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AlternativesNovember 4, 2020

New York State Pension Doubles Down on Alternatives

C-band spectrum, collateralized loan obligations, and solar and wind power are among the largest allocations the fund made in September.

By Sarah Min

The New York State Common Retirement Fund (NYSCRF) has doubled down on its alternative strategy with a series of allocations into private equity, real estate, credit, and real assets.

The nation’s third largest public retirement system made 10 commitments in September totaling roughly $865 million to alternatives, according to the state comptroller. The fund made some of its largest investments in collateralized loan obligations (CLOs), solar and wind power, and C-band spectrum.

The allocations also include roughly $39 million to its emerging manager program. The fund increased its investments from five commitments totaling $565 million the prior month.

The NYSCRF, with about $216.3 billion in assets, has about 8.7% of its fund allocated to real estate and real assets, as of June. Credit, absolute return, and other opportunistic alternatives make up 5.5% of the total allocation.

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The commitments include:

Bridgepoint Development Capital IV and Wigmore Street BDC IV Co-Investment No. 2: As of Sept. 3, the public pension fund closed two commitments with the European private equity fund Bridgepoint Capital Partners, including $196 million into the Bridgepoint Development Capital IV fund and $48.95 million into the Wigmore Street BDC IV Co-Investment No. 2 fund.

The commitments will go to lower middle market investments, firms with revenues of $5 million to $50 million, in the United Kingdom, the Nordics, and France. Funds will go primarily to health care, business services, consumer manufacturing and industrials, technology and media, and financial services sectors.

Primary Venture Partners III: As of Sept. 30, the NYSCRF allocated $30 million to a venture capital fund through Primary Venture Partners that funds seed-stage technology companies based in the New York City area. Among the startups the New York-based venture capital fund has invested in are online delivery firm Deliveroo, home fitness startup Mirror, and office real estate firm WeWork.

The Candlewood Court Phase II, Richmondville, NY, and 33 Johnston Street, Newburgh, NY: As of Sept. 28, the NYSCRF closed two mortgages with the Community Preservation Corp., which funds aging New York neighborhoods.

A 20-unit affordable housing property in Candlewood Court Phase II in Richmondville, New York, had its $969,498 mortgage funded. The rural town is about an hour west of Albany, New York. Another six-unit housing property at 33 Johnston Street in Newburgh, New York, had its mortgage of $484,002 funded. Newburgh is about an hour and a half south of Albany.

Pearl Diver Empire Fund: As of Sept. 25, a $250 million commitment with the Pearl Diver Capital will invest in debt and equity tranches of collateralized loan obligations that are managed by outside investment firms. NYSCRF invests in PDC Opportunities VIII, PDC Opportunities IX, and PDC Opportunities X.

Grain Spectrum Holdings III: As of Sept. 16, the NYSCRF allocated $200 million to the fund at Grain Communications to take part in the C-band spectrum auction that the Federal Communications Commission (FCC) will hold in the fourth quarter.

Stonepeak Global Renewables Fund Co-Invest (NY): As of Sept. 30, a $100 million commitment to Stonepeak Partners will fund wind and solar power investments.

Long Ridge Equity Partners III: As of Sept. 24, a $24 million allocation will fund companies in the financial and business sector. The allocation made through the NYSCRF Pioneer Partnership Fund A-II will be advised by HarbourVest Partners, an emerging manager.

Otter Storage Fund II: As of Sept. 25, the NYSCRF made a $15 million commitment through the Empire GCM RE Anchor Fund, L.P., advised by GCM Grosvenor, an emerging manager in the real estate asset class. The venture will pursue a diversified storage strategy with a focus on acquiring and automating self-storage facilities throughout the United States.

Australian Pension Fund Settles Climate Change Lawsuit

Mark McVeigh calls the settlement with Rest pension fund a ‘ground-breaking recognition’ of risks posed by climate change.

By Michael Katz

Australia’s A$56 billion ($39.5 billion) Retail Employees Superannuation Trust has reached a settlement with one of its own members, who sued the fund last year for failing to provide information related to business risks associated with climate change.

Mark McVeigh filed a lawsuit last November against the pension fund, better known as Rest, alleging that it violated the country’s Corporations Act by failing to provide details on its exposure to climate change risk as well as any plans to address those risks.

“Climate change, the physical impacts, and the transition impacts, individually or in any combination, have posed, and will increasingly continue to pose, material or major risks to the financial position of many of Rest’s investments,” according to the lawsuit. “Trustee directors knew, or ought to have known, that Rest’s climate change business risks were likely to have a material or major impact on the financial condition of [the fund].”

The pension fund said in a statement that it “agrees with Mr. McVeigh to continue to develop its management processes for dealing with the financial risks of climate change on behalf of its members.” It also outlined nine initiatives it plans to undertake as part of the settlement and said McVeigh “acknowledges and supports” the initiatives. They are to:

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Implement a long-term objective to achieve a net zero carbon footprint for the fund by 2050.
Measure, monitor, and report outcomes on its climate-related progress and actions in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
Encourage its investee companies to disclose in line with the TCFD recommendations.
Publicly disclose the fund’s portfolio holdings.
Enhance its consideration of climate change risks when setting its investment strategy and asset allocation positions, including scenario analysis in respect to at least two climate change scenarios. This includes one scenario consistent with a lower-carbon economy.
Actively consider all climate change-related shareholder resolutions of investee companies and otherwise continue to engage with investee companies and industry associations to promote business plans and government policies to reflect the climate goals of the Paris Agreement.
Conduct due diligence and monitor investment managers and their approach to climate risk.
Continue to develop Rest’s management processes and implement changes to its climate change policy and internal risk framework, which apply to all of the fund’s investments.
Seek to require its investment managers and advisers to comply with the other initiatives.

“Rest acknowledges that climate change could lead to catastrophic economic and social consequences and is an important concern of Rest’s members,” the pension fund said. “Climate change is a material, direct, and current financial risk to the superannuation fund across many risk categories, including investment, market, reputational, strategic, governance, and third-party risks.”

Rest said that as a superannuation trustee, it “considers that it is important to actively identify and manage these issues,” and that climate change would be considered in the context of the fund’s investment strategy and asset allocation mix.

In a statement issued through his lawyers, McVeigh said that the settlement “gives me, and Rest’s almost 2 million members, the reassurance that we need to know that our retirement savings will be invested responsibly in the face of the climate crisis.” He added that “this case is a ground-breaking recognition of the material financial risk that climate change poses to the economy and society, and the role that superfunds have in managing it.”