IPOPIF Searching for Emerging Markets Debt Manager

The Illinois Police Officers’ Pension Investment Fund announced during its March 8 board meeting that it issued a request for proposal for an emerging markets debt manager to manage a $150 million allocation.

The mandate would amount to 1.5% of the fund’s assets and would be the only manager in the fund’s EM debt strategy.

The fund currently has a 6% allocation to EM debt through a passive debt strategy. However, it has a long-term target allocation of 3%, funds for which would come from the existing EM debt asset allocation. The fund plans for 1.5% of the total allocation to EM debt to be passive investments, while the other 1.5% would be actively managed by the successful candidate.

“IPOPIF has a 3% long-term allocation to EMD but a 6% interim allocation. The interim overweight serves as a placeholder for future investments in private markets,” says Kent Custer, the IPOPIF CIO. “The interim structure will be 4.5% passive and 1.5% active. The long-term structure will be 1.5% passive and 1.5% active.”

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In September 2023, IPOPIF announced an RFP for managers for active bank loan strategies. In February, the fund announced it would allocate $150 million each to Aristotle Capital Management and Ares Capital Management to manage these investments.

IPOPIF managed $10 billion in assets as of January 31, 2024. The fund manages the assets of 357 downstate Illinois police pension funds.

Manager Requirements

Prospects for the EM debt mandate will be evaluated by their experience, investment strategies, backgrounds of the firm’s staff, investment philosophy, investment performance, reasonableness of fees and approaches to managing cybersecurity risks.

Prospective managers are asked to upload documents to an IPOPIF database by March 22. The first stage of screening will begin on April 5, and “high caliber” candidates would be asked for more information, which would be due on April 19.

A second screening stage will occur on May 5. Semifinalist interviews will occur between June 17 and June 28, with board review, finalist interviews and manager selection occurring by September 13.

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Tags: debt strategy, emerging markets debt, Illinois Police Officers’ Pension Investment Fund, IPOPIF, Manager selection, RFP

Four former AT&T Inc. pension plan participants have sued the company, which in May 2023 completed an $8.05 billion pension risk transfer, for its selection of and transfer of liabilities for of 96,000 participants and beneficiaries to Athene Annuity and Life Co.

The former participants, represented by law firm Libby Hoopes Brooks & Mulvey PC, claim AT&T’s decision to conduct the PRT with Athene placed its retirees in danger and that AT&T and its independent fiduciary, State Street Global Advisors Trust Co., stood to gain from the transfer. The complaint, Piercy et al. v. AT&T Inc. et al., was filed March 11 in U.S. District Court for the District of Massachusetts.

The deal secured AT&T approximately $363 million in profit, according to court documents. Because of the transaction, AT&T and the retirement plan are no longer required to pay annual flat-rate PBGC premiums for the 96,000 participants terminated from the plan, which will save AT&T more than $9.6 million annually, the complaint also states.

“Although AT&T is worth more than $100 billion, and is the world’s fourth-largest telecommunications company, the company decided to fatten its wallet by placing its retirees’ futures in the hands of a risky new insurance company that is dependent on its Bermuda-based subsidiary and which has an asset base far riskier than AT&T’s,” the complaint states.

AT&T, in a Form 8-K filing with the Securities and Exchange Commission at the time of the 2023 transaction, stated that the “purchase of the group annuity contracts was funded directly by assets of the plan via the pension trust underlying the plan and required no cash or asset contributions by AT&T.”

Citing a 2022 analysis from NISA Investment Advisors, the former participants allege Athene is in a new class of private equity-backed insurers engaged in the “shadow banking” sector. The NISA report argued that Athene is not a safe annuity choice for ERISA fiduciaries and is riskier than other traditional annuity providers, claiming its reliance on a Bermuda-based subsidiary.

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According to the complaint, one-fifth of Athene’s portfolio is invested in “risky asset-backed securities and leveraged loans made to companies highly in debt.” The filing also states that approximately 80% of Athene’s PRT liabilities are reinsured through Bermuda affiliates owned by Athene’s parent, Apollo.

Athene objected to the NISA analysis, arguing that any plan sponsor contemplating a PRT with the insurer would be advised by an independent fiduciary that would review the insurer’s financial condition. Athene also argued that NISA is biased because it is an asset manager and its business suffers when companies pull their pension assets to PRTs.

The plaintiffs further claim that AT&T and State Street selected Athene because it was the cheaper option and that the company could have opted for safer, traditional annuity providers that have a “proven record of financial strength necessary to shoulder such large and important obligations over a period of many decades.”

As a result, the complaint alleges that AT&T and State Street breached their fiduciary duties under the Employee Retirement Income Security Act by mismanaging their participants’ retirement benefits by putting them in the hands of Athene.

IB 95-1, issued by the Department of Labor in 1995, outlines the fiduciary standards that a plan sponsor must use when selecting an annuity provider for a pension risk transfer. The rule requires pension fund sponsor to consider the provider’s investment portfolio, size relative to the annuity contract, level of capital and surplus, liability exposure and availability of state government guaranty associations.

The SECURE 2.0 Act of 2022 required the Department of Labor to review IB 95-1 and recommend possible modifications to Congress by the end of 2023, but modifications have yet to be released.

The former participants are seeking that AT&T guarantee the retirement benefits that were part of workers’ employment bargain with AT&T and which those workers earned through their service to AT&T. They also seek monetary relief from AT&T and State Street, including the profit the plaintiffs say the companies earned from the PRT.

A spokesperson at AT&T stated, “We deny the allegations, and we will defend ourselves in court.”

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Pension Risk Transfers: What to Watch Out For

Tags: AT&T, Athene Annuity & Life Company, ERISA, Litigation, NISA Investment Advisors, Pension Risk Transfer