On Both Sides of the Atlantic, Pension Plan Salaries Draw Ire

While seemingly inevitable, the focus on investment manager compensation has now spread to pension funds, a move that will concern many as talent retention worries continue.

(August 20, 2009) – In what to many must seem like the inevitable, pension fund managers on both sides of the Atlantic are facing ire over salaries and bonuses in a year when almost every plan lost significant amounts of money.

At Promark Global Advisors – the rebranded manager of General Motors’ (GM) pension assets – salaries have come under fire as American federal pay czar Kenneth Feinberg begins to turn his gaze on the auto maker. Although individual salaries at Promark aren’t broken down publicly, it is known that the unit invests $102 billion on behalf of GM workers. Despite posting only an 11% loss in 2008, Feinberg is expected to scrutinize any bonuses with a keen eye, according to the New York Times. While the formula being used to assess compensation at bailed-out companies allows for commission-based payments, it is unclear whether Promark – which manages not only the GM pension plan but $18 billion in pension assets for other corporations – should be viewed as proprietary traders (which would mean Fienberg could limit their compensation) or not. Nancy Everett, previously the chief investment officer at the Virginia Retirement System, leads Promark and is expected to be one of the employees whose compensation is closely scrutinized.

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In the United Kingdom, even a pension fund receiving no government handouts is now under attack for paying out $3 million in bonuses in a year when the fund lost upwards of $12 billion. The Universities Superannuation Scheme (USS), which invests on behalf of a quarter million higher-education employees, has approximately 60 staff members and was heavily invested in the equity markets entering the autumn of 2008. A recent article in London’s Telegraph claims that while losing money for the fund, employees were awarded the nearly $3 million in bonuses in a system that pays out over five years. A report by the USS, however, claims that the likelihood of future payments of this size is low due to the difficulty of hitting targets after such a poor year.

While not surprising, the newfound focus on compensation at pension funds will surely be of concern to many within the industry. With many banks fearful of losing highly compensated employees to smaller, less regulated vehicles, pension funds will now be feeling similar concerns

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>

Despite Liquidity Fears, an Institution Creeps Into PPIP

PPIP, the government program to take ‘toxic assets’ off the books of banks, has received a lukewarm response in America; the Chinese Investment Corporation, however, is reportedly putting up $2 billion to invest in this mortgage-backed securities program.

(August 20, 2009) – In the face of fears surrounding illiquidity, the Beijing-based China Investment Corporation (CIC) is reportedly moving into the American government’s plan to take ‘toxic assets’ off the books of banks.

The CIC, a $200 billion fund supported by foreign exchange reserves, is in talks with many of the firms chosen in July to be involved with the Public-Private Investment Plan (PPIP), Reuters is reporting. According to sources, the fund is ready to put up $2 billion in capital by the end of August.

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Because it is by definition investing in illiquid securities – more specifically, the mortgage-backed securities (MBS) issued before 2009 that many finger as the main driver of the current recession – few American institutions have been keen to mirror China’s move.

Any investment in PPIP will be predicated upon the belief that the American property market, because it represents the underlying assets of the MBS system, will rebound going forward. This is far from certain, and this, combined with fears over mismatching liabilities with assets – as was seen at many American endowment investors such as Harvard and Stanford, among others — may be keeping many institutions away from the Treasury program. While the pre-2009 MBS market is valued at over $2 trillion, and while managers will be forced to diversify away from any one type of property or mortgage underwriter, little movement has been seen towards the program.

China’s move may say more about its internal financial situation than about the expected quality of the PPIP program. With one of the largest capital pools on earth, the CIC will ultimately be forced to ‘put money to work’ (See Dominic Hobson’s column on this topic in the first edition of ai5000). Additionally, the $2 billion investment, while dwarfing the total assets of many of the globe’s institutional investors, is but 1% of the Chinese sovereign wealth fund’s assets.

To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>