Buyout specialists expected to pitch for £20bn-worth of funds

By Yvette Essen

Last Updated: 1:02am BST 24/06/2008

Pension funds worth a total of £20bn are being tendered out to buyout specialists, one of the industry’s market leaders said yesterday.

Legal & General has predicted that assets worth up to £10bn could be transferred this year, with a £1bn deal in the next few months.

Simon Gadd, managing director for the insurer’s annuities business, said: “The buyout market has never been busier; there’s probably £20bn worth of buyouts by value being tendered for at the moment.

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“We do not expect all those deals to complete this year, but the market could easily reach £10bn in 2008.

“Bigger deals are coming to the market. The first £1bn deal could happen this year, as currently more than half a dozen schemes are looking at their options.”

Mr Gadd explained that the pensions buyout market has seen a sharp rise in activity as the pensions become increasingly difficult to manage because of people living longer and volatile stock markets impacting surpluses and deficits.

“Finance directors are looking at buyout options as regulation, longevity, accounting rules and investment volatility has pushed pension costs and risks up their agenda.”

This year, a number of blue-chip companies have offloaded risks associated with their schemes, including miner Lonmin and life assurer Friends Provident, with casino and bingo group Rank marking the biggest deal this year with £700m of pension assets and 19,000 schemes members being transferred to Rothesay Life, the buyout vehicle for Goldman Sachs.

Other companies looking at options for their pension scheme include record label EMI Group and engineer Smiths Group.

Telecoms group Cable & Wireless is also working on a deal with buyout companies to pass on risks relating to its £2bn pension plan.

http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&

xml=/money/2008/06/24/cnpens124.xml

Buyout specialists expected to pitch for £20bn-worth of funds
Telegraph.co.uk - 4 hours ago
By Yvette Essen Pension funds worth a total of £20bn are being tendered out to buyout specialists, one of the industry’s market leaders said yesterday.
L&G sees pensions buyout market at 10 billion pounds Reuters UK
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L&G sees 10 billion pound pensions buyout market

Mon Jun 23, 2008 12:44pm BST

 

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By Simon Challis

LONDON (Reuters) - The pensions buyout insurance market could hit 10 billion pounds this year and may see the first 1 billion pound deal, said Legal & General, one of the market’s leaders.

The rapid pace of dealmaking in the market in the last quarter of 2007 and the first quarter of this year shows no real sign of slowing, despite the volatile investment markets, Simon Gadd, L&G’s managing director for annuities business, told Reuters in an interview on Monday.

“In Q1 we saw 2.5 billion to 3 billion pounds of deals closed in the market. Q2 will see about the same,” Gadd said.

While fewer transactions tend to be signed in the third quarter, the fourth quarter will see a pick-up driven by the impetus to close deals before the end of many firms’ financial year, Gadd predicted.

“All the indications are that there could be 10 billion pounds worth of deals done this year. From a market that saw about a billion pounds’ worth of deals done a year, that is a very material increase in a short space of time.”

Many firms are looking now to transfer or “buy out” their final-salary pension liabilities with insurers, offloading an increasing financial headache due to rising life expectancy of workers, turbulent investment markets and tougher regulations.

A vibrant market, including established insurers like L&G (LGEN.L: Quote, Profile, Research), Aviva (AV.L: Quote, Profile, Research) and Aegon (AEGN.AS: Quote, Profile, Research), specialist start-ups such as Paternoster and Pension Corporation and investment banks like Citigroup (C.N: Quote, Profile, Research) have quoted on pension schemes with a combined value of tens of billions of pounds.

L&G has quotes outstanding on schemes worth a total of 20 billion pounds, said Gadd, and he predicted that the first 1 billion pound deal is just around the corner.  Continued…

“There’s a pretty good chance it will happen this year,” said Gadd. “At least half a dozen firms with schemes this size are exploring these options and have been doing so for some months.”

CREDIT CRUNCH

L&G has been able to take advantage of the credit crunch, acquiring some high-yielding assets at cheap prices, which have allowed it to lower its prices on some deals, said Gadd.

