New York Invests $800 Million into Green Bonds, Private Credit

The New York State Common Retirement Fund said Thursday that it has spent $800 million in climate-related investment strategies, focusing on fixed income and private credit.

The third-largest state pension program in the US made three separate investments last month, including $250 million into Calvert Social Investment Fund for green bonds. Another $250 million went to Nuveen’s Core Impact Bond Strategy, which specializes in renewable energy, climate change, natural resource conservation, affordable housing, and economic development.

It also invested $300 million into an impact fund from Avenue Capital Group. The New York firm, known for betting on distressed debt, has a strategy directed at small- and mid-cap companies in renewable energy, recycling, and waste management. Avenue Capital’s impact fund targets private credit, senior secured lending, second lien debt, mezzanine debt, and private equity and warrants.

“New York state’s pension fund will continue our leadership on the issue of climate change and take advantage of the opportunities created by the global transition to a lower carbon, sustainable economy to strengthen the fund,” New York State Comptroller Thomas P. DiNapoli said in a statement.

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While sustainable investing has picked up speed in the world of public equities, it has been slower-going for fixed income and private credit. The New York strategies might serve as a model for some investors who want to find a workable green investment strategy.

“As we get more and more investors who are interested in the space, they’re starting to allocate more of their entire portfolio across asset classes.” said Jon Hale, head of sustainability research at Morningstar, the investment research organization.

Nuveen’s bond strategy fund, for example, invests in Fannie Mae and Freddie Mac mortgage securities that concentrate on affordable housing, rather than single-family homes from typical bond funds.

In the corporate world, Starbucks issued “sustainability bonds”—issued around environmental initiatives by companies—in 2017 to support environmentally conscious initiatives, such as investing in recyclable packaging. Governments typically issue green bonds to support local initiatives, such as improving water treatment plants.

The New York pension plan’s investments also come within a year of making a climate action pledge. In June, DiNapoli said the fund will double its sustainable investments commitment to $20 billion, from $10 billion, over the next decade. Since 2015, the fund has allocated about half, or $8.5 billion, to that overall commitment.

Tags: Avenue Capital Group, Calvert, Credit, Fixed-Income, loan, New York, New York State Common Retirement Fund (NYCRF), Nuveen, Pension, Retirement

Charlie Munger has a gloomy view of the future, ranging from Chinese investing to US accounting shortcomings to stunted powers of invention. And throw in the dire fate of newspapers, too.

At first blush, it’s easy to write off the negative outlook of a 96-year-old as typical curmudgeonly grousing. But given the investing track record of Warren Buffett’s business partner, and Munger’s ever-sharp analytical powers, such a glib dismissal could well be unwise.

Tellingly, the venue for his dour assessments was the annual stockholders meeting of a publishing company whose board he chairs, Daily Journal. There, he pronounced that newspapers “are all going to die.”

Exceptions he cited: national brands like the Wall Street Journal and the New York Times. His own media company, which specializes in legal data, not daily news, has logged rising revenue and a stock price that is up by a third over the past 12 months. Meanwhile, Munger’s employer, Berkshire Hathaway, is divesting itself from the newspapers it owns.

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“I think there are lots of troubles coming,” he told the audience at the investor gathering. “There’s too much wretched excess.”

His dour view of China avoided the coronavirus question and homed in on that nation’s ardent individual stock investing, which he termed naïve and misguided. “In China, … they love to gamble in stocks. This is really stupid,” Munger said. “It’s hard to imagine anything dumber than the way the Chinese hold stocks.”

Munger reserved his most pointed critique for US accounting, namely the use of earnings before interest, taxes, depreciation, and amortization (EBITDA). Many American companies, especially unprofitable ones, highlight EBITDA as the best metric to judge their financial progress.

But to critics like Munger, plain old-fashioned net income is preferable, because interest and taxes (while capable of being manipulated) are real costs, and the other two intangible entries do indeed reflect decreasing values of assets.

“It’s ridiculous,” Munger said, charging that EBITDA fails to accurately measure how much a business makes. “Think of the basic intellectual dishonesty that comes when you start talking about adjusted EBITDA. You’re almost announcing you’re a flake.”

Then Munger dove into what some call secular stagnation—the belief that the economy is consigned to slow growth in the future due to a lack of really transforming innovations. “I do think that my generation had the best of all this technological change,” Munger said.

He pointed to past advances in medicine and air conditioning, which enhanced living standards. “I don’t think,” he noted, “we’re going to get as much improvement in the future because we’ve gotten so much already.”