Icahn, Aon, 27 Others Appear on Pension Enemy List

(March 13, 2014) – The second edition of the American Federation of Teachers’ (AFT) asset manager “watch list” has five fewer firms named than the 2013 publication, which details firms that the union says have ties to anti-pension groups.

That’s because the first list worked, according to the AFT.

“Since the American Federation of Teachers released the first ‘Ranking Asset Managers’ report in April 2013, several Wall Street firms have cut ties with groups leading the attack on workers’ defined benefit pension plans,” the union wrote in its latest report.

AQR, Dimensional Fund Advisors, and KKR were among the asset managers targeted in 2013 that have since moved out of the union’s bad books.

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However, asset management and consulting giant Aon was a new member, and one of the largest firms listed. AFT attributed the inclusion to the Aon Foundation’s support of the Commercial Club of Chicago, an advocate for charter schools and pension reform.

Aon’s corporate charity made three donations to the organization totaling $110,500 in 2012, according to filings with the Internal Revenue Service. The philanthropy distributed more than $9 million that year, much of which supported post-secondary institutions.

Highbridge Capital Management, another high profile new entrant, landed on the list for its CEO’s support of education reform group StudentsFirst. Glenn Dubin, co-founder of the $25 billion hedge fund now owned by JP Morgan Asset Management, made a $150,000 donation last February.

StudentsFirst's policy agenda said that the group lobbies for US states to "honor their existing obligations to defined benefit pension plans" but also "move from defined benefits to retirement plans that are more sustainable and can be immediately accessed by all teachers.”

The organization’s New York branch was partly founded by a two-time member of the union’s watch list: Third Point’s Dan Loeb.

After being named in the inaugural report last year, Loeb canceled an appearance at the Council of Institutional Investors’ conference and pushed back in a letter to its chair. He cited "incorrect statements about my position on the issue of defined benefit pension plans" which had "derailed" the "critical conversation we planned to have about improving corporate governance."

"Contrary to reports," he continued, "I have never taken a position against defined benefit plans nor has any philanthropic organization I lead. In fact, my support for and contribution to defined benefit plans is demonstrated by maximizing returns for union members who rely on us to deliver their pension goals."

The AFT’s attempts to smear entire organizations for a single executive’s personal leanings have left many industry types uncomfortable.

The chair of one public pension system characterized the AFT’s actions as “tyrannical” during a conversation with aiCIO. The trustee also noted the irony of hedge fund managers being punished for supporting reforms that would, if successful, shut off a major source of investor capital.

(March 13, 2014) — The Crimean crisis has caused equity market risk and volatility to soar in Ukraine and Russia, but the spillover into neighboring countries has been minimal, according to research by Axioma.

The report noted that the Russian equity market had fallen 20% year-to-date as of March 7. The ruble also fell almost 10% relative to the US dollar in the same time period. While the Ukrainian stock market was slightly up, the hryvnia had dropped about 15% against the dollar.

“Investors view this as a contained issue, specifically concentrated to Ukrainian and Russian markets,” Melissa Brown, senior director of applied research at Axioma, told aiCIO. “It’s somewhat better news for the other markets.”

Yet these short-term fluctuations in stock markets and currency values have managed to rock certain indexes.

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The FTSE emerging market index fell about 3% while the VIX “crept up to the upper teens, which is still well below its long-term average,” according to Russ Koesterich, BlackRock’s global chief investment strategist. Russia comprises about 7% of the FTSE emerging market index while Ukraine is “not in it at all,” according to Axioma.

Ukraine’s extra-market volatility had risen the most among Eastern European countries since the beginning of the year, nearly tripling its January figures, and currency risk also saw a hike of almost 200%.

Russia’s volatility doubled since the start of 2014 and the risk for the ruble rose 22% in the same time period, the report found.

“When we combine the risk and return perspectives, we see little change in risk/return tradeoff,” Brown said. Aside from Russia and Ukraine, most nations’ risk/return tradeoff remained largely stable since January.

“To date, the fallout from the Ukrainian crisis has been largely confined to the emerging market debt, emerging market equity, and commodity markets,” said Mark Burgess, CIO of Threadneedle Investments. “At current levels, emerging market local currency debt appears to offer value, although we expect both the hard and local currency markets to remain volatile in the short term.”

Axioma concluded that the risk for broad emerging market indexes increased minimally overall.

“We can expect to see continued volatility if the tensions between Ukraine and Russia are sustained,” Brown said. “But it’s hard to say how the Ukrainian markets would be impacted long-term. It’s a really small market and so the likelihood of it impacting other markets is small.”

Glyn Owen, investment director of Momentum Global Investment Management agreed that the crisis posed only a minor threat to global markets.

“Our view is that markets will be more nervous short term but this is unlikely to derail the continuing bull market in equities, which remain well supported by high levels of liquidity and by the prospect of continuing recovery in the global economy and strength in the corporate sector,” he said. “The issue is, however, a timely reminder of the risks of investing in emerging markets.”