Pension360

In this segment, New Jersey Education Association President Wendell Steinhauer talks about the union’s pension reform negotiations with the Christie administration, and why those talks fell apart.

The discussion also touches on policies that could be implemented to help fund the state’s pension system, and a recent court decision regarding state pension contributions.

 

Video credit: New Jersey Capitol Report

Photo credit: “New Jersey State House” by Marion Touvel. Licensed under Public domain via Wikimedia Commons

Leo Kolivakis is a blogger, trader and independent senior pension and investment analyst. This post was originally published at Pension Pulse.

Euan Rocha of Reuters reports, Fresh opposition to Barrick Gold Corp’s executive pay structure from Canada’s largest pension fund manager:

The Canada Pension Plan Investment Board, the country’s largest pension fund manager, on Friday joined a slew of other investors opposing Barrick Gold Corp’s executive pay structure.

Toronto-based CPPIB said it plans to come out against the advisory vote on executive compensation that Barrick will be having at its annual shareholder meeting next week.

It also said it plans to withhold support from Brett Harvey, one of Barrick’s board members and the chair of its compensation committee. CPPIB own roughly 8.1 million Barrick shares, or less than a per cent of the company’s outstanding stock.

Last week, two smaller Canadian pension funds, the British Columbia Investment Management Corp (BCIMC) and the Ontario Teachers’ Pension Plan Board, said they plan to withhold support from Barrick’s entire board in light of their concerns with Barrick’s executive compensation package.

This marks the second time in three years that Barrick is facing heat over its executive pay. The company lost an advisory vote on its executive pay structure in 2013, prompting it to lay out a new compensation program last year. However, the company’s recent disclosure that Executive Chairman John Thornton was paid $12.9 million in 2014 unleashed fresh complaints.

Barrick contends that with its new pay structure, its senior leaders’ personal wealth is directly tied to the company’s long-term success.

But its detractors including well known proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis contend that Thornton’s pay is not clearly tied to any established and measurable long-term performance metrics.

Separately, CPPIB’s much smaller pension fund rival OPTrust also expressed its dismay with Barrick’s pay structure, stating that it also plans to come out against the advisory vote on the pay structure.

“Where it comes to Mr Thornton, we cannot easily discern any link between pay and performance … OPTrust has decided to also withhold votes from returning compensation committee members,” said a spokeswoman for the pension fund manager.

The investor outrage comes amid a growing outcry about large pay packages for senior executives at some Canadian companies.

Canadian Imperial Bank of Commerce lost its advisory vote on its executive compensation structure on Thursday, in the face of blowback over mega payments to two retired executives.

A quick look at Barrick’s five-year chart below tells me these investors are right to question executive pay at this company (click on image):

And it’s not just Barrick. If you look at Canada’s top 100 highest-paid CEOs, you will find other examples of overpaid CEOs whose executive compensation isn’t tied any established and measurable long-term performance metrics. It’s not as egregious as the U.S., where CEO pay is spinning out of control no thanks to the record buyback binge, but it’s getting there.

And Canada’s big pensions aren’t shy to vote against excessive compensation packages. Geoffrey Morgan of the Financial Times reports, CIBC shareholders vote down compensation-plan motion over CEO payout:

CIBC shareholders had their say on executive pay at the bank’s annual meeting Thursday and they let it be known they weren’t happy — voting down the bank’s resolution on its compensation plan.

Shareholders voted 56.9 per cent against the bank’s executive pay plan, but outgoing CIBC chairman Charles Sirois said that he didn’t believe the vote was a commentary “on our overall approach to compensation.”

“Based on feedback, we believe this year’s vote result on CIBC’s advisory resolution was significantly impacted by one specific item: the post-retirement arrangement provided to our former CEO,” Sirois said at the meeting in Calgary, his last with the bank before John Manley takes over as board chair.

CIBC’s former CEO, Gerald McCaughey, was paid $16.7 million this year when the bank accelerated his retirement date. Similarly, the lender paid former chief operating officer Richard Nesbitt $8.5 million when it also sped up his departure from the company.

Analysts and investors have criticized both severance packages.

“Our belief is that shareholders were using the say-on-pay vote to express their dissatisfaction with the severance packages,” CIBC spokesperson Caroline van Hasselt said in an interview.

The vote marks the first time a Canadian company has failed a say-on-pay vote since 2013, according to Osler, Hoskin and Harcourt LLP. Sirois said a special committee would review the results of the vote, which is non-binding.

Two of the banks’ larger shareholders have said as much. The Canada Pension Plan Investment Board, which owns 404,000 shares of CIBC, and the Ontario Teachers’ Pension Plan, with 220,000 shares, voted against the motion.

Teachers said it “did not support the structure of the post-employment arrangements [with McCaughey and Nesbitt], believing them to be overly generous and not in the best interests of shareholders.”

