NYC Owns $1 Billion Stake in Amazon, Which Just Snubbed the Big Apple

Here’s a delicious irony: Although Amazon pulled out of its New York City headquarters project on Thursday, the city’s public pension programs own $1 billion of the online retailer’s stock.

The city’s five pension plans list Amazon, as of their mid-year 2018 reports, as either their third- or fifth-biggest equity holding. (Apple was in first place for them all.) That means Amazon shares make up about 1.8% of the city public retirement system’s $55 billion stock holdings—hardly a lot proportionately, but in dollar terms, not insignificant either.

The office of City Comptroller Scott Stringer, who oversees the pension system and has been hesitant on the Amazon deal, wouldn’t comment on the firm’s stock. But Amazon’s decision to open a vast complex in the New York borough of Queens has stirred up a lot of controversy. Addressing city Mayor Bill de Blasio, a supporter of the Amazon venture, Stringer tweeted “you made this deal in secret with no community input.”

Some New Yorkers had objected to the tax incentives that de Blasio and other pols had used to lure Amazon’s HQ2, its second headquarters, to the city. (The company’s other HQ2 is slated for Northern Virginia, where it has received next to no local opposition.)

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None of the New York skeptics has mentioned dumping Amazon stock from the pension plans, either to protest its construction proposal there or to punish it for jilting the city. If the project had continued to roll along, though, divestiture talk could well have arisen, as it has in the past for other contentious stock holdings in public plans.

Who chose Amazon stock for the city’s pension portfolios? Technically, the city’s five pension programs decide their asset allocations, with the comptroller’s office serving as an advisor. Outside money managers do the actual selecting.

Adding Amazon shares to the portfolios, of course, was a no-brainer in the recent past. Amazon is a charter member of the FANG tech-stock bloc, which until last fall had been the market’s biggest high-fliers. Over the past decade, Amazon stock has increased more than 10-fold.

The luster, however, is off those once-golden shares. Amazon’s stock has been sliding this month, as the market overall has gained. It lost 1% on Thursday, and is down 5.5% in February. In fact, Amazon, which hit a $1 trillion market cap in September, has seen its value shrink by one-fifth since then.

If anything, the company’s stockholders should be happy that Amazon is not laying out wads of money for a Queens HQ2. That’s because of a lingering Wall Street fear that Amazon’s days of heady growth are history, and such a monster construction outlay could’ve worsened the situation.

In its Jan. 31 earnings report, the company forecast further deceleration of revenue increases. And while it logged strong fourth-quarter 2018 earnings numbers, the company also indicated it wanted to beef up spending, which in the past has cut into its profitability.

Aside from tax incentives that could’ve reached $3 billion, Amazon was going to pay billions for the 4 million-square-foot campus near the East River. For the moment, the company said it wouldn’t announce a substitute for the axed New York HQ2.

Tags: Amazon, Amazon HQ2, New York City, Pension, Scott Stringer

The Massachusetts Pension Reserves Investment Management Board (MassPRIM) completed its 2019 asset allocation study in tandem with its consultant NEPC, who warned that the US economy is transitioning from a mid-to-late cycle environment and recommended reducing exposure to public equities markets.

Late-cycle economies are typically characterized by moderating growth and profit margins, rising interest rates, and equity markets peaking. In a report, NEPC explained that it is typically followed by a recession in the economy.

Staff of the $69 billion plan recommended that the board approve reducing the pension’s target ranges to global equities by 3% (approximately $2.7 billion) throughout the year, as well as its value-added fixed income exposure by 2% (approximately $1.3 billion). To compensate, the pension is expected to increase its core fixed income exposure by 3%, and private equity and portfolio completion strategies by 1% ($69 million).

“Our outlook for international developed equities is less optimistic than prior years, resulting in a significantly lower five- to seven-year return,” NEPC said in a report. “The potential for an adverse economic outcome appears to have expanded.”

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The consultant added that transitions from ongoing situations with China, “globalization backlash,” and tightening global liquidity as key market themes to be aware of in 2019. “We continue to believe incremental increases to private markets exposure offers long-term benefits to the portfolio.”

The pension also laid out plans on several diversifying asset classes from traditional equities, setting a private equity pacing plan to commit approximately $1.4 billion to $2 billion to funds, and raise co-investment capacity to a degree matching 20% of annual fund commitments.

MassPRIM also intends to develop a business plan to implement an internally managed short-term fixed income portfolio, as well as complete one to three direct investments in real estate assets

The board is also finalizing agreements with three new private real estate managers, with an aggregate allocation of $1 billion between them. It is also expanding its timberland allocation, and recently conducted a market tour of assets in Chile, which staff characterized as a “developed timberland market, comparable to Australia and New Zealand, within a more emerging country.”

MassPRIM targets a 7.35% annualized return across the next 10 years and aims to posture downside protection so that it would achieve no drawdown within the next three years.

Tags: Fixed-Income, Massachusetts Pension Reserves Investment Management (MassPRIM), NEPC, Pension, Private Equity, Real Estate