Friday, May 22, 2015

Top Funds' Activity in Q1 2015

Sam Forgione of Reuters reports, Top U.S. hedge funds continued to dump Apple amid rally:
Top U.S. hedge fund management firms, including Leon Cooperman's Omega Advisors and Philippe Laffont's Coatue Management, continued to reduce or slash stakes altogether in Apple Inc (AAPL.O) during the first quarter, as shares of the iPhone maker rallied.

According to regulatory filings released on Friday, Coatue cut its holding of Apple by selling 1.2 million shares during the first three months of this year, but it remains the fund's single biggest U.S. stock investment, with 7.7 million shares. Omega Advisors sold all of its 383,790 shares in Apple during the first quarter, while Rothschild Asset Management cut its stake by 107,953 to 938,693 shares, filings showed on Friday.

David Einhorn's Greenlight Capital also cut its exposure in Apple during the first quarter, slashing its stake by 1.2 million shares to 7.4 million shares.

Apple shares rose 12.7 percent in the first quarter and have continued to increase. Since the end of March, the shares have risen 3.6 percent through Thursday's close. Including Friday's trading, shares are up 3.3 percent since the end of March.

In the fourth quarter, David Einhorn's Greenlight Capital and Coatue Management reduced their stakes in Apple, which was a big winner in 2014, with its shares rising nearly 38 percent.

At the end of 2014, Apple was one of the hedge fund community's favored positions, according to Goldman Sachs. Their analysis of more than 850 funds with $2 trillion in assets showed 12 percent of hedge funds counted it among their top 10 holdings. And given its size as the largest publicly traded U.S. company, that made it "key for both hedge fund and index performance," Goldman said in its February report.

Not every big hedge fund manager is souring on Apple. Ray Dalios' Bridgewater Associates increased its stake by 473,500 shares to 732,997. And billionaire hedge-fund activist Carl Icahn kept his stake unchanged at 52.8 million shares as of the end of the first quarter.

The actions were revealed in quarterly disclosures of manager stock holdings, known as 13F filings, with the U.S. Securities and Exchange Commission. They are of great interest to investors trying to divine a pattern in what savvy traders are selling and buying.

The disclosures are backward-looking and come out 45 days after the end of each quarter. Still, the filings offer a glimpse into what hedge fund managers saw as opportunities on the long side.

The filings do not disclose short positions. As a result, the public filings do not always present a complete picture of a management firm's stock holdings.
The whole world knows Carl Icahn's views on Apple. He thinks underweight Apple bets will hurt funds' performance and he might be right on that call as the so-called "biotech and buyback bubble" keeps inflating. Listening to his wise son, Brett, Icahn senior has also made a killing in Netflix (NFLX), one of the top performing Nasdaq stocks this year. They still maintain 10% of the portfolio in this company but don't bother chasing Netflix higher now, the big money has already been made.

But should you invest like Icahn? That was a topic in a recent CNBC debate. When I look closely at his top holdings, there are stock bets I like and others where he's getting killed. For example, his big bets on Chesapeake Energy (CHK), Transocean (RIG) and CVR Energy (CVI) have hurt his fund (interestingly, Viking Global just took a position in Transocean in Q1). And Icahn's pump and dump of Voltari (VLTC) which I recently discussed here is an abomination.

Still, what I like about Icahn is he has the balls to take outsized bets on companies he has conviction on and he typically turns out to be right on his big bets which is why so many people track his fund's holdings closely.

Where else are well known hedge funds making big bets? Nathan Vardi of Forbes reports, Hedge Funds Keep Betting Big On Health Care:
In recent years, some of the most prominent hedge fund victories have been all about health care. Larry Robbins, the billionaire founder of Glenview Capital Management, has generated excellent performance in the last two years by allocating a big chunk of his portfolio to hospital stocks—one of his hedge funds has posted a three-year annualized return of 57%. Billionaire William Ackman had the biggest year of his hedge fund career in 2014 because of Botox-maker Allergan, which was responsible for 19.1% of Ackman’s gross return.

In the first three months of 2015, hedge funds continued to rush into health care, chasing returns in the sector that has led the U.S stock market this year. Hedge funds increased their long exposure to health care to $289.67 billion, according to research firm Novus, making up 10.35% of the net assets under management of stock-picking hedge funds. Novus, which does not include quantitative trading hedge funds in its stock holding analysis, says that in the last year hedge funds have gone from being underweight health care to overweight.

The most popular hedge fund health care stock by far is Actavis, the generic drug maker that bought Allergan this year for $67 billion and is run by Brent Saunders, a CEO who is popular with both Ackman and Carl Icahn. Goldman Sachs released a report on Thursday that showed Actavis is the most popular stock with hedge funds that it tracks, even more popular than Apple. There are 171 hedge funds invested in Actavis and those hedge fund owned $20.3 billion of the stock at the end of March, according to Novus. The only company in America in which hedge funds held more stock, according to Novus, was Apple.

Actavis is a hedge fund-fueled stock. Hedge funds owned 24% of the outstanding shares at the end of March. Big positions in Actavis are owned by funds managed by billionaire John Paulson, whose Paulson & Co., had Actavis as its second-biggest U.S. holding at the end of March, and billionaire Andreas Halvorsen, who has made Actavis the biggest U.S. stock position of his some $30 billion hedge fund.

Actavis was recently the second-biggest holdings of billionaire Dan Loeb’s Third Point hedge fund, which had biotech company Amgen as its biggest position at the end of March. These two stocks alone made up about a quarter of Loeb’s U.S. stock holdings. A big buyer of Actavis in the first quarter of 2015 was billionaire Stephen Mandel’s Lone Pine hedge fund.

Valeant Pharmaceuticals is the second-most popular health care stock with the hedge fund crowd when measured by the value of shares held by hedge funds, according to Novus. There are 100 hedge funds that own $17.8 billion of the stock. Valeant is a hedge fund machine that was essentially created by ValueAct Capital Management, the San Francisco hedge fund run by Jeffrey Ubben. The stock is Ubben’s biggest holding by far, recently making up more than 21% of his U.S. stock portfolio. It made up more than a quarter of Bill Ackman’s U.S. stock portfolio at the end of March after his Pershing Sqaure hedge fund finally took a position this year in the drug maker that Ackman had teamed up with in early 2014 to try to buy Allergan. Valeant is Ackman’s biggest position so far in 2015.

Johnson & Johnson is a health care stock owned by 163 hedge funds. More hedge funds own Johnson & Johnson than any other health care stock except for Actavis. Pfizer is another drug company that has long been very popular with hedge funds, which own more than $6 billion of the stock, as is Gilead Sciences, where 141 hedge funds owned nearly $5 billion of the stock at the end March, according to Novus.

What healthcare stocks were hedge funds buying in the first quarter? Davita Healthcare Partners is one example. They have also been playing the mergers that have dominated the industry, buying shares of Salix Pharmaceuticals, Hospira and Pharmacyclics.
It's that time of the year folks, when everyone gets hot and bothered over what overpaid and over-glorified hedge fund gurus bought and sold last quarter.

