This Week in Pensions & Investments: 13-10-2023

As I stated in my last post, I'm officially on daddy duty helping mommy take care of our baby boy. However, the world of pensions and investments remains very active so for the time being, I am going to provide you with a weekly compilation of items to read with some brief thoughts on Friday afternoon.

Let me begin by stating I am appalled and profoundly shaken by the barbaric and heinous terrorist attacks that took place in Israel last Saturday. Hundreds of innocent people murdered in cold blood and hundreds more kidnapped by Hamas terrorists. It's a stark reminder that this world remains very dangerous and we cannot let our guard up against pure evil, not for one second.

As the death toll rises on both sides, I hope there will be a peaceful resolution to this latest conflict and pray for the safe return of those kidnapped Israelis, including children, women and elderly.

I was also happy to read this message from McGill University's Principal and Vice-Chancellor Deep Saini earlier today, calling for compassion during divisive times. I note:

At a time when unity is needed more than ever, we are seeing deep schisms within university communities across the world. This period of global turmoil will test our resolve and ability to coexist and thrive together within a diverse campus community. We can expect that the days and weeks to come will continue to be challenging.

As underlined in the message issued last Sunday about these events by Deputy Provost Labeau and Associate Provost Campbell, our campus community can only thrive when all feel safe, supported, and included. And as Provost Manfredi stated in his message two days later, communications that laud acts of violence and terror are completely at odds with the climate that we strive to foster at McGill. They are therefore unacceptable.

As such, I must be clear in my expectations for every member of the McGill community: the scope of our freedoms of expression and assembly is broad, and deservedly so. But it is not absolute. Acts that have the effect of intimidating, silencing, instilling fear, or expressing discrimination or hate have no place at McGill. In this context, we are committed to keeping our campus safe and inclusive. We will act if the law or our policies and the Code of Student Conduct are breached.

I couldn't agree more, these are difficult times, people have a right to protest and march but let's also remember that we live in a peaceful democracy and all forms of violence and intimidation are unlawful and must be prosecuted to the full extent of the law.

Anyway, let me get on to covering this week in pensions.

First, Shahir Gindo wrote a special to the Globe and Mail on why Canadian pensions funds should invest more in domestic assets to boost the economy. I note: 

The Caisse should be used as an example in expanding the mandates of the rest of the Maple 8.

Like the Caisse in Quebec, the rest of the Maple 8 have the human talent and financial and other resources necessary to have a huge impact on the Canadian economy – for all Canadians.

However, to comply with their constrained legislative mandates to achieve direct financial returns on investments, they are cornered into deploying the hard-earned capital of Canadians all around the world. (There are not enough investments of scale available in Canada to allow such big funds to hit their investment targets.)

To the credit of the Maple 8, they have done this well. The most important capital markets participants around the globe know the Maple 8 and covet our Canadian pension dollars for their projects.

But the secondary result: Rather than the Canadian economy benefiting from the full power of the Maple 8 talent and capital, our capital is being deployed all over the world in everything from ports, to technology, roads, airports, real estate, manufacturing, managed third-party funds and much more.

My former boss and friend Senator Clement Gignac posted this article on LinkedIn and I replied:

Alberta Investment Management Corporation (AIMCo) CEO Evan Siddall did a great job recently addressing criticism that the Maple 8 don’t invest enough in Canada:

Lastly, the inherent value of diversification is overlooked by people pressuring Canadian pension funds to invest more at home.

I want to confront the topical complaint that pension funds allocate something like 4% of our capital to domestic stocks. Given where this criticism is mostly coming from — a few domestic equity-centric fund managers, I suspect they are hoping to see our billions of additional dollars chasing Canadian stocks and therefore bidding prices higher.

They don’t mention that the Maple 8 large Canadian pension funds collectively have around 13.5% more of our assets in Canadian fixed income, which are essential to hedge our clients’ mature pension liabilities.

