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Showing posts from April, 2011

A Fairy Tale Ending?

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Over two billion people around the world watched the royal wedding on Friday. My hunch is that the overwhelming majority were women (guys aren't that into fairy tales). I have to admit I caught a glimpse of the royal wedding as it ended this morning and thought they were a beautiful couple. Kate looked so poised while William looked a bit nervous but happy.

The royal couple looks very much in love, which along with health is the most important thing in life. Without love and health, all the money in the world is meaningless. Whenever I look at William and Harry, I'm reminded of their mother and the summer of 1997. She died a couple months after I was diagnosed of multiple sclerosis (MS) and while her death was tragic, it helped distract me from my diagnosis and gain some perspective on life.

Opinions are divided on the royal wedding. Cynics will claim that it's a major distraction, opium for the masses to divert attention from the harsh reality of austerity in England. Royal…

Are States' Pensions the Next Crisis?

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Virginia's News & Advance reports, Are States' Pensions the Next Crisis?:
Just as America is finally showing signs of digging out of the financial meltdown and the Great Recession of 2008, there are already warning bells being sounded for the next possible scare: government pension programs.Earlier this week, the Pew Center on the States issued the results of its “fiscal stress test” of the 50 state pension programs, and the results are troubling to say the least.All told, the Pew center estimates that government pension funds and health care programs are underfunded by more than $1.2 trillion today, a clear sign that something must be done now to avoid a great deal of misery down the road.Though the Pew study looked at pension funds during 2008 and 2009, the depth of the Great Recession, the results should serve as a wake-up call to political leaders across the nation, including here in the Commonwealth of Virginia.The Pew center reports that 31 states are funding t…

The L Word?

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On Wednesday I had a nice chat with Jonathan Jacob of Forethought Risk, an independent risk advisory firm that educates and advises public and private pension funds, asset managers, an insurance companies to create a greater understanding an appreciation for the nature of risk and how to use it to the firm's advantage. They also advise treasury management functions on risk, risk valuation, how to hedge risk and provide transaction oversight to ensure pricing fairness.

Jonathan traded interest rate swaps for many years at Bank of Montreal and even worked a year with the Fixed Income division at Ontario Teachers' Pension Plan during the financial crisis. After speaking with him, I simply don't understand how Teachers' let a guy like this slip through the cracks (absolutely terrible decision and just goes to show you that really smart and honest people get the short end of the stick during tumultuous times).

If you want someone to help you hedge risk, this is the person you…

Currency Risk: Are You Feeling Lucky?

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Pierre Malo, my former supervisor at PSP Investments and now president of Pierre Malo Consulting, sent me an article he published in the Canadian Investment Review, Currency Risk: Are You Feeling Lucky?:
Since the elimination of the Foreign Property Rule in 2005, most Canadian pension plans have become more exposed to foreign investments and therefore to currency risk. While a lot of attention has been paid to strategic asset allocation (and rightly so), fiduciaries often don’t know their exact FX exposure. Furthermore, they rely on luck when it comes to currency risk. This article will consider the reasons why a clear FX hedging policy is so important and what plan sponsors should consider when implementing one. How exposed are Canadian pensions?According to data from PIAC, the typical Canadian Asset Mix as of December 2009 included 21% “alternative” asset classes (Real Estate, Venture Capital/Private Equity, Infrastructure and others), and 37.5% foreign equities a…

The Big Secret?

