As Europe Regulates, Study Shows Pensions Could Be Losers

A study by Charles River Associates states that European pensions could see limited investment options and weaker returns due to the draft directive on alternative asset management.

(October 22, 2009) – According to a recent report by Charles River Associates, European Union (EU) pension funds could be prohibited from investing in upwards of 40% of hedge funds and 35% of private equity funds if proposed regulations are approved.


The draft regulations under review would require greater capital bases and disclosure from all alternative managers who hoped to have European public pensions as limited partners. Critics worry that such regulations potentially could cut European pensions off from foreign hedge and private equity funds that were not in compliance with the directive. Under the draft directive, funds outside the EU could be promoted only within the EU if they complied with similar regulations, and if their country of incorporation had agreements with EU member states regarding the exchange of tax information.

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According to the report (prepared for the City of London regulator, the Financial Services Authority), the EU draft directive could cost pensions upward of US$2.1 billion each year. The total cost figure of US$2.1 billion comes from Charles River’s calculations that each fund could expect a 0.05% decline in returns per year based on this imposed “home-region bias.” The draft directive also will impose large one-off costs on alternative managers, the report says.


The directive, first issued in May, is being worked on by EU regulators, with the latest draft expected to be released by the end of the year. The British Government—which collects billions in tax revenues from the hedge fund and private equity industry—has been a vocal opponent of the EU proposal.



To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>

Eyeing His Next Target, Cuomo Goes after Sole Trustees

 

Moving his gaze from placement agents to the men and women who can exert uninhibited control over state pension systems, New York Attorney General Andrew Cuomo moves to curtail the power of sole trustees.

 

(October 15, 2009) – With placement agents firmly in their place, New York Attorney General Andrew Cuomo has turned his gaze toward the sole trustee structure of the Empire State’s Common Retirement Fund.

 


Cuomo has proposed replacing the head of the fund—an elected politician who is sole trustee of the pension—with a board of trustees, headed by an elected official. Currently, the $116 billion fund—recently racked by scandal when two of former Comptroller Alan Hevesi’s close associates were accused of taking kickbacks from investment management firms—is one of only four states with sole trustees at the helm. The other three are North Carolina, Connecticut, and Michigan.

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The move, Cuomo believes, would make it much harder for firms to unduly influence the investment manager selection process. While some say that the sole trustee creates a more accountable system, the trustee system has come under fire as of late—including in the pages of ai5000, which has attacked the SEC regulation of placement agents as misguided —for lacking appropriate checks and balances that can help avoid bribery and favoritism.

 


According to Reuters, Cuomo is suggesting that a 13-member board—made up of political appointees and representatives of different pension constituencies—replace the current structure. Reports indicate that the measure has bipartisan support from the State legislature.

 


“For decades, the state pension fund has been weakened and corrupted by the sole trustee model,” Cuomo is quoted as saying. “The model has allowed pay-to-play to flourish in a system meant to protect the retirement accounts of thousands of hardworking public employees. To put it simply: The model doesn’t.”

 


According to reports from Reuters, current State Comptroller Thomas DiNapoli, a Democrat like Cuomo, believes that Cuomo’s initiative is a step in the right direction and in line with reforms DiNapoli himself is undertaking.



To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>

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