Washington State Makes New Private Market Commitments

The $99.7 billion Washington State Investment Board (WSIB) has committed $700 million to two private market investments, shows board material released after the close of its meeting on Dec. 13.

The largest commitment, $500 million, was a follow-on investment to Evergreen Real Estate Partners, whose ownership ties ultimately back to the board through a web of different organizations and subsidiaries.

Since 2004, WSIB has committed $5.2 billion to Evergreen, which runs 14 real estate firms around the world. Evergreen Real Estate Partners works with Evergreen Investment Advisors, a Chicago-based registered investment advisor. The investment advisor is also a subsidiary of Evergreen Real Estate Partners.

In turn, Evergreen Real Estate Partners is a wholly owned subsidiary of M3 Capital Partners, which was formed and funded by WSIB to invest in real estate for the pension system.

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M3 Capital Partners’ website says it has invested across a broad range of core and alternative real estate sectors, including office, retail, logistics, residential, student accommodation, senior housing, self-storage, cemeteries and funeral homes, medical office buildings, parking, motorway service areas, strategic land, manufactured housing, hotels, and real estate debt.

Those investments include the 2013 purchase by Evergreen Real Estate Partners of Japan’s largest self-storage company, Quraz, for an undisclosed sum.

Stepstone, the board’s real estate consultant, also recommended the additional $500 million commitment to Evergreen, board material shows. The commitment was made by the pension’s system investment staff using delegated authority and bypassed investment board commissioners.

The other commitment of $200 million was made to Centurium Capital Partners 2018, a midcap growth equity and buyout private equity fund investing in the consumer and healthcare sector in China. The fund is being raised by Centurium Capital Management and has a target of $1.5 billion and a hard cap of $1.9 billion.

WSIB commissioners approved the commitment at its Dec. 13 meeting, shows board material.

Also at the Dec. 13 meeting, the board material shows, WSIB commissioners approved investment consulting firm Pension Consulting Alliance to participate in its consulting pool for its Tangible Assets investment program. The contract of the original consultant in the pool, Hamilton Lane Advisors, was also renewed. Both contracts will be in place for an initial period of five years.

WSIB has one of the highest concentrations of private market investments of any public pension plan in the US. Together, real estate, private equity, and tangible assets make up more than 40% of the overall fund’s assets under management.

Tags: Pension, Private Markets, Washington State Investment Board

Insurance company MetLife is facing a class action lawsuit for allegedly failing to pay the alternative benefits available under its defined benefit Metropolitan Life Retirement Plan “in amounts that are actuarially equivalent to the plan’s default benefit as required under [the Employee Retirement Income Security Act], and the terms of the plan itself.”

According to the plaintiffs, MetLife’s pension plan improperly reduced annuity benefits for retirees who received an alternate annuity benefit. The retirees are allegedly receiving benefits that are less than what they are entitled to under ERISA.

By not offering actuarially equivalent pension benefits, “Metropolitan is causing retirees to lose part of their vested retirement benefits,” the lawsuit says.

MetLife sponsors the plan for its eligible employees and the eligible employees of certain participating affiliates. The plan moved from a traditional defined benefit plan to a cash balance benefit plan in 2002, into which all new hires after Dec. 31, 2002, were automatically enrolled. However, employees hired before the end of 2002 had to choose between moving to the cash balance plan, or remaining grandfathered in the pre-existing defined benefit plan.

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The plaintiffs say that because mortality rates have improved, people who have retired recently are expected to live longer than those who retired in previous generations. Becauseof this, they said that older morality tables predict that people will die at a faster rate than current mortality tables.

“Using an older mortality table with accelerated death rates decreases the present value of the Alternate Annuity Benefit,” the suit says, “and ultimately, the monthly payment that retirees receive under that Alternate Annuity Benefit.”

The plaintiffs also point out that the mortality table and interest rate together are used to calculate a “conversion factor,” which is used to determine an equivalent benefit between a retiree’s default benefit and the alternate annuity benefit selected by a retiree.

“The issue is whether the mortality and interest rate assumptions together result in a conversion factor that provides for a truly equivalent benefit,” said the lawsuit.

The plaintiffs are seeking an order from the court reforming the plan to conform to ERISA, payment of future benefits in accordance with the reformed plan as required under ERISA, payment of amounts improperly withheld, and other relief.