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Showing posts from May, 2016

Memo To Mark Machin?

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Andrew Willis of the Globe and Mail wrote a tongue-in-cheek comment, Memo to Mark Machin: Here's Your To-Do List at CPPIB:
After 11 years at Canada Pension Plan Investment Board, CEO Mark Wiseman is handing the reins to the fund’s head of Asian investments, Mark Machin, effective June 13. The changing of the guard at the $279-billion fund comes as federal and provincial finance ministers prepare to gather in Vancouver later in June for talks aimed at enhancing CPP coverage. Against that backdrop, here’s the note Mr. Wiseman should leave for his successor:

To: Mark #2

From: Mark #1

Subject: CPPIB handover

Welcome to the top of the mountain! Well, the top of the heap in Canada. We both know I’m heading to the Mount Everest of funds at BlackRock, where they measure assets in trillions, not mere billions.

You’re probably arrived with a fancy 100-day plan for shaping CPPIB in your own image. I’ve got two pieces of advice that I humbly suggest will determine your success at CPPIB and, fra…

The Ultimate Diversifier?

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Joe Davis of Vanguard wrote a very interesting comment, By this measure, bonds have never been more valuable:
Global bond yields hover near all-time lows. In the United States, a 10-year Treasury note yields less than 2%. In Europe and Japan, the bond markets have tumbled through the looking glass into a world of negative interest rates. About 40% of European government bonds yield less than 0%. In Japan, the figure is 70%.

The prospect of low to negative returns on government bonds has raised doubts about their value. Why hold an asset that yields almost nothing (or less than nothing)? Why take on any price volatility if you can stash cash in a safe?

The doubts are understandable. Return is the most salient feature of any asset class, and it’s hard to get happy about 0%. In an asset allocation framework, however, return has different dimensions. And by one critical measure in mean-variance optimization, which weighs both return and risk, high-quality government bonds have never been …

Hedge Funds' Day of Reckoning?

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Scott Deveau and Devin Banerjee of Bloomberg report, Hedge Funds May Lose 25% of Assets, Blackstone’s James Says:
The $2.9 trillion hedge-fund industry may lose about a quarter of its assets in the next year as performance slumps, said Tony James, Blackstone Group LP’s billionaire president.

“It’s kind of a day of reckoning that we face here,” James said Wednesday in an interview with Bloomberg TV Canada’s Pamela Ritchie at a conference in Toronto. “There will be a shrinkage in the industry and it will be painful. That’s going to be pretty painful for an awful lot of places.”

The hedge-fund industry is having its worst start to a year in performance and investor withdrawals since global markets reeled after the financial crisis. Third Point, the hedge-fund firm founded by Dan Loeb, last month said the industry is in the first stage of a “washout” after “catastrophic” results this year.

Hedge funds have lost 1.8 percent this year, according to Hedge Fund Research’s global index, the poo…

R.I.P. Deflation?

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Amey Stone of Barron's reports, Deflation Is Dead, Buy TIPS over Treasuries:
BlackRock’s global chief investment strategist Richard Turnhill is worrying a lot more about inflation lately. His weekly commentary is titled, “Why deflation is dead,” and argues investors should own Treasury Inflation-Protected Securities (TIPS) as a hedge and also because they are likely to do better than Treasuries.

Higher energy prices is a big reason why he thinks more inflation is coming. But he has a lot of additional reasons, too. He explains:
Our analysis suggests rising U.S. inflation pressures will persist, as factory-gate price increases are passed on to consumers. It is not just the rebound in energy prices pushing inflation higher. An appreciating U.S. dollar is abating as a headwind. Prices of more stable service-based components of the CPI are also rising. Wages, too, are moderately increasing, as are survey-based consumer inflation expectations. TIPS price in inflation of just 1.4% over…

Chicago's Pension Patch Job?

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Hal Dardick of the Chicago Tribune reports, Mayor floats plan to fix city's smallest pension fund:
Mayor Rahm Emanuel on Monday floated a new idea to fix the city's smallest government worker pension system, one that he hopes will become a model to address far greater financial woes in the largest retirement fund.

Under the plan, both taxpayers and newly hired city laborers would pay more toward pension costs, and in return, workers could retire two years earlier.

But the Emanuel administration declined to say precisely how much money such an approach could save, and the mayor does not plan to press state lawmakers for approval during the final scheduled week of spring session.

City officials hope the plan would pass muster with the Illinois Supreme Court, which in March struck down an earlier Emanuel plan aimed at addressing the money shortfalls in pension funds covering laborers and municipal employees.

What "we want is a concrete and sustainable funding path that's…