The life insurer has been able to “realise a liquidity premium”, said Gadd, to snap up bonds investment banks and hedge funds have been forced to dump to meet redemption calls from nervous investors, said Gadd.

L&G has no such worries, as it measures its liabilities in the decades and plans its asset strategy to pay steady returns to annuitants until their death. As a result, Gadd expects the firm to acquire more bonds at distressed prices.

Buyout pricing has fallen, partly as a result of competition in the 1 trillion pound market but also because of high yields available on corporate bonds. The payout rate on these assets is a major determinant of the price of doing buyout deals.

Prices have inched up in the second quarter, but they have not deterred buyers, which has persuaded L&G to commit more capital to this sector. Gadd now has the capacity to underwrite 3 billion pounds of annuity business and could win more if the flow of good deals continues.

Insurers are struggling to keep up with the demand for pension buyouts and some market players are likely to need fresh capital soon if they are to write new business.

But in the current environment, where credit remains extremely tight, some may struggle to raise additional cash to meet their needs, said Gadd.

 

Miller Declares 401(k) System Paralyzed

10-27-2008 | Source: Defined Contribution & Savings Plan Alert - Click here to take out a FREE Trial

People & Companies in the News

• George Miller

House Education and Labor Committee Chairman George Miller (D-Calif.) declared the present 401(k) system “paralyzed” by the financial crisis Oct. 22 at The Impact of the Financial Crisis on Workers Retirement Security, a hearing held by his committee in San Francisco.A complete 401(k) redesign is a “very, very high priority” right now in an effort to deliver retirement security to workers and make sure there is more efficient use of the $80 billion in annual subsidies spent on it, Miller said at the hearing.

“This has to be repaired,” he said. “There is a great deal of urgency because people are paralyzed and they are not making contributions or opening 401(k) plans, rather they are taking money out.”

Miller would only commit himself to “a wholesale re-examination” in his comments Wednesday. At the close of the hearing he said lawmakers would have to examine all of the alternatives, including one that would simply convert the existing incentives into

a government match for savings by poor workers.

Most of the questions asked during the hearing assumed the continuation of an employer-based system, but with many changes. As it is now, said Miller, “it is in pretty sad shape” to act as the main private sector retirement saving vehicle.

http://www.emii.com/Article.aspx?ArticleID=2036021&LS=EMS215685

OCTOBER 22, 2008
Argentina Makes Grab for Pensions Amid Crisis
By MATT MOFFETT

BUENOS AIRES — Hemmed in by the global financial squeeze and commodities slump, Argentina’s leftist government has seemingly found a novel way to find the money to stay afloat: cracking open the piggybank of the nation’s private pension system.

CRISTINA KIRCHNER
The government proposed to nationalize the private pensions, which would provide it with much of the cash it needs to meet debt payments and avoid a second default this decade.

The move came as wealthy nations unveiled fresh steps to fight the credit crunch. The U.S. Federal Reserve said it would bolster money-market funds, which have faced withdrawals, by lending as much as $540 billion to the industry. France said it would inject $14 billion into six banks on condition they agree to increase their lending. In a sign banks were a little more willing to lend to each other, the London interbank offered rate, a benchmark for many business and consumer loans, again declined.

Argentine President Cristina Kirchner said the move to take over the private pension system was aimed at protecting investors from losses resulting from global market turmoil. Funds in the system, which is parallel to a government pension system, are administered by financial firms. The private system has about $30 billion in assets and generates about $5 billion in new contributions each year.

While no one knows for sure what the government would do with the private system, economists said nationalization would let the government raid new pension contributions to cover short-term debts due in coming years.

Argentina’s financing needs are growing quickly as the global financial squeeze pushes down prices of its commodity exports, such as soybeans. Coupled with unchecked government spending, the commodity downturn has carved a gap of around $10 billion to $11 billion in what Argentina must pay on its debt between now and the end of 2009, according to economists. The payments are from debt restructured after a 2001 default and new debt issued locally.

