Criticized for Oil Ties, Heinz Foundation Head Leaves for Fracking Company

The organization has lost four top executives in the past year while pursuing controversial “clean fracking” initiative.

(January 15, 2013) –The Heinz Endowments’ president, who has come under fire for close ties to the resource industry, will step down later this month to join natural gas producer Rice Energy.

Robert Vagt is the fourth senior executive to leave the Pittsburgh-based foundation in the past year, Heinz spokeswoman Carmen Lee confirmed to aiCIO. She declined to comment on its reasons for doing so.

Three of the four positions at the $1.4 billion fund remain open, Lee said. A search for Vagt’s replacement is underway.

Neither Vagt nor Rice Energy’s CEO Daniel Rice responded to requests for comment.

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During his six years as president, Vagt pushed for engagement between environmentalists and resource companies, many of which extract natural gas in Pennsylvania via hydraulic fracturing (known as fracking).  Last year, he and the funds’ then-Environmental Officer Caren Glotfelty established the Center for Sustainable Shale Development (CSSD) in Pittsburgh. 

The two Heinz family endowments partnered with the organization, which “is committed to transparency in our efforts to develop the Appalachian Basin’s abundant shale resources in a safe and environmentally responsible manner,” according to its website.

The center’s other partners include Chevron, Shell, and several business-friendly environmental groups.

The Heinz Foundations’ backing of “clean fracking” operations has drawn criticism from environmental groups who oppose the extraction strategy. Vagt’s own connections with the oil and gas industry have made him the target of conflict of interest allegations.

According to the Public Accountability Initiative, Vagt also serves as a director of gas pipeline company Kinder Morgan and owns more than $1.2 million in company stock. Under his leadership, the Heinz Endowments contributed $250,000 to CSSD—which he co-founded—to promote sustainable development of Pennsylvania’s natural gas resources. 

Vagt’s last day at the foundation is January 24, according its spokesperson. As incoming chairman of local gas driller Rice Energy, he will preside over its roughly initial public offering, valued at between $760 million and $840 million. 

Related Content: Institutional Investors of the World Unite on ‘Fracking’; MLPs: Too Good to Go On?

Funding Gains, PBGC Hikes Push Corporate Pensions to De-Risk

Russell Investments has projected corporate plans will move more aggressively into LDI strategies as their funding status reaches a record high since 2008.

(January 14, 2014) — As corporate pension plans’ funded status reached 95.2% in December 2013, analysts and asset managers have projected big portfolio changes, according to Russell Investments, particularly to liability-driven investing (LDI) strategies, 

According to the firm’s funding level analysis, open plans improved 15% and frozen plans 8% last year. Corporate plans with heavy allocations to US equities and “those who made contributions in excess of the value of new benefit accruals” experienced a higher jump in their funded status, the report said.

Analysts maintained that while the extent of such improvement varied from plan to plan, most defined benefit plans found themselves on the upside, with asset allocation changes likely to come in 2014.

“Once a plan is fully funded, there’s all the more reason to avoid investment risk as far as possible, in order to keep it that way,” said Bob Collie, Russell’s chief research strategist for institutions in the Americas. 

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Many plans will make changes due to liability-responsive asset allocation, or automatic glide paths which systematically decrease risk as funded status improves.

“The rationale for such a policy is essentially that the cost-benefit trade-off changes when plans are fully funded: further upside is less rewarding for a fully funded plan than for an underfunded one,” Collie said.

Even for funds without an automatic reduction of risk in place, many will choose to de-risk, or even turn to LDI strategies, according to Russell.

“Indeed, there was probably a fair amount of pent-up demand for LDI already—but some activity was put on hold due to the unusually low level of interest rates: it has been difficult for some to make significant shifts into long duration fixed income when interest rates have been so low,” Collie said.

Rising interest rates and expected future increases are also expected push corporate plans towards de-risking strategies.

“Unless rates increase faster than the 50 basis points or so that is already priced into the forward curve, investors will still most likely be better off in long bonds,” Collie said. “So, at some point, the pent-up demand for LDI is going to translate into activity as pension plans reduce the very substantial bet they currently have on interest rates.”

The latest escalation in Pension Benefit Guaranty Corp (PBGC) premiums will also play a role in corporate plans’ future allocation changes, Russell said. As plan sponsors move to improve funding status to avoid higher variable rate premiums, they would naturally have to de-risk.

“The recent hike in PBGC variable rate premiums substantially changes the picture for many plans: With shortfalls soon to be penalized at a prohibitive 3% each year, the case for getting a plan to fully funded and implementing a stringent LDI program to keep it that way becomes all the stronger,” the report said.

Related content: Corporate Pensions’ Funded Status Continues to Soar

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