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Bloomberg: Willis Tower Debt Put in Special Servicing, Fitch Says

By Brian Louis and Sarah Mulholland

Debt on Willis Tower, formerly the tallest U.S. building, was put in special servicing after the borrower requested a loan modification, Fitch Ratings Inc. said.

“The borrower anticipates significant capital costs going forward in order to secure additional new leases,” the rating company said in a report yesterday, citing commentary from the servicer. The Willis Tower debt, which was packaged and bundled into commercial mortgage-backed securities, was transferred to special servicing because of “imminent monetary default,” Fitch said.

The building has almost $499 million of senior debt that was sliced up and packaged into four commercial-mortgage bond deals, according to Barclays Plc. The total loan balance is $774 million, according to Fitch. The property was appraised at $1.22 billion in May 2013, Barclays analysts led by Keerthi Raghavan said in a report today….

Read the rest of the article at Bloomberg.

WSJ: Investors Breathe Life Into European Banks’ Bad Loans

By Emily Glazer

Hedge funds and private-equity investors are bidding up prices of some troubled assets in Europe, sparking a surge in sales by banks seeking to rid themselves of soured corporate loans.

For years after the financial crisis, European banks resisted selling their corporate loans for fear of having to record heavy losses. But recently, some European lenders have reversed their stance as demand for these assets has jumped. One reason for the shift: Defaults and bankruptcy filings have declined in the U.S., leaving investors with fewer opportunities to buy distressed debt and sell it for a profit in a restructuring.

“The prices have risen to the point where some banks are looking to sell because they’re seeing transaction prices that imply” a much smaller loss for certain assets, said Ari Lefkovits, a managing director at Lazard Ltd. LAZ +2.97% , who moved to London in August 2012 in part because of an anticipated uptick in European restructuring activity….

Read the rest of the article at the WSJ.

NYT: A Pension Fund Invests Against the Rules, and Wins

Are the trustees of the Tampa firefighters and police officers pension fund out of their minds?

“Quite a few people tell me we’re crazy,” Richard Griner, a 41-year-old Tampa police detective and vice chairman of the
pension fund’s board, told me this week. “I go to quite a few investment conferences. They just can’t believe that we do this
the way we do. But then I tell them the numbers, and they tend to shut up.”

The Tampa, Fla., pension fund may be unique in its approach to managing its assets, which totaled $1.76 billion as of
last September. Unlike the so-called Yale model, which has been widely copied and stresses alternative investments, the
Tampa fund has no hedge fund or private equity investments.

But neither does it follow the low-cost, index-oriented approach championed by Vanguard and others. The Tampa fund
doesn’t own index or mutual funds.

As for being diversified, which is the mantra of nearly all institutional money managers and consultants, it isn’t. A single
outside manager makes all investment decisions, and the fund’s assets are concentrated in a relatively small number of stocks
and fixed-income investments.

In short, the Tampa pension fund pretty much breaks all the conventional rules of fund management….

Read the rest of the article at the NY Times.

NYT: A World Tour for Restructuring Enthusiasts

By STEPHEN J. LUBBEN

Just when the world of restructuring was becoming dull, the world responded with a wave of financial distress. That sounds like bad news for most people, but for the cognoscenti of financial misfortune, it’s like an early Mardi Gras.

Starting in Greece, there is a story that, if not quite Mycenaean, is at least getting old. The country, you see, will probably need another bailout. Greece has already negotiated two bailouts worth 240 billion euros, or about $329 billion, with the European Commission, the European Central Bank and the International Monetary Fund, but the country now agrees that its banks need at least $6 billion to $7 billion. Everyone else says the number is closer to $20 billion. That sounds like small potatoes to those steeped in United States financial institutions, but remember that the Greek banking sector is probably close to the size of New Jersey’s. A third bailout cannot be too far behind. . .

Read the rest of the article at the NY Times.

From P&I Online: North Carolina Considers End to Sole Trustee Role

By HAZEL BRADFORD

The number of public pension systems with a sole trustee might shrink to two from three, as North Carolina Treasurer Janet Cowell launches a wholesale review of the pros and cons of the approach.

On Jan. 16, Ms. Cowell named an independent group of 11 pension system representatives, legislators and industry experts to develop recommendations for the General Assembly to act on this spring. The new Investment Fiduciary Governance Commission’s assignment is a broad mandate to assess North Carolina’s current governance structure for all of the pension funds that make up the $83.1 billion North Carolina Retirement Systems, Raleigh. Commission members will evaluate best practices in public, private and non-profit investment sectors before advising Ms. Cowell on possible changes to suggest to the General Assembly.

If North Carolina moves away from a sole trustee arrangement, it would leave New York and Connecticut operating that way, rather than through boards of trustees. (In Michigan, the treasurer is the sole fiduciary.)…

Read the rest of the article at Pensions & Investments (free subscription site)

From Pension & Investments Online: Alternatives Investments Need a New Approach for Due Diligence

By DEBORAH PRUTZMAN

With pension fund allocations to hedge funds increasing over the past two years, institutional investors are refining asset allocation investment philosophies into risk-based approaches. A risk-based approach, however, is only as good as its methodology. For an investor considering private equity and hedge funds, this raises two questions: What is an appropriate risk-based approach; and what risks does it consider?

Until recently, issues other than investment performance of alternatives played a secondary role for institutional investors and their consultants. With the 2008 financial crisis and resulting scandals, investors shifted to back-office risks in areas such as custody, valuation and audit. Today, operational due diligence teams are just as important in vetting managers as investment teams.

