NISA Puts Stake in the Ground With Volatility Index

Corporate plan fiduciaries and industry analysts may be comforted that future volatility in pension plans may be forecasted based on available data, which NISA has harnessed with its newly released index.

(September 27, 2012) — St. Louis-based NISA Investment Advisors–an independent investment manager for institutional investors–has announced the release of its Pension Surplus Risk Index (PSRX), an estimate of the funded status volatility of corporate defined benefit pension plans in the United States.

When asked about what spurred the decision to produce a volatility index, David Eichhorn, NISA’s director of investment strategies, tells aiCIO: “There’s been ongoing recognition of the risks inherent in pensions, and there is increased interest in how to manage those risks. It makes sense for us to put a stake in the ground and say ‘here is the risk of the average pension plan.'”

The index is a reflection of the heightened sensitivity to funded status volatility–a concern corporate plan sponsors continue to battle, the firm, with roughly $90 billion of institutional assets under management, highlights in a release. Additionally, NISA provides a matrix of risk estimates based on combinations of risk asset allocations, liability durations, and funded status levels for individual plans to determine a volatility level that corresponds to their circumstances. “These sub-indices assume hypothetical plans with static funded status, liability durations and risk asset allocations over time, for example, 85% funded, 12.5 duration and a 60% allocation to risk assets,” NISA says.

A number of indexes generally quote the average funded status of a corporate scheme, yet Eichhorn notes that the risk element is often missing from the equation. “NISA has always been an asset manager focused on risk management at its core,” he concludes. “While there are lots of indexes out there that are useful to pension stakeholders, ranging from prices indexes like the S&P 500 to volatility indexes like the VIX and a whole range of pension funded status indexes, this index uniquely outlines the risks of a typical pension plan.”

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NISA’s index level represents a one standard deviation change in funded status over a one year horizon, based on the average of the 100 largest pension plans, as determined by NISA. For example, an index value of 15% suggests approximately a one in three chance that a $1 billion plan could lose or gain more than 15%, or $150 million, in funded status in one year, NISA explains. “As plans increasingly align the performance of their assets to that of their liability, taking control of funded status volatility is proving to be a foundation for judicious plan management,” the release states.

Related article:With LDI to the Fore, It’s NISA’s Time

A Goldman VP allegedly helped manage and fund the treasurer's run for governor, as the investment bank raked in more than $7.5 million in fees from the Treasury for securities services.

(September 27, 2012) – Goldman Sachs has agreed to shell out nearly $12 million to settle the US Securities and Exchange Commission’s (SEC) charges of “pay-to-play” violations.

The SEC’s orders against Goldman and its former Boston-based vice president, Neil Morrison, claim that Morrison, who was in charge of drumming up municipal underwriting business, supported former Massachusetts Treasurer and Chairman of the state pension board Timothy Cahill’s run for governor while receiving securities contracts.

“Morrison made a secret, undisclosed cash campaign contribution to Cahill in willful violation” of Municipal Securities Rulemaking Board (MSRB) policy, the SEC order against Morrison alleges. He reportedly provided a friend with $400 in cash, and asked the friend to write a $500 check for the campaign in his/her own name. “Moreover,” the order continues, “Morrison solicited campaign contributions for Cahill when Goldman Sachs was engaged in or seeking to engage in municipal underwriting business with the Treasurer’s Office.”

The SEC alleges that some of Morrison’s campaign activities occurred “during his Goldman Sachs work hours and use of Goldman Sachs resources constituted valuable undisclosed ‘in-kind’ campaign contributions to Cahill attributable to Goldman Sachs.” These “in-kind” campaign contributions reportedly included fundraising, legal advice, drafting campaign strategy and speeches, and reviewing salaries and hiring decisions.

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After a securities dealer makes a political contribution worth more than $250, MSRB rules prohibit them from doing business with the recipient for two years. But according to the SEC, “Goldman Sachs, with Morrison’s knowledge, participated as senior manager, cosenior manager, or co-manager for a total of thirty negotiated underwritings by the Issuers totaling approximately $9 billion.” Goldman Sachs reportedly received more than $7.5 million for its services.

E-mails appear to have been a major source of evidence for the SEC. During a thirteen-month period in 2009 and 2010, Morrison sent at least 364 campaign-related e-mails using his Goldman Sachs account, according to the order. This, the order says, is one of them: “Very regretfully, I have to reach out to you again regarding the Treasurer’s event…If you could do anything by way of tickets it would be very helpful and would probably be a good idea for you. The tickets have a face value of…$100 but you can sell them for $50 each. I really dislike relaying this type of information and I know its [sic] not easy for anyone.”

The $12 million paid by Goldman settles matters between investment bank and the SEC. The payout includes a $3.75 million penalty—the largest ever imposed for MSRB pay-to-play violations.

The SEC’s case against Morrison continues.