For the same reason, Teachers’ also withheld its votes for the company’s nominated slate of directors – all of whom were re-elected although two with significantly less support than their peers.

Luc Desjardins and Linda Hasenfratz were both re-elected with 86 per cent and 85 per cent support, respectively. By contrast, every other member of the 15-person board was elected or re-elected with more than 90 per cent support.

Hasenfratz chaired the committee that oversaw executive compensation matters, of which Desjardins was also a member.

“We cannot support the members of the Management Resources and Compensation Committee based on our concerns with the succession planning process and post-employment arrangements made to both Mr. McCaughey and Mr. Nesbitt,” a statement from Teachers’ reads.

The CPPIB declined a request for comment.

Despite their dissatisfaction with CIBC’s executive compensation, shareholders voted down three additional resolutions, put forward by Montreal-based Movement d’éducation et de défense des actionnaires, that would have altered the bank’s pay policies.

Shareholders voted more than 90 per cent against resolutions that aimed to close the gap between executive pay and that of frontline staff, rework the retirement benefits of all executives and restrict the use of stock options as compensation.

You might recall CIBC’s outgoing CEO Gerry McCaughey was warning about a retirement savings crisis in Canada and even said Canadians should have the choice to make additional, voluntary contributions to the Canada Pension Plan in order to avoid facing a significant decline in living standards when they retire. Of course, when it comes to his own retirement, Mr. McCaughey doesn’t have to worry one bit. CIBC paid him a nice, cushy package.

Things are slowly but surely changing at Canadian banks. BNN reports that Canada’s new bank CEOs are making less money than their predecessors as banks cut salaries and reduce CEO pensions in the face of shareholder pressure to curb super-sized executive pay:

A report on bank CEO pay by Toronto compensation consulting firm McDowall Associates shows base salaries for the new CEOs of Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Toronto-Dominion Bank are all down 33 per cent compared with the outgoing CEOs’ salaries, while the base salary for the new CEO of Royal Bank of Canada is down 13 per cent compared with his predecessor.

Targeted total direct compensation – which includes grants of share units and stock options – is down between 11 per cent and 25 per cent for all four CEOs, the report shows. For example, the analysis shows Scotiabank CEO Brian Porter earned $8-million in total direct targeted compensation (excluding pension costs) in 2014, which is 25 per cent less than the $10.7-million that predecessor Rick Waugh earned in total targeted compensation in 2013.

Bernie Martenson, senior consultant with compensation firm McDowall Associates and previously vice-president of compensation at Bank of Montreal, said it is too soon to conclude that the banks have permanently lowered CEO pay because it is common for CEOs to get raises as they spend more time in the job.

But she said a number of current pay practices, including reducing the proportion of pay awarded in stock options, suggest overall pay is likely to be lower for the new CEOs over the long-term.

“You would naturally think there would be a difference between someone of long tenure and someone who is new in the role,” Ms. Martenson said.

“But I think the reduction of stock options in the last few years is starting to have an impact in terms of wealth accumulation. If you were to look out eight or 10 years for these new CEOs and compare the value of their total equity to that of their predecessors, I think it would be lower.”

Bank CEOs are still well compensated of course, but restraint is increasingly evident. Ms. Martenson points to the CEO pension plans at all four banks. Toronto-Dominion Bank CEO Ed Clark, for example, has the largest pension of departing CEOs at $2.5-million a year, while his replacement, Bharat Masrani, will have a maximum possible pension of $1.35-million a year when he retires.

At Scotiabank, Mr. Waugh’s pension plan was capped at a maximum of $2-million a year at age 63, while Mr. Porter is eligible for a maximum pension of $1.5-million available at 65. Royal Bank’s Gord Nixon had a $2-million maximum pension at 60, while his successor David McKay will have a maximum pension of $700,000 at 55, increasing to a final maximum of $1.25-million at 60.

Retired CIBC chief executive Gerry McCaughey had no cap on the size of his pension, but his pensionable earnings that formed the base for his pension calculation were capped at $2.3-million. His successor, Victor Dodig, has his annual pension capped at $1-million.

A number of shareholder groups – including the Canadian Coalition for Good Governance – have urged companies to reform pension plans because they create expensive funding obligations that last for decades.

Michelle de Cordova, director of corporate engagement and public policy at mutual fund group NEI Ethical Funds, said bank CEOs continue to have very generous pensions “that most people can only dream of,” but she sees a sense of moderation in the trends.

Ms. de Cordova, whose fund has lobbied the banks to curb their executive pay and link CEO pay increases to those of average Canadians, hopes the pay reductions in 2014 are not a temporary trend.

“It does suggest that there is some sense that the levels that pay and benefits had reached were perhaps too high, and boards have decided they need to do something about that,” she said. “I’d say they are still very generous arrangements, but it does seem that there is a sense that there needs to be some moderation, which is welcome.”

