Notes on the CAIP Quebec & Atlantic Conference

I attended the CAIP Quebec & Atlantic conference in Mont-Tremblant over the last two days. You can view the full agenda here. Below, I go over the presentations, with more emphasis on some of the key ones.

Before I begin, let me first thank Geoffrey Briant, President & CEO of G2 Alternatives, and Gordon Power, Founder & CIO of Earth Capital, for sponsoring me to attend this conference.

I'd also like to thank the organizers of the conference as I found it excellent, relatively small and high quality speakers and attendees.

Special Keynote | Canada's Expert Panel Report on Sustainable Finance: What's In It For Asset Owners?

Tuesday, September 24, 2019, 8:30 AM - 9:30 AM

This special keynote will be of immense and necessary value to every pension fund in Canada — because the future investment portfolios of every single one of them will be affected by it.

In April 2018, the Government of Canada announced the formation of the Expert Panel on Sustainable Finance to consult with Canada’s financial market participants on issues related to sustainable finance. The panel released its final report on June 14, 2019. These findings will significantly impact the investment decisions of every pension plan in Canada.  In this interactive keynote, hear from two of the four members of that panel. They are, as Pension Pulse has noted, two of the most powerful women in Canada’s pension field in an elite club dominated by men.  This is a not-to-be-missed special keynote!

Moderator: Gordon R. Power, Owner & Chief Investment Officer - Earth Capital Ltd;
Speaker: Kim Thomassin, Executive Vice President, Legal & Secretariat - CDPQ
Speaker: Barbara Zvan, Chief Risk & Strategy Officer - Ontario Teachers' Pension Plan

Synopsis: This was the opening presentation and the most important one in terms of material. Gordon Power moderated and Barb and Kim took turns to go over main points from the Final Report of the Expert Panel on Sustainable Finance.

Barb Zvan kicked things off by stating Canada is known for "hockey, maple syrup, and cold winters." We are also known to be big polluters. We are the fourth largest oil and natural gas producer. She also noted Canada is the 2nd highest GHG emitter per capita in the G7.

She said the Canadian financial sector is very concentrated, with 5 big banks, 5 big life insurers and the 8 largest pensions account for 3/4 of the assets.

She noted the complexity of the regulatory system -- the Bank of Canada, OSFI, provincial regulators -- has not made change very easy.

Kim Thomassin discussed the process of writing the Interim and Final Report with over 200 consultations in Canada and abroad, 11 thematic round tables and 57 written submissions:

They then went into the three pillars of the report, focusing on the 15 core recommendations:

I highly suggest you take the time to read the Final Report of the Expert Panel on Sustainable Finance. I asked Barb and Kim to send me some of the main points they wanted me to cover.

Barb was kind enough to send me this:
Some thoughts
  • It would be great to set the stage that this is not just an environmental report. This is a finance report written for the finance / investments community.
  • Also important to note that finance is not going to solve climate change, but it has a critical role to play in supporting real economy through the transition
  • To do so we really need to channel the financial sector expertise, ingenuity, influence towards challenges and opportunities posed by CC
  • The report is a PACKAGE of practical & concrete recommendations - addressing both adaptation and mitigation
  • We thought of it as a systems approach - multiple things need to happen - by multiple groups - government, companies, investors & citizens
The 3 three themes of the report
  • First our environmental and economic aspirations need to become one in the same because ultimately they are indivisible - we need to address climate change and live up to our international commitments to deliver our share of the global effort to reduce GHG emissions, but (and even more so) we also need to address climate change to remain competitive in a world that is increasingly concerned about environmental footprint
  • A second theme is that we have some catching up to do, but we think Canada can be among the leaders in the global transition to a low emissions future as a trusted source of climate smart solutions and expertise - important for Canada to position itself as a decision maker rather than simply decision taker in the global market for sustainable products, markets and growth
  • Third, if Canada is to realize its environmental and economic goals, sustainable finance needs to go mainstream. Sustainable finance needs to become simply finance.
The 3 pillars noted and the recommendations that you think may be of interest to your readership.

