CLSA Capital Partners, the alternative asset management arm of Hong Kong-based Asian brokerage firm CLSA, launched its inaugural private equity fund in South Korea called the Nexen Global Co-Investment Fund. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
The Canada Pension Plan Investment Board (CPPIB), through CPP Investment Board European Holdings S.àr.l, has signed an agreement to invest approximately €376 million for a 39% stake in Interparking Group S.A./NV. This deal was announced on July 18, 2014. Brussels-based Interparking is one of Europe’s biggest car parking management companies. Founded in 1958, Interparking has a massive portfolio of 657 car parks spread among 350 cities. However, most of the property assets are in Belgium and Germany. Increasingly, long-term public investors are making bids on real assets that offer stable cash flows.
The CPPIB is buying the stake from AG Real Estate, part of AG Insurance. AG Real Estate is the largest real estate group in Belgium with a diversified portfolio approaching a valuation of €6 billion. The future ownership model for Interparking is: AG Real Estate at 51%, CPPIB at 39% and PARKIMO at 10% ownership.
“We are pleased to make our first investment in the European car parking sector through this excellent opportunity to invest in a first-class car park platform alongside AG Real Estate and PARKIMO,” said André Bourbonnais, Senior Vice-President, Head of Private Investments, CPPIB in a press release. “Interparking is a good fit with our infrastructure program because of the relatively stable, predictable cash flows available through its geographically diversified portfolio of high quality car parks, and this aligns well with CPPIB’s exceptional long-term investment horizon.”
Morgan Stanley was the financial advisor for AG Real Estate. Linklaters LLP was the legal advisor for AG Real Estate. Citigroup was the financial advisor for the CPPIB.
The California Public Employees’ Retirement System (CalPERS) returned 18.42% for the fiscal year that ended on June 30th. CalPERS defeated its custom benchmark of 17.98% and surpassed last fiscal year’s return of 13.2%. The private equity portfolio of CalPERS generated 19.99% returns, just 3.31% shy of the benchmark. The asset classes of real estate and fixed income beat their respective benchmarks.
Despite the good news, CalPERS is only 76% funded.
Looking toward the other Sacramento pension giant, CalSTRS posted 18.66% for the fiscal year that ended on June 30th.
The CalSTRS global equity portfolio posted 24.73% in returns. CalSTRS private equity posted 19.61% in returns.
“I give tremendous credit to our outstanding investment staff for making the right moves and hiring the right investment managers to help us outperform,” said CalSTRS Chief Investment Officer Christopher Ailman in a press release. “Our returns this year and last have put us at the top quartile of pension plans in the U.S. For a second year we outperformed our peers and even large university endowments. Four out of six asset classes outperformed their benchmarks.”
Fred Buenrostro, the former CEO of CalPERS, pleaded guilty today to a charge of conspiracy to commit bribery and fraud. Furthermore, Buenrostro admitted taking US$ 200,000 in cash bribes from his former colleague Alfred Villalobos. He took the cash through a shoe box and paper bags. Other benefits include casino chips. In return, Buenrostro attempted to influence the pension’s board members and investment staff to allocate capital to funds pushed by Villalobos. He admitted to forging letters to allow Villalobos to collect placement agent fee commissions.
Buenrostro could face up to 5 years in prison.
Illinois State Board of Investment Terminates William Blair for Bad Performance
The Illinois State Board of Investment terminated a US$ 580 million active U.S. midcap growth equities mandate being managed by Chicago-based William Blair & Co. William R. Atwood, executive director of the pension entity, stated it was due to performance reasons. The fund proceeds were migrated to a Russell midcap Growth index fund, managed by State Street Global Advisors – adding to a total of US$ 1.31 billion. Atwood will keep the assets with State Street Global Advisors and not underwrite another search for a replacement active manager.
Bumi Gives More Equity to the CIC
Bumi Resources, Indonesia’s biggest coal producer by volume, confirmed that it moved a 19% stake in Kaltim Prima Coal to the China Investment Corporation (CIC). This transfer is part of a debt-to-equity deal bartered on October 2013. Bumi owes the CIC US$ 1.99 billion in the form of a principal loan, deferred interest and make-whole costs. The transfer deal has reduced CIC’s exposure to US$ 1.04 billion.