Let's go over some more articles. Akin Oyedele of Business Insider reports on the top stock pick from each of 50 biggest hedge funds. You can click on the image below to view them:


Goldman also came out with the 100 most important stocks to hedge funds. You can click on the images below to see the top 50 long and the top 50 short positions:

Top 50 longs (click on image):


Top 50 shorts (click on image):


Whale Wisdom provides a cool "heat map" on their site going over 13 F filings from top funds where you can sort top picks by sector and even see ones from previous quarters (click on image below):


Now, here's my take on all this. Unless you're a professional stock trader or investor, please ignore these articles and information from sites like market folly, Insider Monkey, Holdings Channel, and Whale Wisdom.

All this information overload will just confuse the hell out of you. Holding a top long position of hedge funds doesn't mean you will make money. Conversely, holding a top short position of a hedge fund doesn't mean you will lose money. In fact, Goldman Sachs told hedge fund clients this week to buy stocks that are unloved by their peers if they want any chance of beating them.

So why bother looking at the portfolios of top funds? And who exactly are top funds right now? I'll answer these questions with the help of my friends at Symmetric, Sam Abbas and David Moon.

In my opinion, Sam and David have created one of the best services to track hedge fund holdings and more importantly to dynamically rank hedge funds based on their holdings and their alpha generation.

Sam took some time earlier this week to walk me through their product which only costs $200 a month (no lockup! LOL!) and where you can literally go over the portfolios of top funds in great detail to see if they're adding real alpha. Honestly, it's amazing, I highly recommend you contact them here and try it out, it's simply amazing.

And by the way, I'm not affiliated with Symmetric, nor have they provided me with any money to plug them. They were nice enough to provide me with a free tryout and I'm using my knowledge of hedge funds and benchmarks to help them think about how they can improve their product.

Symmetric provides an in-depth report every quarter and Sam allowed me to share some information from their latest report with my readers:
The Symmetric Twenty comprise the top twenty ranked long-short equity managers. We force-rank the entire Symmetric universe according to their realized StockAlpha year to date, 12 months back and three years back. The list is further adjusted to reflect those whose StockAlpha has not only the greatest magnitude, but also the greatest consistency over each period.

The following chart shows the cumulative StockAlpha for the Symmetric Top 20 vs. cumulative StockAlpha for the entire hedge fund universe. The chart demonstrates the magnitude of dispersion between the best and most consistent stock pickers and the average stock pickers. The Symmetric Top 20 have added over 25% of StockAlpha above the average hedge fund over the past 3 years or roughly 8% a year. With hedge fund fees typically being around 2% of assets and managed and 20% of profits, its clear that only the very top stock pickers are worth paying for. The average hedge fund would return negative StockAlpha after fees (click on image).


And who are the top  20 funds right now according to Symmetric? Click on the chart below to view them:


They also provided the most profitable trades of the Symmetric Twenty in Q1 2015 (click on image):


And they provide the Symmetric Twenty's top five new positions as well as the top five increased positions in Q1 2015 (click on image).


Not surprisingly, Broadfin run by Kevin Kotler is at the top of Symmetric top 20 list. I track this fund's portfolio very closely as it's in the red hot biotech space which I like so much. There are many other funds I like in this space, including Baker Brothers, Perceptive Advisors, Palo Alto Investors and many more (see my list below).

Sam was also kind enough to do some custom work for me, looking at the funds that I track closely below. I can literally do some serious attribution analysis on all these funds. He provided me with some of the most crowded trades and top winners and losers for the funds I track (click on images):

Deep Value


L/S Equity


Sector Specific


Sam Abbas of Symmetric also shared this valid point with me on replicating hedge fund strategies:
Most allocators approach hedge fund replication using 13-Fs by pointing out the 45 day delay with filings releases and the lack of information about the short side/international part of the book. The standard argument is that this makes replication a bad idea.
We don't think this is the right way to think about it. A better approach is to ask: do the benefits of being invested directly in the fund (short exposure + inter quarter trading + international exposure) make up for the 2/20 in fees and long lockup periods? 2/20 is such an enormous performance drag that in some cases you may be better off than the net return of the fund just by replicating the publicly disclosed book.
At the very least allocators should be benchmarking their funds net returns to a synthetic replicated version to understand what value they are getting above and beyond what is available cheaply.
I thank Sam Abbas for all his wonderful insights. Once again, please contact them here for more information on this wonderful service they provide. You will be blown away!

Below, you can click on links to view the top funds of many hedge funds and other funds I track. This is a dynamic list that keeps getting bigger and bigger. Typically what happens is I look at stocks that are doing well and look at who the largest holders are to gain ideas as to which funds to add to my list. That's why the list keeps growing. I also added many Canadian funds for those of you looking to see what the big Canadian funds are buying and selling up here.

Finally, I'm a stock market junkie and track thousands of companies in over 100 sectors and industries. I've built that list over many years and keep adding to it. I regularly look at the YTD performance of stocks, the 12-month leaders, the 52-week highs and 52-week lows. I also like to track the most shorted stocks and highest yielding stocks in various exchanges.

Gaining an edge on stock picking is a full time job. Please remember that these schizoid markets move on a dime and are heavily influenced by macro factors. Even the very best stock pickers get their hands handed to them from time to time and if they tell you otherwise, they're blatant liars.

Having said this, there is a reason why people like peering into Warren Buffett's portfolio or that of Seth Klarman (shown in pic at the top) or his protege, David Abrams, the one-man wealth machine. These managers are incredible stock pickers with a long and enviable track record. They don't hug benchmarks, they take very concentrated bets in a few stocks they really like and hold them for a long time, which is why they've delivered incredible outperformance over a very long period.

But even they aren't gods and they can't predict the future. These are very tough markets to make money in and I highly recommend you read my comment on slugging through a rough stock market as well as my more recent comments on hedge funds preparing for war and whether you should prepare for global reflation.

I'm still long a few biotechs which I like to trade around but these markets are making me increasingly nervous because there are a lot of hidden risks on the macro front and some not so hidden that worry me.

I can share a lot more information on specific stocks and macro risks with institutional investors that subscribe to this blog via the third option ($5,000 a year). Once again, I ask you all to please take the time to donate and show your appreciation for my work. You can do so via PayPal at the top right-hand side of this blog.

On that note, have fun peering into the portfolios of top funds below. I cover a lot of funds, not just hedge funds.

Top multi-strategy and event driven hedge funds

As the name implies, these hedge funds invest across a wide variety of hedge fund strategies like L/S Equity, L/S credit, global macro, convertible arbitrage, risk arbitrage, volatility arbitrage, merger arbitrage, distressed debt and statistical pair trading.

