O Shearman.

Models

But several sovereign wealth fund experts said it still makes sense for the U.S. to establish such a fund.

“Every single large economy has

Musk thinks he has the authority to access private data on workers from an agency that’s entrusted with protecting the fundamental rights of working people. With this lawsuit, we intend to stop Musk’s power grab cold.”

Filed in the U.S. District Court for the District of Columbia, the lawsuit names the Labor Department, acting Labor Secretary Vince Micone, U.S. Digital Service — recently renamed the U.S. DOGE Service — and U.S. DOGE Service Temporary Organization as defendants.

The plaintiffs ask the court to declare that sharing DOL’s information systems with “Department of Government Ef ciency” personnel is unlawful, halt the Labor Department from doing so, and block the department from “taking any adverse personnel action against any employee who refuses to provide DOGE employees with unlawful access to Department of Labor systems,” among other things.

The Labor Department and USDS

a sovereign wealth fund and they’ve been strategic tools for decades,”

said Salar Ghahramani, founder and managing director of Global Policy Advisors, a rm that advises asset managers and corporations on compliance with nancial policy. “So it would make absolute sense for the U.S. to have at least one sovereign wealth fund given the size of the U.S. economy.”

Of note, the United Kingdom launched a sovereign wealth fund in 2024 and Germany is also studying the idea.

Treasury Secretary Scott Bessent, who joined Trump in the Oval Of ce, said the U.S. fund would be created in the next 12 months, calling it an issue “of great strategic importance.”

“We’re going to monetize the asset side of the U.S. balance sheet for the American people,” Bessent added.

“We’re going to put the assets to work, and I think it’s going to be very exciting. We’re going to study best practices done around the world.”

Winston Ma, adjunct law professor at New York University and executive director of the university’s Global Public Investment Funds Forum, which analyzes public asset owners, pointed to Norway’s sovereign wealth fund as a model the U.S. could follow.

Government Pension Fund Global, Oslo, the world’s largest sovereign wealth fund with $1.8 trillion in assets, is very transparent, issuing mandated public nancial reports and partaking in public policy discussions with lawmakers, Ma said.

Governance

Crafting a proper governance

P&I Events Calendar

did not immediately respond to a request for comment.

Also on Feb. 5, a rally took place outside the Labor Department to protest against granting the “Depart-

structure will be crucial, sources said.

“The United States, given its complex political landscape and the necessity to align its nancial strategies with diplomatic priorities, would require a governance structure that accommodates both economic expertise and foreign policy considerations,” Ghahramani wrote in an article published in December in the Yale Journal of International Affairs.

ment of Government Ef ciency” access to the department’s information systems.

“The Trump administration, including the Musk shadow govern-

Ghahramani wondered if the framework would put limits on how and where the fund’s assets can be allocated.

“Good sovereign wealth funds, just like any good investor, will try to diversify across asset classes, geographies and even money managers,” Ghahramani added. Typically, sovereign wealth funds invest their assets with private equity and hedge fund managers, Ghah-

‘Unlike the beginnings of many SWFs, the U.S. federal government is not starting with a budget surplus and that may create some pushback in Congress and across other stakeholders.’

A&O SHEARMAN’S ZEESHAN AHMEDANI

Designing a governance model raises questions about how much independence the sovereign wealth fund should have and how much government oversight is needed to align the sovereign wealth fund’s activities with U.S. strategic priorities, according to Ghahramani.

“Striking this balance is crucial for ensuring the fund can function ef ciently while advancing national interests,” he wrote. “The governance structure must provide enough autonomy to allow nancial experts to make sound investment decisions, but it also needs safeguards to ensure these decisions re ect the country’s foreign policy and economic goals.”

When it comes to asset allocation,

ramani noted. If and when a federal fund is established, seeing which managers win the bid(s) to manage its assets will be interesting, he added.

Funding

As for funding a U.S. sovereign wealth fund, there a few options, Ahmedani said.

Those include revenues from from various sources, including tariffs — Trump’s executive order was signed on the same day he issued a 30-day pause on Canadian and Mexican import tariffs and the day prior to allowing additional tariffs on Chinese imports to take effect — and using the Federal Reserve’s assets, he added.

ment, seems intent on dismantling much of the federal government and the vital services it provides, in violation of the Constitution, federal statutes and federal regulations,” Rep. Eleanor Holmes Norton, D-D.C., said at the rally, according to her published remarks.