Budget Gaps
The economic turmoil of recent months has exposed budget gaps in many emerging nations. They’ve run smaller budget deficits, but thanks less to spending restraint than to the income bonanza. Now they’re being forced to make tough choices: Mexico this week said it will run a budget deficit next year of 1.8% of annual output rather than a balanced budget as planned.

Argentina is doubly hurt. Having stiffed creditors as recently as 2001, it has few prospects of returning to international lending markets soon. Economists who were critical of the nationalization proposal said it reinforced Argentina’s image as a renegade in financial circles.

The private pension system was created as an alternative to state pension funds in 1994, when conservative President Carlos Saúl Menem ran Argentina and free-market policies were in vogue in Latin America. Countries in the region followed the example of Chile, which had privatized pensions in 1981. In Argentina, workers have the option of paying into individual retirement accounts run by pension funds rather than the government.

Three million Argentines do so. They can track their accounts and have some say over how the pension funds invest the money, making the system somewhat like U.S. 401(k) accounts. After a nationalization, it’s presumed the government-run system would absorb the private funds.

The Latin American system has helped create a large pool of domestic savings that can fund local capital markets and lend money for projects like toll roads. In Argentina, Mexico and Chile, pension funds are among the biggest players in local stock markets, helping young companies get access to capital.

The main Merval Argentine stock index tumbled 12% on Tuesday, largely on fears that the market would atrophy if the government used new pension contributions to pay debt rather than let it go into the capital markets.

The head of the Argentine association of private pension funds, Sebastian Palla, blasted the government step. He said that since their 1994 inception, the funds have had a 13.9% average annual return.

‘Accessible Source’
President Kirchner painted the move as an attempt to help workers weather the financial crisis. The value of private retirement accounts in Argentina has probably fallen in recent months due to a declining stock market, economists say. President Kirchner said in a speech: “The main member countries of the [Group of Eight] are adopting a policy of protection of the banks and, in our case, we are protecting the workers and retirees.”

Buenos Aires economist Aldo Abram, among many other economists, wasn’t buying that argument. “They were in a tight situation and this was an accessible source of funds,” he said.

Associated Press
Brokers work at the Buenos Aires Stock Exchange, in Buenos Aires. Argentine stocks fell by more than 11% in reaction to news that the government plans to nationalize private pension funds.
The step requires approval of Congress, where the governing Peronist party has a majority. Opposition leader Elisa Carrió vowed to contest it, saying, “The government measures aren’t designed to better the retirement system but rather to plunder the funds of the retirees.”

Still, the proposal is likely to pass, said Alberto Bernal-Leon, head of macroeconomic strategy at Bulltick Capital Markets in Miami. He noted that Argentina will have elections next year, and said access to pension funds would make it easier for the government to muster support through patronage.

One pension-fund head who is opposed to a takeover suggested that contributors inundate the government with lawsuits. Even if they don’t heed that call, the move is expected to face legal challenges.

In a history replete with financial crises, Argentines have had lots of experience with the government meddling with their money. Prior to the 2001 economic collapse, when the government was trying to maintain the peso at parity to the dollar, the government placed limits on bank withdrawals. Later, it issued a decree converting dollar-denominated deposits to pesos.

Argentina has been largely shut out of international capital markets since 2001, when it declared the largest sovereign-debt default ever.

“With the [latest] announcement, the custom of violating the rules of the game has been repeated, which deepens the lack of confidence,” political analyst Rosendo Fraga wrote in the Buenos Aires daily La Nacion.

The Argentine economy has been buoyed the past five years by rising prices for the agricultural commodities. It also got a hand from Venezuelan President Hugo Chávez, whose government bought billions of dollars of Argentine debt in recent years. But prices of commodities such as soybeans have plunged in recent months, and Mr. Chávez is facing his own problems with the sharply lower price of oil.

Mr. Abram, the economist, said a pension takeover would help the government close about half the gap in funds needed for its debt service, as pension contributions go into public coffers rather than private ones. He said the rest of the funding needs could be obtained from a state-run bank or by dipping into currency reserves.

José Piñera, a former Chilean cabinet minister who pioneered the privatized pension system and has served as a consultant to many other countries that have implemented it, called the nationalization proposal “just another step in Argentina’s 100-year ‘road to underdevelopment.’”

