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Detroit Eligible for Bankruptcy Protection – Public Pension Shockwave

pensionlandshockwavePromised by elected politicians and city leaders on the stability of their pensions over decades, public employees across the United States may be in for a surprise. The big news in Pensionland is that on December 3rd, Judge Steven Rhodes of the United States Bankruptcy Court, denied Detroit’s pension funds and unions an attempt to have the bankruptcy action thrown out. Essentially, the city of Detroit is eligible for bankruptcy protection. The judge’s ruling opens the door for public pension cuts for troubled cities and municipalities in the U.S. – giving bondholders a level of protection for cities plagued with excessive long-term liabilities.

Detroit is faced with high crime rates, virulent blight and lack of public services – the victors of the ruling are happy to give Detroit a fresh start.

Over a 90-minute summary of his ruling, the judge concluded that specific criteria were met in order for Detroit to receive protection from its creditors. Former industrial powerhouse, Detroit on December 3rd, became the largest municipality in the history of the United States to enter Chapter 9 bankruptcy. Chapter 9 bankruptcies are extremely rare and usually large cities like New York and Pittsburgh are able to find alternative solutions. To add to the financial headache, bankruptcies will likely increase borrowing costs for the city of Detroit.

After the ruling, lawyers on the city workers’ side argued they will appeal any verdict that cuts benefits – mentioning they are protected under the state of Michigan’s constitution.

Calculated by Detroit Emergency Manager, Kevin Orr, the city of Detroit has tried to tackle an estimated US$ 18 billion in debt and long-term liabilities. To put this into perspective, the last city bankruptcy was Alabama’s Jefferson County with debt over US$ 3.1 billion. Detroit is faced with high crime rates, virulent blight and lack of public services – the victors of the ruling are happy to give Detroit a fresh start. The judge mentioned in his ruling that, “As of April 2013, about 48 percent of the city’s street lights were not working.” He continued, “In 2012 the average police response time was 30 minutes; in 2013, 58 minutes; and the national average is 11 minutes.”

Last, one of Detroit’s former mayors, Kwame Kilpatrick, is serving 28 years in federal prison on corruption charges.

Harvard Agrees, Moves RE Team to Bain Capital

Harvard Management Company (HMC), the in-house investment unit of the endowment, agreed to spin out its real estate unit to Bain Capital. 22 HMC employees will join the new unit called Bain Capital Real Estate, which oversees Harvard’s US$ 3.4 billion real estate investments. SWFI research reported on the discussions earlier regarding this deal.

HMC has been looking to streamline operations and reduce investment staff headcount.

Harvard-Bain-Government Connections

Bain Capital has a quite a bit of Harvard alumni. Joshua Bekenstein and Stephen Pagliuca, co-Chairs of Bain Capital, are graduates of Harvard Business School. Pagliuca was a Democratic candidate for the U.S. Senate. Jonathan Lavine, co-Managing Partner of Bain Capital, is a graduate of Harvard Business School. Furthermore, Mitt Romney, the former Governor of Massachusetts and Republican presidential candidate in 2012, was a founder of Bain Capital. Former Massachusetts Governor Deval Patrick joined Bain Capital in 2015 and is a managing director of the Double Impact business. Patrick earned both his BA and JD from Harvard.

Why Bain Capital?

Why didn’t HMC seek to partner with an asset manager total focused in real estate such as Heitman, Hines or CBRE Global Investors? [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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CPPIB Gets Direct Exposure to Brazilian Renewables with Votorantim Energia

The Canada Pension Plan Investment Board (CPPIB) and São Paulo-based Votorantim Energia Ltda., the energy subsidiary of Brazil’s Votorantim Group, inked a deal to create a new joint venture focusing on investments and developments in the Brazilian power generation sector. CPPIB is making a bet on the Brazilian power generation market with a focus on renewable energy. Votorantim Energia has been trying to find institutional investor partners to expand its efforts, aiming to reach out to sovereign funds like GIC Private Limited and other large asset owners in North America.

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Danica Pension Eyes Market Leader PFA with US$ 1 Billion SEB Takeover

Danica Pension, Denmark’s second largest commercial pension fund, has struck a deal to take over the Danish pension assets of Sweden’s SEB, putting itself in position to challenge current market leader PFA. Set to close in the first half of 2018 upon regulatory approval, the transaction will bring the Danske Bank subsidiary some 200,000 new pensioners for a customer base of 800,000, and raise its total assets under management to around US$ 86.8 billion. These figures put it nearly on par with PFA, which manages approximately US$ 96.3 billion in assets for some 1.2 million Danish pensioners.

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