Verizon Promotes New CIO From Within | Chief Investment Officer

(November 27, 2013) – Verizon Investment Management—one of the most innovative and active corporate pensions in America—has promoted from within to replace retiring CIO Ron Lataille.

Brady Connor, previously the pension’s chief operating officer, has been promoted to president and CIO effective immediately. Connor has been with Verizon since 1996 in a variety of executive leadership positions. He holds a BA in finance from New Mexico State University, and an MBA from Oklahoma State University.

Lataille had led the pension system since 2010.

Verizon has long been known as a pension innovator and talent incubator. Before Britt Harris led the massive Teacher Retirement of System of Texas, he oversaw Verizon’s billions in employee benefit assets as CIO. Harris is set to be awarded aiCIO’s Lifetime Achievement Award next month. Another award winner—2012’s Innovator of the Year Robin Diamonte—cut her teeth under him at the telecom firm.

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Few corporate pension plans in America has de-risked as fast or as fully as Verizon. In August 2012, it emerged that the telecom giant had hired Goldman Sachs Asset Management (GSAM) to handle its nearly-$11 billion private equity and real estate portfolio. GSAM, which had managed pension assets for Verizon since 1992, was given a mandate encompassing manager selection, portfolio construction, and risk management.

“The partnership with Verizon gave us the opportunity to really extend our team,” said Chris Kojima, GSAM’s head of alternatives, in a 2012 video. “It gave us the opportunity to provide our people, our process, our technology—really our scale—so that they could have an efficient solution in private equity.” The contract was a major win for GSAM, the firm’s head of institutional business Craig Russell acknowledged in the same video: “Verizon, given the size of what they were looking to do, and the context of what they wanted us to do, gave us a great opportunity to take a leading role in the advisory business.”

Two months after the news it had outsourced its private equity portfolio, Verizon announced a deal with Prudential to offload $7.5 billion in liabilities through a bulk annuity purchase.

“Upon closing, which is subject to certain conditions and expected by December 2012, the Verizon Management Pension Plan will purchase a group annuity contract from the Prudential Insurance Company of America,” the firm said in a release. “Prudential will then assume responsibility for making payments to the approximately 41,000 retirees covered by the agreement.”

Verizon’s deal followed close on the heels of Prudential’s blockbuster $26 billion pension buyout from GM, making it one of the largest annuity purchases ever made.

No deals on a similar scale have materialized in the US corporate pension space since then, but there was much talk at the time of a new paradigm beginning. However, the litigation ignited by Verizon’s deal may have made the strategy less appealing to prospective plan sponsors. The suit was filed by plan members in late November 2012, just days before the pension-risk transfer to Prudential was set to go through. The attempt to block the deal failed, and a judge dismissed the class action suit in the months after.

In the wake of de-risking, litigation, and landmark deals, Connor will take over a plan on relatively steady ground.

—Kip McDaniel & Leanna Orr

(November 27, 2013) — Around 70% of UK pension funds with a triennial valuation in 2013 have seen their funding position worsen since their last valuation in 2010, according to data from PwC.

The auditing giant found this phenomenon was largely driven by government bond yields, which are used by most schemes as a basis to discount liabilities.

Relevant government bond yields fell from 4.6 % a year to 2.9% a year between April 6, 2010 and April 6, 2013.

Some 94% of schemes surveyed currently have a scheme funding deficit. As a result, more schemes are lengthening their recovery period to deal with increased deficits than in previous years. PwC found 68% of schemes have extended the time to reach full funding by three years or more.

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In addition, 69% of schemes who have a higher deficit have increased their contributions to the pension fund, but PwC said evidence showed that putting more money into the pension pot was doing little to reduce the deficit in the long run.

This theory was also discussed recently by Pension Insurance Corporation and Fathom Consulting: they believed that government and central bank policies to protect householders’ debt levels has been at the expense of driving meaningful growth—leading ultimately to financial repression and corporates being forced to put more money into pension funds.

Earlier this year, the pensions regulator suggested schemes might consider extending the recovery period, increasing contributions and allowing for greater investment outperformance to structure their recovery plans.

However, the report found just 59% of recovery plans are based on the assumption that part of the deficit will be made good through additional investment outperformance, with an average allowance of 0.8% a year.

When asked if they had an integrated risk management plan that considered funding, investment, and sponsor covenant in place, around 43% of plans with more than £1.5 billion under management said yes, although another 50% said they were considering such a plan.

PwC also found that just 20% of UK pension funds were considering a buy-in or full buyout, and even fewer have the necessary tools to track their exact funding levels, making monitoring pension risk transfer triggers more difficult.

Only 11% of schemes have access to real-time funding results, PwC said, which meant buying opportunities were often missed.

A summary of the PwC report can be found here.