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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.

Italian ANAS and RDIF Invest and Build the Fourth Section of Moscow’s Central Ring Road

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The Russian Direct Investment Fund (RDIF) inked a deal with ANAS S.p.A. (formerly known as Azienda Nazionale Autonoma delle Strade), the Italian state highway management company, to implement a concession agreement to build and operate the fourth section of the massive Moscow Central Ring Road. The transaction expects to be finalized in the first quarter of 2019. This is the final section of Central Ring Road, which is 96.5 kilometers long. According to the RDIF, “Under the terms of the concession agreement, the cost of construction is 85.4 billion rubles, of which the concessionaire will provide 49.7 billion rubles and private investors will provide 35.7 billion rubles.”

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Follow the Money – Episode 48

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This long-form podcast was recorded on December 11, 2018. Michael Maduell dissects the latest geopolitical trends that can impact institutional investors such as pensions, sovereign wealth funds, and endowments. Maduell lends his opinion on the lawsuit of Neiman Marcus and bumps in the road for augmented reality.

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CONTENTS
1:15 Huawei, Canada, Brexit, and Macron Headache
6:30 Sovereign Wealth Fund Asset Allocation
9:58 India Gets a New Central Bank Governor
13:26 Pensions Go Bust on U.S. Retailers
17:04 Augmented Reality and Sovereign Funds
22:00 Former CalPERS CIO Goes to Morgan Stanley Investment Management
24:30 Oman Investment Fund Goes on Defense in Public Markets
25:00 Japanese Scandals and Opportunities

EPISODE 48

Stream off Follow the Money

The views in this media are expressed by Michael Maduell and other participants and are not reflective of the Sovereign Wealth Fund Institute (SWFI).

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Danica Pensions Sells Danica Pension Sweden

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Danica Pension sold Danske Pension Försikringsaktiebolag (publ) (also known as Danica Pension Sweden) to a group of investors for around 2.6 billion SEK. Danica Pension is part of Danske Bank A/S. Of the total amount, 2.3 billion SEK is being paid in cash, while the rest is in the form of a debt instrument from Danica Pension.

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