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Morgan Korn at Yahoo's Breakout reports, Superstar Managers Don’t Mean Superstar Returns: Renowned Investor:
Renowned investor Joel Greenblatt can't keep a secret.The founder of Gotham Capital, the hedge fund he started in 1985 that produced 40 percent annualized returns under his 20-year tutelage, wants you to be rich. Very rich. And it doesn't mean pouring your hard-earned money into five-star rated funds or hiring talking head money managers (they are plenty of them on cable business channels). In Mr. Greenblatt's latest book, The Big Secret for the Small Investor, he decodes the secrets of Wall Street for the average investor and debunks the most common myths of investing.What's the biggest secret revealed? "Investing comes down to valuing something and paying a big discount to that value," Greenblatt recently told Breakout. In his book, Greenblatt gives plenty of examples of how to determine a company's valuation with simplified numbers an…

Caisse's 2010 Annual Report

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Bernard Morency, Executive Vice-President, Depositors and Strategic Initiatives at the Caisse de dépôt et placement du Québec let me know that the Caisse just published their 2010 Annual Report, Building the Future on Solid Foundations (click here to download English PDF).

I've already covered the Caisse's 2010 results back in February but the annual report was not available at the time. The French version was available last week and on Thursday, the Caisse posted the English version.

Let me begin by going over some priorities mentioned by Robert Tessier, Chairman of the Board (pages 8-9):
During the past year, the quality of the relationship between the Caisse and its depositors remained one of the Board’s top priorities. From this perspective, it should be noted that we implemented a new collaborative model to ensure this relationship takes place in a climate of transparency and trust. In the process, the Board approved the fundamental reorganization of the Caisse’s portfolios …

Inflation Fears Dampen Pension Plan Gains?

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Barbara Shecter of the Financial Post reports, Inflation fears dampen pension plan gains:
Inflation jitters and a stronger loonie dampened pension plan gains in the first quarter on the back of healthy stock market returns, according to a survey released Wednesday by RBC Dexia Investor Services.Within the $340-billion RBC Dexia universe, pension assets earned 2.3% in the quarter that ended March 31, bringing 12-month results to 10.8%.

“Equities continued to do well despite the geopolitical tensions in the Middle East and the tragic events in Japan, but have been exceedingly volatile,” said Don McDougall, director of advisory services for RBC Dexia.Canadian stocks were the top performing asset class for a third successive quarter as the S&P TSX Composite index gained 5.6%.The two largest sectors, financials, which were up 9.1%, and energy, which gained 8.7%, accounted for the bulk of the increase. However, pensions were “generally under-exposed to both and subsequently lagg…

How Low Can the VIX Go?

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What's going on with market volatility? You'd think with Standard and Poor's putting the US government on notice that it risks losing its AAA credit rating and Greece teetering on the abyss, markets would be going haywire waiting for the next shoe to drop.

David Berman of the Globe and Mail asks, Why did stock market panic?:
Here’s yet another theory why U.S. government bonds are failing to react much to the Standard & Poor’s cut to the U.S. credit rating outlook: The bond market had already priced it in. From Jan Hatzius at Goldman Sachs: “Clearly, the U.S. fiscal situation is unsustainable unless a large, multi-year fiscal tightening is implemented. However, there is no information in today’s report about the fiscal situation that was not already known. Academic research has generally found that rating agency actions lag market pricing, rather than lead it.” [Double SIGH!!]
This sounds reasonable, though it raises the question why the stock market was so quic…

OTPP's Neil Petroff on Active Management

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On Monday, after S&P issued an unprecedented warning to the United States government, I was lucky enough to find Neil Petroff, Executive Vice-President, Investments and CIO at Ontario Teachers' Pension Plan (OTPP). Mr. Petroff only had a few minutes but was kind enough to discuss some issues which I will get to below.

First, Paula Vasan of aiCIO reports, Ontario Teachers' Petroff: 'Active Management Outperforms':
The Ontario Teachers' Pension Plan (Teachers') chief investment officer Neil Petroff, riding a 14% annual return in 2010, claims the fund's active strategy has added more than C$23 billion to the bottom line since its inception in 1990.In a wide-ranging interview with Petroff, the CIO of Canada’s third-biggest retirement-fund manager claims: "If we were a passive fund, we'd be C$23.2 billion lower in value, with liabilities at the same level. That really speaks to the value of active management - you add value when you pay for acti…