How Nashville and Davidson County Pension System Got 115% Funded

Fadi BouSamra

For the first time since 2000, the $4.4 billion Metro Government of Nashville and Davidson County’s pension system in Tennessee is fully funded, with the plan finishing the fiscal year at 115% funded on a market value basis.

The Nashville & Davidson County Metropolitan Government Employees Benefit Trust Fund was up 35.99% for the fiscal year ending June 31 while the benchmark was up 25.78%.

“The fund had good, high performance from all asset classes with private equity contributing the most, but even traditional fixed income exceeded the benchmark by over 700 basis points [bps], mainly due to the low duration call,” Chief Investment Officer Fadi BouSamra told CIO.

Domestic equity was up 41.13% versus the benchmark of 43.84%; international equity was up 37.24% versus the benchmark of 35.72%; fixed income was up 7.68% versus the benchmark dropping 0.33%; fixed income alternatives were up 24.48% versus the benchmark of 15.62%; real assets were up 18.14% versus the benchmark of 7.38%; and private equity was up 75.76% versus the benchmark of 62.02%.

For more stories like this, sign up for the CIO Alert newsletter. 

The plan targets 42% of its fund to alternative investments, consisting of 12% real assets, 12% private equity, and 18% alternative fixed income.

On Thursday, the fund also made a new $30 million investment in the Greenspring Secondaries V fund. It also re-upped its commitments with two existing managers by allocating an additional $25 million to the European lending separately managed account (SMA) managed by Arcmont, (the plan had previously committed $100 million to the SMA), and a 15% allocation to opportunistic credit in the MC Capital Hygeia SMA (the plan already has $100 million committed to the fund).

When asked about the advantages of the aforementioned existing managers, BouSamra told CIO, “Greenspring’s Secondaries fund is benefiting from the network effect of its platform. MC Capital and Arcmont are in the lending allocation within our fixed income alternatives. This allocation will play an increased role in the future now that we are well funded.”

He added, “We continue to grow our stable of high confidence funds and expect to add two more focused on venture by the end of the year.” He said the investment team used NEPC to help with due diligence in the coronavirus virtual environment, and the team has identified venture capital firms of interest for the additional allocations.

Why Venture Capital Is Doing So Well

Illinois State Treasurer Pushes for Venture Capital Boost

Tags: CIO, Fadi BouSamra, Funded Status, Metropolitan Government of Nashville and Davidson County, Nashville & Davidson County Metropolitan Government Employees Benefit Trust Fund, Pension, Returns

Ed Yardeni is peeved at the Federal Reserve, charging that the central bank is delaying a vital roll-out of what’s called a digital dollar. A cyber-buck is often touted as accessible to all income groups, and free of onerous fees and postponements that beset legacy credit cards and other established payment systems. In all likelihood, the Fed would run this new denomination.

“The US Federal Reserve is studying the idea of a digital dollar to death,” the economist groused in a posting on the Yardeni Research website. Yardeni, the firm’s president, kvetched that the Fed is spending time collecting comments and data on the idea, intending to publish a “discussion paper” in early September. “In other words, a digital dollar is many years away from landing in your digital wallet,” he wrote.

Yardeni held up Fed Governor Lael Brainard as an example of someone who appreciates the need to move faster on digital dollars, a concept known as central bank digital currency, or CBDC.

“The dollar is very dominant in international payments, and if you have the other major jurisdictions in the world with a digital currency, a CBDC offering, and the US doesn’t have one, I just, I can’t wrap my head around that,” Brainard told the Aspen Institute Economic Strategy Group, as quoted in a July 30 Reuters article. “That just doesn’t sound like a sustainable future to me.”

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

Indeed, some 60 nations now are either researching or enacting digital currencies, according to the CBDC Tracker, part of Boston Consulting Group.

Critics such as Yardeni and Brainard (rumored as a possible replacement for Fed Chair Jerome Powell) lament that the lack of a digital dollar is increasingly at odds with the nation’s evolving consumer finance system. Only 28% of US transactions were done with cash in 2020, down from 50% a decade before, a McKinsey study found. And since the pandemic hit, experts say it’s likely the cash economy has shrunk even more. Right now, cashless exchanges are the province of private companies, such as Visa, which detractors say are fee-heavy and delay-prone. While apps on the order of Zelle and Venmo easily transfer money digitally, they still must be routed through the traditional banking system.

The CBDC’s appeal: Consumers could spend a Fed-sponsored digital dollar like cash, and, if all went well, do so without the fees and delays that privately run digital payment operations encounter. This new setup, in theory, would be a boon to the “unbanked,” that group of Americans who lack savings and checking accounts—5.4% of households as of 2019, per a Federal Deposit Insurance Corporation (FDIC) study.

A US failure to adopt a Fed-backed digital dollar would cede the field to cryptocurrencies called stablecoins, Brainard warned. Designed to avoid the volatility of other crypto, such as Bitcoin, a number of these currencies are pegged to a US dollar.

Trouble is, stablecoins aren’t actually supported by central banks or governments. That “eliminates a level of safety enjoyed by the dollar,” Yardeni said. “Regulators will lose control over regulating transactions.” He pointed out that US, UK, and Japanese regulators “all have called for greater regulation of stablecoins and other areas of decentralized finance.” Tether, the largest stablecoin issuer, disclosed that as of March, almost half its reserves were in commercial paper, an asset class that got decimated in the 2008 financial crisis.