Pension Pulse

All week, I've been watching the circus and clowns in Washington make fools out of themselves. The "debt ceiling drama" is annoying me. More smoke & mirrors to scare retail investors away while the big guns load up on risk assets. Let me go over a few key points to convince you to keep buying the dips hard and ignore the debt boogeyman which permeates our mass media every day. First, take the time to read Peter Coy's article which appears on yahoo Finance (provided by Bloomberg Businessweek), Why the Debt Crisis Is Even Worse Than You Think . I quote the following: The language we use is part of the problem . Every would-be budget balancer in Washington should read "On the General Relativity of Fiscal Language," a brilliant 2006 paper by economists Laurence J. Kotlikoff of Boston University and Jerry Green of Harvard University (available online from the National Bureau of Economic Research). The authors write that accountants and economists have s...

Michael McNutt reports in NewsOK, Oklahoma AG launches investigation into pension investments : An investigation was launched Thursday into whether financial institutions are properly handling state pension funds, state Attorney General Scott Pruitt said. Pruitt said he sent letters to several banks holding pension funds seeking information on investment transactions, including those involving foreign currency exchanges. The pensions include those for state employees, teachers, police officers, firefighters and judges. The investigation does not involve any Oklahoma bank, a spokeswoman for the attorney general's office said. Pruitt said he has no evidence of wrongdoing. “Our investigators in the AG's office will collect that data and we'll make an assessment at that point about the next step, if any,” he said. “If there is any occurrence of fraud, I will take the necessary enforcement steps to recover potential losses of tens of millions of ...

Amy Minsky of Postmedia News reports in the Ottawa Citizen, Public-service pension fund's strong profits don't deter critics : It was one of the most profitable Canadian pension funds in 2010-11, but critics are unwavering that the public service pension fund is unsustainable, going so far as to brand it one of the "biggest drivers of deficit." The Public Sector Pension Investment Board — which watches over about $58 billion in assets, making it the third-largest pension fund in the country — posted a 14.5 per cent return in 2010-11, resulting in a $7-billion gain after expenses, the board said in an annual report it tabled last week. But the successful year isn't reassuring for some who still argue the public service pension system is set up in such a way that funding deficiencies will always fall on taxpayers instead of workers. "Canadians are backstopping the pension shortfalls of public-sector workers," said Niels Veldhuis, vice-president...

Martin Z. Braun of Bloomberg reports, States Miss Pension Targets by 50% Even With Private Equity (HT: Donald): In the last decade, as a wave of baby boomers began retiring, America’s biggest state pension systems earned less than half what they needed to keep up with promises made to millions of graying civil servants. The state of Washington’s 3.92 percent return for the 10 years through June 30, 2010, after fees, was the best in a Bloomberg survey of state pensions with more than $20 billion in assets. That was nowhere close to the average yearly gains of as much as 8 percent that fund managers and public officials count on for meeting obligations to retirees. “To assume that the median plan will reach 8 percent given this environment, that’s optimistic to say the least,” said Karl Mergenthaler, an executive director in JPMorgan Chase & Co. (JPM) ’s securities services group in New York. “Public plans have an incentive to maintain their expected rate where it is. The risk is ...

CNW reports, PSP Investments Reports Fiscal Year 2011 Result : The Public Sector Pension Investment Board ( PSP Investments ) announced today that it recorded an investment return of 14.5% for the fiscal year ended March 31, 2011 (fiscal year 2011). The robust overall performance for fiscal year 2011 was driven primarily by strong results in Public Market Equity portfolios as well as in Private Equity and in Real Estate, and follows on the heels of the 21.5% total return recorded in fiscal 2010. The fiscal year 2011 investment return exceeds the Policy Portfolio return of 12.7% by 1.8%. Consolidated net assets increased by $11.7 billion , or 25%, to a record level of $58.0 billion . During fiscal year 2011, PSP Investments generated net income from operations of $6.9 billion and received $4.8 billion in net contributions. "The latest results reflect solid performances and contributions from every part of the organization and point to the success of ...

Phillip Inman of the Guardian reports, Bailout rescue: euphoria wanes as doubts emerge : A rally on European stock markets evaporated on Friday night as investors began to voice concerns about whether the eurozone rescue plan for Greece would be enough to stem the currency bloc's debt crisis. One leading investment strategist described the new deal as "less sticking plaster and more of a proper bandage", but warned the underlying problems in the Greek economy had not been addressed. Another said the voluntary 21% "haircut" agreed by the banks was less than a third of what was required. The credit ratings agency Fitch added to worries over the deal after it declared Greece would be in temporary default as the result of the €109bn (£96bn) bailout. The move is likely to be matched by rival ratings agencies. The FTSE 100 finished up just 35 points at 5935, adding to small gains on the main French and German exchanges following a volatile day that ...

Before I get into my latest topic, I was advised by a union member that PSP Investments released its Annual Report 2011 . They do this every year around this time because Parliament has to approve it before they post results. Problem is that the fiscal year ended in March (March 31st 2010 to March 31st 2011) and the delay in reporting the results publicly is unacceptable. Most people are away on vacation this time of year so reporters do not cover it. The overall results are excellent, up 14.5%, or 180 basis points above the benchmark portfolio which returned 12.7% in FY 2011. But I want to take my time and go over PSP's annual report over the weekend, as well as the Special Examination 2011 performed by the Office of the Auditor General of Canada (OAG). Given that I worked as a senior investment analyst at this organization in the past covering public and private markets, have tremendous respect for some individuals there (most aren't slimy weasels), and know senior people at...

Reid Epstein of Politico reports, The Fed, Wall Street plan for default : With less than two weeks before the United States cannot borrow more money, the Federal Reserve and Wall Street are making plans to prepare for the country’s possible default on its $14.3 trillion debt. In the most revealing comments to date, Charles Plosser, the president of the Philadelphia Federal Reserve, told Reuters the nation has for months been in “contingency planning mode” to deal with the fallout when the federal government runs out of money. “We are developing processes and procedures by which the Treasury communicates to us what we are going to do,” Plosser said. “How the Fed is going to go about clearing government checks. Which ones are going to be good? Which ones are not going to be good? There are a lot of people working on what we would do and how we would do it.” The Treasury Department has repeatedly denied making plans for default, saying raising the debt ceiling is the lone acce...

Sonali Paul and Narayanan Somasundaram of Reuters report, Australia's MAp agrees asset swap with Canadian fund : Australia's MAp Group has agreed to swap airport stakes with Ontario Teachers' Pension Plan to beef up its holding in Sydney Airport in a deal worth A$1.6 billion ($1.7 billion), and flagged a possible cash return to shareholders. The operator of Sydney airport will exchange its stakes in Brussels Airport and Copenhagen Airports for OTPP's 11 percent stake in Sydney Airport and A$791 million in cash, as it looks to simplify ownership of Australia's top airport. The cash component was slightly lower than flagged when the proposal was announced in June, mainly due to the strengthening of the Aussie dollar against the euro. After the deal, it will own 85 percent of Sydney airport and said it expected to make about A$1.5 billion available to MAp investors when the deal is completed, slated for the fourth quarter of 2011. While MAp is trading its...