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Showing posts from July, 2009

Wooing the Big One?

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The NYT reports on how firms wooed a U.S. agency with billions to invest:
As a New York money manager and investment banker at four Wall Street firms, Charles E. F. Millard never reached superstar status. But he was treated like one when he arrived in Washington in May 2007, to run the Pension Benefit Guaranty Corporation, the federal agency that oversees $50 billion in retirement funds. BlackRock, one of the world’s largest money-management firms, assigned a high school classmate of Mr. Millard’s to stay in close contact with him, and it made sure to place him next to its legendary founder, Laurence D. Fink, at a charity dinner at Chelsea Piers. A top executive at Goldman Sachs frequently called and sent e-mail messages, inviting Mr. Millard out to the Mandarin Oriental and the Ritz-Carlton in Washington, even helping him hunt for his next Wall Street job.Both firms were hoping to win contracts to manage a chunk of that $50 billion. The extensive wooing paid off when a selection commi…

Good News For Hedge Funds?

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The Boston Globe reports that Mass. pension fund posts big loss:
Hurt by the steep decline in the stock market last summer, the Massachusetts state pension fund reported its worst year in its modern history.The fund lost 23.6 percent, or $12.8 billion, in the fiscal year that ended June 30, according to Michael Travaglini, executive director of the Massachusetts Public Reserves Investment Management Board, which runs the state pension fund. Assets are now down to $37.8 billion.Historically one of the top public pension funds in the country, Massachusetts is now likely to rank among the worst performers for the past year among all major funds tracked by Wilshire Associates. It is also the first time since 2002 the fund performed worse than average. The fund's performance could spell trouble for its chairman, state Treasurer Timothy P. Cahill, as he contemplates a run for governor. Cahill dropped out of the Democratic Party earlier this month and is expected to run as an Independent …

Pension Poverty?

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The Times reports that British pensioners are among the poorest in the EU: Britain's pensioners have the fourth highest level of poverty in Europe, according to figures published today by the European Commission. The over 65’s in Britain are, on average, worse off than their counterparts in Romania, Poland and France. The research, which compared relative poverty in the 27 member states, showed nearly one in three UK over-65s were at risk of poverty - the same proportion as in Lithuania (30 per cent). Only pensioners in Cyprus (51 per cent), Latvia (33 per cent), and Estonia (33 per cent) came out worse. The EU average was 19 per cent.
The figures came ahead of the work and pension committee's review of government efforts to tackle pensioner poverty, which is due to be published on Thursday. Michelle Mitchell, charity director for Age Concern and Help the Aged, said the report demonstrated that many older people were being left behind. "In a country where the richest have …

PSP Investments Loses 23% in FY 2009

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The Globe & Mail reports that federal pension plan books 22.7% loss: The pension plan for federal government workers lost 22.7 per cent in the latest fiscal year, but paid partial bonuses to its top executives for meeting their individual objectives for the year.

The Public Sector Pension Investment Board reported Thursday it was buffeted by the financial crisis that began last year, seeing its assets fall by $5.1-billion to $33.8-billion as of March 31, 2009, down from $38.9-billion a year earlier.

The pension manager said its equity portfolio lost more than 30 per cent of its value last year, while its real estate holdings were down almost 17 per cent. PSP Investments said its bond holdings offset the losses, however, with government bonds earning a 19.4-per-cent return for the year.

“We experienced exceptionally difficult financial and economic times in Canada and around the world over the last year,” chief executive officer Gordon Fyfe said in a statement.

PSP Investments is a…

Are Pension Freezes Effective?

