Puerto Rico Pension Reserve Trust Seeks Multi-Asset Strategy Managers

The Pension Reserve Trust of Puerto Rico sent out two requests for proposals for new investment managers as the fund wants to diversify its portfolio and lower its allocation to fixed income.

First, the fund is seeking a manager for a long-only, investment-grade corporate credit strategy, to which the manager would be allocated $660 million. The pension is also seeking a multi-asset strategy manager for long-only investments “across liquid, global investable markets.” The allocation to this manager will be $130 million.

The fund holds a fixed-income heavy portfolio. According to the PRTPR website, PRTPR holds 74% of its assets in low-risk bonds, 14% in equities, 6% in riskier bonds, and 6% in various diversified investments, although the fund wants to further diversify.

The PRT system started with an initial allocation of 100% in low-risk bonds but plans to reach an allocation of 55% to that asset class. Additionally, the fund plans to increase to 10% its allocation to bonds with more risk, described as global fixed income, below investment grade corporate bonds, and private credit. The fund seeks an allocation of 25% to equities, and 10% to other diversified investments, which according to the fund include real estate and tactical asset allocation strategies.

For more stories like this, sign up for the CIO Alert newsletter. 

“Our asset allocation is conservative, diversified and involves less risk than most pension funds,” the PRT notes in its 1Q 2023-2024 quarterly report, which follows the period ending September 30.

The Pension Reserve Trust was established in January 2022 in order to restructure the territory’s underfunded and flailing pension system, which at one point had a funded status of 9.7% in 2010 and was a contributor to the bankruptcy of the territory in 2017.

According to the PRTPRs timeline to hire new managers, the RFP was issued on January 26, while the deadline for submission of written questions was on February 16. Responses to RFP questions will occur on February 24, and the deadline for submission of cover letters is on March 1. Finalists will be selected for board interviews on March 29, with further steps to be determined.

Tags: Pension Reserve Trust, PRTPR, Puerto Rico

The “Maple-8” Canadian public pension funds are known for many things, such as their use of direct investments and internal management of assets, as well as their globally diverse portfolios.

Many have considered the Canadian model to be the prime pension fund investment model, with many pension funds, including the California Public Employees Retirement System, aiming to replicate some of its features.

The term “Maple-8” refers to the major Canadian public pension funds including, the Canada Pension Plan Investment Board, Public Sector Pension Investment Board, Caisse de depot et placement du Quebec, Alberta Investment Management Corporation, British Columbia Investment Management Corporation, Ontario Teachers’ Pension Plan, Healthcare of Ontario Pension Plan and the Ontario Municipal Employees Retirement System, which collectively manage more than C$1 trillion in assets and have become pioneers of the model, starting in the 1990s, when Canadian public pension funds were woefully underfunded.

But does the model still have a future today? In an academic paper, “On the Sustainability of the Canadian Model,” author Eduard van Gelderen, the CIO of the PSP Investment Board, aims to find out if the Canadian model is still relevant today, and what its future looks like.

For more stories like this, sign up for the CIO Alert newsletter. 

Issues With the Canadian Model

The paper identifies several issues that currently exist within the Canadian model, following interviews with executives from the Maple-8 pension funds who identified some problems that the Maple-8, and the Canadian model might face.

The paper discussed the impact of the expectation that Maple-8 pensions’ will be expected to adopt or have adopted net zero climate impact by 2025 and climate targets. Due to this, these pensions will be de facto impact investors, adopting impact in principle.

The paper notes that some executives voiced concerns that investing in green assets would lead to lower investment returns, conflicting with their fiduciary duty to generate strong investment returns. However, the paper also states there is evidence that green investing also provides strong returns.

The paper also states that the Canadian model is not applicable everywhere, citing evidence that for many emerging markets, the Canadian model does not work. Canada and other developed markets have unique circumstances that are not transferable to emerging markets.

As Baby Boomers retire over the next 20 years, this could put pressure on cash withdrawals from these pension funds, as they have high allocations to alternative investments, thus these funds will have to focus less on alternatives, once a staple of the Canada model to meet pension liabilities.

How the Maple-8 Can Adapt

The paper offers many solutions for the Maple-8 to adapt to their changing environment. First, Van Gelderen suggested that the Maple-8 focus on long-term risk management and avoid taking short-term focus, which could do more harm than good.

Finally, the paper suggested that the Maple-8 adopt new technologies and data processes, noting that many of the pension funds are underutilizing newer technologies in their systems.

“New technologies and advanced analytics make the industry less dependent on historical data alone and provides huge opportunities to determine associations and correlations we were not aware of before,” the paper states. “As such, AI application could be found, amongst others, in alpha-generation, total fund management, risk management, and trading. The task for the Maple 8 is to figure out how they will benefit the most, which is dependent on their specific situation and mandate.”