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Chicago’s Next Mayor Must Have a Plan to Tackle the City's $34 Billion in Pension Debt
By Shruti Singh
March 2, 2023 at 3:17 PM EST
Chicago is guaranteed a new mayor after voters rejected incumbent Lori Lightfoot’s bid for a second term. With the looming leadership change, investors want to know whether the city will keep up recent financial momentum or return to old bad habits.
The third-largest US city escaped from junk-rating territory late last year after paying more into its long-strained pensions that are still short nearly $34 billion. The mayoral runoff contenders — Cook County Board Commissioner Brandon Johnson and Paul Vallas, the former Chicago schools chief, have starkly different approaches for how to address that shortfall and the rest of the challenges facing its 2.7 million residents.
“Preserving and furthering the financial and credit improvements should be a top priority for any candidate,” said Dora Lee, director of research at Belle Haven Investments, which holds Chicago debt as part of $15 billion in muni assets. “Campaign promises are very easy to make but very hard to execute. However, they will be easier to accomplish if the city is on a sound financial footing.”
The city has long struggled with pension debt and chronic structural deficits. With about one out of every five budget dollars going to pensions, there’s less money available for crucial services like policing. This comes as the city struggles with rising crime, a key issue that contributed to Lightfoot’s loss. Both Vallas and Johnson have promised to make the city safer and more equitable for residents but differ on how to fund their plans.
Johnson, who is backed by the Chicago Teachers Union, and Vallas, who is endorsed by the police union, have laid out high-level plans. Neither were immediately available for an interview.
According to his campaign website, Johnson, 46 wants to raise taxes on companies that profit from doing business in the city, including hotels, and airlines that pollute the city’s air. He would reinstate the so-called “big business head tax” with a $4 per employee levy on companies that perform 50% or more of their work in Chicago. He’s also proposing a “mansions tax” on the transfer of high-value properties and a levy on securities trading, which the city’s exchanges have opposed.
Vallas, 69, the front-runner who won nearly 34% of the Feb. 28 vote compared to Johnson’s 20%, has an entire page on his campaign website devoted to pension funding. He would put the city’s retirement funds under the direction of independent professional investment managers who are held accountable for performance. His plan also leans heavily on working with state officials to secure more funding.
Vallas also would consider tapping surpluses from tax increment financing districts to fund pension obligation bonds, according to his campaign website.
One major point of agreement: both Vallas and Johnson have said they won’t raise property taxes, a major source of revenue. Roughly 80% of those levies go to pay retirement benefits.
Under Lightfoot, the city boosted payments to its retirement funds by more than a $1 billion in the last three years to meet statutory funding mandates that kicked in before Covid-19 hit. But her administration went further by putting in $242 million more than required in the 2023 budget. It also advanced roughly half a billion dollars to its funds starting in late 2022 to prevent them from selling assets during a market rout.
The increased pension funding led to credit upgrades, including one in November from Moody’s Investors Service that lifted its rating from junk to investment grade for the first time since 2015. The previous month, Fitch Ratings had raised the city’s credit by one level to BBB with a positive outlook.
“While it’s too early to gauge the impact of any new administration’s fiscal policies and financial management, Chicago’s ‘BBB’ rating and positive outlook hinge upon the city sustaining its commitment to maintaining high budget reserves and actuarial pension funding,” Michael Rinaldi, a senior director for Fitch, said in an email.
Chicago is continuing to recover financially from the pandemic, with revenue growing and budget shortfalls shrinking since the worst of 2020 and 2021 partly thanks to to federal aid, according to Sarah Wetmore, acting president of government fiscal watchdog the Civic Federation.
“There are still a number of issues the city faces going forward, including still high levels of violence, a public transit system struggling with reliability issues and decreased ridership as well as substantial projected budget deficits in coming years once federal pandemic funding runs out,” Wetmore said.
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https://www.bloomberg.com/news/articles/2023-03-02/chicago-s-next-mayor-vallas-or-johnson-will-face-financial-challenges?sref=dlv6Ue8o
Belle Haven Investments Named "Manager of the Decade" Five Times by PSN Informa
Quarterly PSN Top Guns List published by Zephyr identifies best-in-class separate accounts, managed accounts, and managed ETF strategies
RYE BROOK, N.Y., Feb. 22, 2023 /PRNewswire/ -- Belle Haven Investments has three strategies that have each been awarded Top Guns Manager of the Decade distinction for the 10-year period ending Q4 2022.