—David Luhnow contributed to this article.
Write to Matt Moffett at matthew.moffett@wsj.com

http://online.wsj.com/article/SB122460155879054331.html

From Times Online

December 14, 2007

How to improve your credit rating

 

James Charles

It is likely that you will need to borrow money at some point in your life, whether to buy a house or a new suit.

Every time you do, lenders check credit ratings to decide whether you are a suitable person to lend to, using a process known as credit scoring.

There are a number of steps you can take to fix your credit rating and so avoid the frustration and inconvenience of being turned down for credit.

Knowing how to improve your credit rating will mean that lenders may also be willing to offer you better interest rates.

 

Background

 

 

• How to improve your credit rating

• How to choose a credit card

• How to pay off your debts

• IVAs explained

 

 

Related Links

• What is on a credit report?

• Why can’t I get credit?

• Ten ways to improve your credit rating

Get to know your credit file

Three credit reference agencies, Experian, Equifax and CallCredit, hold information about every financially active adult in the UK.

These files combine three areas of information. The first is your personal information, such as your name, partner’s details and previous addresses. Then there is the publicly available information from the electoral roll, along with court judgments and details of bankruptcies. The file also contains your credit and financial history, including details of all your current and previous financial accounts, when you have applied for credit in the past, how much credit you have available to you (in the form of credit cards, for example) and your record of paying off debt.

Under the Consumer Credit Act 1974 you have the right to see a printout of your file, at a cost of £2. To obtain a copy of your credit report, which is simply a copy of all the information used by Experian, Equifax and CallCredit, visit the companies’ websites. All three also offer premium services to help you to manage your file.

If you are turned down for credit, most industry codes encourage companies to disclose the reasons for their decisions. This can help you to understand which part of your credit history is letting you down and how you can improve your credit score.

Keep your details up-to-date

Make sure you are on the electoral roll:

Banks and building societies usually need to know that the information about you is up-to-date before they are willing to offer a financial account. Maintaining your presence on the electoral roll is particularly important. Register with your council as soon as you move house. Credit reference agencies update their details from the electoral roll every monthly, so registering, if you haven’t already, will improve your score quickly.

Dispute incorrect information:

You should check your credit file at least once a year to make sure that all the information is correct. You could ask Experian, Equifax or CallCredit to monitor your file, usually for signs of identity fraud, and alert you to any changes made. You will be charged a subscription for this service.

If there is any incorrect information on your file, the credit reference agency will flag this as “disputed” and consult the company that provided the information.

Credit reference agencies suggest adding a 200-word statement, called a notice of correction, to your file if there are details that are worthy of an explanation. Lenders are legally bound to look at these notices, but you should not add too many because this may also deter lenders.

Mobile phone bill could scupper your mortgage

Prevent missed payments from appearing on your report:

Missing a payment for a bill as trivial as your mobile phone contract could have a detrimental affect on your credit file and will remain on your report for three years.

However, missing a payment may not be the end of the world. Keep abreast of your finances through budgeting, internet or telephone banking. If you think that you might not be able to make a payment, stop the direct debit and call the company involved. If you can arrange to pay the bill later, it may not be recorded as a missed payment on your credit file.

Do not be too hasty about closing accounts:

If you do miss a payment and then close the account in question within three years, a record of that missed payment will remain on file for a further six years. Try to keep these accounts active until the missed payments drop off your file.

It is better to borrow than not at all

Lenders want to know that you can manage credit responsibly.

Too much credit on your file will worry lenders and put them off giving you more. Too little and they will see you as unprofitable.

A credit file that will make lenders smile is one that demonstrates that you have a proven track record of successfully managing credit, whether that is in the form of timely loan repayments or clearing the monthly balance on your credit card.

If there is no evidence that you will be able to do this, a lender could get cold feet.

One suggestion would be to use a reward points or cashback credit card to buy your groceries every week (and clear the balance at the end of the month). You will enhance your credit file and earn points or cash that you can enjoy later.

Any credit card will do, but store cards, with their exorbitant interest rates, should always be avoided, no matter how good your intentions.