Under Pillar 1 - switching orientation from burdens to opportunity
  • Mapping Canada’s climate goals into clear industry competitiveness vision - in short help spell out the the size and horizon of the investment opportunities (I guess you can’t make a link to McKenna’s speech today)
  • Additional tax deduction to provide opportunity for Canadians to connect savings to climate objective (also will spur providers who will increase their expertise).
Under Pillar 2 - building the foundations
  • Data & Insights - most pervasive issue across sectors. Biggest challenge, data & translation of data from climate insights to financial and business insights - thus recommendation to create a hub - Canadian Centre for Climate Information and Analytics. You may want to insert Joy’s point re not waiting for perfect data - it is a valid one.
  • TCFD - ultimately better information and insights will support better decision making, better pricing of risk. But another benefit of TCFD is that is will spur organization focus. Also an opportunity to change the conversation in some key sectors. We recommended a comply and explain approach, ensure implementation is paced and staged for complexity and size of firm, consideration of safe harbour rule re scenarios when a thoughtful approach has been taken.
  • Fiduciary Duty - really about ensuring clarity that climate change consideration are aligned with an investor’s fiduciary duty. We also note in our report that Canada should create a stewardship code like many other regions.
  • Ecosystem - in addition to ensure that the experts, that many investors rely on, accelerate their learning and engagement, we did note our support for CPA to look at climate considerations in fair value of an asset.
  • Regulation and Supervision - first it is great that Bank of Canada has taken first step and joined the Network for Greening the Financial System. We did note that we need more clarity from regulators on their role in the oversight of climate change. Also for them to support financial innovation.
Pillar 3 - specific products and markets
  • Supportive Of Transition bonds to help access the deepest, pool of capital (fixed income market). Context that many of the green taxonomy (e.g. Europe) is based on what they need to do to become Green. Canada will have other needs not covered. Thus where we saw transition taxonomy fit in, an opportunity for Canada to lead. Assuming it is implemented, it is another way for a company to illustrate its commitment to transitioning.
  • CleanTeach, Oil & Gas, Retrofit, Infra, Electricity - not sure how much detail you want to go into here, but the recommendations were all targeted to what we believed was holding back that specific market - some recommendations focused on removing barriers, creating new groups to fill in a gap (e.g. green bank) or changes need to have a supportive policy environment and ability to attract the capital needed (e.g. securitization in real estate, pipeline in Infrastructure etc).
  • Asset Management - a key recommendation was for asset managers to assess their internal capabilities - as I noted, this could be around education (board or teams), thinking about the governance process, skills needed, tools already available that can be utilize in your investment process (whether to decide when to buy/hold a position but also while you own it (e.g. engagement and voting)). Commitment to TCFD for their own organizations as it will spur organizational focus as well as supporting initiatives that is asking for enhanced climate change disclosures by companies. This assessment would be specific for each company. They could also help by writing to government and saying they are supportive of the recommendations! 
For her part, Kim sent me a few key takeaways:
The role of financial markets in driving this change/transition has yet to be fully leveraged.

While finance alone is not going to solve climate change, it has a critical role to play in supporting the real economy and foster innovation thru the transition.

Our goal and wish is that sustainable finance in a short term is purely and merely finance.

One thing I did not stress enough was how the consumer preferences and behaviors are relevant - indeed, they are increasingly looking for services and products with a smaller environmental footprint. We (long term investors) feel that climate-smart innovations constitute massive global market opportunities and that they will yield high quality jobs.

Also, how both CDPQ and Teachers' are integrating sustainability into their investment strategy. As long-term global investors, we know that our performance will only be as sustainable as the world in which we invest.
I thank Barb and Kim for sending me over some of their thoughts.

At the end of their presentation, I asked them why they didn't recommend that all of Canada's large asset managers adopt hard targets on addressing climate change.

Barb noted "regulatory complexity" made it hard to make such a recommendation and that it's up to each organization to tackle this issue on their own.

Kim noted that the Caisse has met and exceeded its targets which are laid out in its 2018 Stewardship Investing Report. She went over these four pillars:

I thank Barb and Kim for their excellent insights and they did a wonderful job going over the 15 core recommendations of the Final Report.

Investment Opportunities with the Synergy between Climate Change and the SDGs

Tuesday, September 24, 2019, 9:30 AM - 10:00 AM

Speaker: Gordon R. Power, Owner & Chief Investment Officer - Earth Capital Ltd

Synergies between the Paris Accord and the UN’s 2030 Agenda for Sustainable Development align the climate change and SDG processes to create investment opportunities for institutional investors at the nexus between climate change, energy, food and water.  In this session, you will discover:
  • Examples of how to invest successfully by aligning with both SDGs and climate action at global, regional and country levels to produce scalable investments for institutional investors
  • How to measure the impact of investment opportunities to illustrate the social, environmental and financial metrics from the potential of synergistic and interlinked approaches that can be used to realize the objectives of the SDGs Agenda and the Paris Accord
  • How to profit from these measures
Synopsis: Earth Capital was founded in 2008 by Gordon Power, Stephen Lansdown and Lord Stanley Fink. Its constituent firms manage over $1.5bn in Sustainable Private Equity assets with offices in Beijing, Guernsey, Hong Kong, London and Rio de Janeiro.

Here is a brief overview of Earth Capital (EC):
EC is a global private equity investment manager totally focused on Sustainable Development within the climate change nexus of energy security, food and water security. We invest capital globally in the commercialisation and deployment of proven, sustainable technologies, in various industries including agriculture, clean industry, energy generation, resource and energy efficiency, infrastructure, waste and water.

Our partners have a thirty-five-year extensive investment track record including turning around poor performers & managing the exit process. With our CIO, Gordon Power’s record of 28.5% IRR for a portfolio of 256 investments over 34 years and 45% IRR for a sub-portfolio of 33 sustainable investments made since 1984. In total, our global senior team have been working in the field of sustainable investment for over 330 years! We also have a long history of collaborative working together in the group, as well as in prior firms.

At EC we think of ourselves as industrialists, through the culture laid down by our founders whom themselves have founded substantial businesses, not just invested in them. As a result, we do not see ourselves as purely private equity investors, because through technology transfer we work with our companies to develop their businesses internationally and in turn increase their value.

Our Sustainability impact is measured through the Earth Dividend, which provides an annual measure of the contribution to Sustainable Development. The Earth Dividend has been developed by EC's in-house Sustainability specialists following a detailed benchmark of international best practice approaches to the assessment, reporting and assurance of Environmental Social and Governance issues.
I must say, I've met Gordon Power a few times and he is very impressive and really knows sustainable investing (and has done this very profitably over the years).

Gordon went over the climate nexus which revolves around food, energy and water (see an earlier comment of mine on rethinking sustainable investing):

What I like about Earth Capital is the people, process and performance and in that order!