Muni PLUS was awarded Manager of the Decade in the Municipals Universe. Taxable PLUS was awarded Manager of the Decade in both the Core Fixed Income and US Fixed Income Universes for the fourth consecutive year. Taxable Ladder PLUS was awarded Manager of the Decade in the Core Fixed Income Universe for the third consecutive year and for the first time in the US Fixed Income Universe.
Muni PLUS is Belle Haven's flagship, actively managed separate account strategy that invests in tax-exempt municipal bonds. Taxable PLUS and Taxable Ladder PLUS are actively managed separate account strategies that invest in taxable municipal bonds, corporate bonds, agencies and treasuries.
Additionally, several of Belle Haven's separately managed account strategies received the following designations for the fourth quarter of 2022:
Taxable Ladder PLUS – 4 Stars – Core Fixed Universe
Taxable Ladder PLUS – 5 Stars – Core Fixed Universe
Taxable PLUS – 4 Stars – Core Fixed Universe
Taxable PLUS – 5 Stars – Core Fixed Universe
Taxable PLUS – 6 Stars – Core Fixed Universe
3-17 Year Ladder – 1 Stars – Intermediate Maturity Universe
3-17 Year Ladder – 1 Stars – Municipals Universe
3-17 Year Ladder – 4 Stars – Municipals Universe
Cash Management – 3 Stars – Less than 1 Year Mat Universe
"It is quite an honor to have our strategies recognized as top performers in their respective universes." said Matt Dalton, CEO & CIO of Belle Haven Investments. "We believe our disciplined approach and focus on long-term risk-adjusted returns have and will continue to allow us to produce compelling results for our clients."
Through a combination PSN's proprietary performance screens, the PSN Top Guns List ranks products in six proprietary categories in over 75 universes based on continued performance over time.
Belle Haven Investments' Muni PLUS, Taxable PLUS and Taxable Ladder PLUS strategies were all named Top Gun Manager of the Decade, meaning these strategies had an r-squared of 0.80 or greater relative to the style benchmark for the latest 10-year period. Moreover, the strategy's returns were greater than the style benchmark for the latest 10-year period and also standard deviation less than the style benchmark for the latest ten-year period. At this point, the top ten performers for the latest 10-year period become the PSN Top Guns Manager of the Decade.
Top Guns 1-Star Criteria: Product had one of the top ten returns for the quarter in their respective strategy.
Top Guns 3-Star Criteria: Product had one of the top ten returns for the three-year period in their respective strategy.
Top Guns 4-Star Criteria: Product had an r-squared of 0.80 or greater relative to the style benchmark for the recent five-year period. Moreover, the strategy's returns exceeded the style benchmark for the three latest three-year rolling periods. The top ten returns for the latest three-year period then become the 4 Star Top Guns.
Top Guns 5-Star Criteria: Product had an r-squared of 0.80 or greater relative to the style benchmark for the recent five-year period. Moreover, the strategy's returns exceeded the style benchmark for the three latest three-year rolling periods. Products are then selected which have a standard deviation for the five-year period equal or less than the median standard deviation for the peer group. The top ten returns for the latest three-year period then become the 5 Star Top Guns.
Top Guns 6-Star Criteria: Product had an r-squared of 0.80 or greater relative to the style benchmark for the recent five-year period. Moreover, the strategy's returns exceeded the style benchmark for the three latest three-year rolling periods. Products are then selected which have a standard deviation for the five-year period equal or less than the median standard deviation for the peer group. The top ten information ratios for the latest five-year period then become the 6 Star Top Guns.
The complete list of PSN Top Guns and an overview of the methodology can be located at https://psn.fi.informais.com/. Registration is required.