The report says all five of Canada’s largest banks have cut the proportion of stock options they grant their CEOs in recent years.

Banks previously decided how much equity they wanted to grant CEOs each year, and split the amount evenly between grants of stock options and grants of share units. In 2014, however, stock options accounted for 20 per cent of total new equity grants at the median for the five banks, while share units accounted for 80 per cent of new equity grants.

Ms. Martenson said banks faced pressure from regulators to reduce stock options following the financial crisis in 2008 because they were deemed to encourage executives to take risks by quickly pushing up the company’s share price to reap a windfall from quickly exercising options. Share units, which track the value of the company’s shares and pay out in cash, are considered less risky because they must be held for the long-term or even until retirement, creating incentives to build long-term growth.

Anyways, don’t shed a tear for bankers. Having worked as an economist at a big Canadian bank a while ago, I can tell you there are still plenty of overpaid employees at Canada’s big banks, and many of them are hopelessly arrogant jerks working in capital markets or investment banking and the irony is they actually think they merit their grossly bloated payouts (their arrogance is directly proportional to their bonus pool!).

Those of you who want to read more on executive compensation in Canada run amok should read a paper by Hugh Mackenzie of the Canadian Center for Policy Alternatives, All in a Day’s Work?. It’s a bit too leftist for my taste but he definitely raises important points on typing CEO compensation to long term performance.

As far as Canada’s large public pensions putting the screws on companies to rein in excessive executive compensation, I think this is a good thing and I hope to see more, not less of this in the future. Of course, the CEOs and senior managers at Canada’s top ten enjoy some pretty hefty payouts themselves and sizable severance packages if they get dismissed for any other reason than performance.

But nobody is voting on their compensation, some of which is well deserved and some of which is just gaming private market benchmarks to inflate value added over a four year rolling period. Critics will charge these pensions as the pot calling the kettle black. Still, I welcome these initiatives and hope to see other large pension and sovereign wealth funds join in and start being part of the solution to corporate compensation run amok.

 

Photo by TaxCredits.net

Japan’s Government Pension Investment Fund (GPIF) – the world’s largest pension fund – will be adding to its senior leadership after legislation passed this week that mandates the fund hire two executive directors.

From the Japan Times:

A law was enacted Friday to increase the number of executive managing directors at Japan’s Government Pension Investment Fund from one to two, to strengthen the organization of the giant public pension fund.

One of the two will be current GPIF executive managing director and chief investment officer Hiromichi Mizuno, who will take charge of investment. The other, to take charge of general affairs, is likely to be appointed from the Health, Labor and Welfare Ministry.

The legislation passed the House of Councilors after having already cleared the House of Representatives.

The change is designed to provide stronger support for GPIF President Takahiro Mitani.

GPIF manages approximately $1.1 trillion in assets.

 

Photo by Ville Miettinen via FLickr CC License

Leo Kolivakis is a blogger, trader and independent senior pension and investment analyst. This post was originally published at Pension Pulse.

Matt Wirz of the Wall Street Journal reports, Small Hedge Funds Get Bigger Share of Investors’ Money:

Hedge-fund upstarts attracted as much money as the titans of the industry last year, a shift for investors who have long favored larger firms.

Managers with assets of less than $5 billion took in roughly half of the $76.4 billion committed to hedge funds after collecting 37% of new capital invested in 2013. That reversed an imbalance of the previous four years, when investors put $93 billion into larger funds while pulling $63 billion from small and mid-size funds, according to data collected for The Wall Street Journal by HFR Inc., which first started tracking the flows in 2009.

Some pension funds and endowments said they are investing with smaller managers such as Hutchin Hill Capital LLC and Birch Grove Capital LP in search of better performance and lower fees compared with celebrity-run megafunds that are typically viewed as safer bets.

“I’d rather invest in funds that are small or midsize where managers are highly motivated and more aligned with us,” said Jagdeep Singh Bachher, chief investment officer for the University of California, which has about $91 billion in investment assets.

Mr. Bachher added that he is negotiating investments in two first-time fund managers launching funds of less than $1.5 billion each and is looking for more such opportunities.

Investors aren’t abandoning large hedge funds altogether, and some of the largest, such as Och-Ziff Capital Management Group LLC, continue to get bigger. During periods of economic turmoil in 2009 and 2012, clients pulled money from smaller funds, according to the HFR data.

By some measures, megamanagers are the better performers. Funds managing more than $5 billion have returned 9% on average since 2007, compared with about 6% for funds below that threshold, according to HFR.

But in a separate analysis of 2,827 hedge funds that specialize in stock picking, investment consultant Beachhead Capital Management found that funds with assets of $50 million to $500 million showed returns that were 2.2 percentage points higher over 10 years than larger funds.