Despite these changes, due diligence efforts still minimize legal and regulatory risks. In many cases, regulatory risks are weighed only after a scandal erupts. This backward-looking mindset leaves significant risks unrecognized — until the next scandal breaks — and creates risks for pension fund investors.

Alternatives investment managers have gone from being relatively unregulated to heavily regulated. Additionally, the glare of regulatory scrutiny has only intensified. Indeed, activity by one regulator will typically draw the focus of others both in the U.S. and international markets…

Read the rest of the article at Pensions & Investments (free subscription site)

NYT: Foundations Aim to Save Pensions in Detroit Crisis

By RANDY KENNEDY, MONICA DAVEY and STEVEN YACCINO

National and local philanthropic foundations have committed $330 million toward a deal to avoid cuts to Detroit retirees’ pensions and to save the Detroit Institute of Arts’ renowned collection, federal mediators involved in the city’s bankruptcy proceedings announced on Monday.

The plan was a first both in the foundation world, which has not been a source of money to shore up public-sector pensions in the past, and in municipal bankruptcy cases, experts said. It also offered the first indication of progress in the intense mediation with Detroit’s creditors to resolve the city’s financial crisis. Those talks have been proceeding under strict secrecy guidelines.

Nine foundations, many with ties to Michigan — including the Ford Foundation, the Kresge Foundation and the John S. and James L. Knight Foundation — have pledged to pool the $330 million, which would essentially relieve the city-owned Detroit Institute of Arts museum of its responsibility to sell some of its collection to help Detroit pay its $18 billion in debts. In particular, the foundation money would help reduce a portion of the city’s obligations to retirees, whose pensions are at risk of being reduced in the bankruptcy proceedings. By some estimates, the city’s pensions are underfunded by $3.5 billion.

As part of the plan, which negotiators have been working on quietly for more than two months, the museum would be transferred from city ownership to the control of a nonprofit, which would protect it from future municipal financial threats…

Read the rest of the article at the New York Times.

Pensions & Investments Online: Uncertainty may dog institutional investors in 2014

BY RICK BAERT

Uncertainties about what to do in rebalancing and the uncharted waters of central bank accommodation are among the things that’ll bring sleepless nights to investment executives and money managers in the coming year.

“The scary thing is the thing you don’t expect,” said James Keohane, president and CEO of the C$47.4 billion (US$44.6 billion) Healthcare of Ontario Pension Plan, Toronto. “It’s hard to know what there is in store.”

“Everything keeps me up at night,” said David Cooper, chief investment officer of the $28.3 billion Indiana Public Retirement System, Indianapolis.

“Asset allocations are probably out of whack right now,” generally overweight stocks and underweight fixed income, added Tim Barron, CIO at investment consultant Segal Rogerscasey in Darien, Conn. But given the 2013 jump in stock prices and the ongoing concern over core fixed income, he added, “how do you feel about selling stock and buying fixed income? That’s a struggle.”

What’s expected is the continued tapering of the Federal Reserve’s quantitative easing strategy, and that equities will continue to see growth, but not at a breakneck pace…

Read the rest of the article at Pensions & Investments (free subscription site)

M&A Boom Seen in 2014 as Drug Hunt Spurs Biotech Deals

By Meg Tirrell and David Welch

Health-care companies with deep pockets and shallow product pipelines are poised for a busy year of acquisitions, with biotechnology firms likely to be among the most prominent targets even as they trade at record highs.

The seeds of this year’s deals may be planted next week at JPMorgan Chase & Co. (JPM)’s annual health-care conference in San Francisco, where more than 300 companies will present to thousands of investors about the year ahead. Meanwhile, business development executives will be meeting in hotels surrounding the conference that begins Jan. 13.

Large drugmakers from Merck & Co. (MRK) to Bristol-Myers Squibb Co. (BMY) are dealing with patent expirations on top medicines and cutting researchers as they refocus their product development strategies. At the same time, prices on targets are expected to stabilize after last year’s run-up, said Jeff Stute, JPMorgan’s head of health-care investment banking.

“We see M&A in the health-care sector being up materially in 2014 at all size levels and across all subsectors,” Stute said in a telephone interview. “Buyers and sellers will get comfortable with the new reality of where assets are priced.”

Biotechnology companies in particular had a standout 2013, with the Nasdaq Biotechnology Index gaining 66 percent, topping a 30 percent increase for the Standard & Poor’s 500 (SPX), and closing yesterday at a record high of 2,449.25. The industry saw the most IPOs since 2000, as investors were drawn to the prospects of revenue growth in an industry seeing a record number of new drug approvals over two years….

Read the rest of the article at Bloomberg.

FierceCFO.com: Federal Regulators Lean on States to Do More to Control Reinsurance

by Hilary Johnson

Are the states up to the task of effectively regulating reinsurers?

That is one of the questions that remain following a highly anticipated report last week from the Federal Insurance Office, an entity formed under the Dodd-Frank Act.

FIO, tasked with deciding what changes are in order for insurance regulation, called in the report for greater cooperation among states and federal regulators.

“In the short term, the U.S. system of insurance regulation can be modernized and improved by a combination of steps by the states and certain actions by the federal government,” the report stated.

The report’s recommendations also included that “states should develop a uniform and transparent solvency oversight regime for the transfer of risk to reinsurance captives,” and that to help achieve consistent regulation of reinsurers across states “Treasury and the United States Trade Representative [should] pursue a covered agreement for reinsurance collateral requirements.” But, the report noted, this agreement would be based on a model law hammered out by the association of state regulators, the National Association of Insurance Commissioners.

Read the rest of the article at FierceCFO.com.