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Showing posts from February, 2009

The Model That's Killing Pension Funds?

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Terence Corcoran of the Financial post wrote an excellent article, The model that's killing pension funds:
This week's big losses at the Caisse de depot et placement du Quebec triggered the usual round of calls for the heads of the organization's top executives to be set out on platters. While public decapitation of investment experts who make mistakes is entertaining work, it hardly gets to the real issues exposed by the Caisse's 25% loss in value.Those issues are, in no special order: 1) Why does the Caisse exist in the first place? 2) Why are pension managers risking taxpayer money on volatile equity markets and even more problematic investments? 3) How long will average voters put up with public pension operations that nationalize savings and, in many cases, reward a few and pass the risk on to taxpayers when things go wrong--as they will?The Caisse, moreover, isn't the first, nor will it be the last, big name public pension plans to reveal disastrous investment…

A Basket Caisse?

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I am going to follow-up on yesterday's comment on the Caisse's $40 billion train wreck. Let me start off by answering some of Diane Francis' questions in her article, No way to run a piggyback. Here are her questions and my answers:
Diane Francis: Why were there no internal controls in place to ensure that such huge, unhedged bets were made? Is this occurring in other pension funds, too?Answer: Of course it's occurring in other pension funds. If it wasn't we would see billions of dollars evaporating into thin air. Most pension funds suffer from a bad Caisse of risk management theater. The risk managers are just there for show and the front office guys laugh at them and tell them to bugger off when they exceed their VaR. All show, no substance. It's time to adjust those risk models.
Diane Francis: Is it true that several teams of portfolio managers were fired for catastrophic results and not replaced?Answer: Some were fired for bad performance but others for inter…

Caisse's $40 Billion Train Wreck?

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The Caisse de dépôt et placement du Québec, one of North America’s biggest pension funds, saw the value of its investments shrink by a quarter last year, the worst performance in its 44-year history:
Although much of the loss was due to the turmoil in global markets, the Caisse was also hit by its heavy exposure to the meltdown in Canada’s asset-backed commercial paper market. In addition, it posted large foreign-exchange hedging losses as the Canadian dollar fell in line with the slump in commodity prices.
Depositors’ assets shrank to C$120.1bn ($95.7bn) as of December 31 from C$155.4bn a year earlier. Total assets under management fell from C$257.7bn to C$220.5bn.The reversal comes amid renewed controversy over the role of the Caisse, a Quebec government agency that manages the assets of 25 provincial, municipal and sectoral pension and insurance funds.The agency operates in a politically charged atmosphere, torn between its role of promoting the economic independence of Canada's …

Coping With "Reverse Affluenza"?

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In his first speech to a joint session of Congress, President Obama outlined an ambitious agenda to revive the economy, saying it's time to act boldly "to build a new foundation for lasting prosperity": President Obama says the United States will overcome its current economic struggles.Obama focused on the three priorities of the budget he will present to Congress later this week: energy, health care and education. The president said he sees his budget as a "vision for America -- as a blueprint for our future," but not something that will solve every problem or address every issue. Obama said his administration already has identified $2 trillion in government spending cuts that can be made over the next decade. Obama said he would cut spending considered wasteful, and invest in programs that will help the economy recover.The president touted the $787 billion stimulus plan he signed into law last week, saying it will invest in areas critical to the country's…