Nor do they acknowledge our investments in Canadian real estate, infrastructure, renewables, private equity, private credit and mortgages. In fact, taking all asset classes into account, pension funds quarter and half of our total assets invested in Canada. Since Canada's share of global GDP in 2022 was between 1.0% and 1.5%, as a group we remain substantially overweight Canada.

AIMCo itself currently has 42.9% of our assets invested in Canada. We own properties like Yorkdale and Square One shopping malls around Toronto, and the Northern Courier pipeline in northern Alberta in partnership with Métis and First Nation communities. We are also building rental housing where it’s needed in major Canadian cities.

However, as everyone knows, an investor can reduce risk without reducing returns by avoiding a portfolio of correlated investments whose fortunes rise and fall together, such as having too many assets in any single country — like Canada.

We are therefore unapologetically expanding AIMCo‘s presence in London and opening offices in Singapore and New York in order to increase deliberately the potential sources of diversification and return- seeking investments for our clients.

More importantly, the federal government hasn’t created winning conditions to allow Maple 8 funds to invest in large scale infrastructure projects domestically. Instead, the Canada Infrastructure Bank focuses on small scale projects that don’t appeal to the Maple 8 or international pension and sovereign wealth funds.

In my expert opinion, this is a grave mistake.

I am not for introducing a dual mandate similar to the one CDPQ has for all of Canada's large pension funds. 

While this has worked well at CDPQ, it doesn't mean it will work well elsewhere and is fraught with risks.

Canada's large pension funds already invest significant amounts in Canada which is a small market relative to the global economy.

Also, it's incumbent upon the federal government to create winning conditions that will attract large sums from our large pension funds to invest in Canadian infrastructure, that it where we will get the most bang for our buck for the economy and for our large pensions.

Forcing Canada's large pension funds to invest in domestic equities runs against the objectives of these pensions which is to maximize returns without taking undue risks.

We need to allow our pensions to invest where they see the most attractive opportunities across public and private markets all over the world.

Lastly, there is an area of interest where I see Canada's large pension funds playing an integral role, that's in the building and operation of new nuclear power plants in Canada.

More on that in a subsequent post.

Here is the rundown of some other top pension stories this week:

1) Canadian pension funds including Canada Pension Plan Investment Board are considering selling their stakes in Chile’s biggest power-transmission company Transelec SA, seeking a combined US$3 billion, according to people familiar with the matter. 

CPPIB, British Columbia Investment Management Corp. (BCI) and Public Sector Pension Investment Board (PSP) are in the early stages of evaluating a potential sale of their roughly 72 per cent stake in the Santiago-based utility, the people said, asking not to be identified because the matter is private. 

Read more here.

2) APG and PSP Investments told investors at the Fiduciary Investors Symposium that unless they embrace technology and innovate, their licence to operate will be under threat. They explain how and why they are embracing technology in all aspects of their investment process and operations.

Eduard van Gelderen, chief investment officer at Canada’s C$243 billion PSP Investments, told the Fiduciary Investors Symposium at Stanford last month that pension funds’ licence to operate is under threat if they do not embrace technology.

“I am 200 per cent convinced that investment models will change and will change rapidly,” he said. “If you take a step back and ask what your licence to operate is, ours is to keep the defined benefit system alive and sustainable. I don’t think that is possible if we continue to work the same way as we did before.”

Read more here.

3)  John Graham, President & CEO, Canada Pension Plan Investment Board (CPP Investments), recently announced the appointment of Manroop Jhooty as Senior Managing Director & Head of Total Fund Management, effective immediately. 

Read press release here

4) Canada Pension Plan Investment Board (CPP Investments) is pleased to welcome Dean Connor as Chairperson of its Board of Directors, effective October 27, 2023. Mr. Connor will succeed Heather Munroe-Blum, CPP Investments’ Chairperson since 2014, whose final term as Chairperson and Director expires in October. 

Dr. Munroe-Blum was the third Chairperson of CPP Investments and has served on the Board since 2010. During her tenure, Dr. Munroe-Blum oversaw significant growth and development of the organization, as the CPP Fund grew to $575 billion and remained resilient through global disruptions, including the pandemic.

