Hedge Fund Tells Kentucky Pension to Take a Hike

Hedge fund Davidson Kempner Capital Management has told the $17 billion Kentucky Retirement Systems (KRS) it doesn’t want its money and asked it to withdraw its $68.7 million in protest over the state’s new code of ethics.

KRS Executive Director David Eager said he was notified by the New York-based hedge fund that it didn’t want to abide by the CFA Institute’s codes of ethics and professional conduct that was part of a pension transparency bill passed by the state last year.

According to the bill, all individuals associated with the investment and management of retirement system assets, whether contracted investment advisors, board members, or staff employees, must adhere to multiple codes of ethics created by the CFA Institute, a nonprofit association of investment professionals. This includes “The Code of Ethics and Standards of Professional Conduct,” the “Asset Manager Code of Professional Conduct,” and the “Code of Conduct for Members of a Pension Scheme Governing Body.”

“We wanted to place more money with them,” Eager said, according to Reuters. “They expressed concern about the requirements of Senate Bill 2 with regards to the CFA codes.”

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Davidson Kempner is not affiliated with the CFA Institute.

Eager also said the hedge fund was upset over a lawsuit filed in December by current and former state employees against hedge funds KKR/Prisma, Blackstone and PAAMCO for recommending high-risk investments that led to losses for the retirement system. He said that although Davidson Kempner was not a party to the suit, it was worried about facing similar suits because the plaintiffs went after hedge funds.

“There could be a problem here, but we just don’t know yet how significant it’s going to be,” Eager said. “An increased desire for transparency and accountability is being written into a lot of legislation around the country, and that is going to create difficulty in some of our efforts to establish business relationships with the people we want to.”

According to a KRS financial report from February, the system’s investment in Davidson Kempner returned 7.35% over one year, 3.6% over three years, and 6.1% over the past five years.

Eager also said that KRS is in the act of lowering its allocation in hedge funds to 3% of its assets from 10%, in part because of the high fees that accompany the investments.

State Sen. Joe Bowen (R-Owensboro), who sponsored the pension transparency bill, was unmoved by Davidson Kempner’s rejection of KRS’s investment.

“If they want to fire us because they can’t comply with the transparency and accountability standards that we’ve put in place, then that’s OK with me,” he said, according to a report from the Lexington Herald Leader. “If these hedge funds are pushing back, that’s too bad.”

Tags: Davidson Kemper, Hedge Funds, Kentucky Retirement Systems, Pension

The $49 billion Colorado’s Public Employees Retirement Association (PERA) reported an 18.1% investment return for 2017, which outpaced its benchmark of 16.0%, and helped improve its funded status to 61% from 58%, while adding more than $5 billion in value to the fund.

“Necessary changes were made to the plan to better weather the inevitable ebbs and flows of the market,” Ron Baker, PERA’s interim executive director, said in a release.

In addition to the strong returns, the fund also attributed the improved funding status to changes included in new pension legislation that was signed into law by Gov. John Hickenlooper earlier this month. The legislation includes higher employee and employer contribution rates, a lower annual increase for retirees, higher retirement ages, and other benefit reductions for current and future members.

PERA also said that the timeframe for reaching full funding for each division trust returned to 30 years or sooner based upon actuarial projections, while unfunded liabilities were reduced by $3.4 billion to $28.8 billion at the end of 2017 from $32.2 billion in 2016.

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“With the modifications contained in SB [Senate Bill] 200, PERA will continue to provide 587,000 members and retirees with a secure benefit,” Timothy O’Brien, chairman of PERA’s board of trustees, said in a release.

Colorado PERA’s annualized return, net of fees, for the last three, five, and 10 years is 8.8%, 9.5%, and 6.0% respectively. The 35-year annualized, gross-of-fees, rate of return for the pooled investment assets was 9.5%, and the fund’s assumed rate of return is 7.25%.

As of the end of 2017, the fund’s asset allocation was 57.7% in global equity, 21.9% in fixed income, 8.0% in private equity, 3.4% in the Opportunity Fund, and 0.4% in cash and short-term investments.

The fund also announced that Guillermo Barriga and Robert Lamb were re-elected to the 16-member board of trustees, while Ramon Alvarado was elected to serve as a representative of a higher education institution. Alvarado will fill the seat currently held by Carolyn Jonas-Morrison, who did not seek re-election.

Tags: Colorado PERA, Fiscal 2017, Pension, Returns