Malaysia Airlines May go Private
The scandal-plagued Malaysia Airlines is facing a major restructure. The disappearance of flight MH370 has affected the airlines financials. Controlled by Khazanah Nasional, the airlines may delist from the exchange. The national carrier of Malaysia is working with CIMB Investment Bank on a restructuring plan.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
London-based Hayfin, also known as Haymarket Financial, is being sold off after TowerBrook Capital Partners decided to sell the business. Hayfin manages over €5.3 billion in a range of financial products such as collateralized loan obligation funds.
Hayfin is an entity that focuses on private debt and was created by TowerBrook, OMERS Private Equity, the Australian Future Fund and the Public Sector Pension Investment Board of Canada in 2009. The initial idea was to craft a commercial lending platform backed by public funds to serve mid-sized companies in Europe, especially in a time when European banks were severely hampered. In 2008, TowerBrook started Ladder Capital Finance Holdings LLC to serve the commercial real estate market.
UBS is advising on the sale of Hayfin.
Federico R. Buenrostro, the former CEO of the California Public Employees’ Retirement System (CalPERS), will enter a guilty plea next week. This is in relation with a bribery scandal that sent shockwaves to the pension world and asset management community. Buenrostro’s lawyer, Sacramento-based lawyer William Portanova, revealed the plea news on June 30th. Before that date, Buenrostro insisted he had done nothing wrong in regard to the charges. The maximum penalty against Buenrostro would have been 40 years under the original indictment. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Valtion Eläkerahasto (VER), the state pension fund of Finland, has appointed BNY Mellon to be the global custodian of the fund. Among other deciding factors, BNY Mellon had the capacity to provide a straight-through processing interface to the fund’s current technology platforms. BNY Mellon has replaced JP Morgan as the custodian.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
This interview will appear in the 2Q Y2014 (July 2014) Superannuation World issue of the Sovereign Wealth Quarterly.
This is a Q&A with Roger McIntosh, Head of Investments at LUCRF
1. In the past five years, how has the Australian superannuation investor class evolved when it comes to institutional investing?
There has been an increasing level of sophistication in developing, implementing and evaluating strategies across all asset classes. Superannuation investors are more critically appraising the suitability of a manager’s approach in a whole-of-strategy context, not just in isolation. Investment managers are trying to align with superannuation investors’ strategy and aiming to position themselves as investment solutions implementers, rather than just providing products. The increased reporting and governance requirements in the regulatory regime has also increased the level of knowledge and importance of investment risk as a primary input into the construction of investment strategies and required enhanced investment risk management systems and processes.
Having a statement of ESG beliefs and incorporating this as part of the investment process is important as companies who better manage ESG issues will provide opportunities for enhanced long term investment performance.
2. Many U.S. public pensions heavily rely on external managers; do you see more of the large superannuation funds bringing investment capabilities internally or the reverse?
There will be some continuing increase in internal investment management, but the majority of funds will continue to rely on external managers.
The factors that lead to internalisation will be Fund dependent: the quality and experience of the investment team leadership; the degree of interaction and trust from the investment committee; an appropriate risk management framework and an objective performance measurement framework. Bringing investment management in-house cannot be justified purely from a cost basis as there has been long term pressure on investment managers fees to decline.
For larger funds, there is more movement towards increasing internal investment capabilities because of a perception of manager capacity constraint, particularly within the domestic equity market. The challenge will be ability to attract and retain sufficiently skilled staff in a competitive environment, not just front office staff, but the middle and back office support functions. I believe there will be a more hybrid approach with some functions managed internally based on strategy, research and asset selection and increasingly sophisticated control of tailoring portfolio exposures in conjunction with external managers implementing more customised strategies.