Another suggestion is to open a joint account with someone who has a good credit score (see below).

But keep accounts to a minimum. Lenders look at your credit report to find out how much available credit you have at your disposal. If this available credit is too high, lenders could decide that you should not be given more, so close down credit card accounts that you no longer use.

Watch out for footprints

Avoid being rejected repeatedly.

A “footprint” describes the mark left on your file every time it is viewed by a company. It lets you know who is checking your file, but it also gives the bank an idea of how often you are applying for credit. Too many footprints may set alarm bells ringing.

If you have been turned down for a credit card or a loan, do not rush to apply for more. Instead, ask the lender that refused your application to explain why it did so. If it points to something in particular on your credit report, it is likely this will deter other lenders, too, so work on repairing the damage.

If you need credit urgently, try a lender that specialises in loans for people with less than perfect records.

Review the searches on your account.

When you are doing your annual credit report check-up, make sure that individual lenders have not made more than one search. Each one will appear, with potentially adverse affects, but you can point this out to the credit reference agency, which can flag up the repeated searches as “disputed” and consult the company that carried them out.

Keep the agencies updated

Review your financial relationships regularly.

When you apply for a bank account, loan or mortgage with someone else, you are tagged to that person and his or her credit score can affect the score on your file. The tag will remain even when you no longer hold any joint accounts. If you spot former friends or partners on your credit report, have them removed.

Though a financial association can pull down your overall score, it can also give it a boost. If you are struggling to obtain credit, particularly because you may be younger and have no credit history, having a more established name on your report will strengthen your case. Financial associates have to share an address, so this really applies only to young adults (over 18) who are living with their parents.

http://www.timesonline.co.uk/tol/money/reader_guides/article3050813.ece

Pension calculator

Use the FSA/ABI pension calculator to see how much income you might get when you retire from what you save now or in the future.

All you need to do is answer a few questions about the amount you are contributing or plan to contribute to a pension, and the calculator will give you an idea of how much income this will produce when you retire using today’s prices.

The calculator deals with new contributions made through a personal pension, group personal pension or stakeholder pension. It can also deal with any personal, stakeholder or occupational money purchase pension funds you may have built up already.

If you are employed, first check if your employer provides a pension scheme. Your employer may make a contribution that you will miss out on if you take out a personal pension.

Go to pension calculator

 

http://www.moneymadeclear.fsa.gov.uk/tools/pension_calculator.html

 

 

 

http://www.moneymadeclear.fsa.gov.uk/tools/pension_calculator.html

 

 http://www.moneymadeclear.fsa.gov.uk/tools.aspx?Tool=budget_calculator

 

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Use the calculator to work out what your repayments would be for various loan amounts, repayment periods and interest rates.

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See what your mortgage payments might be depending on how much you want to borrow, how long for and at what rate.

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Reader Guides

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From Times Online

October 18, 2008

Pension plans are stronger - or are they?

Dominic O’Connell

RECORD FALLS in share prices must be bad news for pensions, right? After all, pension funds typically invest more than half of their money in equities, so the market collapses of recent weeks must have pummelled the value of our retirement pots.

Maybe not. Bizarrely, the aggregate pension position of the FTSE 100 has got better in recent months, not worse. The consultant Pension Capital Strategies estimates that at the end of last month FTSE 100 defined-benefit schemes (where employees know when they retire what they will receive, normally a portion of their final or average salary) had an aggregate surplus of £18 billion. A year ago they had a combined deficit of £2 billion.

The reason for this puzzling shift lies in the detail of the accounting used to estimate the health of schemes. One of the key determinants is the value of “AA”-rated corporate bonds in which funds invest to deliver long-term safe returns for retired members.

In recent weeks the return on these bonds has soared. At the same time, inflation forecasts have fallen, lowering estimates of the schemes’ future liabilities.

Together the factors have been enough to outweigh the collapse in equity prices, although the FTSE 100 surplus is likely to have fallen back again during the first weeks of this month.

