New York Maintains ‘Conservative Approach’ With 5.3% Third Quarter Return

The New York State Common Retirement Fund on Monday posted a 5.3% return for its third quarter, rebounding from weak gains in the first half of the year thanks to a boost from the broader markets.

But New York State Comptroller Thomas P. DiNapoli said the fund will maintain a “conservative approach,” as state pension plan leaders, concerned by historically low interest rates and slowing economic growth, worry about excessive risk. The Common Retirement Fund, with a funded ratio of 96.1%, boasts one of the strongest pensions in the nation.

“Volatility remains the defining characteristic of the investment landscape,” DiNapoli said in a statement. “As we approach the fund’s fiscal year end, we will maintain our conservative approach and keep a close eye on investment returns.”

As part of its risk-averse strategy, the third-largest state pension in the nation lowered its target rate of return to 6.8%, from 7%, for the current fiscal year starting in April. That puts the Common Retirement Fund, up 7.3% to an estimated $225.9 billion in December from an audited $210.5 billion in April, on track to meet the new target.

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More state pensions are adjusting their forecasts and retreating into conservative strategies. The California Public Employees Retirement System (CalPERS), which is the largest pension fund in the nation, said in 2016 that it would reduce its assumed rate of return to 7%, from 7.5%, by next year. In October, trustees of the Ohio Public Employees Retirement System decided to lower that fund’s assumed rate of return for two of its five pension plans.

Meanwhile, experts forecast that returns at public pensions will be more than a full percentage point lower over the next 20 years, according to a report from the Pew Charitable Trusts. Even small percentage drops can have a “significant impact” and increase liabilities across US plans, the research group said.

Reducing return estimates is not the only change the Common Retirement Fund is making. Since the start of its fiscal year, the pension fund has incrementally increased its exposure to fixed income—cash, bonds, and mortgages—to roughly 24%, up from 18% of its total portfolio in March.

The fund currently has roughly 39% in US stocks and 16% in non-US equities. It also has about 9% in private equity, roughly 9% in real estate and real assets, and nearly 4% in absolute return strategies and opportunistic alternatives.

Ohio Retirement System Lowers Assumed Rate of Return

Public Pension Plans Funding Grows in 2018, Assumed Return Rates Dip

Tags: Comptroller, Investment, New York, New York State Common Retirement Fund (NYCRF), Pension, Pension Funds, Retirement, Thomas P. DiNapoli

Harvard’s faculty voted overwhelmingly at its monthly meeting to demand that the management company overseeing the university endowment divest its $41 billion portfolio of fossil fuel investments.

By a vote of 179 to 20, the university’s faculty voted to support a motion in favor of calling on the Harvard Management Company (HMC) to “withdraw from, and henceforth not pursue, investments in companies that explore for or develop further reserves of fossil fuels.”

The motion also calls on HMC to replace any adviser who is not willing to comply with divestment with someone who is. The final motion also included an amendment that added that all future endowment investments should be subjected to a “system of decarbonization.”

After the vote, Harvard University President Lawrence Bacow said he would bring the motion to the Harvard Corporation for consideration. “I am confident that the corporation will give it the thought and consideration it deserves,” Bacow said, according to the Harvard Crimson.

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But supporters of the divestment movement shouldn’t hold their breath as the faculty motion will most likely result in no change to HMC’s investment policies. The faculty vote isn’t the first time HMC has been pressured to divest, and it likely won’t be the last.

Environmental activist group Divest Harvard launched Heat Week five years ago, which has become an annual weeklong protest to push Harvard to divest from fossil fuels. In 2018, Kathryn “Kat” Taylor resigned as a member of Harvard’s Board of Overseers to protest the university’s failure to address what she said are unethical investments, particularly in fossil fuel companies. And last June, former US Vice President Al Gore called on his alma mater to divest of fossil fuel investments in a speech given at the university’s 2019 Class Day.

But HMC hasn’t budged from its long-standing policy position against divestment, which states that that “the university maintains a strong presumption against divesting investment assets for reasons unrelated to the endowment’s financial strength and its capacity to further Harvard’s academic goals.”

Last May, in a rare on-campus appearance by an HMC executive, the endowment’s chief compliance officer defended Harvard’s investment policies at a panel that included students and faculty supporting the divestment movement. Kathryn Murtagh explained Harvard’s decision to maintain its status as a shareholder and active owner so it can engage in formal dialogue with companies about sustainability issues.

“Active ownership, engagement, advocacy, stewardship—these are all tools that institutional investors can leverage to drive corporate change,” Murtagh said, according to the Crimson.

While protests, motions, and rebukes have yet to change HMC’s stance, the one thing that could convince it to divest is if fossil fuel investments start costing the endowment money instead of making it money.

An August report from the Institute for Energy Economics and Financial Analysis (IEEFA) said that BlackRock, the world’s largest asset manager, has lost $90 billion over the past decade from its investments in four oil and gas giants—ExxonMobil, Chevron, Royal Dutch Shell, and BP—alone. Last month, BlackRock surprised the investing world by announcing that it was making sustainability the focus of its investment strategy for the $6.3 trillion it has under management.

“Sustainability- and climate-integrated portfolios can provide better risk-adjusted returns to investors,” CEO Larry Fink said in a letter to CEOs. “And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.”

Perhaps HMC will follow suit if it finds that its fossil fuel investments are underperforming and cutting into the endowment’s returns. But it seems unlikely that it will be the divestment leader many of its students, faculty, and alumni are calling for it to be.