Pension Pulse

Helen Fetterly, chair of Healthcare of Ontario Pension Plan ( HOOPP ), wrote an article for Benefits Canada, Dispelling public pension plan myths : I’ve been involved with the Healthcare of Ontario Pension Plan (HOOPP) for 17 years now, and in 2013, am serving my second term as board chair. Recently, HOOPP created a two-part white paper with The Gandalf Group called The Emerging Retirement Crisis . In my first column based on this data, I looked at why the DB model, of which HOOPP is one, works. Some of the key findings in the second part of the white paper relate to the fact that 64% of Canadians don’t believe Canada has a good workplace pension system. Seventy-three percent of those say that employers aren’t offering sufficient pension plans. Yet, continually, on the HOOPP board we hear that DB pension plans—common in the public sector and unionized private sector workplaces—are gold-plated and not sustainable. Nothing could be further from the truth. The average HOO...

Yves Lamoureux of Lamoureux & Co. wrote a comment on ETF Daily News, From Bond Apathy to Bond Panic : We have been glad this year to be on the side of the bull camp. Our job has been an easy one as we pursued the long side of stocks. We remain bullish despite raising big amounts of cash many weeks ago. We think we can redeploy money shortly once we feel the corrective phase is over. It has been a much different story on the income side. One that shows only the start of something much bigger. We did forecast long bonds to drop to a yield of 2.5%. For us that was the marker both in time and price that satisfied our interpretation of the end of the bond bull market. It is our opinion that we are just in the first leg up in rates. Once completed we favor a correction that can last for a little less than a year. The second wave, we feel, will be as large as this recent move. This is why late last year we urged to look at a new asset allocation system based on credits only. ...

Maxwell Murphy of the Wall Street Journal reports, Some Pensions Embrace Riskier Assets : Thinly traded and hard-to-value investments such as real estate and private equity stakes are taking up a larger piece of the corporate pension pie. The shift lets companies chase higher returns for their plans, but merits a closer look because such assets can be risky, says Fitch Ratings. Among 224 large corporate pensions studied by Fitch, plans were on average 8.5% invested in illiquid “Level 3” assets, a significant boost from 7.8% at the end of the year-earlier period. Some 66 of those plans held illiquid assets worth more than 10% of their plans, which Fitch says is concerning. “Plans with more than 10% of assets in Level 3 assets may call for further investigation, because these include relatively illiquid holdings,” Fitch said in a research note. Pension plans at companies with lower credit ratings and higher near-term benefits obligations are the most at-risk, Fitch said. Con...

Sally Patten of the Australian Financial Review reports, Future Fund says infrastructure assets not in bubble territory : The $85 billion Future Fund has defended the price it paid for a stake in Perth Airport and dismissed concerns that infrastructure assets are in bubble territory. The fund, which was established in 2006 to oversee the retirement savings of commonwealth government public servants, said fears that recent entrants to the market, such as global pension and endowment funds, had pushed up prices to unsustainable levels were overdone. Future Fund chief investment officer David Neal said infrastructure assets were “certainly well bid”, but denied they were over-priced. “We are not in bubble territory. The market doesn’t feel frothy or bubbly,” he said. The Future Fund said infrastructure investments continued to generate attractive returns for the prices paid. “If you are a long-term investor, infrastructure provides long-term, stable, inflation-related income ...

Sean Farrell of the Guardian reports, Private equity: have investors learned from their mistakes? : It seems a long time ago when private equity was the unacceptable face of capitalism in Britain. But on the eve of the banking crisis, in June 2007, prominent British representatives of the industry were hauled before parliament's Treasury select committee to explain themselves as political and public disquiet over the sector reached a peak. "You are effectively filling your boots with debt," said Brooks Newmark, a committee member. The then chair of the committee, John McFall, excoriated witnesses – including executives at Permira, 3i and Carlyle Group – for failing to clean up their public image. "Here is an industry which you tell us is so successful, but there is opprobrium out there. I think you have to do something about it." A phenomenon of bigger and bigger deals, paid for with escalating debts that produced lightly taxed profits, had given rise t...

Steven Russolillo of the Wall Street Journal reports, Hedge Funds Severely Underperforming This Year : It’s been a great year for the stock market. It’s been a tough year for a hedge-fund manager. A typical hedge fund has risen 4%, on average, this year through Aug. 9, according to an analysis conducted by Goldman Sachs. That performance compares to a 20% total return (including dividends) for the S&P 500 over the same time frame, meaning the market has outperformed an average hedge fund by five times this year (click on image below). Hedge funds, on average, underperformed the markets last year as well, with an 8% gain, compared to a 16% total return for the S&P 500. Hedge funds typically shine when markets struggle and underperform during long rallies, largely because they hedge their bets to try to generate steady performance. But the gap this year has been wider than usual. Fewer than 5% of the hedge funds that Goldman monitored have outperformed the S...

Tim Reid of Reuters reports, Rising returns give U.S. public pension funds chance to reform : Many U.S. public pension funds are benefiting from double-digit annual returns in fiscal 2013 that are giving them breathing space to try to implement reforms and fix gaping deficits. A raft of pension reforms since the financial crisis by many U.S. state and local governments have not repaired their pension debt, a factor in the bankruptcies of Detroit, Michigan, and the California cities of Stockton and San Bernardino. A 20 percent gain on the U.S. stock market in the twelve months to June is, however, alleviating acute funding gaps in many areas. "It is a marathon, not a sprint," said Keith Brainard, at the National Association of State Retirement Administrators. "I do not think any one-year returns are likely to affect the thinking about pension reforms but we have seen very strong returns since the low point of the equity market in 2009 and it is encouraging,...