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Asset Allocation

Public Pensions’ Cash and Short-Term Investments Jumped 16.7% in 4Q

Largest quarter-to-quarter increase since 2005, Census Bureau says.

By Poonkulali Thangavelu

Assets of the 100 largest US public pension fund systems rose 0.4% in the fourth quarter of 2016, to $3.39 billion, the Census Bureau reported. Compared to 4Q 2015, assets, including the plans’ cash and investments, were up 4.2%.

Public pensions’ holdings of cash and short-term investments jumped 16.7% to $136.6 billion in the fourth quarter. “This is the largest quarter-to-quarter increase since 2005,” the Census Bureau reports. Compared to the previous year, public pensions’ holdings of these assets were up an even more impressive 25.6%, from $108.8 billion. In the fourth quarter, cash and short-term investments made up 4% of the total assets of the largest US public pension systems, their highest level of holdings in this asset category since 2011.

By contrast, public pensions’ corporate bond holdings were down 2.7% in market value to $419.5 billion for the fourth quarter. However, compared to a year ago, they gained 2.6%. For the fourth quarter, corporate bonds accounted for about 12% of the cash and investment holdings of public pension fund systems. 

A similar pattern held for international securities. The 4Q market value of public pensions’ international securities portfolios fell, dropping 1.1% from the third quarter to $644.6 billion. Compared to the fourth quarter of 2015, however, their international securities holdings were up 5.7%. International securities accounted for 19% of public pensions’ overall cash and investment holdings for the fourth quarter.

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The market value of the funds’ corporate stock holdings rose 1.1% in the fourth quarter, to about $1.24 billion, for a 4.7% increase from the fourth quarter of 2015. These securities made up about 36% of public pensions’ cash and investments holdings in the fourth quarter. The market value of federal government securities in public pensions’ portfolios was also up 0.5% in the fourth quarter, to $266.4 billion, amounting to about 7.8% of total assets. Compared to a year ago, their value was also up 4.3%.

Employee contributions are playing a bigger role in keeping public pension plans afloat. Contributions by employees rose a substantial 22.5% in the fourth quarter, to $12 billion. Compared to the fourth quarter of 2015, employees increased their contributions 4.2%. Benefits payouts, however, continue to rise. While they were down 2.1% to $64.5 billion in the fourth quarter, they were up 6.1% compared to the fourth quarter of 2015.

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Home > News > Alternatives > New Security Lets Institutions Take a View on Commercial Real Estate
Alternatives

New Security Lets Institutions Take a View on Commercial Real Estate

Investors can take either long or short bets on asset class.

By Poonkulali Thangavelu

Global Index Group has introduced a synthetic real estate index-based security called duETS that allows institutional investors to take a view on the commercial real estate sector. Investors can take either a long or short view, making it easier for them to hedge or adjust their real estate exposure up or down.

The value of Down/Up Equity Trust Securities, or duETS, is tied to movements in the NCREIF NPI Index for US commercial real estate. After two years, GIG, a Tacoma, Wash.-based developer of index-based synthetic financial products, will value the securities based on the performance of the NCREIF NPI, with a two-times multiplier effect tied to the movement of the index. Between the valuation dates, the securities will trade based on investor sentiment as to their likely level at the next valuation. 

Commercial real estate has a relatively low correlation with other asset classes, which makes it attractive to institutional investors, Kelly Haughton, chief executive officer of GIG, pointed out. “Until now, however, investment options have been limited to direct investment, open-end diversified core equity and other private funds, and public and private REITs,” he said. “Often, the ability to get in and out of these private investments is constrained by the illiquidity of the underlying properties, resulting in situations where investors are unable to deploy their capital fully. duETS will provide new tools for investors, including the ability to easily hedge their positions.”

Institutions could also benefit from exposure to commercial real estate nationally, rather than being constrained by region or property type.

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GIG has tied up with CBRE Capital Advisors to broker duETS. How big is the potential market? More than $1.7 trillion is available globally for investment in the commercial real estate sector this year, according to CBRE.

Said Philip Barker, senior managing director at CBRE, “duETS can provide an efficient allocation tool for institutional investors that want to adjust or rebalance their real estate portfolio without making a major commitment or changes to new or existing investments. In addition, we expect duETS to be the foundation for further product innovation in the real estate space.”

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