Their latest fund is already delivering an 18% IRR but it's the people and process which really stand out most for me (the entire culture of the firm is predicated on sustainable investing)

For example, Richard Burrett, Earth Capital's Chief Sustainability Officer, recently shared this with investors:
This report is Earth Capital’s first annual sustainability review since the launch of the Nobel Sustainability Fund (NSF). The sustainable finance and investment landscape is dynamic at present with leading companies increasingly looking at how they integrate issues such as climate change or the broader Sustainable Development Goals (SDGs) into their investment approach. This review highlights how we approach sustainable development and how we integrate sustainability thinking into all we do as a business. Sustainability drives our investment themes; is integrated in our investment decision making and is used to performance manage the businesses we invest in.

Our Earth Dividend process provides us with a holistic understanding of the sustainability performance of those investee businesses and clearly demonstrates that NSF makes a net positive contribution to Sustainable Development. As a growing number of measures do, it reflects the positive aspects of a business such as energy or water savings, but it goes further in highlighting for example where supply chain, end-of-product life or other negative issues are evident. These can include negative environmental footprint issues, or where companies talk of their engagement with local communities and contribution to local economic development yet fail to measure and report this in any systematic way. We look to work with the management of those businesses to improve that performance further, where it leads to commercial gain. The review highlights how we are looking at these issues from an individual company as well as portfolio perspective. We are proud of the work we do to ensure that our Earth Dividend process is implemented systematically and externally assured.

We highlight how we keep our thinking both current and forward looking through engagement with, amongst others, our Sustainability Council. This informs our thinking on emerging issues such as “just transition” or the continuing drive to implement the recommendations of the Taskforce for Climate Financial Disclosure (TCFD).
Interestingly, Gordon told us their Sustainability Council is completely "independent" and its input brings leading external stakeholder perspectives to Earth Capital’s approach on Sustainable Development.

He said the annual Earth Dividend process is completed by the investee company management/investment teams, internally audited by the Chief Sustainability Officer and presented to the Investment Committee:

I highly recommend you contact Gordon Power directly ( for more information on his fund and process. Here in Canada, you can also reach out to Geoffrey Briant ( for more information.

Let's just say I think Earth Capital is light years ahead of its much larger, more well-known private equity peers when it comes to sustainable investing but it doesn't have "brand recognition" which is silly given its principals have a very long track record.

A Debate Between an Investor and a Consultant: Different Perspectives on Yield Expectations, Portfolio Optimization and Risk-Taking

Tuesday, September 24, 2019, 10:00 AM - 10:45 AM

What does it take to succeed in today’s challenging investing landscape? In this session, join a top consultant and a leading investment manager in a candid debate about alternatives. Dissect where the market is heading. Discover the risk and return expectations for alternative assets — as well as performance and compensation. You will walk away with an understanding of the key investment challenges from both sides and discover what each party can do to capitalize on opportunities through partnership and innovation. A not-to-be-missed session!

Moderator: Charles Quintal, President, Retirement Committee - Assembly of Quebec Catholic Bishops
Vincent Jacob-Goudreau, Director, CIO Group - Portfolio Construction - PSP Investments
Yusuke Khan, Director of Strategic Research (Investment), Canada - Mercer

Synopsis: I just met Vincent Jacob-Goudreau and his colleague, Anne Lefebvre, today at lunch. They're both very nice and smart. Vincent is an actuary who joined PSP nine years ago from Aon Consulting. He initially worked on asset mix research before joining the Office of the CIO.

He now works for Eduard van Gelderen who was appointed to the position of Senior Vice President and Chief Investment Officer at PSP in July 2018. Prior to joining PSP Investments, van Gelderen was Senior Managing Director at the Office of the Chief Investment Officer of the University of California. He also served as CEO of the Dutch financial service provider APG Asset Management and Deputy CIO of ING Investment Management (solid CIO with great credentials).

Anyway, I really enjoyed listening to Vincent to get the latest investment profile on PSP. Vincent said PSP is "close to 50%" allocation to private markets. The focus right now is on "portfolio management" as they have achieved their asset target allocations or are close to it.

He said Eduard van Gelderen is looking at liquidity, leverage, and factor exposures by geography and other factors.

The 50% "alternatives" at PSP is in Real Estate, Infrastructure, Natural Resources (farmland and timberland), Private Equity and Private Debt.

The focus is on "Real Assets" for long-term inflation protection as Public Markets have adopted a diversified approach across Fixed Income and Equities.

He said PSP has developed platforms in every asset class to scale into specialized sectors. He gave a few examples of this including in Natural resources (platform for dairy?).

He said investments typically fall into "buckets" but when they don't fit nicely in any bucket, they are made in the complementary portfolio overseen by the Office of the CIO with input from various groups.

The complementary portfolio is also used to incubate new strategies (like AI) and invest in other assets that don't fit in traditional buckets. He gave the example of data centers which fall between real estate, infrastructure and private equity and preferred shares (falls between debt and equity).

In farmland, he said there's "creative thinking" where he gave the example of Mahi Pono, a farming venture between Pomona Farming and PSP which both purchased approximately 41,000 acres of agricultural farmland from Alexander & Baldwin late last year. "One tenth of the island was this sugar company" but through this venture, they transformed to produce cattle, coffee and other agricultural products (see details here).