“I thank my fellow Directors – past and present – for the privilege of serving alongside them for the past 12 years,” said Dr. Munroe-Blum. “Since its inception nearly a quarter of a century ago, CPP Investments’ reputation as a Canadian success story has been hard earned. This success was built on the generations of employees, senior leaders and Directors who have all contributed their expertise and commitment as custodians in service of a truly enduring organization. It has been my tremendous privilege to serve as Chairperson of CPP Investments, and to count myself as one of many to contribute to this great institution.”

Dean Connor was appointed to the Board in 2021 and has more than four decades of global experience in financial services and executive consulting. Between 2011 and 2021, Mr. Connor served as President & CEO of Sun Life Financial Inc., a leading financial services company. Prior to this, he held senior roles with Sun Life, including Head of Canadian Operations and Chief Operating Officer. Mr. Connor previously had a 28-year tenure with a human resource consulting firm, where he rose to be President for the Americas, a position he held until 2006.

Mr. Connor qualified as a Fellow of the Society of Actuaries and the Canadian Institute of Actuaries. He holds an Honours Business Administration degree from the Ivey School of Business at Western University. Mr. Connor currently serves as Chair of the Board for the University Health Network in Toronto and as a member of the Ivey Advisory Board. He was named Canada’s Outstanding CEO of the Year for 2017, Ivey’s Business Leader of the Year for 2018 and one of the Top CEOs in the World for 2019 by the Harvard Business Review.

“Dean’s long history of leadership, coupled with his extensive global experience in financial services makes him ideally suited to be an effective Chairperson for CPP Investments,” said Dr. Munroe-Blum. “The Board unanimously agrees that Dean’s excellent reputation as a leader on our Board, his commitment to strong corporate governance and his extensive global experience will allow him to help lead the Board in its oversight duties in an exemplary fashion, helping guide CPP Investments as it grows to become a trillion-dollar fund.”

Read press release here

5) Canada Pension Plan Investment Board (CPP Investments) welcomes Nadir Mohamed as a new member of its Board of Directors.

“We are very pleased that Nadir Mohamed has joined the Board of Directors. His extensive business leadership experience, as well as expertise in the areas of stakeholder management, enterprise risk management and cultivating talent, will bring valuable perspectives to our experienced Board,” said Heather Munroe-Blum, Chairperson of CPP Investments. “In addition, Nadir’s prior board experience with public, private and not-for-profit companies positions him well to contribute to CPP Investments’ high standards of corporate governance, in line with our long-term investment approach and our public purpose.”

Mr. Mohamed has more than three decades of experience in telecommunications, finance and technology.

Mr. Mohamed is the retired President and Chief Executive Officer of Rogers Communications Inc. He is Chair of Alignvest Management Corp. and serves on the board of Cineplex Inc.

Mr. Mohamed is engaged in a spectrum of community organizations and is focused on innovation and entrepreneurship in Canada. He is the co-founder of ScaleUP Ventures and Chair of DMZ Ventures. He was named a Member of the Order of Canada in 2019.

Read press release here

6) Participants at CPP Investments’ first Sustainable Energies Group (SEG) Leaders Summit included 45 executives from companies in CPP Investments’ SEG portfolio as well as other energy-sector leaders from Canada, the United States, London, India and Brazil.

The name of the game was solution-focused collaboration. The event connected companies in the Fund’s orbit that may not regularly interact.

They hosted this gathering in Alberta not only because it is home to one of the world’s most beautiful natural landscapes, but also because Alberta has a reputation for responsibly-produced energy and skilled talent that can help advance the energy transition.

Head of SEG, Bill Rogers, rallied everyone around a shared objective: delivering excellent risk-adjusted returns while addressing the energy trilemma. Like our own SEG group, this inaugural event brought together renewable and traditional energy under one umbrella to see what could happen.

As Bill Rogers, put it, “the solution to your current challenge, may exist in this room.”

Read highlights here.

