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.)…

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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…

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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…

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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…

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