In terms of where to invest now, Vincent said in "assets that allow you to withstand disruption or be part of it" (like AI and AI related investments).

I asked him given that all assets are over-valued right now, what is the best approach for PSP and other large institutional investors?

He said platforms are critical to access deal flows in infrastructure (like toll roads in India), farmland, but he said "private debt markets are a bit hot right now".

The key thing he stressed is given PSP's advantageous liquidity position, it can be patient all while "staying nimble and level headed". He added: "manager selection and partnerships are the key".

How to Effectively Capitalize on International and Domestic Real Estate and Farmland

Tuesday, September 24, 2019, 11:00 AM - 12:00 PM

Investing in international and domestic real estate can bring real value to alternative investors — if they are know what they are doing. Despite its illiquid nature and high valuations, real estate has served as a core performer for investors. Gather expert perspectives on current developments — and where real estate demands are heading in Canada, the U.S. and internationally. You will discover a broad range of strategies and property types to discover new opportunities in a crowded market.

Moderator: Francois Audet, Senior Director, Credit & Private Investment Risk - PSP Investments
Speaker: David Pappin, President - IAM Real Estate Group
Speaker: Joelle Faulkner, President - Area One Farms
Speaker: Rahul Idnani, Managing Director, Global Chief Operating Officer and Head of Portfolio Management Americas - Nuveen
Speaker: Daniel Marchand, Senior Vice President, Head of Investor Global Sales, Trez Capital

Synopsis: This was an excellent panel on real estate where the panelists really knew their stuff. Francois Audet did a great job moderating and I had the pleasure of meeting him and his colleague, Ian Nisbet, who works in Transversal Risk at PSP, the previous night after dinner. Both are very nice guys and I was pleasantly surprised to see the silos have been broken at PSP (PSP One is the focus) across Public and Private Markets (job of transversal risk) and even within Private Markets.

Francois Audet also told me that they now rate all investments in Private Markets using a bank loan rating model J-F Bureau, PSP's Senior Vice President and Chief Risk Officer, implemented and expanded at PSP.

He said that there is always a watch list presented to the Board every quarter based on this system and that even though the CRO reports to the CEO, he has a 15 minutes in camera sessions with PSP's Board every meeting (that's the way it should be).

Anyway, back to the real estate panel. David Pappin stressed diversification across products and not to focus too much on where we are in the cycle.

Rahul Idnani, who really impressed me, said that mutli-family and industrials are still the markets to invest in while retail remains "problematic" unless you have a great anchor tenant like Sobeys and really work the asset.

In the office space, they like medical office, life sciences and cyber rents as the traditional offices require a lot of expenditures.

Joelle Faulkner talked a lot about farmland and she really knows her stuff. She said it's not correlated, non-leveraged and you can get anywhere from 8 to 12% return (she cited development projects for higher returns). She said most Canadian farms are small (2000 acres on average) relative to Australia's massive farms (20,000 acres).

She prefers the equity participation model over the own and lease model and I asked her to come back to me on a blog comment to cover farmland in more detail.

Daniel Marchand was equally impressive. His firm focuses on markets like Dallas, San Antonio, Houston and various cities in Florida (not Miami which is overbuilt) where they see a lot of opportunities.

Francois Audet said opportunistic has become core plus and all the real estate commentators said risk are rising and it's reflected in valuations. Rahul said it used to be on an 8% return, 7% was income and 1% was appreciation and that's no longer the case.

Daniel said negative appreciation hasn't been seen in a decade and that reflects where bond yields are right now. He added in Q2 2019, there was $400 billion of dry powder in co-mingled funds and another $400 billion in pension assets waiting to by top real estate assets.

You used to get 20% net in opportunistic real estate and now it's 15%. For value add, it used to be 12% net and now it's 10% or less (with leverage, see details and terms here).

Rahul said access to deals is harder but given Nuveen's size, they were able to strike big deals with a top investor to acquire a $3 billion logistics portfolio from.

I also asked Rahul Idnani and Daniel Marchand to consider writing a guest comment on real estate on my blog.

The Savvy Managers and Consultants Speak: Where is the Smart Money Being Invested?

Tuesday, September 24, 2019, 12:00 PM - 1:00 PM

How are savvy managers navigating high prices and growing competition in today’s frothy market to generate superior returns? Faced with uncertain financial markets and increasing disruption, what is the smartest money purchasing? In this session, you will hear from some of Canada’s leading institutional investors and asset managers give you their views on:
  • How to achieve portfolio harmony in 2020
  • Balancing your asset allocation and portfolio construction
  • What will happen to the US equity and bond markets
  • Targeting allocation strategies moving into 2020 and beyond
  • Using technology to monitor your portfolio and manage risk
  • Using un-correlated strategies for maximum gain
Moderator: Blair Richards, CEO - Halifax Port ILA/HEA
Speaker: Dominic Blais, Senior Risk Manager - The Canadian Medical Protective Association
Speaker: Anne Lefebvre, Director, Total Fund Strategy - PSP Investments
Speaker: Dr. Toby Goodworth, Managing Director, Head of Risk & Diversifying Strategies - bfinance

Synopsis: This was yet another interesting panel. There was some overlap between Anne Lefebvre and Vincent Jacob-Goudreau who spoke earlier but she was well aware of this and did a fine job at staying on message and pertinent.

Dominic Blais spoke about strategic asset allocation (SAA), stating they increased Privates from 25% to 40%, and increased Fixed Income and USD exposure (classic risk aversion hedge).