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The USA Today reports that pension freezes are on the rise, but are they effective?: Nearly a third of the pension plans offered by Fortune 1,000 firms are now frozen, according to a report from Watson Wyatt.Though the rate at which companies are freezing plans has dropped since the peak year in 2006, the 190 plans now locked down represent a 12% increase from a year ago.Companies in industries that have been hardest hit by the economic downturn have higher freeze rates. Among them are financial services and auto industry employers, according to Watson Wyatt."We think it's a short-sighted move that definitely hurts employees," says Nancy Hwa, spokeswoman for the Pension Rights Center. "But it's not surprising, given the way the economy is going."Pension freezes are a relatively new corporate development."If a company is literally fighting for its survival, it's more likely to pull out all stops," says Alan Glickstein,
senior retirement consultan…

California's $100 Billion Whooping

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As if California didn't have enough to deal with its budget crisis, now the FT reports that the two largest pension funds in the US have recorded steep losses following the turmoil in stock markets, with the value of their combined portfolios shrinking by almost $100bn: The California Public Employees’ Retirement System (Calpers) and the California State Teachers’ Retirement System (Calstrs) were hit by the real estate slowdown and the slump in global equities. Calpers said the fall in the value of its assets was the most severe in its history.

“This result is not a surprise; it is about what we expected, given the collapse of markets across the globe,” said Joe Dear, investment chief at Calpers.

The value of Calpers assets fell 23.4 per cent for the year to June 30, raising concerns that state employees and local governments might have to increase their ontributions to cover the shortfall.

But Calpers presented a bullish view. “The system has more than enough cash through contributio…

Who Spiked the Pension?

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The WSJ reports that three days before Pete Nowicki announced he was retiring, fire department trustees agreed to increase his salary in a practice called “pension spiking.” The resulting bump in his annual pension has angered colleagues and residents in this Northern California area. (See related article.)
Andrew Ross of the San Francisco Chronicle asks, Who Spiked the Pension?: Big five-column photo of Moraga-Orinda fire Chief Pete Nowicki in Monday's Wall Street Journal - though it might not be the kind of celebrity he welcomes. The 51-year-old retiree is fast becoming the poster child for "pension spiking," that is, making an already generous pension even larger via a pay raise granted just before retirement. Nowicki's boost, as Contra Costa Times columnist Dan Borenstein has reported, came in the form of cashed-in vacation time and other compensation. The raise increased his annual pension from $185,000 to $241,000. Local outrage and vows to reform the system fol…

PBGC Takes Over Nortel's Pension Plan

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Nortel Networks pensioners are calling for action by governments at all levels after a U.S. government agency seized control of the U.S. Nortel pension plan: They say they're worried that the U.S. Pension Benefit Guaranty Corp. will try to get Canadian assets of the insolvent company to cover a $514-million deficit in the U.S. pension plan.

With the Nortel Networks pension plan in more trouble than previously believed, the U.S. government stepped in Friday to take control of the U.S. pension plan and guarantee the pensions of 23,000 employees and retirees in that country.Canadian Nortel pensioners fear the U.S. agency, a quasi-government agency backed by the U.S. government, will act quickly to try to protect U.S. interests. It sits on the official creditors committee in the Nortel bankruptcy action and has lots of experience taking over pension plans after a string of airline, steel and other industrial bankruptcies.For Nortel U.S. employees and pensioners, the takeover is good new…

Paradise Found?

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I spent the weekend with friends and family enjoying the spectacular beaches and sunsets of southern Crete. We stayed at the Pegasus Resort, just outside Agia Paraskevi. It's a family-run hotel with everything you need. If you go there, tell Kyriakos and Marina that Leonidas from Montreal suggested the place. I was blown away by their genuine hospitality and Marina's food is to die for (you have to order the carrot salad, the tabbouleh, the stuffed vine leaves, more commonly known as dolmades, and their delicious lamb chops). Don't forget to bring shampoo and body wash as this is an excellent no frills hotel literally in the middle of nowhere.

Southern Crete is surreal. This particular place isn't easy to get to from Iraklio; it is much easier to go through Rethymno and then follow the signs for the village of Spili and then Agia Paraskevi. Once you get there, you will understand why I call this place Paradise. There are hardly any tourists (except for the true die-hard…

Pledging Commercial Real Estate as Pension Contributions?

