HOOPP's Ryan Chin and OMERS' Brandon Weening on Managing Liquidity and More

Bloomberg’s Paula Sambo recently interviewed Ryan Chin, Managing Director, Balance Sheet & Liquidity Management, Healthcare of Ontario Pension Plan (HOOPP), and Brandon Weening, Executive Vice President, Corporate & Capital Markets Finance, OMERS, at the 2024 Bloomberg Canadian Finance Conference to discuss the challenges and opportunities shaping their investment strategies.

This is an excellent interview which I embedded below because it showcases top talent from HOOPP and OMERS that we don't typically hear much from and  it once again demonstrates the incredible bench strength at these organizations.

Both Ryan and Brandon are really smart guys who know their stuff and it's worth listening to their views below keeping in mind their respective functions.

Ryan handles balance sheet and liquidity management at HOOPP and as he explains, he deals with the less risky part of the overall portfolio to make sure there's plenty of liquidity to invest in risk assets when opportunities arise.

Brandon's job as EVP  Corporate & Capital Markets Finance at OMERS is a bit different because his job is to raise OMERS' profile across the global institutional fixed income community to make sure people know about the plan and why it's smart to invest in OMERS' debt (mostly in Canadian, US, European currencies but also in Australian now and their Board approved the British pound in the future if needed).

He explains very well why OMERS issues debt and part of the reason is also to capitalize on opportunities as they arise.

HOOPP doesn't issue debt, it instead has extensive repo activities (mostly) leveraging its massive bond portfolio which Ryan's team is in charge of to make sure there's always liquidity at hand when needed.

Two different asset mixes, two different approaches but the goal is the same: manage liquidity needs of the plan so they are never caught with insufficient liquidity when they need it the most.

Brandon discusses how issuing bonds at OMERS is 'deployment dependent' mainly in three asset classes: infrastructure, real estate and private credit.

Ryan explains that when TIPS are offering 1-2% (real yield), the natural shift when running an LDI program is to shift more assets into fixed income. 

He also explains why inflation risk is the risk that he's most concerned about and why that's so.

Anyway, take the time to watch this excellent interview below, well worth it.

I would also advise you to carefully read this article on why a fixed income expert at T. Rowe Price thinks Treasury 10-year yields will test 5% in six months:

Benchmark Treasury yields may soon hit a key level on the back of rising inflation expectations and concerns over US fiscal spending, according to T. Rowe Price.

“The 10‑year Treasury yield will test the 5% threshold in the next six months, steepening the yield curve,” according to Arif Husain, chief investment officer of fixed-income, who helps oversee about $180 billion of assets at the firm. The fastest path to 5% “would be in the scenario that features shallow Fed rate cuts,” he wrote in a note.

The call stands out against market expectations of lower yields, after the Federal Reserve cut rates for the first time in four years last month. It also underscores the increasing debate in the world’s biggest bond market, following strong economic data that has raised questions about the likely pace of cuts.

Yields on 10-year Treasuries most recently traded at 5% last October, hitting their highest level since 2007 as fears of a prolonged period of high interest rates gripped markets. Turbulent repricing could be on the cards if Husain’s prediction proves accurate, with strategists currently expecting yields to fall to an average 3.67% in the second quarter.

Ten-year Treasury yields held at 4.08% on Monday.

Husain, a near three-decade market veteran, said ongoing issuance by the Treasury to fund the government deficit is “flooding the market” with new supply. At the same time, the Federal Reserve’s policy of quantitative tightening — an attempt to reduce its balance sheet following years of bond-buying — has removed a key source of demand for government debt.

The yield curve is likely to steepen further because any rises in the yields of short-maturity Treasury bills will be limited by rate cuts, said Husain, who is also T. Rowe Price’s head of fixed income.

Deutsche Bank’s private banking arm said last month that 10-year Treasury yields would touch 4.05% by next September, a prediction that took only around a month to prove correct. Blackrock Investment Institute, meanwhile, issued a report last week telling investors to expect yields on longer-term US debt to swing in both directions as new economic data is released.

Cracks are already appearing in the US’s fiscal position, lending credence to Husain’s views. The country’s debt interest-cost burden climbed to its highest level since the 1990s in the financial year that ended in September, but neither former President Donald Trump nor Vice President Kamala Harris has touted reducing the deficit as a key element of their campaign. That has left US government debt a key risk for market participants.

The most likely scenario for the Federal Reserve is a period of small rate cuts, comparable to its reductions between 1995 and 1998, said Husain. In this scenario, China would inject more stimulus to help its own economy, boosting global growth and creating a clearer outlook for Fed officials.

There are also prospects of a normal easing cycle where the Fed cuts to nearer to the neutral rate, which Husain said is probably around 3%. He also considered a scenario in which the US went into recession, which would spur aggressive cuts.

“Investors sharing my view that a near‑term recession is unlikely should consider positioning for higher long‑term Treasury yields,” Husain wrote.

Take the time to read my recent comment  going over Francois Trahan and Martin Roberge's presentations at Quebec ANEB last week.

As Francois pointed out last week, fiscal stimulus has its limits and at one point, just like in England, the market might react negatively to tax cuts and rates can go back up.

We aren't there yet but you have to wonder how long before the ratings agencies start issuing warnings or worse still, credit downgrades. 

Can the 10-year Treasury yield reach 5% in six months? I doubt it as long as inflation expectations keep dropping and employment decelerates further but you never know. 

All I know is Canada's large pension funds will pounce on 5% 10-year Treasury notes if the yield goes back to 5% and so will global pension funds managing assets and liabilities.

And before I forget, OMERS recently launched a new hub on its member website dedicated to retirement income sources:

The new webpage is designed to support the OMERS’ members on their retirement savings and planning journey, emphasizing the importance of a secure and stable income foundation in retirement. This includes interactive tools to illustrate the impact collecting Canada Pension Plan and Old Age Security payments earlier or later.

Read more about his initiative here.

Alright, that's it from me, take the time to watch all the interviews embedded below.

First, Ryan Chin, Managing Director, Balance Sheet & Liquidity Management, Healthcare of Ontario Pension Plan (HOOPP), and Brandon Weening, Executive Vice President, Corporate & Capital Markets Finance, OMERS, discuss the challenges and opportunities shaping their investment strategies with Bloomberg’s Paula Sambo at the 2024 Bloomberg Canadian Finance Conference.

Next, Eric Girard, Minister of Finance, Province of Québec, discusses Québec’s investments in education and infrastructure with Bloomberg’s Mathieu Dion at the Bloomberg Canadian Finance Conference 2024.

Third, Laurent Ferreira, President & CEO, National Bank of Canada shares his views on the current financial landscape and his plans for the National Bank of Canada with Bloomberg’s Caroline Gage at the Bloomberg Canadian Finance Conference 2024.

Lastly, Stéfane Marion, Chief Economist & Strategist, National Bank of Canada, shares his insights on current trends and their potential impacts with Bloomberg’s Christine Dobby at the Bloomberg Canadian Finance Conference 2024. 

I worked with Eric, Laurent and especially Stefane at the National Bank years ago, they're extremely smart people who definitely know their stuff. Take the time to listen to their interviews.