Toby said there's a clear shift away from equity into alternatives but he preferred liquid alternatives and diversification by style factors in Public Markets.

Blair Richards said 20 years ago, diversification for his small pension meant give 1/2 the money to one balanced fund manager and the other half to another. "Fast forward till today and we have come full circle as we don't know our managers as well as we did back then."

Annie said 50% of PSP's assets is in Privates right now and platforms are crucial for deal flow. In Real Estate, they have segregated managers. She stressed "being patient for the best deals, incorporate ESG and focus on internal capabilities."

At the end, I asked Dominic Blais how they broke the silos and he said that compensation was tied to total portfolio returns and they have bi-weekly meetings to stimulate discussions between Private and Public markets.

He added that it's still a work in progress because "privates are all about absolute returns and public markets are still largely about tracking error to some benchmark' but it's important to focus on total fund.

At the end, Blair Richards made us laugh. He said: "We are not only small, we're slow" and when it comes to making big decisions on strategic or even tactical asset allocation, he "sits in a dark room and cracks open a beer to ponder and if he can't figure it out, he calls the consultants to tell them 'they have a problem'".

Interestingly, Blair told me after his small company has a great pension and he read my comment criticizing Brent Simmon's Globe article and the follow-up comment which I need to repost because I lost it.

He said they offer DC and DB and are now giving their DC plan employees the option to buy back in to their DB plan and still have any remaining savings from their DC plan. He is someone else that I'd like to write a guest comment on what they did to maintain their DB plan.

Keynote | Fireside Chat - How CDPQ delivered Outstanding Results with Alternative Investments in 2018

Tuesday, September 24, 2019, 2:00 PM - 2:45 PM

Given the losses in the markets in 2018, some investors — like CDPQ — have managed to post a positive return because of their alternative investments portfolio. Discover what they did to make their portfolio more resilient, given market headwinds. What alternatives did they invest in — and how did they make that decision? And, importantly, how should a mid-sized pension fund go about it if it posted negative returns on other investments — and alternatives were not recommended by its consultants? In this exclusive and riveting session — by a senior member of CDPQ’s investment team in conversation with a prominent investing consultant, you will walk away with a wealth of knowledge!

Moderator: Eoin Ó hÓgáin. CEO, Power Pacific Investment Management, a part of Sagard China
Speaker: Maxime Aucoin, Executive Vice President, Investment Strategies & Innovation - CDPQ

Synopsis: This was another great presentation, one of the best fireside chats. I've met Maxime Aucoin before and he's not only very nice and smart, he is a great communicator. In fact, along with Macky Tall and Kim Thomassin, if I get asked again who would do a great job following Michael Sabia who will retire in less than a year, I'd include Maxime Aucoin's name in my short list of internal candidates (external candidates, I still stick with Louis Vachon but he will probably run a small family office managing his fortune and there are other men and women potential candidates I'd rather not share publicly on my blog).

Anyway, Maxime started off by stating he doesn't like the term "outstanding returns" because it implies they are taking "outstanding risk".

He also doesn't like the term "alternatives" and prefers strategies. He did say that htey are invested 44% in alternatives which generate 70% of the expected return.

He said when making a decision, they focus on three things: Diversification, Premium, and Fees:

"We try to maximize Diversification and Premium and minimize Fees."

He said they did a real estate development deal in Toronto (CIBC Tower) where they delivered "on time and on budget" to realize significant premium. By contrast, they own a top building in Manhattan where the premium is much lower.

When it comes to deals, there are three crucial elements: Focus, Expertise and Governance:

Then it's all about managing the assets which is boils down to two things: Value Creation and Governance:

He said there is a top-down quant process to mange risks but also a bottom up one to make sure managers aren't taking risks which skew their portfolio risks (he gave an example in Real Estate where the search for yield was leading to over-concentration in one area).

He said they like EM credit and Private Debt but are still pondering Natural Resources and Gold.

He went into a lengthy discussion on developing internal capabilities as opposed to going external and gave an example of mid-market private debt where they decided to go external and work with smaller managers.

But he said you to to balance internalizing with going external as the Caisse already has over 1000 employees all over the world. He gave the example of the Futures Fund in Australia which manages over $100 billion with only 75 employees (that's not what the Caisse wants to do).

What else? The ability to be "differentiated capital" is something they worked on a lot. "To be able to provide a $2-$3 billion cheque, you need to be comfortable with concentration risk."

They still want to focus on exporting their greenfield infrastructure expertise all over developed markets like New Zealand and the United States.

There is an organizational challenge as this requires a PR team and EM partnerships team (ie. more employees all over the world).

He ended by stating you need three things to be successful:
  1. Have hard conversations
  2. Focus on SAA: diversify returns and focus on portfolio construction
  3. Manager selection/ consultants are critical to process, you need to develop solid relationships
I asked Maxime a simple question but one that has been bugging me: "With all this capital chasing deals in China, aren't you worried that it's a communist country? What about geopolitical risks?".

He said what Michael Sabia always tells them: "Focus on partners first, deals second" (I like that).

Maxime added: "You never go to a region without a local partner" who has intimate knowledge of the laws, regulations and cultural issues.

As far as geopolitical risks, he said there are risks everywhere, including the UK and US. Also, he made everyone laugh by stating over the last several years, he has seen many PowerPoint presentations titled: "Navigating a World of Uncertainty".