7) HOOPP’s top priority is to take care of our members, now and into the future. By incorporating climate factors into the management of the Fund, we can continue to deliver on our pension promise and work towards making a real-world impact. 

Read more in their report, ‘Our climate strategy: good for the Plan and the planet’

8) HOOPP: A boardroom view of how to approach governance around climate change. 

Read this article here

9) Ontario Teachers’ Pension Plan Board (Ontario Teachers’) announced that Wren House Infrastructure Management Limited (Wren House), a global infrastructure investment manager, has agreed to purchase an equity stake in SeaCube Container Leasing Ltd. Ontario Teachers’ took the company private in 2013. Under the terms of the deal, Ontario Teachers’ and Wren House will operate under a co-control structure of the container leasing company.

SeaCube Container Leasing is one of the largest operating lessors of intermodal containers in the world. The company provides best-in-class equipment solutions and has taken a forward-looking approach by investing in sustainable solutions to help customers reduce their carbon footprints. Additionally, SeaCube has played a leading role in driving growth across the global containerized trade industry. 

Read press release here.

10) C.D.Howe Institute is pleased to welcome Barbara Zvan as Co-Chair of the C.D. Howe Institute’s Pension Policy Council. Effective immediately, the President and Chief Executive Officer of University Pension Plan Ontario shares Chair duties with Bob Baldwin. 

Those are the top stories in pensions this week.

I ask all communications people keep me abreast by emailing me at LKolivakis@gmail.com.

As far as markets, I recommend you follow my posts on LinkedIn here as well my my Twitter or X feed here.

One great read I do recommend is Vitaly Katsenelson's latest covering his thoughts on the economy.

I remain convinced we are heading toward the deepest and most prolonged recession since the 1970s.

Hedge accordingly.

Below, Apollo Global Management CEO Marc Rowan joins ‘Squawk Box’ to discuss his decision to write an op-ed to UPenn’s student newspaper criticizing university president Elizabeth Magill and board of trustees chair Scott Bok over a Palestinian literary festival held last month, fighting antisemitism on college campuses, rising tensions following the Israel-Hamas war, the double standard in the exercise of free speech, and more. Rowan submitted the op-ed, but as of late Thursday afternoon, it had not yet been published by the student newspaper.

Good for Rowan, there is no room for antisemitism in our universities and leaders need to condemn it in a clear and forceful manner.

And “what we are seeing is this enormous volatility. So far, we are lucky that when we have overshoots it triggers some sort of reaction,” says Bloomberg Opinion columnist Mohamed El-Erian, as he discusses bond market volatility with Jonathan Ferro on "Bloomberg The Open."

El Erian also said he "hopes" that the Federal Reserve elects to keep its current benchmark interest rate unchanged at its next two policy meetings. "The market says there's over a 1/3 probability that one of the two meetings is live. I hope it's not," he says on "Bloomberg The Open."

Fourth, Roger Ferguson, former Federal Reserve vice chairman, joins 'Squawk Box' to discuss the Fed's inflation fight, why he expects the CPI report to validate the 'higher-for-longer' narrative, the potential impact of the Israel-Hamas war, rise in Treasury yields, and more.

Fifth, former Dallas Fed President Richard Fisher joins 'Squawk Box' to discuss this week's inflation data, what it means for the Fed's next interest rate decision, Treasury yield outlook, and more.

Sixth, Deutsche Bank CEO Christian Sewing said commercial real estate “will actually go through more difficult timing for the next couple of years” as higher interest rates roil the market. He made the comments during an interview with Bloomberg's Francine Lacqua on the sidelines of the annual meetings of the IMF and the World Bank in Marrakech, Morocco.

Lastly, Paul Graham, lending and data governance practice leader at Bridge 2 Partners, and Aaron Klein, senior fellow in economic studies at The Brookings Institute, join 'The Exchange' to discuss unrealized losses on bank balance sheets leading to tighter lending standards, whether banks should receive a bailout for unrealized losses, and what a TARP 2.0 could look like.

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