Unlike fund of hedge funds, the fees are lower because there is a single manager managing the portfolio, allocating across various alpha strategies as opportunities arise. Below are links to the holdings of some top multi-strategy hedge funds I track closely:

1) Citadel Advisors


2) Balyasny Asset Management

3) Farallon Capital Management

4) Peak6 Investments

5) Kingdon Capital Management

6) Millennium Management

7) Eton Park Capital Management

8) HBK Investments

9) Highbridge Capital Management

10) Pentwater Capital Management

11) Och-Ziff Capital Management

12) Pine River Capital Capital Management

13) Carlson Capital Management

14) Mount Kellett Capital Management 

15) Whitebox Advisors

16) QVT Financial 

17) Visium Asset Management

18) York Capital Management

Top Global Macro Hedge Funds and Family Offices

These hedge funds gained notoriety because of George Soros, arguably the best and most famous hedge fund manager. Global macros typically invest in bond and currency markets but the top macro funds are able to invest across all asset classes, including equities.

George Soros, Stanley Druckenmiller, Julian Robertson and now Steve Cohen have converted their hedge funds into family offices to manage their own money and basically only answer to themselves (that is my definition of true investment success).

1) Soros Fund Management

2) Duquesne Family Office (Stanley Druckenmiller)

3) Bridgewater Associates

4) Caxton Associates (Bruce Covner)

5) Tudor Investment Corporation

6) Tiger Management (Julian Robertson)

7) Moore Capital Management

8) Point72 Asset Management (Steve Cohen)

9) Bill and Melinda Gates Foundation Trust (Michael Larson, the man behind Gates)

Top Market Neutral, Quant and CTA Hedge Funds

These funds use sophisticated mathematical algorithms to initiate their positions. They typically only hire PhDs in mathematics, physics and computer science to develop their algorithms. Market neutral funds will engage in pair trading to remove market beta.

1) Alyeska Investment Group

2) Renaissance Technologies

3) DE Shaw & Co.

4) Two Sigma Investments

5) Numeric Investors

6) Analytic Investors

7) Winton Capital Management

8) Graham Capital Management

9) SABA Capital Management

10) Quantitative Investment Management

11) Oxford Asset Management

Top Deep Value, Activist and Distressed Debt Funds

These are among the top long-only funds that everyone tracks. They include funds run by legendary investors like Warren Buffet, Seth Klarman, Ron Baron and Ken Fisher. Activist investors like to make investments in companies where management lacks the proper incentives to maximize shareholder value. They differ from traditional L/S hedge funds by having a more concentrated portfolio. Distressed debt funds typically invest in debt of a company but sometimes take equity positions.

1) Abrams Capital Management

2) Berkshire Hathaway

3) Baron Partners Fund (click here to view other Baron funds)

4) BHR Capital

5) Fisher Asset Management

6) Baupost Group

7) Fairfax Financial Holdings

8) Fairholme Capital

9) Trian Fund Management

10) Gotham Asset Management

11) Fir Tree Partners

12) Sasco Capital

13) Jana Partners

14) Icahn Associates

15) Schneider Capital Management

16) Highfields Capital Management 

17) Eminence Capital

18) Pershing Square Capital Management

19) New Mountain Vantage  Advisers

20) Atlantic Investment Management

21) Scout Capital Management

22) Third Point

23) Marcato Capital Management

24) Glenview Capital Management

25) Perry Corp

26) Apollo Management

27) Avenue Capital

28) Blue Harbor Group

29) Brigade Capital Management

30) Caspian Capital

31) Kerrisdale Advisers

32) Knighthead Capital Management

33) Relational Investors

34) Roystone Capital Management

35) Scopia Capital Management

36) ValueAct Capital

37) Vulcan Value Partners

38) Okumus Fund Management

39) Eagle Capital Management

40) Lyrical Asset Management

Top Long/Short Hedge Funds

These hedge funds go long shares they think will rise in value and short those they think will fall. Along with global macro funds, they command the bulk of hedge fund assets. There are many L/S funds but here is a small sample of some well known funds.

1) Appaloosa Capital Management

2) Tiger Global Management

3) Greenlight Capital

4) Maverick Capital

5) Pointstate Capital Partners 

6) Marathon Asset Management

7) JAT Capital Management

8) Coatue Management

9) Omega Advisors (Leon Cooperman)

10) Artis Capital Management

11) Fox Point Capital Management

12) Jabre Capital Partners

13) Lone Pine Capital

14) Paulson & Co.

15) Bronson Point Management

16) Hoplite Capital Management

17) LSV Asset Management

18) Hussman Strategic Advisors

19) Cantillon Capital Management

20) Brookside Capital Management

21) Blue Ridge Capital

22) Iridian Asset Management

23) Clough Capital Partners

24) GLG Partners LP

25) Cadence Capital Management

26) Karsh Capital Management

27) New Mountain Vantage

28) Andor Capital Management

29) Silver Point Capital

30) Steadfast Capital Management

31) Brookside Capital Management

32) PAR Capital Capital Management

33) Gilder, Gagnon, Howe & Co

34) Brahman Capital

35) Bridger Management 

36) Kensico Capital Management

37) Kynikos Associates

38) Soroban Capital Partners

39) Passport Capital

40) Pennant Capital Management

41) Mason Capital Management

42) SAB Capital Management

43) Sirios Capital Management 

44) Hayman Capital Management

45) Highside Capital Management

46) Tremblant Capital Group

47) Decade Capital Management

48) T. Boone Pickens BP Capital 

49) Bloom Tree Partners

50) Cadian Capital Management

51) Matrix Capital Management

52) Senvest Partners


53) Falcon Edge Capital Management

54) Melvin Capital Partners

55) Portolan Capital Management

56) Proxima Capital Management

57) Tourbillon Capital Partners

58) Valinor Management

59) Viking Global Investors

60) York Capital Management

61) Zweig-Dimenna Associates

Top Sector and Specialized Funds

I like tracking activity funds that specialize in real estate, biotech, healthcare, retail and other sectors like mid, small and micro caps. Here are some funds worth tracking closely.

1) Baker Brothers Advisors

2) Palo Alto Investors

3) Broadfin Capital

4) Healthcor Management

5) Orbimed Advisors

6) Deerfield Management

7) Sarissa Capital Management

8) SIO Capital Management

9) Sectoral Asset Management

10) Oracle Investment Management

11) Perceptive Advisors

12) Consonance Capital Management

13) Camber Capital Management

14) Redmile Group

15) RTW Investments

16) Bridger Capital Management

17) Southeastern Asset Management

18) Bridgeway Capital Management

19) Cohen & Steers

20) Cardinal Capital Management

21) Munder Capital Management

22) Diamondhill Capital Management 

23) Tiger Consumer Management

24) Geneva Capital Management

25) Criterion Capital Management

26) Highland Capital Management

27) SIO Capital Management

28) Tang Capital Management

29) Daruma Capital Management

30) 12 West Capital Management

Mutual Funds and Asset Managers

Mutual funds and large asset managers are not hedge funds but their sheer size makes them important players. Some asset managers have excellent track records. Below, are a few funds investors track closely.

1) Fidelity

2) Blackrock Fund Advisors

3) Wellington Management

4) AQR Capital Management

5) Sands Capital Management

6) Brookfield Asset Management

7) Dodge & Cox

8) Eaton Vance Management

9) Grantham, Mayo, Van Otterloo & Co.

10) Geode Capital Management

11) Goldman Sachs Group

12) JP Morgan Chase & Co.