The lawsuit follows a similar lawsuit led Feb. 3 by the Alliance of Retired Americans, along with two employee unions, to halt Musk and his team from gaining access to the Treasury Department’s payment systems.

On Feb. 6, U.S. District Judge Colleen Kollar-Kotelly signed an order temporarily limiting access to such systems. The order states that Tom Krause, CEO of Cloud Software Group, and Marko Elez, an engineer who worked for Musk’s SpaceX and X, formerly known as Twitter, will have “read only” access to Treasury’s payment systems while the judge considers the unions’ request for a broader temporary restraining order, according to Bloomberg.

Also, the Trump administration’s quest to downsize the federal government could result in additional funds being available, Ahmedani said, though the creation of a U.S. sovereign wealth fund is almost antithetical to that concept.

“We’re at moment where a lot of government agencies are proposed to be shut down and the number of employees within the federal government are intended to be downsized, the intent is to downsize, (but) at the same time we’re talking about creating is effectively a new arm of the federal government,” Ahmedani said.

“How does that work? What government agency does it sit under? Is it an independent government agency? Who does it report to? How does it interact with the Fed?” he asked. “These are the types of things that will generate commentary within the halls of government.”

Those are some of the questions Trump has tasked his Treasury and Commerce secretaries to tackle, but experts contend that a U.S. sovereign wealth fund’s creation will ultimately need congressional approval.

Trump, through the order, may be laying the groundwork to test that theory, though.

The plan Trump has directed ofcials to draw up will also include an “evaluation of the legal considerations for establishing and managing such a fund, including any need for legislation.”

If Trump were to move forward without Congress, he would certainly face a legal challenge, Ahmedani said.

‘POWER GRAB’: Elon Musk

Al Drago/Bloomberg

CONFERENCE ADVISORY BOARD

Our advisory board is made up of a group of global investment and retirement industry executives who serve as a sounding board and provide valuable feedback on shaping the WorldPensionSummit agenda.

SHAFEEQ ABRAHAMS | South Africa Chief Executive and Principal Officer ESKOM PENSION & PROVIDENT FUND

INGRID ALBINSSON | Sweden Vice Chair of the Board AP2

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DOMINIQUE D’AVRINCOURT | Australia Head of Equities TELSTRASUPER

IGNACIO CALLE | Colombia CEO

SURA ASSET MANAGEMENT

DON EZRA | Canada Happily Retired, former co-chair, global consulting Russell Investments Worldwide

SANYA GOFFE | Jamaica Eisenhower Fellow, Attorney PRESIDENT OF PENSION INDUSTRY ASSOCIATION OF JAMAICA

CAROL CHAN | United States Deputy CIO EY

PETER HERRMANNSBERGER | Germany Chief Executive Officer

PHILIPS PENSIONSKASSE VVAG

GEETA KAPADIA | United States CIO FORDHAM UNIVERSITY

KELVIN JONES | USA Director, Retirement Programs UNITED AIRLINES

ANDREW HALSEY | Switzerland Head of Group Global Pensions ABB GROUP

MARY DELAHUNTY | Australia Incoming CEO ASFA

GARETH GIBBINS | Canada Vice-President, Pension Policy, Learning & Research OMERS

ANDREAS HILKA | Germany Member of the Board PENSIONSKASSE DER MITARBEITER DER HOECHST-GRUPPE VVAG

TORBJORN HAMNMARK | Sweden Head of Strategic Asset Allocation AP3

ENEASZ KĄDZIELA | United States Deputy CIO and Head of Private Equity NYC OFFICE OF THE COMPTROLLER

ANDERS LUNDGREN | United Kingdom Head of Public Markets NEST

ASHBY MONK | United States Research Director

STANFORD GLOBAL PROJECTS CENTER

Michael Leinwand | Germany CIO/CFO VBL

ANGELA MILLER-MAY | United States CIO ILLINOIS MUNICIPAL RETIREMENT FUND

RAVIEN SEWTAHAL | The Netherlands

Investment Manager PFZW

ALWIN OERLEMANS | The Netherlands Head of Product Development APG

TIMO LÖYTTYNIEMI | Finland CEO STATE PENSION FUND IN FINLAND (VER)

ELLEN METAAL | The Netherlands Managing Director, PENSIOENFONDS HORECA & CATERING

LEE HUAT TANG | Singapore Deputy Director CPF BOARD

IVANA ZANARDO | Canada Vice President, Plan Operations HEALTHCARE OF ONTARIO PENSION PLAN (HOOPP)