The accounting rules may, however, mask the true position of pension schemes. Bond yields have been pumped up because of fear of corporate failures triggered by the credit crisis and looming recession. The very thing that is improving the accounting position of defined-benefit schemes should be making trustees more nervous.

“Trustees and companies will be worried about the real economic position of schemes,” said Rash Bhabra, head of corporate consulting at the actuary Watson Wyatt. “Equity markets are down and it is likely that bond markets will eventually fall, and at the back of all that there is an increased risk of corporate insolvency.”

Charles Cowling, managing director of Pension Capital Strategies, said: “The fact that accounting rules may show a positive impact on pension schemes from this market turbu- lence does not mean these are easy times for pension schemes.” He pointed out that a large proportion of crucial AA bonds are issued by financial-services companies — the ones hardest hit by the credit crunch.

Trustees, whose resolve has been stiffened after a wave of corporate pension disasters three years ago, may be tempted to ask for more cash from hard-pressed company boards.

“Cash is tight at the moment. There will be some very interesting conversations between trustees and companies over the next six months,” said Bhabra.

Some analysts go further, saying the equity-market shock might lead to some fundamental re-evaluation.

“I think that trustees might finally have to face up to the fact that this dream they have always clung to, that equities will outperform over time and are the best investment, is just that, a dream,” said one.

The turmoil in equity and bond markets has cooled the emerging market in pension buyouts, where companies sell their schemes — and all the liabilities — to financial groups.

Mark Wood, chief executive of Paternoster, one of the leading buyout groups, said last week that business for the rest of the year would be “below previous estimates”.

“Trustees understandably are being very cautious,” said Wood. “The markets at the moment make it very difficult to set a price. The trustees don’t know if they are being overcharged, and we don’t know if we are undercharging.”

http://www.timesonline.co.uk/tol/money/pensions/article4969454.ece

 

 

Ex-Chief of S.E.C. Says Pension Funds in Danger

By MARY WILLIAMS WALSH

Published: October 31, 2007

As New York State comptroller, his father “saved the retirements” of countless workers, Arthur Levitt Jr. said in a speech yesterday — but he added that now those pensions, along with those of millions of other Americans, are again at risk.

Jay Mallin/Bloomberg News

Arthur Levitt Jr. is an adviser to the Carlyle Group.

In remarks to pension officials from New York and several other states, Mr. Levitt, the longest-serving chairman of the Securities and Exchange Commission, said their world was fraught with problems, including conflicts of interest, opaque accounting and a tendency among elected officials to promise valuable benefits, then fail to set aside enough money to pay for them.

“As the baby boomers begin to retire, we cannot tolerate a shaky pension system,” said Mr. Levitt, who stepped down from the S.E.C. in 2001 and is now a senior adviser to the Carlyle Group, a large private equities firm.

The Carlyle Group is one of the investment firms to be questioned by investigators in an inquiry into the New York State pension fund. Mr. Levitt alluded to that inquiry, which has focused on whether associates of New York State’s most recent former comptroller, Alan G. Hevesi, improperly benefited from his sole direction of the $156 billion fund, the nation’s second largest.

But Mr. Levitt said New York’s pension woes were just the latest in a series of scandals at public funds all over the country, including those in the cities of Chicago, San Diego and Philadelphia and the states of Illinois, Ohio and California.

Mr. Levitt was speaking at an annual conference for public pension trustees sponsored by the Pacific Corporate Group, an investment management company that specializes in private equities.

He said he was speaking in the dual capacity of a private equities executive and the son of Arthur Levitt Sr., who was widely admired for refusing to use the New York State pension fund to bail out New York City during its fiscal crisis in the 1970s. Today, “too many fund trustees as well as elected officials” are “unable to carry this load,” he said.

Mr. Levitt said much of the trouble was rooted in pension accounting rules that “fail to reflect accurately” the cost of the benefits that public workers have earned or the value of the assets set aside to pay those benefits.

“We can’t begin to improve the fiscal standing of public pension funds until we can accurately assess their financial health,” he said.

