Pension Pulse

Sam Jones and Kate Burges of the FT report that Pension schemes regain faith in hedge funds : The number of pension schemes looking to invest money with hedge funds doubled during 2009, according to a leading investment consultancies. Hewitt Associates has seen inquiries from clients increase sharply as pension fund trustees scrabble to find high-performing investment strategies to help recoup losses suffered in 2008. “A lot of institutional investors have got over the emotional block that hedge funds are risky products that they should be scared of. Clients are much more comfortable with the asset class,” Guy Saintfiet, a senior hedge fund researcher at Hewitt told the Financial Times. Other consultants – which play a crucial role as intermediaries in guiding pension funds’ investments – also report a change in attitudes towards hedge funds. According to Damien Loveday, a senior investment consultant at Towers Watson, pension fund trustees had become more sophisticated. Most UK scheme...

Craig Karmin of the WSJ reports Pensions Look to Leverage Up : Public pension funds needing to boost their returns but frustrated with hedge funds and private-equity investments are turning to one of the oldest investment strategies—using borrowed money to boost performance. The strategy calls for leveraging pension funds' safest asset—government or other high-grade bonds—while reducing exposure to stocks. The State of Wisconsin Investment Board, which manages $78 billion, became among the first to adopt the strategy when it approved the plan Tuesday. The fund will borrow an amount equivalent to 4% of assets this year, and as much as 20% of its assets over the next three years. Fund officials say that use of leverage could eventually go higher—in theory, at least, up to 100% of assets, according to the staff analysis. But Chief Investment Officer David Villa says that level wouldn't be palatable for the Wisconsin fund. He said the pension fund was advised by four money manag...

President Barack Obama's State of the Union address Wednesday is unlikely to translate into dramatic congressional action anytime soon, but it was a phenomenal speech . The focus was clearly on jobs , which remains the most pressing concern as over 7 million US citizens lost their jobs during this recession. However, President Obama also made it clear that health care reform will remain among his top priority and he urged Congress to finish the job . One interesting swipe came when President Obama took issue with a recent Supreme Court decision to allow for unlimited campaign donations by corporations (read about the pros & cons of this decision here ). The president's comments drew an irate response from Justice Samuel Alito who was obviously one of the judges who voted for this stupid decision. This brings me to my latest topic, private equity. The Lords of finance were out again, talking up private equity. Jennifer Rossa of the WSJ reports, Apollo's Leon Black Staun...

Before I get into the latest topic, one small reminder on Haiti. It has been two weeks since that devastating earthquake and relief is only now starting to be more readily available. But for some victims, relief will be much harder to get. I listened to Heather Mills of Physicians for Peace speaking to CNN's Larry King about the disabled in Haiti. I also read an article in the Globe and Mail, Program for the disabled lost in Haiti's rubble . It says that despite the odds, Canadian Marika MacRae, head of the charity Pazapa, insists the organization will carry on. Pazapa is a charity that has served disabled Haitian children since 1987 was wiped out in the earthquake. Being disabled is hard enough in the developed world, I can't imagine how horrible it must be in a Third World country like Haiti that has just been devastated by a massive earthquake. Thank God organizations like these exist. Anyways, back to pensions and financial markets. The big news on Tuesday was that the...

CBC reports that Sabia lays out Caisse turnaround plan : The head of Quebec's public pension fund vowed a return to "plain old common sense" in its investments Monday as it tries to come back from an underwhelming investment performance. Michael Sabia, who has been president and CEO of the Caisse de dépôt et placement du Québec since last March, set out a list of priorities the fund aims to meet in the next 18 months. In a letter published Monday on the Caisse's website , Sabia said he wanted to provide Quebecers with a progress update on his plans to revamp the Caisse's operations and improve its financial results. "The Caisse has just lived through the most difficult time in its history," Sabia wrote. "The economic and financial environment has changed radically. As a result, we have had to make important changes." Sabia, previously chief executive at BCE Inc., said the Caisse will now invest only in financial instruments that it understands...