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From CalPERS' lawsuit against credit agencies, we go to another more interesting lawsuit. The WSJ reports that Delphi retirees are suing over a plan to end pensions: A group of retirees of Delphi Corp. (DPHIQ) filed suit Thursday, saying it needs an independent administrator to help stop the bankrupt auto supplier from terminating its pension plan for salaried employees and transferring the obligation to the Pension Benefit Guaranty Corp.

In a federal lawsuit filed in Michigan, the Delphi Salaried Retiree Association asked the court to replace its current trustees, who are Delphi executives, and appoint a new plan administrator "loyal only to us."

The suit also seeks an immediate injunction prohibiting the current plan administrator from negotiating a termination with the PBGC until this suit is concluded. "We have serious concerns about whether Delphi executives can protect our pension rights while at the same time serving Delphi's shareholders and creditors,"…

Is CalPERS Passing the Buck?

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The Independent reports that CalPERS is now suing rating agencies over $1 billion losses: Calpers, the California state employees' pension fund and one of the most powerful fund managers in the US, is suing the three main credit rating agencies, saying they were negligent when they gave gold-plated ratings to mortgage derivatives that have since turned toxic.

The lawsuit adds to the growing pressure on the agencies – Standard & Poor's, Moody's and Fitch – over their role in inflating the credit bubble that turned spectacularly to bust.Calpers claims that it lost around $1bn on securities that the agencies had said were as safe as government bonds.

The computer models used by the rating agencies to judge the creditworthiness of mortgage derivatives were "seriously flawed in conception and incompetently applied", the Calpers lawsuit alleges.

The pension fund invested $1.3bn in bonds issued by three structured investment vehicles (SIVs), specially-created investment…

The Elephant in the Room?

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The Associated Press reports that the funding shortfall faced by the UK's defined benefit pension schemes broke back through the £200 billion barrier during June:

The deficit of the 7,400 defined benefit schemes, including final salary pensions, widened to £200.1 billion during the month, after dipping below the £200 billion mark for one month in May.

The current shortfall represents a dramatic turnaround from the collective £13 billion surplus the schemes had in June last year, according to pensions safety net the Pension Protection Fund. Pension schemes have faced a double whammy of falling asset values and rising liabilities during the past year. The cost of their liabilities to members has soared by 21% during the past 12 months due to lower gilt yields. At the same time, falling equity markets have slashed the value of the schemes' assets by 5.5%.

A total of 6,461 pension schemes now face a funding shortfall, representing 88% of all defined benefit schemes. The ongoing fundi…

Chooching Pensions Funds?

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The NYT reports that President Obama's chief auto adviser, Steven Rattner, has stepped down: Steven Rattner is quitting his post as President Obama’s chief adviser on the troubled automobile industry at a time when an investigation into his former Wall Street firm’s role in a scandal involving public pension funds has intensified.Mr. Rattner, who has won plaudits for directing the rapid restructuring of General Motors and Chrysler, has been under a cloud since shortly after arriving in Washington in late February after it was disclosed that his firm, the Quadrangle Group, made payments to middlemen that helped it win state pension business. It is unclear whether Mr. Rattner’s departure is directly connected to the inquiry, or whether he felt that it was time to leave because Chrysler and G.M. effectively had emerged from bankruptcy. A person who has worked with him in Washington said he understood that Mr. Rattner had decided to leave because his role on the task force had come to …

Another Comment on Bonuses and Benchmarks

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A former colleaugue of mine, Keith Porter, posted an excellent entry on Luc Vallée's blog on bonuses and benchmarks:
I would like to pick up some of the themes Leo Kolivakis has been pursuing on Pension Pulse about bonuses in the industry.

Let me start with a disclaimer. I am one of the people whose bonus was cancelled by the Caisse earlier this year.

But I want to start before that, and address Leo’s point about benchmarks.

Firstly, it is axiomatic that if you are going to “pay-for-performance” you must know what you are paying for, and that you must pay a reasonable amount.

