Railpen Eyes Additions to Private Equity Portfolio

(June 6, 2014) – UK pension manager Railpen (RPMI) is seeking to bring more of its allocation to private markets in-house, in a bid to lower its cost base.

Richard Moon, a specialist private equity and infrastructure investment manager at the group, told aiCIO RPMI was considering “a number of investment models outside the traditional fund model” for private equity.

These options included co-investment alongside other schemes or private equity specialists, or even direct purchases.

Railpen Head of Investment Management Paul Bishop has overseen a shift away from a long-held fund-buyer approach towards more direct investments in several areas of the company’s portfolio—particularly hedge funds, where RPMI has moved away from a fund-of-funds model.

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Sanjay Mistry, Director for Private Equity Fund of Funds and Private Debt at Mercer, said: “Some larger schemes have been looking to bring [private equity] in house for a while. We’ve been seeing a move to provide more tailored solutions, then [investors] start to take a view of how much they can do internally.”

Look out for an in-depth look at why—and how—pension funds are bringing private equity in-house in the new-look European edition of aiCIO magazine, out later this month. You can subscribe here.

(June 5, 2014) — Lawmakers are pushing for New York City Retirement Systems (NYCRS) to increase its investments in alternative assets and international fixed income, according to a bill under consideration in the state senate.

The legislation, sponsored by bi-partisan Senators John DeFrancisco and Diane Savino, proposes a bump in exposures to such investments to 35% from 25%, effective immediately.

“This action was in keeping with the evolution of capital markets and in line with the actions of other large government pension funds,” according to the bill’s memo. “This limit will allow for a superior risk-adjusted portfolio and for additional flexibility to reduce portfolio volatility while maintaining superior returns.”

New York City’s five pension funds have been consistently raising the limit since 1982. According to the note, the $150 billion system had incrementally increased the limit from 5% to 25% by 2006, putting the funds in a “better position to manage volatility.”

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The bill stated that under the current 25% limit the pension funds are unable to invest in a number of “attractive asset classes and strategies” such as certain high-yield bonds, international fixed income, and various commodities that could provide diversification. The problem has become even more pronounced given current low expected market returns, the bill said.

Lawmakers cited NYCRS’ illiquid, long-term private equity partnerships as an example of an inadequate investment in today’s market environment.

“The timing of these investments is subject to ever-changing market conditions and is difficult to forecast,” according to the memo. “NYCRS must account for both the actual value of private equity investments as well as future contractual commitments to provide capital when measuring compliance with the 25% basket clause allocation.”

The bill stated that the legislation would act as a proactive measure against future market changes and a move towards an optimal investment portfolio.

By expanding exposures to 35%, pension advisors and trustees could better “tactically manage the investments to take advantage of market trends, react to market shocks, and avoid potentially costly rebalances or unwinds at inopportune times.”

According to Richard Young, actuary for the New York State Teachers’ Retirement System, the legislation will not incur any other policy changes. “With respect to the NYCRS, the enactment of this proposed legislation would not, in and of itself, result in any change in employer contributions,” he said.

The bill, approved by the Civil Service and Pensions Committee, has moved to a third reading on the Senate floor as of June 2.