About BELLE HAVEN INVESTMENTS
Belle Haven Investments is an independent money manager specializing in separately managed taxable and tax-exempt portfolios since 2002. The firm is uniquely committed to serving Consultants and Advisors along with the Institutions, Foundations, Family Offices and High Net Worth individuals whom they represent. The team's expertise and focus in the fixed income asset class has resulted in award-winning strategies. Belle Haven is a Registered Investment Advisor with the Securities Exchange Commission (SEC). For more information, please visit www.bellehaven.com
About PSN
For nearly four decades, PSN has been a top resource for investment professionals. Asset managers rely on Zephyr's PSN to effectively reach institutional and retail investors rely. Over 2,800 firms, 285 universes, and more than 21,000 products comprise the PSN SMA database showing asset breakdowns, compliance, key personnel, ownership diversity, ESG, business objectives and strategy, style, fees, GIC sectors, fixed income ranges and full holdings. Unique to PSN is its robust historical database of nearly 40 Years of Data Including Net and Gross-of-Fee Returns. For more details on the methodology behind the PSN Top Guns Rankings or to purchase PSN Top Guns Reports, contact Margaret Tobiasen at Margaret.tobiasen@informa.com. Visit PSN online to learn more.
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https://www.prnewswire.com/news-releases/belle-haven-investments-named-manager-of-the-decade-five-times-by-psn-informa-301753509.html?tc=eml_cleartime
A Small Catholic College's Closure Hints at More to Come
A Small Catholic College's Closure Hints at More to Come
By Allison Nicole Smith
January 24, 2023 at 1:06 PM EST
Economic strains that have pushed a number of colleges and universities to the brink show no signs of stopping, with Holy Names University in Oakland, California, the first to default on its debt in 2023.
The Roman Catholic school with fewer than 1,000 students defaulted on a $49 million loan, according to a Jan. 3 filing, after the almost 155-year-old institution announced it would be closing its doors at the end of the academic year.
The closure is likely a harbinger of what’s to come as S&P Global Ratings has warned less selective, regional institutions will struggle in the new year. Growing competition, falling enrollment trends and higher expenses could weaken credit quality. At the same time, waning risk appetite ahead of a looming recession means struggling schools’ access to the $4 trillion municipal-bond market could be limited.
“It boils down to a supply and demand issue,” said Lisa Washburn, managing director at Municipal Market Analytics. “We’ve just got too many seats for too few students. Add to that rising costs and a pandemic, and some schools just become uneconomical to run.”
With a projected decline in US high school graduates, it’s an issue more universities are facing. But the pain is especially apparent at small, religious colleges with high acceptance rates.
Georgian Court University, a Catholic school in New Jersey, was downgraded into junk by Moody’s Investors Service Thursday, citing declining enrollment and strained revenue. Presentation College, a Catholic institution in South Dakota, announced plans to close early last week. And Birmingham-Southern College, a liberal-arts school affiliated with the United Methodist Church, is asking for $37.5 million to keep its doors open.
Rising costs, exacerbated by the pandemic, have contributed to Fitch Ratings’s “deteriorating” outlook on the higher education sector. In 2020, Holy Names reported operating losses of $8.6 million, followed by $4.2 million in 2021. However, the university was already struggling in 2019 when it tapped the municipal-bond market for $49 million to pay off old debt and fund capital expenditures.
Tuition at Holy Names — a predominately-Hispanic and Black university, where roughly half of students qualify for Pell Grants — costs about $52,000 a year, including meals and housing.
A five-year plan initiated in 2019 intended to boost enrollment, but only 943 students were enrolled this past fall, missing projections by nearly 40%. Spring enrollment was even worse after the university said in November it was looking to merge with another school to cover expenses. Only 449 students enrolled.
Ultimately, Holy Names did not find a suitor — in what appeared to be a difficult search, according to a Dec. 14 letter by student body president Ruby Mayne to the board of trustees. The university missed multiple deadlines for an update to students, resulting in “rampant rumors” and “a scramble to meet transfer deadlines.”
Moreover, its failure to merge with another school highlights how vulnerable smaller colleges are in an oversaturated market, said Dora Lee, director of research at Belle Haven Investments.
About $687 million of outstanding debt sold for US colleges and universities has defaulted or has payments at risk, according to data analyzed by Bloomberg.
“The fact that it wasn’t assumed by another higher-ed facility shows that while we do expect mergers and acquisitions, merging your way out of these problems might not be an option for a lot of these small colleges,” Lee said. “In this high-interest rate environment, the closure of Holy Names is a theme that we expect to continue.”
Neither Holy Names nor Preston Hollow Community Capital, the majority bondholder, responded to requests for comment.
— With assistance by Nic Querolo and Trevor Rowe
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https://www.bloomberg.com/markets/fixed-income?sref=dlv6Ue8o