3. When selecting investment managers and partners, what criteria are essential to you?[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Founded in 2007, Kuala Lumpur-based Kumpulan Wang Persaraan (KWAP), a public pension plan sponsor in Malaysia, has acquired The Chimes Shopping Centre. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Korea’s National Pension Service (KNPS) has hired Cleveland-based Townsend Group to build and manage a US$ 400 million bespoke Asia real estate portfolio. The KNPS has been investing in international properties since 2006, mostly in Europe and the United States. In September 2010, the KNPS committed US$ 300 million toward U.S. distressed real estate by allocating capital in a separately managed account with the Townsend Group.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
The California State Teachers’ Retirement System (CalSTRS) has embarked on its first commitment to Asian core real estate by allocating US$ 200 million to Invesco Real Estate Asia Fund. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
In the United States, bearing mega responsibility, investment consultants are the gatekeepers and advisors to pension fund executives. U.S. Representative George Miller, D-California, has raised concerns about potential conflicts of interest from investment consultants who also act as asset managers. One example of this is Russell Investments which has a consulting arm and invests billions for public pension funds. The congressman from California, a ranking member of the Education and the Workforce Committee, penned the May 21 letter to the U.S. Labor Secretary Thomas Perez.
“As revenues and margins in the pension consulting business have come under pressure, it appears that more and more firms have sought to transition these relationships from a pure consulting model to one where the consultants step into the role of becoming a manager of the plans’ assets,” Miller inked in the letter.
The California Public Employees’ Retirement System (CalPERS) created a policy to not permit its investment consultants to manage any nonpublic assets in 2011. The California State Teachers’ Retirement System (CalSTRS) and the Washington State Investment Board both prefer investment consultants to be independent of money management.
2005 SEC Report
In May 2005, during an SEC investigation, agents found that a number of consultants accepted payments from money managers, even when the consultants offered advice about those managers to U.S. public funds.
The May 2005 SEC report said that: “Pension consultants” provide advice to pension plans and their trustees with respect to such matters as: (1) identifying investment objectives and restrictions; (2) allocating plan assets to various objectives; (3) selecting money managers to manage plan assets in ways designed to achieve objectives; (4) selecting mutual funds that plan participants can choose as their funding vehicles; (5) monitoring performance of money managers and mutual funds and making recommendations for changes; and (6) selecting other service providers, such as custodians, administrators and broker-dealers. Many pension plans rely heavily on the expertise and guidance of their pension consultant in helping them to manage pension plan assets.
In August 2012, after an investigation by the U.S. Department of Labor’s Employee Benefits Security Administration, found that USI Advisors, at the time a wholly-owned subsidiary of Goldman Sachs Capital Partners Co., allocated capital to mutual funds on behalf of ERISA defined-benefit plans. USI then received 12b-1 fees from those funds. By failing to disclose the receipt of 12b-1 fees to the plans and using those fees for the benefit of the plans, they were hit with a US$ 1,265,608.70 fine.
The California State Teachers’ Retirement System (CalSTRS) committed US$ 743 million to a number of private equity funds. The pension giant committed US$ 200 million to Clayton Dubilier & Rice Fund IX, a fund targeting North American buyout deals. The New York-based private equity firm was founded in 1978. Other investors in the fund include the Teacher Retirement System of Texas and the Los Angeles Department of Water and Power Employee’s Retirement Plan. Next, CalSTRS committed US$ 100 million to Castlelake III LP, which targets distressed assets. Previously known back in August 2013 as TPG Credit Management, the Castlelake fund reached a hard cap of US$ 1.4 billion. Castlelake hired San Francisco-based Denning & Company LLC as an exclusive placement agent.
Another distressed debt fund, TPG Opportunities Partners III LP, received US$ 125 million from CalSTRS.
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Texas Municipal Retirement System Hires 3 Managers for US$ 750 Million for MBS Investing
Austin-based Texas Municipal Retirement System has hired three external managers to invest in residential mortgage-backed securities (MBS) and commercial MBS. Each manager will get to manage US$ 250 million for a total of US$ 750 million toward the mortgage investment strategy. The chosen managers are Ellington Management Group, Voya Investment Management and Marathon Asset Management.
Growth in South Korean Foreign Reserves
The foreign exchange reserves of South Korea elevated to a new high in May 2014, touching US$360.91 billion. According to the Bank of Korea, this was a US$ 5.07 billion increase from April.