Steve Johnson of the Financial Times report that pensions pour into emerging market debt : US pension funds are poised to pour almost $100bn (£62bn, €70bn) into emerging market debt in the next five years, according to JPMorgan. The impending buying spree will be augmented by strong flows from central banks desperate to diversify out of the dollar , industry figures believe, bolstering the ongoing rally in emerging market bonds and potentially pushing yields relative to US Treasuries to a record low. “We expect a long-term structural bid [from US pension funds] for emerging market debt,” said Will Oswald, global head of emerging market quantitative strategy at JPMorgan. Jerome Booth, head of research at Ashmore Investment Management, an EM debt specialist, said: “Pension fund consultants are being inundated with requests.” Demand is being driven by the 2006 Pension Protection Act, which came into force in 2008 and compels US corporate pension funds to discount their future liabilitie...

Chikafumi Hodo of Reuters reports that Japan's public pension fund urged to seek higher returns : A Japanese government minister on Friday urged the country's massive public pension fund to seek higher returns, ramping up pressure on the traditionally conservative investment portfolio to take more risk. The size of the $1.36 trillion public pension fund, the world's largest, is greater than the 2008 gross domestic products of countries including Australia, India and Mexico, and is almost seven times bigger than top U.S. pension fund CalPERS. Internal Affairs Minister Kazuhiro Haraguchi told reporters at a news conference after a health ministry panel meeting that the Government Pension Investment Fund (GPIF) should seek greater returns than it has generated in the last few years. He urged a review of the fund's performance after the rate of return on its investments fell to minus 10.3 percent, or a record loss of 9.7 trillion yen ($108 billion), in the financi...

Stocks tumbled on Thursday as President Obama took on the banks : Mohamed El-Erian, chief executive of Pimco, told the Financial Times: “Today’s announcement is part of the broader phenomenon of de-risking banks, and moving the sector more towards the ‘utilities’ end of the operating spectrum. “This reflects post-crisis governments reaction to both systemic risk and political realities. It comes at a time of increasing structural inconsistencies in advanced economies, including the conflict between the de-risking banks and expecting them to lend more to the struggling real economy. “After a liquidity and stimulus driven rally, stocks are starting to reflect the realities of structural imbalances in both the economy and the policy responses.” The Dow Jones was down 213 points, its fourth consecutive day of triple-digit moves. The volatility saw the Vix index, known as Wall Street’s fear gauge, jump 19.2 per cent to move back above 22. Investors rushed into the perceived haven of governm...

Before I delve into the latest topic, I received an important message from Ellie Brown of International Medical Corps : Dear Leo, International Medical Corps is a global, humanitarian, nonprofit organization, founded by volunteer doctors and nurses and dedicated to saving lives and relieving suffering through relief and development programs. Our emergency response team is in Haiti responding in force and I would like to ask for your help to get the word out to the readers of Pension Pulse. There are still thousands of patients seeking treatment of which approximately 80% are in need of surgery and are running out of time - especially with the tremendous aftershocks still devastating this country. The team is treating crush injuries, trauma, substantial wound care, shock and other critical cases with the few available supplies - And they're in it for the long haul. I would love your help spreading the word by blogging or tweeting about IMC's rescue efforts. We've put up a b...

A follow-up to yesterday's comment on the $58 billion debt time bomb . On Tuesday, Kathryn May of the Ottawa Citizen reports federal PS unions gird for battle over pensions : OTTAWA — Canada’s 18 federal unions are meeting in Ottawa for two days starting today to develop a united front against what they believe is the Harper government’s gathering assault on the public service. Facing one of the largest deficits in Canadian history, union leaders are braced for Finance Minister Jim Flaherty to turn to the public service to balance his books. One of the major concerns is persistent rumblings about cuts to the public service’s generous pensions and benefits. “We don’t know where they will be coming at us … but we want to have common footing, so it in our best interest have common positions we can take,” said John Gordon, president of the Public Service Alliance of Canada. Gordon says the Conservatives have long grumbled about public service pensions back to Prime Minister Stephen Har...

Kathryn may of the Ottawa Citizen reports that federal PS pensions a $58B debt time bomb, think tank says : OTTAWA — The federal government's bookkeeping of its pension promises for public servants is out of whack with the real costs, understating Canada's national debt by $58 billion, says a report by a leading think-tank. A study by C.D. Howe Institute on the "fair-value" costs of the pension liabilities for Canada's public servants, military and RCMP concluded the government's estimates are so understated that most of the surpluses racked up over the past decade should have been deficits. "Experience in steel, cars, telecoms and other mature industries has shown how understating the cost and volatility of defined benefit obligations can lead plans to run accumulated deficits larger than their sponsors can cover, leaving pensioners short and/or taxpayers picking up the pieces," said the report. "We need to get a better handle on public-secto...