13) Morgan Stanley

14) Manulife Asset Management

15) RCM Capital Management

16) UBS Asset Management

17) Barclays Global Investor

18) Epoch Investment Partners

19) Thornburg Investment Management

20) Legg Mason Capital Management

21) Kornitzer Capital Management

22) Batterymarch Financial Management

23) Tocqueville Asset Management

24) Neuberger Berman

25) Winslow Capital Management

26) Herndon Capital Management

27) Artisan Partners

28) Great West Life Insurance Management

29) Lazard Asset Management 

30) Janus Capital Management

31) Franklin Resources

32) Capital Research Global Investors

33) T. Rowe Price

34) First Eagle Investment Management

35) Frontier Capital Management

36) Akre Capital Management

Canadian Asset Managers

Here are a few Canadian funds I track closely:

1) Letko, Brosseau and Associates

2) Fiera Capital Corporation

3) West Face Capital

4) Hexavest

5) 1832 Asset Management

6) Jarislowsky, Fraser

7) Connor, Clark & Lunn Investment Management

8) TD Asset Management

9) CIBC Asset Management

10) Beutel, Goodman & Co

11) Greystone Managed Investments

12) Mackenzie Financial Corporation

13) Great West Life Assurance Co

14) Guardian Capital

15) Scotia Capital

16) AGF Investments

17) Montrusco Bolton

Pension Funds, Endowment Funds, and Sovereign Wealth Funds

Last but not least, I track activity of some pension funds, endowment funds and sovereign wealth funds. I like to focus on funds that invest in top hedge funds and have internal alpha managers. Below, a sample of pension and endowment funds I track closely:

1) Alberta Investment Management Corporation (AIMco)

2) Ontario Teachers' Pension Plan

3) Canada Pension Plan Investment Board

4) Caisse de dépôt et placement du Québec

5) OMERS Administration Corp.

6) British Columbia Investment Management Corporation (bcIMC)

7) Public Sector Pension Investment Board (PSP Investments)

8) PGGM Investments

9) APG All Pensions Group

10) California Public Employees Retirement System (CalPERS)

11) California State Teachers Retirement System (CalSTRS)

12) New York State Common Fund

13) New York State Teachers Retirement System

14) State Board of Administration of Florida Retirement System

15) State of Wisconsin Investment Board

16) State of New Jersey Common Pension Fund

17) Public Employees Retirement System of Ohio

18) STRS Ohio

19) Teacher Retirement System of Texas

20) Virginia Retirement Systems

21) TIAA CREF investment Management

22) Harvard Management Co.

23) Norges Bank

24) Nordea Investment Management

25) Korea Investment Corp.

26) Singapore Temasek Holdings 

27) Yale Endowment Fund

Below, dissecting the latest 13-F filings with the Fast Money traders. Also, inside hedge fund manager Seth Klarman's investments, with CNBC's Brian Sullivan and Kate Kelly. You can view a list of Klarman's top holdings from the link above or just click here.

I wish all of my American readers a nice long weekend, I'll be back on Tuesday. In the meantime, feel free to contact me directly (LKolivakis@gmail.com) if you need anything specific and please remember to donate and/ or subscribe to my blog at the top right-hand side. Thank you!


Thursday, May 21, 2015

Dealing With a World of Underinvestment?

Michael Spence, a Nobel laureate in economics and Professor of Economics at NYU’s Stern School of Business, wrote a comment for Project Syndicate, A World of Underinvestment:
When World War II ended 70 years ago, much of the world – including industrialized Europe, Japan, and other countries that had been occupied – was left geopolitically riven and burdened by heavy sovereign debt, with many major economies in ruins. One might have expected a long period of limited international cooperation, slow growth, high unemployment, and extreme privation, owing to countries’ limited capacity to finance their huge investment needs. But that is not what happened.

Instead, world leaders adopted a long-term perspective. They recognized that their countries’ debt-reduction prospects depended on nominal economic growth, and that their economic-growth prospects – not to mention continued peace – depended on a worldwide recovery. So they used – and even stretched – their balance sheets for investment, while opening themselves up to international trade, thereby helping to restore demand. The United States – which faced considerable public debt, but had lost little in the way of physical assets – naturally assumed a leadership role in this process.

Two features of the post-war economic recovery are striking. First, countries did not view their sovereign debt as a binding constraint, and instead pursued investment and potential growth. Second, they cooperated with one another on multiple fronts, and the countries with the strongest balance sheets bolstered investment elsewhere, crowding in private investment. The onset of the Cold War may have encouraged this approach. In any case, it was not every country for itself.

Today’s global economy bears striking similarities to the immediate post-war period: high unemployment, high and rising debt levels, and a global shortage of aggregate demand are constraining growth and generating deflationary pressures. And now, as then, the level and quality of investment have been consistently inadequate, with public spending on tangible and intangible capital – a critical factor in long-term growth – well below optimal levels for some time.

Of course, there are also new challenges. The dynamics of income distribution have shifted adversely in recent decades, impeding consensus on economic policy. And aging populations – a result of rising longevity and declining fertility – are putting pressure on public finances.


Nonetheless, the ingredients of an effective strategy to spur economic growth and employment are similar: available balance sheets (sovereign and private) should be used to generate additional demand and boost public investment, even if it results in greater leverage. Recent IMF research suggests that, given excess capacity, governments would probably benefit from substantial short-run multipliers. More important, the focus on investment would improve prospects for long-term sustainable growth, which would enable governments and households to pursue responsible deleveraging.

Likewise, international cooperation is just as critical to success today as it was 70 years ago. Because the balance sheets (public, quasi-public, and private) with the capacity to invest are not uniformly distributed around the world, a determined global effort – which includes an important role for multilateral financial institutions – is needed to clear clogged intermediation channels.

There is plenty of incentive for countries to collaborate, rather than using trade, finance, monetary policy, public-sector purchasing, tax policy, or other levers to undermine one another. After all, given the connectedness that characterizes today’s globalized financial and economic systems, a full recovery anywhere is virtually impossible without a broad-based recovery nearly everywhere.

Yet, for the most part, limited cooperation has been the world’s chosen course in recent years, with countries believing not only that they must fend for themselves, but also that their debt levels impose a hard constraint on growth-generating investment. The resulting underinvestment and depreciation of the global economy’s asset base are suppressing productivity growth and thus undermining sustainable recoveries.

In the absence of a vigorous international re-investment program, monetary policy is being used to prop up growth. But monetary policy typically focuses on domestic recovery. And, though unconventional measures have reduced financial instability, their effectiveness in countering widespread deflationary pressures or restoring growth remains dubious.

Meanwhile, savers are being repressed, asset prices distorted, and incentives to maintain or even increase leverage enhanced. Competitive devaluations, even if they are not policymakers’ stated objectives, are becoming increasingly tempting – though they will not solve the aggregate-demand problem.

This is not to say that sudden “normalization” of monetary policy is a good idea. But, if large-scale investment and reform programs were initiated as complements to unconventional monetary-policy measures, the economy could move onto a more resilient growth path.


