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Showing posts from September, 2013

Blackstone Sees Epic Credit Bubble?

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Lawrence Delevingne of CNBC reports, Blackstone: We're in an 'epic credit bubble':
One of the world's largest investment firms believes the financial system is overly leveraged.

"We are in the middle of an epic credit bubble, in my opinion, the likes of which I haven't seen in my career in private equity," Joseph Baratta, The Blackstone Group's global head of private equity, said Thursday night at the Dow Jones Private Equity Analyst Conference in New York City. "The cost of a high yield bond on an absolute coupon basis is as low as it's ever been."

Baratta said Blackstone is "bullish" on the U.S. economy, but the "valuations we have to pay relative to the growth prospects are out of whack right now."

Baratta said the U.S. still has "clear headwinds" and is "range bound" between 1 percent and 3 percent economic growth.

Blackstone, which manages $53 billion in private equity assets and $230 billion o…

Looting the Pension Funds?

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Matt Taibbi of Rolling Stone wrote a controversial piece, Looting the Pension Funds:
In the final months of 2011, almost two years before the city of Detroit would shock America by declaring bankruptcy in the face of what it claimed were insurmountable pension costs, the state of Rhode Island took bold action to avert what it called its own looming pension crisis. Led by its newly elected treasurer, Gina Raimondo – an ostentatiously ambitious 42-year-old Rhodes scholar and former venture capitalist – the state declared war on public pensions, ramming through an ingenious new law slashing benefits of state employees with a speed and ferocity seldom before seen by any local government.

Called the Rhode Island Retirement Security Act of 2011, her plan would later be hailed as the most comprehensive pension reform ever implemented. The rap was so convincing at first that the overwhelmed local burghers of her little petri-dish state didn't even know how to react. "She's Yale,…

Grayken's Big Bet On European Real Estate?

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Hui-yong Yu of Bloomberg reports, Grayken to Invest $330 Million in Lone Star Property Fund:
Lone Star Funds founder and Chairman John Grayken is investing $330 million of his own money in the company’s new $6.6 billion commercial real estate fund, a bet on strong returns for property.

The capital commitment was disclosed during a meeting yesterday of the Oregon Investment Council, which voted to invest $300 million in the new fund. Grayken’s pledge is the most the billionaire has put into one of his Dallas-based firm’s funds by both dollar and percentage.

Lone Star’s new fund is the biggest global pool being raised for real estate private equity, according to Preqin, a London-based research firm for alternative assets. The target was increased from the original $6 billion in response to investor demand. The first capital pledges are scheduled to be completed on Sept. 27, according to yesterday’s Oregon meeting.

About half of the new fund will be invested in Europe, Nick Beevers, head …

Risks to PBGC Worse Than Thought?

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Phil Ciciora of Phys Org reports, Risks to government pension insurer worse than thought, research finds:
A study co-written by a University of Illinois pension policy expert warns that the financial risks facing the government-sponsored corporation that insures all private-sector pension plans in the U.S. are much greater than commonly thought.

University of Illinois finance professor Jeffrey R. Brown says that the Pension Benefit Guaranty Corp. is facing a very large financial shortfall and ultimately may need to be bailed out by taxpayers.

"Our in-depth review of the PBGC's models indicates that they are likely to underestimate how bad things can get when the economy is weak," said Brown, the William G. Karnes Professor of Finance and the director of the Center for Business and Public Policy in the U. of I. College of Business. "The implication is that the financial risks facing the system are much greater than widely believed."

Brown co-wrote the paper with …

U.S. Public Pension Assets Hit Record High

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Lisa Lambert of Reuters reports, U.S. public pension investments jump, costs surge too:
Asset values at U.S. public pension funds rose 8.4 percent in the latest fiscal year to the highest level in more than 40 years, but their costs also rose, the U.S. Census reported on Monday.

Most retirement systems ended fiscal 2013 on June 30. In the final quarter of that fiscal year the cash and securities holdings of the 100 largest public-employee pensions were $2.944 trillion, up 8.4 percent from a year earlier and the highest level since the Census began collecting pension data in 1968.

Still, quarterly growth in their investments has been slowing at the same time they are having to pay more to retirees. Benefits and withdrawals also reached record highs in the quarter, jumping 16.8 percent from a year earlier to $62.2 billion.

"It looks like we're stabilizing instead of growing," said Erika Becker-Medina, chief of statistics in the Census governments division. She noted that o…

Ontario Teachers Cautious on China?

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Isabella Steger of the Wall Street Journal reports, Ontario Teachers' Pension Plan Cautious About Investing in China:
The Ontario Teachers' Pension Plan, one of the world's biggest pension funds, opened its Hong Kong office with a note of caution about investing in China, saying lack of clear information could make it difficult to invest there.

"I think we have to proceed with caution" in China, said chief executive Jim Leech, who is due to retire at the end of the year after six years in the top job.

The fund, which has about 129.5 billion Canadian dollars ($125.9 billion) in assets under management on behalf of about 300,000 teachers in Canada's most populous province, officially opened its Hong Kong office on Monday, its second major international office after London. The fund currently has about C$1.5 billion invested in the Asian-Pacific region, but faces rising competition from other investors including private-equity funds and sovereign-wealth funds th…

Credit Risk in Provincial Pensions?

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CBC reports, Moody's highlights unfunded pension risk in Quebec, N.L.:
Quebec and Newfoundland and Labrador have the largest unfunded pension liabilities among the Canadian provinces, according to Moody’s.

In a wide-ranging report on pension liabilities, the ratings agency found that Canadian provinces achieve good transparency in their pension plan reporting.

But underfunding of defined benefit pension plans for public-sector workers is a credit problem throughout the developed world, it said.

Alberta announced new rules earlier this week that will help it meet its pension obligations, including increased contributions from civil servants and less early retirement.

In Quebec and Newfoundland and Labrador “relatively large unfunded pension liabilities pose a challenge as they are likely to rise for multiple reasons,” Moody’s said in its report. N.L. suffered after financial crisis

It estimates N.L.‘s ratio of funded liabilities to assets at 54 per cent in 2009, down from 77 per c…