Showing posts from May, 2019

CalSTRS's Plan to Reduce Fees

The California State Teachers’ Retirement System (CalSTRS) is initiating a long-range plan to increase internal management of assets to reduce the $1.8 billion it currently pays out in external management fees:
The effort for cost savings comes at a critical time for CalSTRS, the second-largest US retirement plan.

The plan is only 65.5% funded as of June 30, 2018, a number that is expected to drop after the plan posts its investment returns for this fiscal year at the end of next month. It has been a volatile year for pension plans primarily due to the ups and downs of the stock market. Few, if any, plans are expected to meet their anticipated rates of return.

CalSTRS’s expected rate of return each year is 7%, a rate some critics say is unrealistic. In any case, saving external fees by increasing internal management can give CalSTRS a better chance of meeting its returns projections, argue investment staffers. According to the article, CalSTRS has made the largest progress in interna…

The Coming US Pension Crisis

John Mauldin recently wrote a comment in Forbes on why the coming pension crisis is so big, it's a problem for everyone. I will let you read his article but the gist of it is this:
Almost all public pension funds assume investment returns somewhere around 7% (and some as high as 8%+). That’s highly unlikely due to the debt we’ve accumulated, and debt is a drag on future growth.

If you make more realistic assumptions on future returns the unfunded liability becomes $6 trillion according to the American Legislative Exchange Council. So how bad is the situation? Some states like Kentucky are well past the point of no return. Illinois's public pensions are underfunded by $134 billion and some think it's far worse. Rhode Island’s locally run pension plans have close to $2.5 billion in unfunded obligations.

According to Pew, New Jersey's public pension system is so underfunded that it could run out of money in 12 years. Colorado could deplete its retirement fund assets by…

CDPQ's Governance Tested on REM

The Canadian Press reports that Premier François Legault's government will force the Caisse de dépôt et placement du Québec (CDPQ) to purchase trains made in Quebec as part of the extension of Montreal’s Réseau Express Métropolitain (REM) light-rail system:
“It’s certain. Whether in the form of the REM or tramways … for sure we will require local content,” he said Saturday at the Coalition Avenir Québec’s party convention on green issues in Montreal.

The Caisse, Quebec’s pension fund operator, has a mandate to operate independently and free of political interference in its decisions.

Legault said Saturday he never understood why the former Liberal government did not require the Caisse to purchase products manufactured in Quebec.

Environment Minister Benoit Charette echoed the statement, telling reporters there will be a local content requirement for the second phase of the REM transit network. He added that any infrastructure project related to public transit will now have Quebec…

A Cold Summer For Stocks?

Today, CNBC reports stocks continued their five-week decline after a brief rally when President Donald Trump said the ongoing trade war could be over quickly:
The Dow Jones Industrial Average is down about 1% this week and is on pace to post its fifth consecutive weekly decline, its longest since 2011. The S&P 500 and Nasdaq Composite were headed for a third straight week of losses, their longest since December 2018.

The indexes got a small reprieve on Friday after President Donald Trump said the ongoing trade war could be over quickly. The Dow rose 110 points while the S&P 500 climbed 0.3% along with the Nasdaq.

“We still think the negotiators are going to reach a deal, but it’s clearly going to take a lot longer and be more difficult than investors thought a few weeks ago,” said Kate Warne, investment strategist at Edward Jones. “But any glimmer of hope that progress is being made will help stocks rebound.”

Crude prices dropped more than 6% this week as trade worries spille…

Private Equity Losing its Luster?

Institutional Investor reports that according to an eVestment survey, more investors are lowering their expectations for private equity than any other area of private markets:
Fifty-two percent of investors probed by the data provider are expecting private equity returns to fall over the next three years. Venture capital ranked second in drawing the strongest weight of opinion against it, with 47 percent of investors predicting lower returns from the asset class.

Competition for deals has intensified after record fundraising in private markets, making this a top concern for investors and fund managers, the survey found. High valuations may dampen returns, particularly as a majority of those surveyed expect a significant market correction within two years.

“We’ve been in very buoyant markets for some time,” Graeme Faulds, eVestment’s product director for private markets business, said in a phone interview. Investors are more worried about valuations than fund managers, he said, ref…

The Geopolitics of Technology

The Global Risk Institute published an interesting paper on the geopolitics of technology:
In the race to innovate, the geopolitical determinants of big data, AI and 5G are critical to the financial services industry. These technologies can help institutions responsibly leverage client data to improve product development and customer relations, refine human capital procurement, investment strategies and loan assessment, bolster cybersecurity and fraud detection and develop new mobile services and capabilities. However, public policy, macroeconomic interest and national security priorities could ultimately restrict their commercial applications. To check global rivals, states could impose new sovereign controls over the internet that balkanize cyberspace in line with physical borders. Governments fearful of losing their technological advantage could also enforce new restrictions on trade, market access, intellectual property and capital flows that fragment supply chains and stifle gro…

Mark Machin's Big Bonus?

Institutional Investor reports on how the Canada Pension Plan Investment Board (CPPIB) paid chief executive Mark Machin C$5.265 million for a fiscal year ending March 31, 2019. CPPIB had estimated that it would pay Machin C$3.565 million for the year but incentive pay and bonuses topped up his final pay by C$1.7 million.

To put this in historic and peer perspective:
Machin had earned roughly C$4.569 million in fiscal year 2018, and $4.507 million in fiscal year 2017, according to past annual reports. Although Canadian public pension funds typically offer much higher compensation compared to their U.S. counterparts, Machin’s fiscal year 2019 pay was on the higher end of the spectrum: Ontario Teachers’ Pension Plan paid CEO Ron Mock about $4.893 million in 2018, according to its annual report, while the Ontario Municipal Employee Retirement System’s annual report reveals that it paid CEO Michael Latimer nearly $4.127 million. A table of total compensation for CPPIB's senior executi…

Top Funds' Activity in Q1 2019

The latest round of 13F filings from institutional investors were out this week, revealing what some of the most successful investors have been buying and selling during the last quarter. It appears fund managers were doing more selling than buying of many popular tickers:
Managers were more bullish that bearish on FAANG stocks. Soros was the exception, buying Netflix but selling Amazon and Alphabet.Among the FAANG stocks, managers were most bullish on Netflix, with Loeb, Coleman and Soros all adding to their stakes.Despite major trade war headlines, fund managers mostly ignored Apple in the first quarter. Rosenstein cut his Apple stake for the second consecutive quarter.Adobe was on fund managers’ radars in the first quarter, but they weren’t on the same page. Cooperman and Soros were buying, while Rosenstein and Coleman were selling.Warren Buffett made his first venture into FANG territory, buying Amazon for the first time Detailed 13F roundups are available here and you can find pl…