He blamed a rule-making framework that allows softer accounting standards for governments than for corporations, and called for the repeal of the Tower Amendment, a 30-year-old law that limits the S.E.C.’s authority to police governmental accounting. The current S.E.C. chairman, Christopher Cox, has also expressed doubts about the Tower Amendment’s continuing usefulness but has not called outright for its repeal.

Mr. Levitt also called on Congress to create an independent financing source for the body that writes the accounting rules for governments — something Congress has already established for the corporate accounting rule-makers.

Currently, the Governmental Accounting Standards Board must finance its operations by soliciting contributions from the same bodies of government that adopt its rules.

Mr. Levitt also questioned the way the governmental accounting rule-makers are chosen, saying he thought the trustees of the board should be named by the S.E.C. Currently, various constituency groups recommend trustees.

Even if the pension accounting rules are beefed up, he said, it would make little difference unless the oversight boards of the funds were also improved. Currently, less than half of all public pension funds are thought to have formal education requirements for their trustees.

Current practices also allow pension officials to give priority to political concerns, he said, like calling for the divestment of pension money from “rogue states” like Sudan and Iran. He expressed great concern over the practice of some pension officials of soliciting campaign contributions from Wall Street firms.

“We have created a situation where workers’ retirement savings are being used for private gain,” he said.

While at the S.E.C., Mr. Levitt said he had directed staff members to investigate these practices, after which they drafted a rule barring money managers from working for public pension funds if the money managers had recently made political contributions to any fund officials.

But the rule, conceived of in 1999, when the S.E.C. was fighting uphill to curb conflicts of interest in the auditing profession, never made it past the drafting stage. Eight years later, Mr. Levitt said he thought the problems were worse than ever.

Questions from the audience suggested that at least some trustees at the conference disagreed with Mr. Levitt’s contention that pension trustees had no business identifying rogue states and trying to steer money away from them. One asked whether he also wanted them to back off from efforts to improve corporate governance. He said he did not.

Joseph Haslit, who represents New York City’s comptroller, William C. Thompson Jr., on the boards of four of the city’s big pension funds, said he thought nearly everybody in the room agreed with Mr. Levitt on the need to crack down on unethical behavior. But he said he doubted they agreed with his contention that pension boards needed to be beefed up.

http://www.nytimes.com/2007/10/31/business/31sec.html?ref=business

http://online.wsj.com/article/SB118817290004309347.html 

Pension Managers Rethink
Their Love of Hedge Funds

By CRAIG KARMIN
August 27, 2007; Page C1

Many public pension funds in recent years have become eager to invest in hedge funds. Now, some are getting cold feet.

Pension-fund managers from Louisiana to Ohio are saying they may slow their push into these funds after the recent losses suffered at big hedge funds — including ones run by Goldman Sachs Group Inc. and AQR Capital Management — have reinforced some of the risks.

Indeed, one critic suggests that pensions would be foolish to keep pursuing hedge funds. “It’s like planning a vacation to an exotic land, and finding out that there’s an outbreak of bubonic plague,” says Frederick Rowe, chairman of the Texas Pension Review Board, which provides oversight of Texas public pension funds.

It’s a significant reversal in thinking. Less than a year ago, more than 42% of public pension funds said they were planning “significant increases” to their existing hedge-fund investments, according to the consulting firm Greenwich Associates. At least 20 public pension funds are taking steps toward investing in hedge funds for the first time, based on research prepared by Financial Investment News.

The Ohio School Employees Retirement System, for one, says it can invest up to 10% of its $11.7 billion in assets in hedge funds and that it has already hired a consultant to find some funds. “But recent events have given us some more things to think about,” says Jim Winfree, executive director. “We are going extremely slowly.”

It may be too early to see any pension funds redeeming their hedge-fund holdings, and some of the hardest-hit hedge funds have already shown signs of rebounding. But pension managers say the erratic moves in recent weeks are reason enough to worry most pension-fund boards.

Any pullback by pension funds would be a blow to many hedge funds, which are increasingly relying on these funds as a way to raise large amounts of capital.

For their part, pension plans — which were among the investors burned by the bear market of 2000-2002 — took note that many hedge funds provided some protection back then. As a result, in the past few years, many have started shifting into hedge funds and other alternative investments as a way to shield against a similar downturn in the future.