Despite its obvious benefits, such a coordinated international approach remains elusive. Though trade and investment agreements are being negotiated, they are increasingly regional in scope. Meanwhile, the multilateral trade system is fragmenting, along with the consensus that created it.

Given the level of interconnectedness and interdependence that characterizes today’s global economy, the reluctance to cooperate is difficult to comprehend. One problem seems to be conditionality, with countries unwilling to commit to complementary fiscal and structural reforms. This is especially evident in Europe, where it is argued, with some justification, that, without such reforms, growth will remain anemic, sustaining or even exacerbating fiscal constraints.

But if conditionality is so important, why didn’t it prevent cooperation 70 years ago? Perhaps the idea that severely damaged economies, with limited prospects for independent recoveries, would pass up the opportunity that international cooperation presented was implausible. Maybe it still is. If so, creating a similar opportunity today could change the incentives, trigger the required complementary reforms, and put the global economy on course to a stronger long-term recovery.
This is an excellent comment from an economist that understands the true nature of the crisis today.

Importantly, the world is awash in debt and liquidity but unless policymakers figure out a way to take advantage of historic low bond yields to invest and deal with unacceptably high chronic unemployment in the developed world, then deflationary pressures will persist and haunt us for a very long time.

Go back to read my comment on whether global reflation is headed our way where I wrote the following:
Global deflation is not going to happen? Really? That's news to me because I keep warning my readers to prepare for global deflation or risk getting slaughtered in the years ahead.

Let's go over a few things which I think are confusing people. First, the euro deflation crisis is far from over. The fall in the euro temporarily boosted import prices and inflation expectations in the eurozone but the underlying structural issues plaguing its economies have not been addressed.

Unless you have a significant pickup in eurozone employment and wages, you can forget about any reflation in that region. The ECB will keep pumping trillions into banks but unlike the Federal Reserve, it's limited in what it can buy in its bond purchases.

Then there is Greece. The latest payment plan is just a shell game. The Greek disconnect is alive and well and threatens not only the eurozone but the entire global financial system through contagion risks we're unaware of and by extension, the entire global economy.

But even if they find a solution to this ongoing Greek saga, there are other far more important worries out there. The China bubble is my biggest concern right now. According to a senior Morgan Stanley investment strategist, the worst of the Chinese economic slowdown is likely still ahead because of the nation's debt:
"China, to try and sustain its growth rate in the post-financial-crisis era, has engaged in the largest credit binge of any emerging market in history," said Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley Investment Management,

Sharma, speaking Tuesday at the Global Private Equity Conference in Washington, D.C., predicted that the credit boom would cause problems.

Whenever a country increases its debt to gross domestic product sharply over five years, in the next five years there's a 70 percent chance of a financial crisis and 100 percent chance of a major economic slowdown, according to Morgan Stanley research.

The Chinese government this week cut interest rates for the third time in six months because of projected 7 percent GDP growth this year, the lowest level in more than two decades.

Sharma said the slow growth he forecast would be around 4 percent or 5 percent over the next five years, about half the rate of what it used to be.

"If China follows this template, it really is payback time," he said.

Another speaker at the conference, former U.S. Gen. Wesley Clark, took a less grim view.

"I'm not as worried about the buildup of debt in China as other countries," the founder of Wesley Clark & Associates said.

He cited two reasons. The renminbi is not fully convertible to other currencies, and the Chinese economy still has elements of central control.

"Every year people at these business conferences say the demise of the Chinese economy is coming very rapidly," Clark added. "But it hasn't happened. And President Xi is not going to let it happen if he can avoid it."

Another China bull, Robert Petty, managing partner and co-founder of Clearwater Capital Partners, said China can forestall its debt problems.

"We believe the balance sheet of China absolutely has the capacity to do two things: term it out and kick the can down the road," Petty said.
It remains to be seen how Chinese authorities will forestall or mitigate  the inevitable slowdown but if it's a severe slowdown, watch out, we're going to have more deflationary pressures heading our way (any significant decline in the renminbi will mean much lower goods prices for the developed world since we pretty much import most of our goods from China).

The demographics of China and Japan are also scary. China is sliding into a pensions black hole and Japan isn't doing that much better. Some of the same structural issues plaguing the eurozone -- older demographics in particular -- are plaguing China and Japan.

So if China slows down considerably in the years ahead and Abenomics fails to deliver in Japan, where is global growth going to come from? Europe? Nope. BRICS? Apart from India, the BRICS are weak and getting weaker, not stronger. Russia is trying to hold on for its dear petro life and Brazil isn't going anywhere as China slows down.

Then there is America, the last bastion of hope! U.S. job growth rebounded last month and the unemployment rate dropped to a near seven-year low of 5.4 percent, but there's still plenty of slack in the economy with the number of Americans not in the labor force rising to a record 93.2 million (most of these long-term unemployed are women). Moreover, America's risky recovery poses serious challenges to the global economy, especially if the Fed makes a monumental mistake and starts raising rates too soon and too aggressively.
On Wednesday, Jeff Cox of CNBC reported that 40 percent of unemployed have quit looking for jobs:
At a time when 8.5 million Americans still don't have jobs, some 40 percent have given up even looking.

The revelation, contained in a new survey Wednesday showing how much work needs to be done yet in the U.S. labor market, comes as the labor force participation rate remains mired near 37-year lows.

A tight jobs market, the skills gap between what employers want and what prospective employees have to offer, and a benefits program that, while curtailed from its recession level, still remains obliging have combined to keep workers on the sidelines, according to a Harris poll of 1,553 working-age Americans conducted for Express Employment Professionals.

On the bright side, the number is actually better than 2014, the survey's inaugural year, when 47 percent of the jobless said they had given up.

"This survey shows that some of the troubling trends we observed last year are continuing," Bob Funk, CEO of Express Employment Professionals and a former chairman of the Federal Reserve Bank of Kansas City, said in a statement. "While the economy is indeed getting better for some, for others who have been unemployed long term, they are increasingly being left behind."

Duration matters: The longer someone was out of work, the more likely it is that they've quit looking.

Of the total, 55 percent who were unemployed for more than two years fell into the category; 32 percent of those idle for 13 to 24 months and 34 percent out for seven to 12 months had quit as well. Just 21 percent out for three months or less had stopped looking.

Overall, nearly 1 in 5 (19 percent) said they spent no time looking for work in the week previous to the survey. Just 10 percent said they spent more than 31 hours looking.

Unemployment compensation also matters.

Federal guidelines allow for 26 weeks of unemployment compensation, though extended benefits are available in some circumstances.

Nearly 9 of out 10 respondents (89 percent) said they would "search harder and wider" for work if their benefits ran out. Moreover, in a series of statements about benefits, the one that garnered the most agreement, with 69 percent, was that benefits were "giving me a cushion so that I can take my time in searching for a job," while 59 percent said compensation "has allowed me to take time for myself," 36 percent agreed that it "has allowed me to turn down positions that weren't right for me" and 40 percent agreed "I haven't had to look for work as hard knowing I have some income to rely on."

