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U.S. Consultants Watch Out, Department of Labor Urged to Assess Conflicts of Interest

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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.

Public Asset Owners Feel Pressure on PetSmart

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Paying big fees compared to traditional equity strategies, sovereign funds and pensions have allocated mounds of capital to private equity firms on buying out North American big-box retail businesses. Many of these private equity firms and advisory firms have also offered “co-investment” opportunities in these retail acquisitions as well. Private equity firms had loaded retailers such as Toys “R” Us and Sports Authority with excessive debt. Sports Authority shuttered in 2016.

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Mubadala Sells Stake in Local Ports Operator

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Abu Dhabi-based Mubadala Investment Company and its emerging markets infrastructure arm, Mubadala Infrastructure Partners, are parting ways with Abu Dhabi Terminals (ADT), selling their 50% combined stake in the hometown shipping operator to remaining shareholder Abu Dhabi Ports (ADP) for an undisclosed amount. Khaled Al Qubaisi – Chief Executive of aerospace, renewables, and information technology at Mubadala – expressed in a statement his confidence in ADT’s future success as a key player in the local economy.

Established by government decree in 2006 alongside its new owner as part of Abu Dhabi’s Vision 2030 plan for economic development, ADT primarily operates the semi-automated Khalifa Port Container Terminal under a 30-year concession it secured in 2012 from ADP, which is mandated to develop and manage all 11 commercial ports in the emirate and hosts some 25,000 vessels every hour.

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SWFI First Read, April 26, 2018

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Former Obama Cabinet Officials to Advise TPG Rise Fund

Former U.S. Secretary of State John Kerry was named a senior advisor for TPG’s Rise Fund. Kerry’s role will be to help find investments for the fund and advised in areas such as renewable energy. Another Obama administration veteran, former U.S. Secretary of Education Arne Duncan, is also an advisor to the Rise Fund.

Jobless Claims in U.S. Drop to the Lowest Level in 48 Years

According to the U.S. Department of Labor, the rate of layoffs in the country fell in late April to the lowest level since 1969.

ECB Holds Rates Steady

The European Central Bank (ECB) kept interest rates unchanged on April 26, 2018.

Singulato Motors Raises Series C Round

Singulato Motors raised US$ 474 million in a Series C round from a number of investors. Some current backers include TaoYun Beijing Investment Fund, GX Capital and Qihoo 360. Singulato Motors is a Chinese electric vehicle startup.

Thae Khwarg Nears CIO Role at Korea National Pension Service

Thae Khwarg appears to be the top contender for the Chief Investment Officer role at Korea’s National Pension Service. Khwarg is the former head of Baring Asset Management Korea, which is formerly known as SEI Asset Korea. Khwarg was selected by NPS’ chairman for the role and is awaiting approval from South Korea’s Minister of Health and Welfare.

Al Hilal Bank Uncovers Internal Fraud

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