NYC CIO Nagaswami Departs for Bridgewater

(September 6, 2012) – Ranji Nagaswami, the first-ever chief investment advisor for New York City’s pensions, has resigned to join Bridgewater Associates, Bloomberg News initially reported.

Nagaswami has been replaced by Janice Emery, a 20-plus-year veteran of institutional investing who has held positions at US Airways and the Pension Benefit Guaranty Corporation, among others. Most recently, Emery served as chief investment officer of Pinnacle West Capital Corporation, based in Phoenix, Arizona.

Emery’s new position, chief investment advisor for New York City’s five pension systems, has existed for only two years. Mayor Michael Bloomberg appointed Nagaswami in August 2010, with the intention of consolidating the funds under one collective management team.

At the time of her appointment, Deputy Mayor for Economic Development Robert Steel said, “Ranji will have the responsibility to help guide the more than $100 billion in New York City’s retirement systems, and her experience with large-scale asset management and understanding of global capital markets make her perfectly-suited for the new role.” Steel continued, “As pension costs continue to swallow a disproportionally large amount of the City’s budget, Ranji will lead our efforts to try to increase investment returns and think about new ways to manage the funds’ portfolios.”

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New York City’s pensions, however, stuck to their old ways. The ambitious and long-awaited restructuring never materialized: New York City unions, viewing the reform as an assault on their ability to oversee investment decisions, successfully pressured state lawmakers to withhold their required approval. In March 2011, aiCIO took an in-depth look at the proposed reform and analyzed the New York City pension system.

The Mayor’s office did not respond to requests for comment.

Nagaswami told Bloomberg News she will be taking on a “senior strategist role” at the Westport, Connecticut-based hedge fund. Bridgewater, the largest hedge fund in the world, in fact manages more money ($130 billion) than all five New York City pension funds combined ($123 billion). And by moving from the public sector to private industry, her paycheck will doubtlessly reflect a larger slice of the substantial assets she’s managing. (Also, a shiny new office.) In 2011, Nagaswami earned a salary of $175,000 as a city employee in the Department of Finance, according to public records.

With inventories of corporate bonds at the lowest point in a decade, Towers Watson foresees sustained illiquidity and heightened volatility ahead for the fixed-income market.

(September 6, 2012) – Liquidity has dried up in the corporate bond market, and Towers Watson analysts expect the drought to continue.

“Liquidity is very patchy and confined to the top 100 or so names,” Towers Watson concluded from a January survey of fixed-income managers. “In other words, about 90% of the long end is materially illiquid. We find that bonds issued more than a year ago also suffer severe illiquidity, and even among newer bonds, liquidity does not extend to smaller issues.”

Institutional investors can expect heightened volatility in the fixed-income market, with little liquidity to buffer inventories and overall spread levels from market forces. Long duration bonds are particularly vulnerable to credit market trends, and may be a segment with even less liquidity than corporate fixed-income as a whole. Defined benefit plans, the main investors in high-quality long bonds, are “generally believed to be slower in implementing major allocations into and out of fixed income,” the authors wrote. “At the same time, because the spread duration can be relatively large for a long-duration credit, from a risk mitigation standpoint, it is quite possible that dealer inventories are even lighter on the long end of the credit curve.”

Primary dealer inventories of corporate bonds are at the lowest point since early 2002, according to data from the New York Federal Reserve. Furthermore, the amount of outstanding corporate debt has more than doubled since that time. Proportionally, bond dealers’ shelves are barer now than they’ve been in a very long time. Inventories dropped by half in just seven months, between the end of May 2011 and the close of January 2011. Many managers surveyed cited new regulation—Basel III and the Volcker Rule—as the catalyst for this dramatic decline.

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“Corporate bonds trade over the counter in an extremely fragmented market,” said the Towers Watson report. “It is not surprising that lower dealer inventories have negatively impacted liquidity in the high-grade and high-yield markets, which, in turn, has caused an increase in bid/ask spreads.” According to the whitepaper, an internal BlackRock study found that investment-grade bid/ask spreads increased roughly 40% from 2007 to 2011.

The precipitous decline in inventory in the latter half of 2011 left its imprint on the market. The fourth quarter of 2011 posted the lowest average daily bond trading volumes since the onset of the credit crunch in mid-2008, just breaking $10 billion per day in December. Trades have rallied since then, averaging about $15 billion per day in April.

“Most managers seem to be of the opinion that while total market activity improved in Q1 2012, the overall breadth of liquidity in the credit markets still remains challenging,” the research and consultancy firm asserted. “The pullback in support by the dealer community in terms of inventory has an impact on all credit markets.”