Of those out of work and not receiving benefits—those who have quit looking are not eligible—22 percent said their benefits had run out and 32 percent said they weren't eligible.

The decline in labor force participation, in fact, has been a key to the drop of the unemployment rate in the post-recession economy. The jobless rate has slid from a high of 10 percent in October 2009 to its current 5.4 percent, the lowest level since May 2008. However, the participation rate has fallen from 66.1 percent to 62.8 percent during the same period.

Benefit programs have expanded as well, even as unemployment compensation dropped from the 99 weeks of eligibility during when the jobless rate was much higher.

The Supplemental Nutrition Assistance Program—food stamps—now serves 45.7 million Americans, down from nearly 48 million in 2012.

"Over the last year, we have seen the unemployment rate go down, but we too easily forget that there are people still hurting, still wanting to work, but on the verge of giving up," Express Employment's Funk said. "I believe everyone who wants to work should have a job, so we must not overlook those who have been left behind and left out of the job market."
And it's not just the U.S, this is a global problem. According to Bloomberg, the world is missing out on $1.2 trillion in wages:
The global financial crisis of 2008-10 had a big impact on jobs. Employment growth has stalled at a rate of about 1.4 percent per year since 2011. While this compares favorably with the crisis period when that rate averaged 0.9 percent, it is below the 1.7 percent annual rate between 2000 and 2007, according to the International Labour Organization.

The slower employment growth since 2011 compared with before 2008 means there are 61 million fewer jobs in 2014 than there would have been had the pre-crisis growth trends been maintained, the ILO said.

In 2013, that jobs gap corresponded to an estimated $1.2 trillion in lost wages around the world, which is equivalent to about 1.2 percent of total annual global output and roughly 2 percent of total global consumption.
I know all about chronic unemployment and discrimination, and vent on my blog from time to time (like here, here and here) because nothing is more incredibly frustrating than applying to jobs you're eminently qualified for only to get shut out because of political or discriminatory reasons.

But I dealt with unemployment by taking matters into my own hands, effectively creating my own job. I started this blog in 2008 and built it up one comment at a time to be one of the most read blogs on pensions and investments. I turn some people off sometimes but that's alright, I'm not writing this blog to win a popularity contest nor are they living my life to fully appreciate what I've lived through or where I'm coming from. Some people have helped me financially but nobody has offered me a job.

Anyways, chronic unemployment is an issue. Companies don't like hiring people who have been out of a job for a long time because they think their skill set has been eroded and they have nothing to offer. In some cases, this may be true, but in others it's blatantly false. In all cases, these are human beings who deserve an opportunity to work and provide for themselves and their family.

And what happens to all these chronically unemployed people when they're out of  a job for such a long time? They end up on social assistance, collecting food stamps to survive. This is the reality for millions of Americans living in the United States of Pension Poverty.

This is why when people get all excited about an improving labor market, I can't help but point out any improvement that doesn't improve the lives of millions of chronically unemployed is simply a chimera, an illusion that neglects the gravity and reality of how bad the situation really is.

Getting back to Michael Spence's comment, he points to rising inequality but fails to make the following connection. Rising inequality, the ongoing jobs crisis, the ongoing retirement crisis, the aging of the population, are all extremely deflationary factors. Spence alludes to it but doesn't delve into these topics.

But his call for boosting investment to boost aggregate demand is right on and I think public pensions can play an important role in this regard. Go read my comment on opening Canada's infrastructure floodgates where I wrote the following:
No doubt about it, Canada's large pensions can play an integral role in funding domestic infrastructure but they have to maintain their arms-length approach in making such investments and not be forced to invest in these projects by any government. 

All of Canada's large pensions are shifting huge assets into infrastructure as they look for very long-term investments with steady cash flows offering them returns between equities and bonds. Infrastructure investments are an integral part of asset-liability management at pensions which typically pay out liabilities over the next 75+ years (the duration of infrastructure assets fits better with the duration of the liabilities of these plans).

The problem right now is there aren't enough domestic opportunities so our large pensions are forced to invest in infrastructure projects abroad. This introduces legal, regulatory, political and currency risks (their liabilities are in Canadian dollars). For example, PSP's big stake in Athens airport makes perfect long-term sense but if Greece defaults and exits the euro, all hell can break loose and the leftist or worse, a junta government, might nationalize this airport. Even if they don't nationalize, if they reintroduce the drachma, it will significantly damper PSP's revenues from this project.

As far as incorporating models from Australia and the UK, I think Australia has got it mostly right. They privatized their airports and ports and Canada needs to do the same to fund other projects. The UK's experience with the Pensions Infrastructure Platform has its share of critics but there have been some big deals there too.

Whatever the Liberals decide to do, their initiative needs to entice foreign pension and sovereign wealth funds as well. It won't be enough to have Canada's large pensions on board. And as I stated above, our governments will still need to invest billions in domestic infrastructure.

From an economic policy perspective, massive investments in infrastructure are needed especially now that Canada is on the precipice of a major crisis. We're living in Dreamland up here and I fear the worst as Canadians take on ever more crushing debt. The country desperately needs good paying jobs, the type of jobs massive infrastructure projects can provide.
We need as a society to start taking the long, long view on public investments, jobs and pensions. If we don't, we are doomed to repeat the same mistakes of the past. Central banks can keep on printing but that won't address deep structural issues plaguing our economies, rising inequality and chronic unemployment being the two most worrying trends.

Below, digging into soft economic data, and what is signals about employment, with Joe LaVorgna, Deutsche Bank chief economist, and CNBC's Steve Liesman.

Also, the cataclysmic gold bugs over at Zero Edge posted an older clip of Bridgewater's Ray Dalio slamming Buffett and touting gold, but I was more interesting in this comment: "we're beyond the point of being able to successfully manage this... and I worry about another leg down in the economy causing social disruption... Hitler came to power in 1933 because of the social tension between the factions."

I hope Ray is wrong about that. On Friday, I will peek into the portfolios of top funds, including Bridgewater and show you what they bought and sold last quarter.

Also, let me end by plugging an ebook my friend Brian Romanchuk just completed, Understanding Government Finance. Brian sent me an advanced copy and it's a superbly written book which explains Modern Monetary Theory (MMT) and a lot more in very clear language.

I highly recommend all of you, including Ray Dalio, take the time to read it and understand the points Brian is advancing on debt and deficits. I embedded a clip of Warren Mosler, one of the fathers of MMT, where he explains the tenets of this theory in clear language. Listen carefully to this interview.



Wednesday, May 20, 2015

Wynne’s Pension Boondoggle?

Lorrie Goldstein of the Toronto Sun reports, Wynne’s pension boondoggle?:
Suppose Premier Kathleen Wynne’s Liberal government forced you into its Ontario Retirement Pension Plan (ORPP) and took 1.9% of your earnings up to a maximum of $1,643 annually for your entire working life.

Suppose it invested this money into poorly-run, money-losing Ontario public infrastructure projects, in which the government partnered with private companies and lost its shirt -- and thus your future pension benefits.

Based on the scant information the Liberals are giving out in preparing to implement their ORPP on Jan. 1, 2017, that could happen. Here’s why.

