A Discussion With UPP's Barb Zvan and PSP's Eduard van Gelderen

Yesterday evening, I attended McGill University's Integrated Management Symposium featuring Barbara Zvan, Inaugural President and Chief Executive Officer of University Pension Plan Ontario, and Eduard van Gelderen, Senior Vice President and Chief Investment Officer of PSP Investments. 

The event, sponsored by The Global Risk Institute in Financial Services (GRI), was moderated by Sebastien Betermier,Associate Professor of Finance at Desautels Faculty of Management, McGill University. 

The symposium was at  Faculty Club Ballroom. The event was also be livestreamed for those who attended virtually. 

This symposium on Designing Sustainable Retirement Systems in the Current Environment of Ultra-Low Yields marked the opening ceremony of the fifth edition of the McGill International Portfolio Challenge (MIPC).

It was a fascinating discussion which I embedded below. 

Barb and Eduard are truly titans in the pension world, they're both extremely intelligent and they both have tremendous experience and it shows in the way they answered questions thoughtfully and carefully.

In short, it was truly a fascinating discussion with two very experienced pension managers.

Before I get to the discussion, a little note on the Integrated Management Symposium Series:

The Integrated Management Symposium Series explores management through intimate conversations between prominent McGill academics and world leaders in their fields. The series encourages participants to broaden their perspective in order to address the significant ecological, social, and economic challenges facing today's societies.

These free symposia are generously supported by our benefactor, Marcel Desautels, C.M., LLD’07.

Designing Sustainable Retirement Systems in the Current Environment of Ultra-Low Yields

Wednesday, November 3, 2021, 5:30 pm - 7:00 pm EST

Ultra-low bond yields are putting a major strain on retirement systems across the globe. Asset managers must find ways to continue delivering adequate returns for pensioners without taking on excessive risks. How can we design retirement systems that are resilient to low yields? The Integrated Management Symposium will address these questions and mark the opening ceremony of the 2021 McGill International Portfolio Challenge (MIPC). The discussion will be moderated by Sebastien Betermier, Associate Professor of Finance.

The symposium will feature Barbara Zvan, Inaugural President and Chief Executive Officer of University Pension Plan Ontario, and Eduard van Gelderen, Senior Vice President and Chief Investment Officer of PSP Investments.

McGill Faculty Club,

3450 McTavish St, Montreal, Qc H3A 1X9

You should also read more about the McGill International Portfolio Challenge (MIPC) here and by downloading their brochure here.

The who's who of the pension and financial world support this amazing event and I would encourage others to join in their support.

This year's MIPC challenge is about how Dutch pensions are addressing ultra-low yields and the expert panel of judges are from Canada and the Netherlands, which will make Friday's finals very interesting (you will have a wide array of views and the event will be livestreamed here).

Anyway, take the time to listen to Barb and Eduard below, this is a high-quality discussion and Sebastien did a great job moderating it.

Among the topics discussed:

  • Are rates too low? Will they normalize? Barb provided insights on secular headwinds to rising rates and she thinks lower for longer is the likely outcome but Eduard sees some sort of normalization of rates happening, maybe not over the next few months, but over the next few years to 4-5%. I must say, I remain firmly entrenched in the deflation camp, wrote my views when I went over the world's best and worst pension systems in 2021, but there's no doubt inflation is stickier than previously thought and if the global economy grows nicely over the next few years, we will likely see rates rise to 2-3% or even higher. Listen carefully to Eduard's comments on this topic at the beginning of this discussion. I do share his views on rising income inequality and how unprecedented monetary and fiscal policy has exacerbated inequality. He also makes great point on how negative yields in Europe cannot be sustained indefinitely. Barb also raised the point of inequality, demographics and technological disruptions which are all keeping rates lower for longer.
  • Shift to real assets: The shift to real assets (real estate and infrastructure) is huge and with bond yields near record low levels, it will continue. Eduard was careful stating they are looking at infrastructure deals with some inflation protection, preferably in North America, but these deals are not easy to find. Barb spoke about how high quality malls fared better than low quality ones during this pandemic but she also spoke of disruptions and how it is impacting the asset class. On infrastructure, she gave concrete examples of how climate change is changing the risk profile of certain infrastructure and how sitting on the board of these projects allows you to gain intimate knowledge of what is going on. 
  • Smaller versus larger funds: Barb raised the point that even though UPP is managing a little over $10 billion and is smaller, it is being run like a larger fund, internalizing costs and relying on co-investments to reduce fee drag. 
  • The Dutch disease? Eduard spoke at length about how the once mighty Dutch pensions switched to using market rates as a discount rate to calculate their liabilities and how deficits ballooned and regulators exacerbated the problem by forcing pensions to continuously cut risk as rates dropped and deficits soared. "This created a virtuous cycle where regulators exacerbated the problem by not allowing pensions to take intelligent long-term risks, like we do in Canada." Worse still, this wasn't properly communicated to the general public and the result was a massive loss of public confidence on pensions to the point where the Dutch held banks and mutual funds in higher esteem than pensions.
  • The Canadian Model: Both Barb and Eduard praised the Canadian model for its "flexibility" and "governance" but they also stressed that long gone are the days of guaranteed indexation and that risk sharing and risk tolerance will be critical components going forward. Barb spoke about jointly sponsored pension plans in Ontario and gave concrete examples of why risk sharing is critical. Eduard discussed the People's Pension Trust in Ghana and linked it the Canadian model (see details in an earlier post of mine here).

At the end of the discussion, they answered some questions and shared excellent insights on how we can protect the DB model. 

Please take the time to watch the entire discussion below, it's rare you see so much brain power going into such depth on important issues pertaining to pensions.

I thank Sebastien for inviting me to this event and he raised an excellent point to me at the end of the evening before I left: "I'm increasingly worried about the dichotomy between public and private pension plans in Canada and over time, it will get worse." 

I couldn't agree more which is why I want radical change to the way we manage private DB pensions

I also had a brief chat with Eduard but didn't want to keep him as it was his son's birthday yesterday and I really love his insights on innovation in a broader sense, not the narrow sense of investing in innovation, but implementing innovative thinking throughout the portfolio construction.

Barb zipped off to the airport to catch a flight to Toronto but I was glad to see her and have written about why I believe she's setting the right tone and vision from the get-go at UPP.

Alright, let me wrap it up there, I really enjoyed this discussion and was thrilled to visit my alma mater and even took a selfie in the McGill Faculty Club Ballroom:


I know, I look cray-cray,  but we took off our mask and I enjoyed conversing with two Chinese students at my table, one of which explained to me there are rolling blackouts in China now and he fears the transition to net zero there will be painful for most Chinese (hope he's wrong). 

Lastly, I was a little disappointed they moved the McGill bookstore from McTavish to Sherbrooke because I used to spend hours there behind the business building reading books on economics, finance, history, political philosophy and medical science. Walking on McTavish to the Faculty Club brought back a flood of (mostly) great memories.

Enough about my trip down memory lane, enjoy this incredible discussion below. I wish all the finalists at tomorrow's MIPC challenge the best of luck and look forward to watching some presentations.