Yet Kevin Lynch, a managing director at the consulting firm RogersCasey in Darien, Conn., says he noticed a palpable difference recently when discussing hedge funds with pension-fund managers “They’re all kind of spooked,” he says.

Allan Bentkowski, investment manager for the $700 million Tucson Supplemental Retirement System, said representatives from J.P. Morgan Chase & Co. visited their Arizona offices last year to discuss the merits of hedge funds. But after recent volatility, “the board has no inclination at this point.”

At the Teachers’ Retirement System of Louisiana, Phil Griffiths, the deputy chief investment officer, says he invested $25 million in a hedge fund last year and has the ability to move another $125 million of his $15.4 billion in assets into hedge funds.

But before he invests in any more hedge funds, he is waiting until at least the end of next month to see how some of the funds performed and whether they were hit with redemptions.

“If the funds didn’t fare well, we’d see that as a negative,” Mr. Griffith says. “Those results will probably prompt us to go one way or the other.”

Other pension funds say plans to begin investing in hedge funds could be delayed. The Ohio Police and Fire Pension Fund says it has already selected two hedge funds to manage a combined $300 million in a strategy known as global macro, in which funds invest in a variety of assets around the world. But it has paused before formally committing that money.

“We are checking in with our global macro managers far more frequently than normal,” says William Estabrook, executive director at the $12.6 billion fund.

This doesn’t mean all pension funds have turned more cautious. Many say they are long-term investors and that despite some losses, hedge-fund investments over time will lift returns and diversify a portfolio because they usually don’t move in lockstep with stocks and bonds.

The board of the California Public Employees’ Retirement System, with $243 billion in assets, recently said the pension fund could raise its hedge-fund investments to $12 billion from $5 billion.

The San Diego County Employees Retirement Association, which has 12 separate hedge-fund investments, lost $80 million when Amaranth Advisors collapsed in 2006, though the fund still returned 16% for the year ended in June. The San Diego fund also held positions in funds from AQR and D.E. Shaw & Co. that hit rocky patches in recent weeks.

Still, “we are looking at adding hedge-fund managers,” says Brian White, the chief executive officer. “This reinforces the rule that diversification is good.”

Dan Gallagher, chief investment officer at the Los Angeles City Employees’ Retirement System, suggests the hedge-fund losses have only made him more skeptical. “I’m not a major hedge-fund proponent,” he says. “And the perception among some of our trustees is that hedge funds are very volatile and that there is risk there.”

Write to Craig Karmin at craig.karmin@wsj.com

Ontario Teachers’ Fund Bids for Chile’s Esval SA Water Utility
By Greg Quinn

Aug. 11 (Bloomberg) — Ontario Teachers’ Pension Plan is offering to buy Esval SA, Chile’s third-largest water utility, after agreeing to pay insurer Consorcio Financiero SA C$384 million ($365 million) for a 49 percent stake it owns.

Teachers’ will bid for the rest of Esval’s stock, as required by Chilean law, and conditioned the offer on getting at least 50.1 percent. Chile’s Corfo agency owns about 29 percent of Esval’s shares and most of the rest is owned by the public, Toronto-based Teachers’ said late yesterday in a statement.

Esval is Teachers’ second investment in Chilean water this year, after the fund agreed in May to buy Aguas Nuevo Sur Maule SA and half of Essbio SA from Southern Cross Investment Fund, a sale that should be completed this month. The C$106 billion fund has been increasing investments in private equity, real estate and infrastructure because it’s unable to meet the long-term needs of retirees with stock and bond returns.

Teachers’ said yesterday that it is standing by a C$51.7 billion, or C$42.75 a share, offer for BCE Inc., Canada’s biggest telephone company. Teachers’, Canada’s third-biggest pension fund, is part of a group that agreed in June to buy BCE.

Esval controls 16 percent of Chile’s regulated water market, the third-largest share, and also handles wastewater, Teachers’ said in the statement yesterday.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net .

Last Updated: August 11, 2007 11:44 EDT

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