Miami Pension to Divest from Real Estate Fund

Miami’s pension trust is eliminating its investments in real estate funds, according to a draft of recent investment policy changes.

The City of Miami General Employees’ & Sanitation Employees’ Retirement Trust (GESE) has removed a target real estate asset allocation of 5%, and has shifted that into large cap and fixed-income investments. For the quarter ending Sept. 30, 2017, the GESE had a 4% asset allocation in real estate worth $26.8 million.

In a draft of its investment at a trustees’ board meeting last week, a section had been crossed out that previously read: “A portion of the real estate investment may be through an open-end commingled property real estate fund … a portion may also be invested through REITs. The REIT manager may invest up to 7% (at market) in a single issue.”

REITs significantly underperformed the broader market in 2017, as the FTSE NARIET All Equity REITs index gained 8.7% last year, compared to the S&P 500, which closed out the year up 21.8%. And so far this year, the All Equity REITs index is down 4.82%, while the S&P 500 is up 5.58%.

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In addition to the elimination of real estate investments, the fund’s consultant suggested the fund make changes to its manager evaluation and review criteria in order to hold its investment managers more accountable for fund performance.

In its evaluation, CSSC Investment Advisory Services said that one of the principal causes of “sub-par” investment performance is the retention of poor performing managers for too long. It also said that a provision in the GESE’s investment policy statement (IPS) that defines what is considered “good standing” for its active managers “has likely had the greatest adverse impact on overall plan performance.”

According to the policy statement, a manager will be considered in “good standing” if his or her returns during the most recent three-year period is equal to or better than 90% of the median (50th percentile) manager’s return in the appropriate peer universe.

“There is no explanation in the IPS for why a manager performing 10% below the performance of the median manager’s three-year return is acceptable, much less desirable,” said CSSC in its review. “Yet, performance at that level is accepted and poor performing managers that meet it appear to be safe from replacement.”

The firm proposes defining “good standing” as having a composite score ranks in the top 33rd percentile of the appropriate peer universe for the most recent reporting period. It said the 33rd percentile was selected as a “conservative, initial transition step” toward a higher standard.

“The concern is that too many of the Trust’s current active managers would be subject to replacement, if a higher standard is initially applied,” said CSSC. “And, yet, most managers within that 33% would be considered ‘average’ and not truly superior.”

Tags: City of Miami General Employees' & Sanitation Employees' Retirement Trust, Divestment, Miami, Pension, Real Estate

The UK’s Financial Conduct Authority (FCA) is warning the public to be vigilant against threats of online investment fraud regarding cryptocurrencies, such as Bitcoin, as well as binary options, contracts for difference (CFD), and forex.

The FCA said the fraudsters often promote themselves online and via social media channels, such as Facebook, Instagram, and Twitter, and typically give promises of high returns that are accompanied by images of luxury items, such as expensive watches and cars.

“After someone has invested, they distort prices on their website, tie people in with extreme pay-out clauses and even close customer accounts, refusing to pay back their money,” said the FCA. It also said that investors lost £87,410 ($124,027) per day to binary options scams last year.

The FCA said the use of social media to scam people out of their investments has changed the profile of the victims. While people over 55 years old have historically been more at risk to investment fraud, their research shows that people under 25 are six times (13%) more likely to trust an investment offer they received via social media, compared with over 55s (2%). It also found that those under 50 years old are significantly more likely to fall victim to a binary options scam versus other types of investment fraud (34% vs. 21%).

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“As people have become more skeptical of investment-related cold calls and consumer habits have changed, we have seen investment fraud moving online and to social media,” said Mark Steward, FCA’s director of enforcement, in a release. “While their websites and profiles appear to be professional, they are all too often run by fraudsters who fix prices and pay-outs, or in some instances don’t really place trades at all, before disappearing with innocent investors’ money.”

Binary options investments allow consumers to place trades based on whether they believe the value of a stock, commodity, currency, or index will be above a certain price at a certain time. Earlier this month, binary options became a regulated investment product in the UK, which means that all firms trading in binary options will need to be authorized by the FCA. The FCA has published a list of 94 firms without FCA authorization that it says are offering binary options trading to UK consumers.

The regulator also warned that these scams are creating more sophisticated ways to prey on their victims’ trust. It said the scammers are known to create highly professional looking online investment platforms that feature fake customer reviews, logos, and statements. FCA said a study it recently conducted showed that 23% of respondents said that online customer testimonies and reviews increase their trust in an investment company.

The FCA is encouraging investors to check its dedicated website, which features an online tool that allows users to find out more about the risks associated with an investment, and to view a list of firms the FCA knows are operating without its authorization.

“Before investing online, check you know who you are really dealing with and check if they are authorized by the FCA,” said Steward. “And if in any doubt—don’t invest.”

Tags: Bitcoin, Cryptocurrency, Financial Conduct Authority, Social Media, UK