Pension Pulse

Given that CPP Investment Board ( CPPIB ) and the Public Sector Pension Investment Board ( PSPIB ) both have fiscal years that end on March 31st (same time as other federal Crown Corporations and government organizations), it is instructive to compare their FY 2008 results. In my last entry , I covered PSPIB's results in detail, critically examining where the PSP Fund lost and made money. In this post, I will begin by scrutinizing the CPP Fund's FY 2008 results to see where they made and lost money. I will then compare the two funds, highlighting some important differences in their performance results. As stated in the press release, the CPP Fund sustained investment losses of 0.3% in FY 2008, representing negative $303 million. In percentage terms, this is exactly what PSPIB lost over the same period. In explaining the Fund's performance, David Denison, President and CEO of CPPIB, had the following comments: “The CPP Fund was certainly not immune from the sometimes extre...

Someone told me that another large Canadian pension fund quietly posted its FY2008 results on-line this past week (no press release here). PSP Investments finally posted its 2008 results and you can read the annual report by clicking here . The total portfolio returned -0.3% compared to Policy Benchmark of 1.2%. It is worth noting that CPP Investment Board also lost 0.3% in FY2008 but it outperformed its Policy Benchmark by 2.4% (its fiscal year ends March 31st too but CPPIB is more timely in posting performance results, including quarterly performance results that are posted on their website ). In his President's report, on page 6, Gordon Fyfe wrote the following statement: In the context of a significant deterioration in global financial markets throughout our fiscal year ended March 31, 2008, the total return of PSP Investments for the year was -0.3%. This was the first time in the last five years, and since I became President, that we generated a one-year total return below th...

Let me apologize for the length of this post but plan funding is another important subject relating to pension governance. It is impossible to cover all aspects of plan funding in one post, so I invite you to peruse through some articles and papers I posted in the pension liabilities section by scrolling down the right hand side. Every day I skim through the PensionTsunami.com website (PensionWatch) to survey the latest news on U.S. and global pension funds. A recent article from CNN, Pension plans suffer huge losses , caught my eye. Not surprisingly, the rout in global equities and the credit crisis are weighing hard on corporate pension plans. I quote the following: Since the credit crunch hit last fall, pension plans funded by S&P 1500 companies have lost about $280 billion in assets , according to an actuary at Mercer, a human resources consulting firm. On paper, the losses from last October tally $160 billion. However, according to Mercer actuary Adrian Hartshorn, the asset ...

I will come back to pension plan governance tomorrow. Today was a day for bulls to finally smile as financials led the way for a broad market rally. But there is more to this massive rally than meets the eye. Behind the scenes, the Securities and Exchange Commission is investigating more than 50 hedge fund advisors for illegal insider trading or stock manipulation. On top of that, the SEC introduced tough new rules to limit short sales of Fannie, Freddie and brokers . Apparently a number of hedge funds have being engaging in naked short selling, in which traders never borrow shares from their broker or deliver the stock to buyers. I quote from the Bloomberg article: The SEC had been reluctant to curb short sales "because it would require a major retooling of the plumbing of Wall Street,'' said James Angel , a professor at Georgetown University studying short sales. "It's only when the big Wall Street firms are threatened that the SEC does something about it.'...

Today I am going to elaborate a little more on the importance of pension governance. This post is somewhat lengthy but important. Why is pension governance important? Well just look at the financial debacle going on in the United States and elsewhere and ask yourself a few simple questions like who is governing these financial institutions and how did they escape the watchful eye of federal and state regulators? When public pension plans suffer material losses, plan sponsors and beneficiaries are impacted and all too often, taxpayers end up footing the bill . I started off writing this blog by discussing the ABCP's of Pension Governance and Alternative Investments and Bogus Benchmarks . I also touched on the problem of hedge fund benchmarks in another post on Canadian liquid alpha . The important point I was making in all these posts is that benchmarks matter because compensation is based on whether or not pension fund managers are beating the benchmark that governs their investme...

The Treasury and the Federal Reserve said yesterday that they would aid the GSEs by increasing lines of credit, easing some worries of further turmoil in the credit markets. Washington's efforts to shore up confidence in Fannie Mae and Freddie Mac was initially met with enthusiasm as markets opened today but that rally quickly dissipated as reality set in. The fact remains that 'Freddie Mac is insolvent and Fannie Mae is running on fumes' . This band-aid solution will do nothing for stock investors of these companies. I agree with Richard Suttmeier of Rightside Advisors , that the latest measures are nothing more than the De-facto Nationalization of Freddie & Fannie . I quote the following: The Fed to the rescue again - Didn't work in January when we had the surprise rate cut. Didn't work in March when Bear was bailed. We should have an oversold rally in financials from Fridays bargain basement new multi-year lows. Many bank stocks are trading at levels of the e...

