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Showing posts from October, 2013

Jim Leech on The Third Rail

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Katia Dmitrieva of Bloomberg reports, Canada Pensions Need Reform, Ontario Teachers’ Leech Says:
Canada's politicians and business leaders need to reform the pension system or the country could be staring into the “abyss” as a wave of workers retire, the country’s third-largest pension fund manager said.

“The worst case scenario is that we just keep digging ourselves into a bigger hole and when we hit that final crisis the pain will be significantly greater because you’ve got a shorter time frame to do it,” James Leech, chief executive officer of Ontario Teachers’ Pension Plan, said yesterday in Toronto.

Leech, 66, co-authored “The Third Rail: Confronting our Pension Failures”, in which he highlights problems facing the country: Canadians aren’t saving enough for retirement, they’re living longer, and generating lower investment returns.

Leech cited Nortel Networks Corp. and the city of Detroit as examples of what can go wrong when a crisis hits and pensions aren’t p…

Norway's Big Reversal Bet?

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Mikael Holter of Bloomberg reports, Norway’s Sovereign Wealth Fund Shuns Stocks on Reversal Bet (h/t, Abnormal Returns):
Norway’s sovereign wealth fund, the world’s largest, warned that stock-market gains may reverse as Europe’s biggest equity investor said it won’t use new inflows to buy more shares.

“Our share in the stock market has been stable or falling even though markets are rising, and that means in practice that we’re not using inflows to buy stocks,” Yngve Slyngstad, chief executive officer of Norges Bank Investment Management, said at a press conference today in Oslo. The fund is preparing for a “correction” in stock prices, he said.

The warning follows a surge in stock values that added 7.6 percent to the fund’s equity portfolio last quarter. The $810 billion Government Pension Fund Global, the official name, returned 5 percent in the third quarter, representing a 228 billion kroner ($39 billion) gain, it said today. Bond investments climbed 0.3 percent and real estate ho…

Are U.S. Pension Funds Going Canadian?

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James Comtois of Pensions & Investments reports, MassPRIM taking closer look at cost structure:
The Massachusetts Pension Reserves Investment Management Board launched the first phase of a cost-saving and return-enhancing program that follows in the footsteps of public funds from other states that, in turn, are following in the footsteps of several Canadian plans.

Phase 1 initiatives of Project SAVE include renegotiating some public equity and hedge fund manager contracts to reduce fees for the $53.9 billion Boston-based fund; investing in hedge funds rather than hedge funds of funds and exploring more passive hedge fund strategies; looking at more private equity co-investing; establishing a cash overlay; and restructuring how the fund handles claims-filing procedures and recovery from class-action litigation proceeds.

“I noticed we spend a significant amount of time talking about returns, and although that's very important, we never took an in-depth look at our cost structur…

Will Catastrophe Bonds Wipe Out Pensions?

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Sarah Jones and Margaret Collins of Bloomberg report, Pensions Muscle Into Reinsurance for Yield in Catastrophe Wagers:
The $30 trillion global pension fund industry is starting to muscle in on traditional reinsurers, financing protection against earthquakes and tornadoes as interest rates near record lows spur the search for yield.

A record $10 billion of institutional money flowed into insurance-linked investments in the 18 months through June, and for the first time is directly influencing pricing of some catastrophe risk coverage, according to Guy Carpenter, the reinsurance brokerage of Marsh & McLennan Cos. Catastrophe bonds can yield as much as 15 percent, LGT Capital Partners AG says.

Coverage provided by alternative capital, as pension and hedge-fund money is known in the insurance industry, reached $45 billion at the end of 2012, about 14 percent of the total global property catastrophe limit purchased, Guy Carpenter says. While welcomed by nations seeking to spread disast…

On the Verge of Expanding the CPP?

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Adrian Morrow and Bill Curry of the Globe and Mail report, Push to expand Canada Pension Plan gaining steam:
A provincial movement to expand the Canada Pension Plan is picking up speed, with civil servants drafting a concrete proposal for change and Ontario Premier Kathleen Wynne rallying support for the reform.

Ms. Wynne is kick-starting that push with a trip to Calgary to make her case to Alberta’s Alison Redford, whose province opposed a previous attempt to increase CPP benefits on the grounds that the tax hike to fund them would hurt businesses. The pair will hunker down for an hour Friday morning.

The push comes amid increasing concern many Canadians will be left high and dry when they retire. Earlier this week, the Bank of Canada put off hiking rates, stoking fear among pension funds that face shortfalls in their investments.

“It doesn’t matter where you are in the country, people are not saving enough. There is not enough being put aside for people’s retirement – whether you’re…

Pension Funds Love Wall Street?

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David Crane wrote an op-ed for Bloomberg, Pension Funds Love Wall Street:
Public pension funds have been moving huge amounts of money into alternative investments managed by Wall Street.

According to a recent report by Cliffwater LLC, an adviser to institutional investors, from 2006 to 2012 state pension funds more than doubled their allocations to alternative investments, which include private equity, real estate, hedge funds and commodities. Totaling almost $600 billion, these nontraditional investments now constitute 24 percent of public pension fund assets. In contrast, the funds dropped their investments in stocks to 49 percent from 61 percent over the six-year period.

There’s a reason for that big move, as explained in a recent International Monetary Fund report. Over the last 10 years, the average U.S. public pension fund earned a return of 6.4 percent a year, very healthy but not enough to meet the 8 percent return guaranteed to government employees. In an effort to take pres…