US State Pensions Suffer $1.4 Billion Loss From BP Oil Ignominy

Public pensions such as CalPERS, Florida and Texas Teachers lose from holdings in BP, whose value continues to plummet.

(June 22, 2010) — The $210 billion California Public Employees’ Retirement System (CalPERS) lost a total of $284.6 million in value following the biggest oil spill in history, which wiped out more than $1.4 billion from BP shares held by US state pensions.

The decrease in share price by BP has triggered mounting losses among institutional investors. Along with pension losses, recent data has shown the governments of Norway, Kuwait, China and Singapore have lost $5 billion on BP Plc’s share price collapse.

According to data compiled by Bloomberg, the pension losses come from 42 state retirement accounts. US public pension systems held more than 300 million shares of London-based BP, according to data through May 1.

BP has lost 47% of its value since the April 20 explosion aboard a rig in the Gulf of Mexico that killed 11 workers and caused immeasurable destruction of the wildlife, beaches, and marshlands.

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The pension declines come as public pension funds are struggling to recover from investment losses that averaged 21% last year, according to Wilshire Associates of Los Angeles.

Nevertheless, the total pension loss of $1.4 billion represents a small fraction for funds that manage more than $2.4 trillion, the estimate for the 100 largest public pensions at the end of 2009, according to the Census Bureau. The bureau reported that the top 100 funds account for more than 89% of total public pension value.

With 58.2 million shares of BP on April 20, CalPERS, the largest US pension, held more shares of BP than any other state scheme. The California fund saw the value fall to $301 million from $585.7 million, according to Bloomberg data. “We are large enough to sustain reversals of individual portfolio companies,” said CalPERS’ Clark McKinley to ai5000. “As a long-term investor, we have been able to weather similar setbacks to other companies over the years. However, we certainly are concerned about the loss of BP share value and will be engaging the company to discuss the impact of the Gulf of Mexico crisis along with corporate governance issues.”

Along with CalPERS, other public retirement funds with large holdings in the oil giant include the California State Teachers’ Retirement System (CalSTRS), which lost $104.8 million, followed by Florida’s state pension and the Texas Teachers Retirement System, according to Bloomberg data.

“Our millions of dollars in losses from the BP spill has no consequence on the health of the fund at this point,” Dennis D. MacKee, spokesperson for the Florida Retirement System’s $114.2 billion pension, said to ai5000. “We’re long-term investors and short-term volatility is not something that scares us.”

“The TRS fund, ranked number seven in assets among U.S. public pension funds, remains highly diversified in its investments, and developments related to BP have had no material impact on the fund. Member pension benefits are not impacted by this event,” confirmed Texas Teachers with ai5000.

The Pennsylvania School Employees Retirement System, whose BP holdings declined in value by about $30 million, and the New York state’s $129 billion Common Retirement Fund, which holds 17.5 million BP shares, have also been affected by the BP disaster. The funds are planning to cut retirement benefits and seek higher payments from taxpayers to offset investment losses, Bloomberg reported.



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

Alternative Investments Gain Ground Among Institutional Investors

A new survey reveals real estate, private equity and hedge funds remain the preferred alternative types.

(June 21, 2010) — A new Russell Investments’ annual global survey on alternative investing shows that institutional investors worldwide view alternative investments as an effective way to diversity their portfolios, with plans to boost their exposure to these investments in the years ahead.

The survey of 119 organizations throughout North America, Europe, Japan and Australia, released today, shows that over the next two to three years, pension funds, endowments, foundations and insurance providers expect to increase their allocation to alternative investments by more than a third, to 19% of their total investment portfolios. While real estate, private equity and hedge funds remain the preferred alternative types, commodities and infrastructure are also expected to make meaningful gains, the study reported.

The study discovered that institutional investors have heightened their demands in such areas as liquidity and transparency. “Survey participants confirmed that alternative investing has survived the global financial crisis of 2008 and early 2009 and is poised for recovery, re-evaluation and increased allocations in the coming years,” said Janine Baldridge, head of global consulting and advisory services, in a statement. “Alternatives have gained a solid reputation as portfolio-diversifiers and risk-mitigators, and they are expected to gain momentum even if the current global recovery were to falter.”

Other survey highlights: Allocations to private equity dipped in 2009 due to the strong rebound in publicly traded equities but are expected to rebound in 2012. Survey respondents in North America expect the current share of private equity in their total portfolios, currently averaging 4.3%, to increase to 6.8% in 2012. In addition, respondents expect to increase the proportion of their portfolios committed to hedge funds to 5.7% in 2012, up from 4.2% in 2009.

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The study also found that institutional investors have increased their risk management efforts, with 84% of respondents making changes in their risk management approach, and nearly two-thirds increasing the sophistication of their internal decision making and governance processes. “This is one of the key takeaways in the survey — investors are looking to improve how they invest and what they demand from those who will be supporting them,” Baldridge said to ai5000.

In regard to alternatives, 44% said they are increasing the depth and frequency of reporting, and 39% indicated they are providing more active education and briefings to boards or senior management.

Read the survey here.



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

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