Wisconsin Funds Pursue Risk Parity Strategy With $600 Million Investment

As part of its multi-asset allocation within the Wisconsin Retirement System (WRS), the State of Wisconsin Investment Board (SWIB) has allocated $600 million to two risk parity strategy managers.

(January 13, 2011) — The State of Wisconsin Investment Board (SWIB) said it has invested $600 million with two risk parity strategy managers to achieve diversification and continued solid returns.

SWIB allocated $300 million each to AQR Capital Management and Bridgewater Associates’ All Weather vehicle, Global Pensions reported. The funds will be coming from cash and the multi asset liquidity fund, which is managed internally. According to the board, the additional risk parity portfolios is part of a plan to offer further diversification for the WRS Core Trust Fund. “We first approved this asset allocation in January, and we knew this would be a very slow process,” Vicki Hearing, SWIB public information officer, told aiCIO in August of last year.

Furthermore, the $81.9 billion pension fund is planning to commit $80 million to a new venture capital vehicle that will focus on high-growth companies in Wisconsin and the Midwest.

The revised strategies are part of SWIB’s new allocation targets, which the board adopted last January to achieve an asset allocation of 104% of its $64.6 billion core fund. The target allocation incorporates 28% US equities, 25% international equities, 26% fixed income, 7% TIPS, and 6% each private equity, real estate, and absolute return and multiasset strategies, according to its strategy submitted by Chief Investment Officer David Villa and Executive Director Keith Bozarth.

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The new allocations come as the board announced its Core Fund had a preliminary return of 15.6% for 2010, while its $5.6 billion Variable Fund returned 12.3%, surpassing its benchmark by 0.2 percentage points. “While US stocks ended with a strong performance, uncertainty about economic recovery continues,” Keith Bozarth, executive director, said in a news release from the board. “Housing remains weak and the unemployment level remains high in the U.S. In addition, concerns over the global credit markets remain,” he said. “A change in direction for those factors would be a positive sign for improved economic growth.”

A majority of claims, dating from early 2009, against the Royal Bank of Scotland have been dismissed by a US judge on the precedent that investors cannot use federal courts to raise fraud claims over the purchase of foreign securities.

(January 13, 2011) — The Royal Bank of Scotland Group Plc won most claims in a US class action lawsuit by pension funds that tried to recover steep losses from when the bank collapsed in 2008.

The ruling reflects worries that by applying American securities laws internationally, the US would be infringing on the sovereignty of foreign countries. The judge’s decision stemmed from a previous US Supreme Court ruling last year that blocked an Australian investor from bringing a case in New York against the National Australia Bank since the shares in the company were listed abroad. Last year’s ruling limited the scope of US securities laws and paved the way for the dismissal of several lawsuits against oversees firms.

In the RBS decision, the district judge, Deborah Batts, in Manhattan ruled that the shareholders cannot use the US courts to file the claims when they bought the shares in the UK. The RBS lawsuit covered investors who said they suffered massive losses after having purchased securities between March 1, 2007, and January 19, 2009, a period when they said the bank’s ordinary shares fell 98%. RBS suffered record losses in 2008 that resulted in a government bailout of 45.5 billion pounds.

The ruling this week dismissed claims by pensions from Massachusetts and Mississippi that accused the bank in July 2009 of misleading investors about its risk from subprime debt and losses from the acquisition of Dutch lender ABN Amro NV, Bloomberg reported. An RBS spokesman said, as reported by the news service: “RBS welcomes Judge Batts’ decision to dismiss these claims. We will of course continue to defend the remaining claims vigorously.”

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The lawsuit against RBS by shareholders, including large pension funds and other institutions, over misrepresentations to the market during the financial crisis similar claim by institutional investors who backed a lawsuit against Fortis NV, now known as Ageas. Investors have launched a claim accusing the Dutch/Belgian firm of enticing them to invest in the company as it was knowingly on the brink of collapse in 2008. The claim has alleged that between May 29, 2007 and October 14, 2008, Fortis’ inaccurate assessments caused shareholders to continue to invest in the troubled bank, which was heading toward insolvency. The claim argues that the Fortis board failed to provide timely, accurate information about its exposure to sub-prime mortgages in the US while gearing up for a major share issue during the summer of 2007 to finance the acquisition of ABN AMRO Bank.

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