Lagged Manager Activity Impacts New Hampshire’s Private Pacing Plan

Delayed investment activity from fund managers is causing a significant impact on the New Hampshire Retirement System’s (NHRS) private equity pacing plan for 2019, according to a report recently issued by the plan, according to a report from NEPC, the NHRS’ investment consultant. investor.

The timing of the fund manager’s inaugural capital call for an investment vehicle constitute the vintage year of the fund, meaning commitments executed in 2018 but have had no drawdowns yet will take be calculated into the pension’s 2019 pacing.

The consultant recommended that the pension complete between $300 million to $400 million of new commitments per vintage year for the next several years. “Roughly $365 million of commitments already made will be considered 2019 vintage, leaving room for $50 [million to] $75 million in new, as yet unnamed allocations,” the advisor noted in a report.

The NHRS completed $275 million in commitments between private equity and debt funds, with $150 million committed to the energy sector, $50 million to the buyouts/co-investment strategies, and $75 million to growth-oriented vehicles.

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The expected impact of the mitigated 2019 pacing plan on the NHRS’ return profile has yet to be determined, a spokesperson for the pension told CIO. The spokesperson did not identify the funds which are expected to begin their drawdowns in 2019, but reports from the investor indicate that the pension made commitments to Industry Ventures Partnership Holdings V LP ($50 million), Thoma Bravo Fund XIII ($50 million), Warburg Pincus Global Growth ($50 million), Bluebay DLF III ($50 million), Clareant European Direct Lending Fund III ($50 million), and Monroe Capital Private Credit Fund III ($50 million).

The pension’s activity throughout the past decade can be seen below:

The NEPC expressed several concerns about some of the NHRS’s private markets investments. The consultant said that Avenue Special Situations VI, a fund focusing on distressed situations, never developed per the investment thesis and is winding down. Gramercy DOF II and DOF III have failed to meet expectations, and challenges in the emerging market continue to burden the vehicles’ returns. Former concerns regarding SL Capital, Ironwood, RFE. and industry ventures have seen performance improvements, are near expectations, and no longer a concern.

Tags: NEPC, New Hampshire Retirement System, Pension, Private Equity

A lawsuit filed against managed account provider Stadion Money Management and insurer United of Omaha alleges the two violated their ERISA fiduciary duties by conspiring to direct participant savings to expensive, affiliated funds for their own benefit.

According to the complaint, “Stadion breached its fiduciary duties by making investment decisions to further its own interests and the interests of United of Omaha,” and as a result they “cost participants millions of dollars in losses due to excess fees and investment underperformance.”

It claims that Stadion directed participants’ accounts into United of Omaha- and Stadion-affiliated investment options, “despite the availability of lower-cost, higher-performing investment options within the plan that would have better met the needs of participants.”

The suit also said there were identical options available in the plan menu that would have charged 50% less in fees. The plaintiffs allege that Stadion avoided these options because they did not generate as much revenue for business partner United of Omaha.

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“Stadion financially benefited itself and United of Omaha by continuing to use Stadion-affiliated accounts despite their underperformance on both an absolute and risk-adjusted basis,” the suit said.

The plaintiff, Kimberly Davis, worked for amusement park company Palace Entertainment and participated in its 401(k) retirement plan, which offered investments through a United of Omaha group variable annuity contract, and included Stadion’s managed account service.

The lawsuit claims Stadion has built its fortune on fees. It said the company accumulated approximately $445 million in assets under management during its first 10 years, but then grew to over $5 billion over the next 10 years. The suit alleges that this growth was “based not on the strength of its investment management acumen, but on its relationships with insurance companies who market group annuity products to small and midsize retirement plans.”

The complaint acknowledges that it is not unusual for a managed account provider to depend on another provider to pitch their service to employers, or to split the managed account fees such as Stadion does with United of Omaha.

“There is potential for abuse, however, if a managed account provider can confer additional benefits on its marketing partner or itself by selecting certain investment options over others for participants,” said the lawsuit. “Unfortunately, that is what happened here.”

Stadion Money Management denied the allegations, saying it did not violate fiduciary obligations to its plan participants.

“We find many of the allegations are implausible and, frankly, don’t make sense,” said the company in a release. “Lawyer-driven lawsuits like this, unfortunately, have become commonplace and companies like Stadion are frequently targeted by the plaintiffs’ bar. We intend to vigorously defend the case because the claims are meritless and are confident the matter will be resolved in Stadion’s favor.”

In a similar case, asset manager American Century Investments recently won a class action lawsuit that had accused the firm of violating its ERISA duties by profiting from its 401(k) plan at the expense of its employees by only offering its own mutual funds in the plan. In the court’s ruling, the judge said that it is common for financial service companies to offer their own investment funds in their retirement plans, and that there is no requirement to offer more than one investment company’s funds.