Bahrain’s Mumtalakat Generates Profit in 2013
Bahrain’s Mumtalakat Holdings suffered five years of straight losses, mostly due to Gulf Air’s financial performance. In 2013, Mumtalakat generated a net profit of US$ 219 million versus a loss in 2012.
Mahmood al-Kooheji, chief executive of Mumtalakat told Reuters in a recent interview, “We’re out of the red and we’ll not be back there again, God willing.”
PineBridge Investments Raises US$ 140 Million for Sharia-Compliant Real Estate Fund
New York-based PineBridge Investments has raised US$ 140 million for a sharia-compliant real estate fund targeting income producing assets in the Gulf Cooperation Council (GCC) countries. These assets include retail, logistic properties and social infrastructure. Talal Al-Zain, the former CEO of Mumtalakat Holdings, is the current CEO of MENA for PineBridge Investments, running out of Manama. Al Zain expects a final fund closing of US$ 200 million.
GIC Buys Chinese Corporate Debt
Singapore’s GIC Private Limited has been investing in Chinese corporate debt. The sovereign fund purchased US$ 700 million worth of bonds from Lenovo, due 2019 at 4.5%. These bonds were unrated. The GIC also invested US$ 258 million in a note from Tencent Holdings, due 2020 at 3.2%. Typically, sovereign wealth funds rarely allocate such capital to unrated bonds.
New Mexico SIC Invests US$ 75 Million in Real Estate Debt Fund
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AustralianSuper has hired TIAA Henderson Real Estate, an investment company owned by TIAA-CREF and Henderson Global Investors, to be an investment manager for the fund’s emerging central London office program – the second mandate from AustralianSuper. In 2013, AustralianSuper appointed TIAA Henderson Real Estate with a similar mandate, but toward the shopping market sector in the United Kingdom. The superannuation investor has embarked on a two-pronged approach by partnering with local property specialists and going direct on unique property opportunities.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
New York-based AEA Investors LP, Ontario Teachers’ Pension Plan (OTPP) and Fitness Capital Partners have acquired San Ramon-based 24 Hour Fitness from Forstmann Little & Co. 24 Hour Fitness is a health club chain that was one of the remaining interests in the defunct private equity firm Forstmann Little & Co. It was acquired by Forstmann Little in 2005 for around US$ 1.6 billion. The private equity firm founder billionaire Theodore Forstmann passed away more than years ago.[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
Elias Masilela, the CEO of the Public Investment Corporation (PIC), is resigning effective June 30, 2014. South Africa’s Public Investment Corporation has US$ 153 billion in assets and manages pensions for South African state workers – the Government Employees’ Pension Fund (GEPF). Under Masilela’s watch, pension assets grew by 60%. In addition, Masilela pushed forward measures to invest in African markets and challenge corporate governance practices in South African companies. The PIC owns 11% of the market value of Johannesburg’s stock exchange. The PIC often takes an activist stance with South African public companies that it has shares in.
Chief Financial Officer Matshepo More has been appointed acting CEO of the PIC.
In recent days, South Africa President Jacob Zuma reorganized his cabinet. President Zuma promoted the former deputy finance minister, Nhlanhla Nene, to finance minister.
Elias Masilela was ranked #14 in the Sovereign Wealth Fund Institute’s Public Investor 100 ranking for 2013.
Dublin-based Heart Metabolics Limited is a biotechnology company focused on the advancement of drugs for cardio-metabolic diseases. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
The California State Teachers’ Retirement System (CalSTRS) is seeding an emerging activist manager by taking a 30% stake in the company. In addition, CalSTRS will give Legion Partners Asset Management US$ 200 million to manage. This is the first time CalSTRS has purchased private equity interest in a money manager firm. Legion Partners was co-founded by former executives who worked at firms such as activist fund manager Knight Vinke Asset Management and Shamrock Capital Advisors, the alternative investment vehicle of the Disney Family.
One of the co-founders Ted White is the former deputy director of the Council of Institutional Investors in which CalSTRS is a member. Before White was working at Knight Vinke, he was portfolio manager and director of corporate governance at the California Public Employees’ Retirement System (CalPERS).