As Luc Vallée has pointed out in the past, if Warren Buffet had charged 2&20 to run Berkshire Hathaway, the shares would be worth only a small fraction of what they are today. Instead, Mr. Buffet has made himself fabulously wealthy, and many others along side him, by being “reasonable” in his compensation.

I do not think anyone can say that an industry standard of 2&20 is reasonable; for a start, it looks …

Mayhem in Maranello?

They got some great commercials on Greek television. Above is one of my fasvorites featuring the super Audi R8. Make sure you also see the video Yves Smith posted on Naked Capitalism, "The Fed Under Fire" as well as the Financial Ninja's video, A Complete Fleecing of the Sheeple. Two must watch videos.

Jersey's Jitters: An Omen For Public Plans?

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From Big Blue's pension blues, we go to public sector pension blues. Bloomberg reports that New Jersey's pension asset value dropped 19% last fiscal year: New Jersey’s pension assets fell 19 percent during the fiscal year that ended June 30, the board overseeing the funds said. The decline in asset value, to $63 billion on June 30 from $78.2 billion a year earlier, adds stress to a retirement account that was underfunded by about $34 billion at the start of the fiscal year. The fund covers about $6 billion in benefit payments each year. “Tough year,” William Clark, director of the Division of Investment, told members of the State Investment Council today. Clark said the losses are not as severe as those suffered by other public pension funds. “At the end of the day, our numbers will come out at the top of the range for public funds,” he said. Actuaries who calculate the health of the fund each year assume the state’s investments will earn 8.25 percent annually. Taxpayers eventu…

Big Blue's Pension Blues Spreading?

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The Independent reports that IBM is ready to close its UK final salary pension scheme: IBM has become the latest company planning to turn its back on final salary pension payouts. The computer systems group is consultung staff about proposals to close its UK scheme, which would affect 5,000 employees.

Brendon Riley, the general manager of IBM in the UK and Ireland, said in a memo to staff that the "rising costs and liabilities" had forced it to consider moving existing members of the IBM scheme – about a quarter of the workforce – to a defined contribution scheme.

Staff will be consulted for 60 days from 5 August and a decision will be made following the feedback. Mr Riley said he understood the situation would be "sensitive and difficult for many". He added: "The rapidly rising costs and liabilities associated with the provision of defined benefit pensions is placing pressure on our long-term ability to invest for future growth and operate in an intensely compet…

Pensions Thriller?

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Off vacationing in Crete so I will keep it short and sweet. Noticed stocks got hammered again on Tuesday. I would be buying those dips, especially on solars (LDK and YGE).
A few pension articles for you. The Toronto Star reports that pension panic subsiding. The Financial Post reports that improved Canadian equity markets sends solvency ratio up.
The CBC reports that Canada Pension Plan loses assets but not hope. We are in the early stages of the pension crisis so I wouldn't lose hope yet but it will get much uglier if the status quo is the only solution policymakers can come up with.
Finally, broadcasts of Michael Jackson hits and skyrocketing sales of the late pop icon's discs after his death have given a boost to Dutch pension fund ABP, which in 2008 bought the rights to several of his songs.
Good move for ABP but the pensions thriller will continue long after the King of Pop's death.

Did You Say Dance?

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I hope every Canadian enjoyed their time off July 1st for Canada Day. I am off to the Land of Zorba tomorrow (the island of Crete) for the baptism of my three nephews.

I am looking forward to being with my family but I dread the hustle and bustle of airports. My MS always acts up this time of year with the heat and humidity but I am going to take it one step at a time and try to enjoy my time off.

I have been blogging for a little over a year. I managed to meet many interesting people, email others and of course, piss off some pension bullies, not that I really care about them.

People ask me why I blog and what I get out of it. For me, it's cathartic and it allows me to structure my thoughts on a daily basis. I love learning about new things and trying to put all the macro pieces together.

Of course, it helps to have a strong network and to read what other commentators are saying. I continuously read what intelligent people have to say about the markets. Today I read the July comment …