In Finance Minister Charles Sousa’s 2014 budget, here’s how the Liberals explained how they will invest over $3.5 billion annually in mandatory pension contributions.

These will come from more than three million Ontario workers who will be forced into the ORPP because they do not have private pension plans, and from their employers.

(The ORPP will be funded by a 1.9% annual payroll tax imposed on these workers, plus an additional 1.9% annual tax for each employee, paid by their employers.)

“By ... encouraging more Canadians to save through a proposed new Ontario Retirement Pension Plan, new pools of capital would be available for Ontario-based projects such as building roads, bridges and new transit,” the Liberals said.

“Our strong Alternative Financing and Procurement model, run by Infrastructure Ontario, will allow for the efficient deployment of this capital in job-creating projects.”

Really? First, the purpose of the ORPP should not be to help the Liberals fund infrastructure because they’re broke and can’t get the money elsewhere, other than by holding a fire sale of provincial assets like Hydro One, which they’re already doing.

The only purpose of the ORPP -- similar to the stated one of the Canada Pension Plan (CPP) -- should be to “maximize returns (to contributors) without undue risk of loss.”

To do that, the Canada Pension Plan Investment Board (CPPIB), which invests mandatory contributions on behalf of working Canadians so the plan will have the funds to pay them a pension upon retirement, operates independently of the federal and provincial governments.

As the CPPIB says in its 2014 annual report:

“As outlined in the CPPIB Act, the assets we manage ($219.1 billion) belong to the (18 million) Canadian contributors and beneficiaries who participate in the Canada Pension Plan. “These assets are strictly segregated from government funds.

“The CPPIB Act has safeguards against any political interference (operating) at arm’s length from federal and provincial governments with the oversight of an independent ... Board of Directors. CPPIB management reports not to governments, but to the CPPIB Board of Directors.”

To be sure, the CPPIB has been criticized over everything from its administrative costs, to the bonuses it pays to senior executives, to the wisdom of some of its investment decisions.

But on the key issue of how it is run, politicians, by law, aren’t allowed to interfere in its investment decisions, for obvious reasons.

By contrast, the Wynne government is sending contradictory messages about how investments needed to ensure its solvency will be decided by the ORPP.

On the one hand, Sousa says, “our plan would build on the strengths of the CPP ... publicly administered at arm’s length ... (and) have a strong governance model, with experts responsible for managing its investments.”

But on the other, the Liberals want a substantial amount of the funds raised by the ORPP to go to “new pools of capital” for “Ontario-based” infrastructure projects.

These are contradictory statements.

Either the ORPP investment board will be independent in its investment decisions, or it will be ordered, or influenced, by the Wynne government to make investments in Ontario infrastructure projects the government wants to build.

As for the Liberals’ claim their, “strong Alternative Financing and Procurement model, run by Infrastructure Ontario, will allow for the efficient deployment of this capital in job-creating projects”, Ontario Auditor General Bonnie Lysyk recently examined that model.

She concluded Infrastructure Ontario frequently gets its head handed to it in partnerships with the private sector, to the tune of billions of dollars in added costs.

Lysyk said the government could save money on infrastructure projects if it could competently manage them itself. (A big “if”.)

Finally, the CPPIB, which has a five-year annualized rate of return of 11.9% and a 10-year rate of 7.1%, invests only 6.1% of its portfolio in infrastructure (including a stake in the Hwy. 407 ETR).

Based on the little the Wynne government has said about how it will operate the ORPP, we should all be concerned.
The Toronto Sun as been quite critical of Premier Wynne’s pension mystery:
Premier Kathleen Wynne’s Ontario Retirement Pension Plan (ORPP) will have a huge impact on the pocketbooks of millions of workers.

But with the plan set to start Jan. 1, 2017, the Liberals have provided little information about it.

Among the key unanswered questions:

Who will be included?

How will the Liberals invest the $3.5 billion-a-year it will generate?

Wynne has said except for the self-employed, if you work for a business that does not provide a private pension plan, you have to join the ORPP.

You will pay 1.9% of your annual salary into the ORPP through a payroll tax, with your employer matching your contribution.

To give an idea of the costs, if you make $45,000 annually starting at age 25 and contribute for 40 years, you will make annual payments of $788, matched by your employer. At age 65 you will receive a pension until you die of $6,410 annually, in 2014 dollars.

If you earn $90,000 annually (earnings above this are exempt), you will pay $1,643 annually and receive a pension of $12,815.

But what is Wynne’s definition of a private pension plan?

Originally it was thought to mean any private workplace pension.

But pension experts now say it’s unclear whether workers in defined contribution plans will be exempt from the ORPP.

In these plans, the employer and employee make annual contributions, but there is no guarantee of what the final pension will be.

By contrast, defined benefit plans pay a pre-determined pension based on salaries and years of experience.

(We do know workers with defined benefit plans will be exempt from the ORPP.)

But it’s also unclear how the province will invest the $3.5 billion annually in new revenue the ORPP will generate, important so that it remains solvent and able to meet its financial obligations.

Wynne’s Liberals have sent out contradictory messages on this.

They have said both that the ORPP will be managed by an independent investment board like the Canada Pension Plan, but also that it will invest in Ontario government public-private infrastructure projects, meaning the board won’t be truly independent.

Ontarians have a right to answers. After all, it’s their money at stake.​
No doubt, Ontarians have a right to know more details of this new pension plan, but I think the media is getting ahead of themselves here. There have been quite a few dumb attacks on the ORPP, all backed by Canada's powerful financial services industry.

Having said this, I like Lorrie Goldstein's comment above because he's right, when politicians get involved in public pensions, it's a recipe for disaster. Infrastructure Ontario is proof of how billions in public finances are squandered on projects with little or no accountability.

The first thing this Liberal government needs to do is create a legislative act which clearly outlines the governance of this new pension plan. This sounds a lot easier than it actually is. Not long after I was wrongfully dismissed at PSP in October 2006, I was approached by the Treasury Board of Canada to conduct an in-depth report on the governance of the public service pension plan. I wrote about it in my comment on the Auditor General slamming public pensions:
I wrote my report on the governance of the federal government's public sector pension plan for the Treasury Board back in the summer of 2007. The government hired me soon after PSP Investments wrongfully dismissed me after I warned their senior managers of the 2008 crisis. And I didn't mince my words. There were and there remains serious issues on the governance of the federal public sector pension plan.

I remember that summer very well. It was a very stressful time. PSP was sending me legal letters by bailiff early in the morning to bully and intimidate me. I replied through my lawyer and just hunkered down and finished my report. The pension policy group at the Treasury Board didn't like my report because it made them look like a bunch of incompetent bureaucrats, which they were, and they took an inordinate amount of time to pay me my $25,000 for that report (the standard amount when you want to rush a contract through and not hold a bidding process).

If I had to do it all over again, I wouldn't have written that report. The Treasury Board buried it, and it wasn't until last summer that the Office of the Auditor General finally started looking into the governance of the federal public sector pension plan.