He said investors need to move away from the noise and focus on the long term.

As far as currency hedging he told me privately and then reiterated that while the Caisse doesn't typically hedge, they do hedge some currencies and even the US dollar because the marginal last dollars are not as cheap as the ones from a few years ago.

What he told me on the side, however, are long gone the years where the Caisse made huge active bets on currencies. "It's just not worth it and you can lose a lot of money and jobs doing what we used to do." Now it's more strategic and long term focus with some dynamic hedging.

The Value of Gold as a Strategic Asset Class

Tuesday, September 24, 2019, 2:45 PM - 3:15 PM

There is value in considering an allocation in gold in your institutional portfolio. Discover what leading experts will show you:
  • The strategic case for gold - and the outlook for 2019 to 2020
  • Gold's long-term performance versus traditional asset classes
  • How investors are incorporating gold into their portfolios today
  • Improving risk-adjusted returned in volatile markets
Speaker: Bobby Eng, Vice President, Head of SPDR ETFs Canada - State Street Global Advisors
Speaker: George Milling-Stanley, Vice President, Head of Gold Strategy - State Street Global Advisors
Speaker: Juan Carlos Artigas, Director, Investment Research - World Gold Council

Synopsis: This was actually the one presentation I was ready to skip but I am glad I stayed to listen to it. State Street presented an interesting analysis on why a 10% allocation to their gold ETF (GLD) is optimal and hedges against inflation and deflation risks (doesn't perform well in a disinflationary environment).

According to their analysis, a 10% allocation to the GLD improves the portfolio Sharpe ratio and returns for gold have been consistent over time.

I believe they said gold futures and ETFs trade $220 billion a day and GLD accounts for only 1% of total trading.

When looking at gold, it's better to use global CPI to understand its dynamics and trading patterns.

George Milling-Stanley said he believes we are "sewing the seeds of future inflation" with all this unconventional monetary polcy. He said Friedman stated inflation is about money supply and velocity and velocity has collapsed for now.

As my blog readers know, I'm not in the inflationista camp. I believe global deflation is coming but it's not around the corner and there will be backups in bond yields here and there but eventually, deflation is headed our way.

They gave a good analysis of GLD and talked about GLDM, a new ETF with lower fees which is based on 1/100 of an ounce as opposed to 1/10th of an ounce like GLD.

As an aside, I brought a copy of James Rickard's new book, Aftermath: Seven Secrets of Wealth Preservation in the Coming Chaos, up to Tremblant. He's way too gloom & doom for me but it's a great read and I highly recommend you take the time to read it even if you don't agree with him. Read the first pages here and you will see, he writes well and knows his stuff but I don't agree with him.

Risk Premia Investing: What is Underneath the Surface? A Closer Look at the Industry Drivers

Tuesday, September 24, 2019, 3:45 PM - 4:15 PM

Factor investing has become mainstream for investors to maximize diversification and uncorrelated returns. The ARP industry faced its first real test in 2018, leaving many wondering if it can really deliver on promises of uncorrelated performance. Understand what drove ARP’s performance from the past 3 years and learn how to avoid common mistakes by institutional investors in deploying factor investments to access sources of diversifying returns.

Speaker: Luc Dumontier, Partner & Head of Factor Investing - La Francaise Investment Solutions

Synopsis: A very interesting technical/ quant discussion on CTAs and factor investing. I highly recommend you reach out to Luc to discuss his findings in detail, he really knows his stuff. I need his slides to show you all his findings but it's well worth talking to him.

The Explosive Power of Enhancing Yields with Emerging Market Opportunities

Tuesday, September 24, 2019, 4:15 PM - 5:00 PM

Although they are more prone to extreme ups and downs, emerging markets as a whole typically grow at a faster pace than developed markets. In 2018, emerging markets expanded at a rate of 4.8% — more than twice the rate of developed markets. Technological advances, GDP growth, and demographic shifts are some of the key drivers of transformative change in emerging markets. But not all opportunities are created equal. How can you help clients tap into this growth story while being mindful of the risks? Hear industry veterans weigh in on this debate - and your investment decisions in this most interesting area will be vastly improved!

Moderator: Emma Radloff, Manager, Public Assets - NAV Canada
Speaker: Eoin Ó hÓgáin. CEO - Power Pacific Investment Management, a part of Sagard China
Speaker: Vito G. Dellerba, CFA, Director, Investments, Sovereign Debt, Fixed Income - Caisse de dépôt et placement du Québec (CDPQ)

Synopsis: Another great panel, Emma did a great job moderating and Vito and Eoin provided a lot of food for thought. I was actually very impressed with Vito Dellerba and later found out he worked at Cordiant Capital before joining the Caisse. He knew the late Carl Otto well, the founder of Cordiant and other investment shops and one of the toughest and most intelligent board of directors PSP has ever known.

Vito focuses on spread over sovereign focusing on emerging markets opportunities in quasi-government corporations (owned at least 50% by governments), securitization of royalty streams, PPPs and more.

He said the five factors of investing in his space are:
  1. Interest rate risk
  2. Sovereign risk
  3. Sponsor or project risk
  4. Liquidity premium
  5. Complexity premium
They have a mix of internally managed and externally managed funds "across the spectrum, generally absolute return funds."

He said the Caisse focuses on five emerging markets: Brazil, India, China, Columbia and Mexico but his team focuses on all these except China.

