Showing posts from June, 2009

Overextended Pension Funds?

A follow-up on my last comment where I criticized the Financial Post article, Bonus flap puts Canada Pension's strategy at risk.

While it is true that paying hefty fees to external managers costs large pension funds hundreds of millions, the article makes it seem as if CPPIB is sourcing their own PE deals and they can compete with the top private equity GPs out there.

That is simply not the case. What typically happens is that they co-invest with some of the top PE funds and stick in a big chunk of change. They use their size to write the big cheques and they then ask for reduced fees.

[Note: Pure direct investments are typically money-losing operations at large pension funds.]

It doesn't take that much talent to dangle a big fat cheque in front of some hedge fund or private equity manager and then persuade them to reduce their fees. In fact, it is a lot harder to find lesser known PE players in the mid-market who are performing well.

And the example of CalPERS is terrible because …

Where is the Fear?

I begin with a message from Diane Urquhart:
You are welcome to put links on your Pension Pulse blog to these letters between Parliamentary Secretary of Finance Ted Menzies and myself. They are about whether preferred status for pension fund deficits and severance would increase the cost and availability of credit. I say it does so on only a nominal basis and so the Federal Government should amend the BIA Act to give preferred status to pension fund deficits and severance.
I have stored the letters to and from Menzies at the following web pages. These links can be added to the LinkedIn Groups' and NRPC's website. do not have an active website, but you may be interested in the videos on securities corruption and securities crime policing that I have put up at

I will then turn your attention to Luc Vallée's latest comment on the tsunami of corporate refina…

The New Rising Sun?

In my last comment on the 'Golden Cross', I warned people not to be overly reliant on technical signals. Someone on Naked Capitalism commented that it is better to use the exponential 50 and 200 day moving averages, which lends more weight to more recent data.

While it is true that the 50 and 200 day EMA are not showing a Golden Cross yet (you can verify this for free on Yahoo Finance, for example, on the S&P 500), there is a danger when you just look at technical signals and ignore other things like fundamentals and liquidity.

On his blog, Luc Vallée discusses the chronicles of a second wave of foreclosures and notes the following:
Another incoming large wave of home foreclosures could bring a new series of bank failures and renewed financial distress and, as a result, prolong the current economic recession well beyond 2010. This is because, according to Mckitrick, resets on Option-ARM mortgages, currently averaging $2 billion a month, will rise to $25 billion per month by l…

From Golden Cross to Golden Goose?

My favorite strategist, Martin Roberge of Dundee Securities, sets the record straight on the Golden Cross in his latest strategy comment:
Much has been said about the positive implications of this week’s Golden Cross (GC) on the S&P 500. However, little emphasis has been put on downside risk analysis. Even though GCs have normally preceded periods of above-average stock market performance, history also reveals that important pockets of market weakness remain. In fact, our analysis suggests that despite this week’s GC, odds of a re-test of March lows should not be taken down to zero. A re-test is not our baseline scenario, but we wanted to set the record straight as far as the GC is concerned.

A GC occurs when an index’s 50-day moving average (MA) rises above its 200-day MA. This event occurred Tuesday on the S&P 500. Since the GC is of a declining 200-day MA, we looked at the implication of such a cross in terms of forward stock market performance. We also screened for episodes …

Feudal Age of Pensions?

More on pensions apartheid. Bill Tufts of Fair Pensions for All sent me this Globe and Mail blog entry, In feudal age of pensions, renaissance must come:
He calls it our “Modern Feudal System.” A system where a few have a lot and the majority have – or will have – very little indeed. The difference-maker in our futures, says Bill Tufts, is going to be our pension plans. Public or private. Gold-plated pensions versus pensions that might not even hold a coat of yellow paint. “Church and King have been replaced by Government and Big Business,” says the Hamilton-based pension specialist with WB Benefit Solutions. “In the feudal age, the church and nobility always wrestled for the purse of those trapped in the caste system. But the poor serf still paid with everything he grew or could make.” On his blog and in articles and talks, Tufts has been arguing that the average public servant in Canada will end up with a pension valued at close to $1-million – while the average taxpayer is lookin…

Pensions Apartheid?

Let me begin by wishing all Quebecers "une bonne Fête nationale". I hope you enjoyed St-Jean Baptiste celebrations on this glorious sunny day in Quebec.

In my last post, I discussed the global pension crisis and how it might lead to a long social crisis. Today I read that final salary pensions "unsustainable" claim 96% of firms:

A poll of 157 UK firms – including 33 FTSE 100 companies – by PricewaterhouseCoopers (PwC) finds as well as closing final salary, or defined benefit, pensions to new employees as many have done 72 per cent were considering closing schemes to existing employees.

Earlier this month both BP and Barclays both shook up their final salary pension schemes.

While five years ago 40 per cent of companies offered final salary schemes – promising a pension income based on the level of the final salary – now just four FTSE 100 firms - Shell, Tesco, Cadbury and Diageo – offer workers such pensions.
Only 17 per cent of the firms surveyed had defined benefit s…

Decades of Social Crisis?

The FT reports that the OECD warns on pension crisis:
Strains in pensions systems, in both private and public provision, threaten to turn the financial crisis of the past two years into a social crisis lasting for decades, the Organisation for Economic Co-operation and Development warned on Tuesday.In its annual analysis of the health of pensions systems globally, the Paris-based organisation found private pension plans lost 23 per cent of their value last year, while higher unemployment “leaves little room for more generous public pensions.

Angel Gurría, the OECD secretary-general said: “Reforming pension systems now to make them both affordable and strong enough to provide protection against market swings will save governments a lot of financial and political pain in the future”.
Pensioners hit hardest include those heavily dependent on defined contributions, where people save to build up a personal fund, those near retirement and those heavily invested in equities. This applies to man…

The Summer Pullback?

A surprisingly bleak forecast for the world economy pushed stocks to their biggest loss in two months. Major stock indexes tumbled by more than 2 percent Monday, sending the Dow Jones industrial average down 201 points, after the World Bank estimated the global economy will shrink 2.9 percent in 2009. It previously predicted a 1.7 percent contraction.The grim assessment was the latest unwelcome surprise for the market since last month and further eroded hopes that the economy was starting to emerge from recession. Investors began driving stocks sharply higher in early March, encouraged by modest improvements in housing, manufacturing and even unemployment.The dampened economic outlook from the World Bank, a global lender based in Washington, also weighed on the prices of oil, metals, and other commodities. Those price drops in turn sent energy and metal producers' shares falling.Hugh Johnson, chief investmen…