In 2011, the Auditor General of Canada did perform a Special Examination of PSP Investments, but that report had more holes in it than Swiss cheese. It was basically a fluff report done with PSP's auditor, Deloitte, and it didn't delve deeply into operational and investment risks. It also didn't examine PSP's serious losses in FY 2009 or look into their extremely risky investments like selling CDS and buying ABCP, something Diane Urqhart analyzed in detail on my blog back in July 2008.

I had discussions with Clyde MacLellan, now the assistant Auditor General, and he admitted that the Special Examination of PSP in 2011 was not a comprehensive performance, investment and operational audit. The sad reality is the Office of the Auditor General lacks the resources to do a comprehensive special examination. They hire mostly CAs who don't have a clue of what's going on at pension funds and they need money to hire outside specialists like Edward Siedle's Benchmark Financial Services.
Pension governance is my forte, which is why Canada's pension plutocrats get their panties tied in a knot every time I expose some of them for being grossly overpaid public pension fund managers.

But compensation is just one component of good pension governance. If you listen to some CEOs at Canada's coveted public pensions, you'd think it's the most important factor in determining their success but I beg to differ. It's one of many factors that has contributed to the long-term success at Canada's large public pensions.

Clearly, the most important thing is to separate the operations of a pension fund from government bureaucrats looking to interfere in decisions in their hopeless attempt to influence key investment decisions and indirectly buy votes. Public pensions funds need to be governed by qualified, independent board of directors.

I've worked in the private sector (BCA Research, National Bank), at Crown corporations (Caisse, PSP Investments, BDC) and the public sector (Canada Revenue Agency, Treasury Board, Industry Canada), and I can tell you what works and what doesn't at all these places. The last thing I want to see is government bureaucrats interfering with the operations of public pensions, especially ones like the ORPP or CPPIB.

Wynne's government has taken bold steps to bypass the federal government, which is still pandering to banks and insurance companies, to introduce its version of an enhanced CPP for Ontario's citizens which need better retirement security. If the feds did the right thing and enhanced the CPP for all Canadians, we wouldn't be talking about the Ontario Retirement Pension Plan (ORPP).

But now that the horse is out of the barn, Ontarians have a right to know a lot more. As always, the devil is in the details. I know there are eminently qualified people consulting the Liberals on this new pension plan, people like Jim Keohane, HOOPP's CEO and someone who believes in this new plan.

Of course, I wasn't invited to share my thoughts and for good reason. I've seen the good, bad and ugly working at and covering Canada's pensions and would recommend world class governance rules that would make Canada's pension plutocrats very nervous.

In the Leo Kolivakis world of pension governance, there would be no nonsense whatsoever. I would change the laws to make sure all our public pension funds have to pass a rigorous and comprehensive performance, risk and operational audit by a fully independent and qualified third party group that specializes in pension proctology (and it's not just Ted Siedle). These audits would occur every three years and the findings would be disclosed to the public via the auditor generals (they can oversee such audits).

What amazes me is how everyone touts how great Canada's pension governance is when in reality I can point to some serious lapses in the governance at all our coveted public pension plans. For example, none of our "world class" public pensions disclose board minutes (with an appropriate lag) or even televise these minutes. When it comes to communication, some are a lot better than others but they still need to improve and have embeddable videos of speeches and more explaining how they invest (Ontario Teachers and HOOPP does a decent job there; communication at PSP is non-existent).

What else? Diversity, diversity, diversity! I'm tired of seeing good old white boys (and a token white lady) when I look at the senior managers of the Canada Pension Plan Investment Board or other large Canadian public pensions. Don't get me wrong, I'm sure they're highly qualified professionals but the sad reality is this image doesn't represent Canada's rich cultural diversity and it sends the wrong message to our ethnic and other minorities.

When I wrote my comment on the importance of diversity at the workplace, I recommended that each of our public pension funds include a diversity section in their annual report discussing what steps they're taking to diversify their workforce and include hard numbers on the hiring of women, visible minorities, aboriginals and people with disabilities.

This is one area where I think we need more, not less, government intervention because I simply don't trust the "independent" board of directors overseeing these funds and think they're all doing a lousy job on diversity at the workplace just like they're doing a lousy job getting the benchmarks of their private market investments right, which is why you're seeing compensation soar to unprecedented levels at some of Canada's large public pensions (I believe in paying for performance that truly reflects the risks an investment manager is taking).

As you can see, I don't mince my words and I certainly don't suck up to any of Canada's "powerful" pension titans. They're perfectly content blacklisting me from being gainfully employed at their organizations because of my blog and more truthfully, because I have progressive multiple sclerosis (even though it's illegal to discriminate and I'm perfectly capable of working as long as they accommodate me which they are required to do by law), and I'm content writing my comments exposing all the nonsense I see at their pensions.

The irony is if any of these powerful pension titans had any brains whatsoever, they'd be working feverishly hard to hire me or find me a good job so I can stop writing my blog exposing uncomfortable truths. Instead, they keep discriminating against me, providing the lamest excuses and quite frankly, violating my right to apply to jobs I'm eminently qualified for (unfortunately and hardly surprisingly, Mr. Bourbonnais is no different from his predecessor and it remains to be seen if he'll change PSP's culture for the better. So far, I see more of the same, except he will surround himself with his own French Canadian people).

On that note, I'm off to the gym to enjoy my day. I don't get paid enough for writing these lengthy, hard-hitting comments and I'm going to spend a lot more time analyzing these schizoid markets and trading stocks and less time on Canada's pensions which keep disappointing me on so many levels.

You can dismiss some or all of my comments as coming from a 'disgruntled former employee' but the truth is if any of you had to put up with a fraction of what I have put up with, you'd be curled up in a fetal position, completely depressed from life. I'm actually quite happy with my life and choose to fight on even when the odds are stacked against me.

My last word of advice to Premier Wynne is to fight the feds and all negative press and forge ahead with the Ontario Retirement Pension Plan (ORPP). Good pension policy makes for good economic policy. If you want to put an Ontario spin to this plan, follow the example of the Caisse which has a dual mandate in Quebec and is going to handle some of Quebec's infrastructure projects.

But whatever you do with the ORPP, make sure you get the governance right, following examples at CPPIB and elsewhere, and set the bar extremely high when it comes to governance. I've only provided a few examples on how governance can be improved at all of Canada's large public pensions, there are plenty more. The ORPP is in a beautiful position to learn from others, incorporating some of their governance and improving on it where it falls short (if you want my advice, you need to pay me big bucks to consult you because I learned from my past mistakes consulting the feds).

Below, Cristina Martins’ debate statement in the Legislature regarding the Ontario Retirement Pension Plan (Feb. 19, 2014). You know my thoughts, I'm all for the ORPP but the devil is in the details. If they bungle up the governance of this plan, it's doomed to fail, but if they get it right, it will flourish and bolster the retirement security of millions of Ontario workers who desperately need something better to retire in dignity and security.

And if you haven't seen it, watch Noah Galloway dance with Sharna on Dancing With the Stars. It is very inspirational and shows you the best way to fight discrimination is to focus on people's abilities, not their disabilities!!