They like dislocations where they can fund long term opportunities which need funding. "Some markets have funding opportunities that go out 7 years and then they fall off a cliff. We like those opportunities because we are patient, long-term capital."

He said they are "very methodical in their approach and leverage off the entire infrastructure of the organization." Due diligence is critical in their process.

He travels a lot to "pitch issuers looking for financing" and meets a lot of CFOs. They have a global network with local knowledge.

Eoin said there is $20 trillion in emerging markets, half of which is in China. "You need a dedicated approach."

Vito warned investors: "Emerging Markets are most complex and heterogeneous markets in the world. You need to respect that and use specialist managers."

He said ESG is used throughout their process and gave the example of Brazil where it's known "corruption is rampant."

Capturing the Strength and Momentum in Private Debt and Alternative Credit Growth: The Remarkable Achievements of a Small Asset Class

Wednesday, September 25, 2019, 9:15 AM - 10:15 AM

There are enormous opportunities to be found in private debt and alternative credit growth. In 2018, assets under management globally by private debt funds reached $638 billion, with aggregate capital raised surpassing the $110 billion mark. Hear about the latest developments in asset-back debt, direct lending, and alternative credit. Access the full spectrum of credit instruments to deliver absolute performance while limiting your duration risk and interest rate sensitivity.

Moderator: Vishnu Mohanan, Manager, Private Investments - Halifax Regional Municipality Pension Plan

Theresa Shutt, Chief Investment Officer - Fiera Private Debt
Ian Fowler, Co-Head North America Global Private Finance & President, Barings BDC - Barings
Larry Zimmerman, Managing Director, Corporate Credit, Benefit Street Partners

Synopsis: This morning, we all listened to an interesting panel on private debt, one of the hottest asset classes right now. I came a tad late when they were going over the pros and cons of sponsored versus non-sponsored deals.

In non-sponsored deals, you rely on third party data on quality of earnings and other data.

Theresa Shutt said they focus on corporate credit and companies with audited statements. "If there is trouble, we want to see how management behaves in a downturn, we have good covenants."

She said to ask private debt managers a simple question: "Tell me about your bad months." She added: "Our recovery has been quite high".

I like that, asked Theresa to write a guest comment for my blog on this hot asset class.

Ian Fowler focused a lot of alignment of interests and said to look at two things:
  1. Target return
  2.  Fee structure
He warned "investors are overpaying for beta" and said you can expect 6-8% unlevered return but as the market gets hot, spreads are being compressed, managers are making higher risk loans to meet targeted return, and skimming is occurring where they are using investors' money to generate income on their platform."

Larry Zimmerman also warned investors to beware of private debt managers "building syndication deals".

Theresa Shutt warned not to just talk to principals, "ask about compensation, focus on culture". She said they use ESG in all their underwriting criteria.

I asked the panel how to prepare for another 2008 crisis and they told me to "focus on first not second lien loans" and remain highly diversified, avoiding deep cyclical sectors.

Interestingly, in the US, non bank private debt funds have been very active in the middle market and act to stabilize the market in case of a downturn.

Ian Fowler told us to look at average debt spread, style drift, and leverage.

I need to cover private debt in a lot more detail but Ian told me after that average PE multiples are priced at 12x so there is no room for error. "It's the same thing in private debt, you need to see how deals are being priced and beware of alignment of interests as spreads get compressed and managers try to fulfill their target return".

The Liquidity Conundrum: How to Design to Liquidity Policy to Incorporate Increasing Liquid Allocation

Wednesday, September 25, 2019, 10:15 AM - 10:40 AM

Confronted with toughness in the funding regime and diminishing market returns, what can pensions do in face of liquidity challenges? Learn how to determine the ideal liquidity ratio for your mandate and devise a holistic a liquidity policy to meet obligations and maintain cash-flow. Acquire strategies to enhance the use of leverage and prevent the need to liquidate during a sub-optimal market.

Speaker: Anne-Marie Fink, Portfolio Strategist, Alternative Program Management - State Street Global Advisors

Synopsis: Anne Marie discussed a new approach to allocating to alternatives, one that takes into consideration your liquidity needs. "How much variability in cash flows can you bear in a crisis?"

Her presentation went over three things:
  1. Purpose risk analysis to determine liquidity constraints
  2. Unsmoothing methodology to determine asset allocation
  3. Path forward model to forecast expected returns
I highly recommend you reach out to her as I liked her presentation and the approach she was advocating.

Interestingly, after her presentation, we chatted for a bit. Before joining State Street, she was the CIO of Rhode Island's state pension fund.

I couldn't resist but ask her about Gina Raimondo and whether her critics are right or wrong. She told me they are wrong and Rhode Island implemented three important things to address their shortfall:
  1. Adopted a hybrid DB/ DC model where if returns are over 7.5%, you're ok in DB model
  2. Made ARC payments, made sure budget surpluses are used to pay pension payments
  3. And most importantly, adopted conditional inflation protection where COLAs are partially lowered if the return target is not met (based 1/2 on CPi and 1/2 on return target).
Very nice lady, I like her background.

