UK Pension Agency Boosts Alternatives as Private Equity Fell Sharply in '09

Despite a recent report that shows pension funds deceased their commitments to private equity by 94% last year, the pension protection fund (PPF) has earmarked up to a quarter of assets to alternatives.

(March 11, 2010) — The Pension Protection Fund (PPF) said recently it would increase its exposure to alternative assets, such as hedge fund-style products and private equity.

In contrast, a study by the European Private Equity and Venture Capital Association shows pension funds deceased their commitments to private equity by 94% in 2009. Towers Watson, for example, conducted 70% fewer manager searches on their clients’ behalf than in 2008, Financial News reported.

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The PPF’s decision comes as an anomaly as UK pension schemes are shifting toward less risky assets by moving out of equities, selling shares, and buying risk-free bonds.

The PPF, which has decreased its strategic allocation to listed equities to 10%, plans on mitigating its liabilities through interest rate swaps, while still maintaining its investment of about 65% of its portfolio in cash and bonds, Reuters reported. “Even though we are investing in private equity and infrastructure we are doing so in a very controlled fashion and we will continue with our hedging program that served us very well through the crisis,” McKinlay told Reuters.

The PPF, set up in 2005 with assets under management currently at $6 billion, earned a total return of 13.4% in 2009.

Recent news from Preqin shows sovereign wealth funds have a similar approach to private equity, with around one in two SWFs diversifying by investing in private equity, real estate and infrastructure assets. According to the research, 55% of the funds invest in private equity, 51% in real estate, and 47% in infrastructure, with more than a third in hedge funds.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

(March 10, 2010) – Goldman Sachs faces yet another lawsuit, as a union plan filed suit against the banking giant over executive pay.

“Goldman’s employees are unreasonably overpaid for the management functions they undertake, and shareholders are vastly underpaid for the risk taken with their equity,” the suit states, Reuters reported. But according to Goldman, the lawsuit is entirely without merit.

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The $562 million International Brotherhood of Electrical Workers Local 98 pension fund (IBEW) accused Goldman Sachs of overpaying its executives while underpaying its shareholders, hurting its stock price. The suit, filed March 8 in Delaware Court of the Chancery in Wilmington, aims to recoup some of the compensation by preventing the bank from allocating nearly half (47%) of its 2009 net revenues to compensation. The lawsuit claims the payments “vastly overcompensate management and constitute corporate waste.”

Chairman and CEO Lloyd C. Blankfein, 11 other Goldman Sachs directors, and David A. Viniar, executive vice president and CFO, and J. Michael Evans, vice chairman, are also named as defendants in the case.

In 2008, Goldman took advantage of the federal government’s bailout and has repaid the money with interest. During the fourth-quarter of 2009, the New York-based bank posted $4.79 billion in profit, the biggest quarterly gain ever for the bank. The previous record was $3.16 billion during the same period of 2007. Despite its record profit, Goldman said last week that it would cap 2009 compensation expense at $16.2 billion.

The suit follows the Security Police and Fire Professionals of America Retirement Fund’s suit against Goldman in December over the bank’s alleged use of TARP and FDIC-backed funds to pay executive bonuses. The $5.8 billion union pension plan alleged that the estimated at $22 billion in bonus payments were not the result of executive performance.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742