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Showing posts from May, 2018

Will Canada's Pensions Buy Kinder Pipeline?

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Reuters reports that Canadian pension funds may be long-term buyers of Kinder pipeline:
Canada’s biggest public pension funds could be long-term buyers of Kinder Morgan Canada Ltd’s Trans Mountain pipeline but are unlikely to invest until the $7.4 billion project has been built, several pension fund sources said on Tuesday.

The Canadian government said on Tuesday it will buy the Trans Mountain assets for $4.5 billion, hoping to salvage a project that faces formidable political and environmental opposition. The pipeline is intended to move Canadian crude to ports in the Vancouver area for shipment to foreign markets.

Although the federal government has taken stakes in other struggling energy projects, Tuesday’s announcement marked the first time it is being an entire pipeline, and Ottawa said it does not want to hold the asset for the long term.

Frank McKenna, Toronto-Dominion Bank’s deputy chairman and a former New Brunswick premier, said he expected pension funds and private equity pl…

Caisse and OTPP Invest in Energy Service?

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Benefits Canada reports, Caisse, Teachers’ acquire Germany-based energy service provider:
The Caisse de dépôt et placement du Québec and the Ontario Teachers’ Pension Plan are part of a consortium of investors acquiring global energy service provider Techem GmbH.

Joined by private equity firm Partners Group and Techem’s management team, the consortium is buying the Germany-based company from Macquarie European Infrastructure Fund 2, which acquired it in 2008. The transaction, which is expected to close in the third quarter of 2018, values Techem at 4.6 billion euros, according to a press release.

“Energy efficiency, which is at the centre of Techem’s offering, is key to building a sustainable future,” said Stéphane Etroy, executive vice-president and head of private equity at the Caisse, in the release. “Given CDPQ’s desire to support the transition to a low-carbon economy, investing in Techem is a very attractive opportunity for us. Techem’s business model positions it to benefit fro…

PSP Ramping Up Direct Private Equity?

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Kirk Falconer of PE Hub Network reports, PSP Investments ramps up direct deals to half of PE portfolio assets:
Public Sector Pension Investment Board, one of Canada’s largest and fastest growing pension systems, is doing more direct deals as part of a strategy intended to transform its approach to private equity and infrastructure investing.

Over two-plus years, PSP Investments has deployed billions of dollars to a series of global transactions, shining a light on the characteristically low-profile institution.

One result has been growth in PE co-sponsorships and co-investments to “slightly above” half of portfolio assets today from 40 percent in 2015, Guthrie Stewart, PSP senior vice president and global head of private investments, told PE Hub Canada.

PE investing set a new record in PSP’s fiscal 2017, when outlays totalled $4.8 billion, more than half of them earmarked for direct deals. Stewart says activity in fiscal 2018, about which PSP will report in June, will show the “momentu…

The Italian Job?

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Joumanna Bercetche of CNBC reports, Traders are worried this could be the 'big unwinding' of Italian bond markets:
Italian bonds have witnessed one of their worst trading weeks since the euro zone sovereign debt crisis, with many traders getting a stark reminder of the volatility that once characterized markets in the region.

On Friday, two-year Italian bond yields rose 35 basis points in one day — almost equivalent to the entire range of the year for U.S. 10-year Treasurys. This was the weakest session in five years and continued a month that's seen these yields rise 70 basis points in total.

Yields move inversely to a bond's price and a spike higher is seen as investors feeling more concerned about lending to Italy's government. More specifically, traders usually sell short-maturity paper when there are growing credit risk concerns at a sovereign level.

The original catalyst for the selling came from the populist parties hoping to take control of Italy after inco…

Get Set For a Wave of Defaults?

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Jeff Cox of CNBC reports, Moody's warns of 'particularly large' wave of junk bond defaults ahead:
With corporate debt hitting its highest levels since before the financial crisis, Moody's is warning that substantial trouble is ahead for junk bonds when the next downturn hits.

The ratings agency said low interest rates and investor appetite for yield has pushed companies into issuing mounds of debt that offer comparatively low levels of protection for investors. While the near-term outlook for credit is "benign," that won't be the case when economic conditions worsen.

The "prolonged environment of low growth and low interest rates has been a catalyst for striking changes in nonfinancial corporate credit quality," Mariarosa Verde, Moody's senior credit officer, said in a report. "The record number of highly leveraged companies has set the stage for a particularly large wave of defaults when the next period of broad economic stress eventual…

Canada's Public Service Pension Problem?

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Frederick Vettese, partner of Morneau Shepell and author of “Retirement Income for Life: Getting More without Saving More”, wrote a special for the Globe and Mail, When it comes to pensions, don’t follow Ottawa’s example:
It is a sad fact that only 20 per cent of private-sector workers are covered by pension plans in their workplace. In stark contrast, nearly 100 per cent of public-sector workers are covered. Of course, none of this is news; pension envy among private-sector workers is as Canadian as hockey and Timbits.

What is perhaps more interesting and less well understood is the garbled message the government is sending with the pension programs it provides to its own employees. I will single out the federal Public Service Pension Plan (PSPP), not only because it has more than half a million members, or because it is generous even by public-sector standards, but also because the federal government has the power to effect change in a way that would benefit millions of Canadians.

T…

Are Smaller Hedge Funds Worth It?

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Thomas Franck of CNBC reports, If you want to run a hedge fund that beats the market, keep it small:
Successful hedge fund managers should do something unusual if they want to stay that way: Say no to new investors.

The bigger a hedge fund gets, the worst it tends to perform, according to a new academic study.

Holding other features constant, a 10 percent increase in fund size results­­­ in a decrease of 13 basis points per month (or 1.53 percent per year) in raw returns on average and a decrease of 10 basis points per month (or 1.21 percent per year) in style-adjusted returns, according to the paper from Purdue University.

"A key implication of our findings for investors is that performance persistence is achievable when funds maintain a small size," researchers Chao Gao, Tim Haight and Chengdong Yin wrote. "Fund performance declines with fund age and that declining performance is not significantly related to a variety of fund and family-level characteristics, nor is it…