“The Trillion Dollar Shift”: 5 Key Trends Changing the ESG Investing Landscape in 2019 - 2020

Wednesday, September 25, 2019, 11:00 AM - 12:05 PM

The “Trillion Dollar Shift” is the winner of the Gold Axiom Business Book Award for 2019. And for good reason: natural disasters triggered by climate change have doubled since the 1980s, violence and armed conflict now cost more than 13% of GDP, social inequality and youth unemployment is worsening around the world and climate change threatens the global population with tremendous environmental and social problems. Opportunities now abound for business and capital to unlock markets which offer endless potential for profit while working towards sustainable development goals. Astute institutional investors realize this is the way of the future — and that ESG is an essential component of every investment decision. In this session, learn:
  • Why has sustainable finance become such a front-burner issue across the global financial community? 
  • What are the 5 key trends changing the ESG landscape in 2019 to 2020?
  • How are institutional investors - both large and small alike - successfully Integrating ESG considerations into their portfolios?
  • How ESG considerations can mitigate risk - and provide higher ROI?
  • What does every institutional investor need to do to understand and integrate ESG into its portfolio?
  • The unique sustainable bond issue by Concordia University- and what every investor in Canada can learn from this ground-breaking development?
Moderator: Deborah Ng, Director, Strategy & Risk - Ontario Teachers' Pension Plan
Speaker: Marc Gauthier, Treasurer & Investment Officer - Concordia University
Speaker: Erica Barbosa, Director of Solutions Finance - The J. W. McConnell Family Foundation
Speaker: Katharine Preston, VP, Sustainable Investing - OMERS
Speaker: Hannah Skeates, Global Head of Environmental, Social & Governance - Wells Fargo Asset Management

Synopsis: Lastly, the big panel discussion on the trillion dollar shift moderated by Deborah Ng of Ontario Teachers'. It was the first time I met Deborah and Katherine Preston and was extremely impressed, they are both super nice and very dedicated and smart professionals.

I was also impressed with Marc Gauthier who spoke eloquently about impact investing and governance. Hannah Skeates also raised great points but I didn't get to chat with her befor eor after the panel discussion.

Katharine began by stating OMERS decided to take sustainable investing seriously because it realized it represents a major headline risk and there is a cultural shift going on driven by millennials and Gen Zers.

Marc Gauthier said "divesting is backward looking" and sustainable investing is forward looking. He talked about "sustainable investing bonds versus green bonds but said the market wasn't there yet".

Katharine said the traditional approach to sustainable investing was fulfilling PRI framework and being an active investors on proxy voting. She said "sustainable investing 2.0" is evolving now where investors are taking a deep dive looking at how trends impact companies "and how do you think about these issues". Adaptation is critical, understanding these risks through an enterprise risk management framework.

Hannah said it's about looking at these risks and beyond these risks.

Marc then went on to discuss Responsible Investing focusing on two issues:
  1. Governance: increasing standards you expect from managers incorporating ESG
  2. Allocation: increasing impact investing diversifying based on all 17 UN principles, not just climate change.
All the panelists agreed measurement is a challenge and you need to balance returns and addressing members' concerns.

In terms of trends that will change the ESG landscape over the next few years, Katharine said what about the "S" in ESG? The transition to a lower carbon economy can displace jobs, we have to think about addressing the social consequences. She gave the example of coal workers in Ontario which lost their job and had to be retrained.

Marc said "impact investing is still in its infancy" and "TAA will need to integrate ESG". He also talked about due diligence and co-investments.

Hannah talked about decarbonization goals and "more diagnostics which will hopefully lead to more action."

I asked the panel of the politicalization of sustainable finance at public pensions and their fiduciary duty. Katharine said it's not a violation of fiduciary duty to think about ESG.

Deborah Ng chimed in and stated: "We are fiduciaries to all our members across all generations. It's all about how to sustain a pension plan over the long run."

I will leave it on that note. Once again, I thank all the participants who attended this CAIP conference, I really enjoyed meeting them and hearing their views and great insights. I’d also like to thank Charles Quintal for doing a superb job chairing this conference.

Lastly, once again, I thank Geoffrey Briant and Gordon Power for sponsoring me to attend this event and want to thank all the organizations who value and support my hard work.

Below, Earth Capital (EC) was founded in 2008 and is part of Earth Capital Holdings, which was founded by Stephen Lansdown and Gordon Power. Its constituent firms manage over $1.6bn in Sustainable Private Equity assets with offices in Barcelona, Beijing, Botswana, Guernsey, Hong Kong, London, New York and Rio de Janeiro.

Watch their corporate overview. Like I said, I like the people, process and performance and think they're way ahead of their larger peers in terms of sustainable investing in private equity.

Also, the prominence of impact investing has risen steadily in the last few years, finding its place alongside traditional investing. But more effort is required to truly meet the UN's Sustainable Development Goals, so what can be done to move impact investing from niche to mainstream? Find out on The CNBC Debate from Davos (2018).

Update: Barb Zvan sent me an important message for everyone:
It was nice to see you at CAIP earlier this week. Kim & I have another important initiative milestone that we wanted to highlight to you. A group of 12 institutional investors (representing over $5T USD) - known as Investor Leadership Network ( came together and created a TCFD handbook about our learnings as we worked on our TCFD reporting. We are hoping that other institutional investors will benefit from our diverse approaches taken, the challenges faced, and the reasons behind the choices we made.

We launched this handbook this week during climate week at an event at the UN. Please feel free to share this handbook with your network. An overview of the content included in the handbook can be found here.

I hope you find this handbook to be a valuable resource. Please let me know if you have any questions or wish to discuss.
I thank Barb and Kim for sharing this with my readers. You can track the latest news from ILN on Twitter here.