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Deep Dive with CIO Farouki Majeed of Ohio School Employees Retirement System

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This is an interview conducted by Michael Maduell of SWFI and Farouki Majeed, Chief Investment Officer of the Ohio School Employees’ Retirement System.

MADUELL: Thank you for this interview. I’m talking with Farouki Majeed, the CIO of Ohio School Employees’ Retirement System. How long have you been at this organization?

MAJEED: I’ve been CIO for 5 years.

MADUELL: At SWFI, we have seen the rapid adoption of private credit mandates by U.S. pension funds. How does this strategy fit in with the pension’s other allocations.

MAJEED: Yes, we have been allocating to private credit over three years.

The allocation to private credit was from traditional fixed income where we are underweight. Private credit has performed well with much higher returns than traditional fixed income. However, this space is getting crowded and that is something we are aware of.

MADUELL: A sign for us when an asset class gets a bit overcrowded is when the number of conferences focusing on the strategy goes up. In terms of money management, what is the split of internal versus external? What is your take on U.S. equities?

MAJEED: We are a mid-sized pension at $13.5 billion. All of it is externally-managed. We are tasked to allocate money across a wide set of asset classes.

In terms of U.S. public equities, we have been reducing exposure in the past six months moving them to non-U.S. equities. Non-U.S. equities have finally turned and are over performing U.S. equities. The international equity allocation is split into EAFE and emerging markets. We had been underweight in emerging market equities and have brought that to neutral weight. When we allocate money to emerging equity managers we don’t invest in single-country strategies, but rather give our external managers broad discretion to select stocks and countries.

MADUELL: We have seen more institutional investors use exchange-traded funds (ETFs) for a variety of reasons such as hedging or getting certain exposures. What is your take of ETFs and passive investing with regards to the world of institutional money management?

MAJEED: ETFs are increasingly becoming an option for public equities. I would say for active managers in U.S. large cap beating their benchmarks has been a challenge. We have 50% passive allocation in U.S. equities and 30% passive non-U.S. equities.

MADUELL: What about smart beta? Do you consider low-volatility to be a smart beta strategy?

MAJEED: We have ventured into some factor based strategies including low-volatility in combination with valuation.

MADUELL: Through our conversations, many asset owners including U.S. state pensions are keen on investing in U.S. infrastructure. Is this something Ohio School Employees’ Retirement System is engaged in?

MAJEED: We do invest in infrastructure. We expanded our real estate program to real assets. Real assets include infrastructure and other types of tangible assets with good income returns. We are invested in two infrastructure funds representing 3% of our assets..

MADUELL: How about infrastructure co-investments?

MAJEED: In infrastructure, no, but in private equity we have participated in co-investments and are looking to doing more..

MADUELL: Last, but not least, what about hedge funds? A growing chorus of U.S. pensions like CalPERS has dropped them. Can you provide some context here? Do you use fund-of-fund managers?

MAJEED: We do invest in hedge funds. This is under multi-asset strategies which has a 10% target in our portfolio. We have been realigning allocation within the portfolio to focus on risk diversification and trying to engage in fee reductions.

We use hedge funds for risk diversification. We do not use fund-of-funds for hedge funds, as we directly invest into hedge funds.

MADUELL: One more, besides global macro, any take on insurance-linked securities?

MAJEED: We are invested in catastrophic re-insurance as they are uncorrelated with other managers in our multi asset portfolio.

MADUELL: Thank you for your time.

About Farouki Majeed

Farouki Majeed joined School Employees Retirement System of Ohio (SERS) as Chief Investment Officer in July, 2012. Majeed came to SERS from CalPERS, where he served as Senior Investment Officer – Asset Allocation and Risk Management from 2007 to 2012. Previously, Majeed was the inaugural CIO of the Abu Dhabi Retirement Pensions and Benefits Fund of the United Arab Emirates. He was Deputy Director, Investments, for the Ohio Public Employees Retirement System from 2002 – 2004. Majeed was Chief Investment Officer for the Orange County Employees Retirement System from 1997 – 2002 and Investment Officer of the Minneapolis Employees Retirement Fund from 1991 – 1997. Majeed began his finance career in 1980 with the National Development Bank of Sri Lanka, his homeland, and worked in the Asia Division of Bank of America prior to arriving in the U.S. in 1987 to pursue graduate studies. Majeed has 30 years of experience in various investment and finance education positions in the U.S. and abroad.

Majeed holds a master’s degree in business administration – finance from Rutgers University, and a bachelor’s degree in engineering from the University of Sri Lanka. He is a Chartered Financial Analyst. Majeed also serves on a voluntary basis as a member of the Investment Advisory Committee of the United Nations Relief and Works Agency (UNRWA) Provident fund based in Amman, Jordan.

Mergermarket Gets Ready to be Sold

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Private equity firm BC Partners hired Goldman Sachs Group Inc. and JPMorgan Chase & Co. to advise on the sales of Acuris. Acuris is a collection of financial news and data sites, which includes Mergermarket, Dealreporter, and Debtwire. In 2017, BC Partners sold around a 30% stake in GIC Private Limited.

Before the rebranding to Acuris, Mergermarket was part of The Financial Times Group until 2013 when it was sold off to BC Partners.

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Why Japan Post Sees Promise in Aflac

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Aflac Inc. is an American insurance company founded in 1955. The company is the biggest provider of supplemental insurance in the United States. Aflac also has major operations in Japan.

In December 2018, Japan Post Holdings (JPHLF) signaled it was spending US$ 2.64 billion for a 7-8 % stake in Aflac. The goal is that, in four years time, Aflac will become an affiliate of Japan Post. Japan Post hopes to accomplish this by becoming the largest voting shareholder of the company. The world’s 13th largest company, with 400,000 employees, Japan Post needs to expand to chase further growth, mainly because Japan Post expects the postal business to decline. Diversification is seen as the optimal route to long term stability for the holding company. Japan’s economy is worrying. Japan’s aging population means that many insurance companies are facing a shrinking customer base, Japan Post settled on a plan to expand overseas.

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RDIF and Development Agency of Serbia Agree to Explore Joint Investments

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The Russian Direct Investment Fund (RDIF) and the Development Agency of Serbia, also known as Razvojna agencija Srbije, reached an agreement to work together to identify attractive investment projects to strengthen bilateral economic ties and increase investment flows between Russia and Serbia. Russian capital and businesses are keen on investing in Serbia.

In addition, the two countries signed an agreement to cooperate on civil nuclear energy, according to state-owned Russian reactor builder Rosatom (Rosatom State Nuclear Energy Corporation). Rosatom continues to expand it business of nuclear cooperation deals in a wide number of countries.

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