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Bridgewater and Strategic Investing, American Public Pensions are Becoming More Innovative

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Britt Harris

Public markets have taken a beating in 2011 and treasuries are producing low yields. Public investors across the United States have had board conversations to reduce their target rate of return. There has been a significant shift of more American public pensions of either moving towards alternatives or growing existing exposure. A number of public pension plans are trying to be more creative and opportunistic when investing plan assets.

The Teacher Retirement System of Texas (TRS) approved a US$ 250 million dollar investment in Bridgewater Associates Intermediate Holdings, LP. Founded in 1975, Bridgewater Associates manages around US$ 120 billion in assets and is privately owned. The investment is a non-voting equity stake in an investment management company, a first for the public pension fund.

Trustees viewed the opportunity as a different type of risk, another way of earning a risk-adjusted return.

Basically, TRS will receive annual profit distributions based on their equity ownership percentage. The value of TRS’ equity interest has the possibility of increasing if the firm can attract more clients; asset managers get paid when they manage more assets.

The chief investment officer of the TRS, Britt Harris briefly served as chief executive of Bridgewater Associates. He recused himself from the process and has no personal financial interest in Bridgewater for more than five years. Ray Dalio, who founded Bridgewater, and his family trust will maintain around a 10% to 20% equity stake at the end of a ten year period. CalPERS made a similar move investing in the Carlyle Group along with Mubadala Development Company.

Moving along the alternative spectrum

Recently, the Georgia State Senate approved legislation to allow Georgia’s public pension funds to invest in alternatives, private placements, and other private instruments. The bill would allow public funds to invest up to 5% of total assets in alternative investments managed by firms with at least US$ 100 million in assets under management. In February, the California State Teachers’ Retirement System (CalSTRS) gave Industry Funds Management, an infrastructure mandate worth US$ 500 million. CalSTRS has made a big thrust into infrastructure investments, similar to their neighbor CalPERS.

In addition, they’ve made a strategic investment into Bridgewater Associates. On another note, the Wyoming Retirement System has developed plans to make its first private equity investments. The US$ 6.5 billion public pension received board approval on February 17, 2012.

BlackRock Contemplates Stake in Eurizon

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Asset management giant BlackRock is contemplating purchasing a 30% ownership stake in Intesa SanPaolo’s asset management unit called Eurizon Capital SGR S.p.A. BlackRock is keen on growing its technology business and increase market adoption of its Aladdin platform.

Intesa has been working with UBS to seek out strategic options for Eurizon. Intesa is keen on maintaining control over Eurizon.

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SWFI First Read, June 22, 2018

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JPMorgan Fund Buys 40% of Oxford Properties’ French Portfolio

A fund advised by JP Morgan Asset Management committed €400 million in Oxford Properties’ French portfolio. Essentially, Oxford Properties sold a 49.9% non-managing interest in 32 Rue Blanche, 92 Avenue de France and Paris Bastille. Oxford Properties made its maiden investment in Paris in 2014 when it acquired 32 Rue Blanche.

Oxford Properties is the real estate unit of OMERS.

Temasek Explores Further Cash Commitments to FirstCry

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DOL Fiduciary Role is Struck Down by Fifth Circuit Court of Appeals

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The U.S. Court of Appeal, Fifth Circuit, confirmed a March 15th decision to strike down the U.S. Department of Labor’s (DOL) fiduciary rule. The fiduciary rule is a series of seven different rules that broadly interpret the term “investment advice fiduciary” and redefine exemptions to provisions concerning fiduciaries that appear in the Employee Retirement Income Security Act of 1974 (ERISA). The 5th U.S. Circuit Court of Appeals overturned a decision by a Dallas federal court that had upheld the DOL fiduciary rule.

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