I am not a big fan of CNN's populist commentator Lou Dobbs but once in a while he invites some excellent guests on his show. On July 9th, 2008, he invited David Sirota, Paul Muolo, and David Cay to discuss who is responsible for the U.S. economic crisis. The following is an excerpt from the transcripts of that show: The Bush administration and this Democratically-led Congress have done very little to help most Americans with our worsening economic crisis. It may well be up to Independent voters to pressure the presidential candidates to do something, if anything at all is possible to solve the crises that face us. Joining me now, David Sirota. He is the author of the important book, "The Uprising: An Unauthorized Tour of the Populist Revolt Scaring Wall Street and Washington." I like the sound of that. And Paul Muolo, author of "Chain of Blame". And it's out next week, is that right, Paul? PAUL MUOLO, AUTHOR: It's out now. DOBBS: ...

Before I discuss IndyMac, take the time to listen to this excellent Bloomberg interview (click here to watch) with Joshua Rosner of Graham Fisher (website is being redone) and Len Blum of Westwood Capital . Both commentators discuss whether Fannie Mae and Freddie Mac are adequately capitalized and whether or not they will be nationalized. As far as accounting rules and statutory capital guidelines governing these GSEs, they both agree that neither GSE is adequately capitalized, especially Freddie Mac (Juxtapose the above views with the statement released by Freddie Mac on Friday stating it is "adequately capitalized"). On the issue of nationalizing Fannie Mae and Freddie Mac, Rosner was quoted in an article as stating in a note that nationalization of the two companies is unlikely because that would double the Federal deficit, weaken the dollar and raise Treasury's cost of funding. However, he said the GSEs are in trouble and regulators may choose other optio...

Mortgage giants Fannie Mae and Freddie Mac are sinking fast and investors are reeling from their losses. A few days ago I wrote that any rally should be used to short these stocks and even I am surprised at how fast things are unraveling. An article from BusinessWeek, Fannie and Freddie Resume Their Freefall , explains what is happening with these GSEs: Fannie and Freddie are trapped in a vicious cycle. The companies will have to raise capital through stock sales, and the multibillion-dollar amounts they have to raise could result in a massive dilution of shareholders' equity. In anticipation, investors have been dumping the shares, driving their prices sharply lower. And the devalued currency of Fannie and Freddie shares means they will have to sell even more shares. "It appears that stock investors are realizing they will take a back seat to bond holders in the event of any major recapitalization or government injections in the GSEs," wrote Action Economics analysts ...

Sales of collateralized debt obligations (CDOs) composed of asset-backed securities fell to less than $1 billion this year from $227 billion in 2007 because of the global credit crunch. But just when you thought CDOs were going to be shunned by investors for a long time, investment banks are repackaging, renaming and reselling them to their institutional clients. An article that appeared in Bloomberg this week, Toxic CDOs Given Up for Dead Coming to Life With Pension Funds , describes how investment banks are finding buyers under a different name: Re-Remics, which stands for "resecuritizations of real estate mortgage investment conduits,'' the formal name of mortgage bonds. The article is mostly favorable citing the need to introduce liquidity in a market that desperately needs it. I quote the following: "It's just the reincarnation of the CDO,'' said Paul Colonna , who manages more than $100 billion as chief investment officer for fixed income at GE Asset...

If you are still not convinced that alternative energy is the next big thing, take the time to read this excellent Fortune article, Kleiner Bets the Farm (click to view it) . In the world of investing, very few funds come close to Kleiner Perkins Caufield & Byers' enviable track record. This top VC fund has doled out $10 billion to its major investors, all of which are university endowments, philanthropic foundations, or public pension funds. "That's $1 billion a year on average," according to John Doerr, Kleiner's senior partner (shown in the image above). Only one other VC fund comes close to matching this track record, Kleiner's chief rival, Sequoia Capital. The newest addition to the Kleiner funds is the $500 million Green Growth Fund, launched in May. I quote the following from the article: "... the green fund represents more than just an expanded product line for Kleiner - it's an attempt to stretch the definition of venture capital. Ever s...