Indiana Fund Narrows Finalists to Replace BlackRock
The Indiana Public Retirement System has identified State Street, Northern Trust and UBS Asset Management as potential replacements for BlackRock as manager of a $969 million global fixed-income portfolio, INPRS staff said during a December 13 board meeting.
Indiana law, passed in May, requires state pension funds to replace a manager or service provider if the firm is determined to have made “ESG commitments,” defined as actions taken or factors considered “with the nonfinancial purpose” related to environmental, social or governance issues.
If a manager or service provider is determined to have made an ESG commitment, then the board of INPRS must replace them with a comparable firm if one is available. If there is at least one service provider expected to be materially equivalent or materially better financially for the system, then the comparable firm must be chosen.
On June 21, Indiana State Treasurer Dan Elliott determined that BlackRock Inc. was engaged in an ESG commitment, citing BlackRock’s Form 10-K filing that referenced ESG risks and the firm’s status as a signatory to the Net Zero Asset Management Initiative, a group of 325 managers representing $57.5 trillion in assets that support investing aligned to achieve net zero carbon emissions by 2050.
Following the treasurer’s finding, INPRS issued on June 28 a request for proposals for potential replacements. The BlackRock portfolio eligible for replacement is a passive global inflation-linked bond portfolio. “It’s a portfolio that, frankly, in my opinion, is not even ESG-related, because it’s a global fixed-income portfolio,” said one INPRS staff member in the December 13 meeting.
INPRS staff and the fund’s investment consultant, Verus, determined State Street, UBS and Northern Trust to be comparable to BlackRock, following the RFP process. “They all have over $1 trillion in assets, [and] they all have passive fixed-income assets greater than $90 billion,” an INPRS staff member said in the meeting.
Like BlackRock, State Street, Northern Trust and UBS are all members of the Net Zero Asset Owner Initiative. Firms like State Street have also been placed on watchlists and have been scrutinized for ESG commitments.
The board of INPRS made a unanimous decision to confirm those three firms as comparable vendors. A provider selection is due within 180 days of the RFP, which puts the deadline as December 25.
INPRS staff at the board meeting noted that there were no concerns with BlackRock’s investment performance, but BlackRock’s status as engaged in an ESG commitment dictated the change.
“We’re proud of having helped hundreds of thousands of Indianans invest and retire with dignity. Despite this decision, we remain committed to Indiana and the $102 billion we have invested in the state on behalf of our clients,” a spokesperson for BlackRock said in a statement.
INPRS manages $46 billion in assets for more than 529,000 beneficiaries.
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