“There have been a number of recent studies that have demonstrated consistent outperformance of smaller funds compared with large hedge funds,” said Mark Anson, head of billionaire Robert Bass’s family investment firm. Mr. Anson has more than half of his hedge-fund investments in firms with less than $1 billion in assets.

Long revered in financial circles for their trading smarts, hedge funds have lost some of their exalted status amid a difficult stretch for the industry. They performed better than many investments during the 2008 financial crisis but struggled to repeat that success in recent years. Returns of HFR’s hedge-fund index have trailed the S&P 500 index every year since 2008 by an average of 10.31 percentage points.

Large backers responded by taking a more skeptical look at hedge funds and comparing their performance to more traditional investment managers who charge lower fees. Some decided to pull their investments. The California Public Employees’ Retirement System, the largest U.S. pension plan, said last year it would exit from hedge funds altogether in part because of concerns about expenses. Hedge-fund managers typically charge higher fees than other money managers, historically 2% of assets under management and 20% of profits.

Others are shifting allocations to more diminutive hedge funds even as they cut back.

The Public Employees Retirement Association of New Mexico decided to reduce hedge funds to 4% of assets from 7.7% but give more money to smaller managers because they rely more on performance fees for their own compensation than larger competitors that collect big management fees, said chief investment officer Jonathan Grabel.

The $14 billion public pension system made the adjustments after a review found its absolute-return hedge-fund investments had underperformed a benchmark index by 1.64 percentage points since inception, according to an internal report reviewed by The Wall Street Journal.

“There’s nothing magical in hedge funds,” Mr. Grabel said. “We have to hold them as accountable as any other managers—in fact I think the level of scrutiny has to be higher because of the fees we’re paying them.”

One firm benefiting from the flood of money into smaller funds is Hutchin Hill, founded by former SAC Capital Advisors LP trader and mathematician Neil Chriss in 2008. The New York fund had averaged 11% annual returns since its inception, a person familiar with the matter said, but it wasn’t until last year that inflows took off as assets expanded to $3.2 billion from $1.2 billion.

New launches also are taking advantage of the surge. Jonathan Berger started his Birch Grove Capital hedge fund in August 2013 with $300 million of seed capital.

Since then the fund has more than doubled to over $700 million, “with half the growth from large institutions and family offices attracted by 20 consecutive positive months of performance,” he said.

Smaller funds chasing the influx of new money are committing more on infrastructure to lure big investors. When Mark Black left Tricadia Capital Management LLC in 2013 to start his own firm, Raveneur Investment Group, he spent a year building accounting and disclosure systems and hired his chief financial officer from hedge-fund giant Fortress Investment Group, people familiar with the matter said.

The work delayed launch of the fund to mid-2014 but ensured he could meet the requirements of public pension funds and large asset managers. Blackstone Group Inc. has invested $150 million in Raveneur, the people say.

“Smaller managers understand that in order to attract allocations from bigger investors they have to be more flexible,” said Melissa Santaniello, founder of the Alignment of Interests Association, a nonprofit group that serves hedge-fund investors.

This article raises many excellent points I’ve been hammering away at for a very long time. First and foremost, smaller hedge funds are a lot more focused on performance than asset gathering, which is why they typically outperform their larger rivals over very long periods.

Second, most investment consultants are useless because their focus is exclusively on large well known megafunds. These consultants have hijacked the entire investment process in the United States and they basically cater to the needs of the trustees of U.S. public plans which practice cover-your-ass politics and will rarely if ever take risks with smaller managers. To be fair to these trustees, there is no upside for them to take risks on smaller managers, which is part of a much bigger governance problem at U.S. public pension funds.

Third, it’s high time institutional investors transform hedge fund fees, especially for larger funds run by overpaid hedge fund gurus which are much more focused on gathering assets than on delivering top performance. I have said this plenty of times, many of these large multi billion dollar hedge funds shouldn’t be allowed to charge any management fee whatsoever or a small nominal one (25 basis points or less).

Fourth, take this shift to smaller hedge funds with a grain of salt. The reality is small hedge funds are withering away as the world’s biggest investors don’t have the time or resources to run around after them so they prefer writing large tickets ($100 million+) to large funds which are trading in scalable strategies (like global macro, CTAs, and Long/ Short Equity, or large multi strat funds).

The article above mentions the Public Employees Retirement Association of New Mexico is shifting more of its absolute return program into smaller funds, but when I looked at its latest monthly board meeting packet, I noticed mostly large brand name funds which are well known to most hedge fund investors (from page 33, click on image below):

Now, perhaps they don’t list all their funds, but this group of hedge funds above makes up the bulk of their assets in their absolute return program and most of these funds are very well known, large funds (some are better than others).

At least they publicly publish in detail a list of all their major hedge fund, private equity and real estate partners, along with the performance of the programs, which is a must in terms of transparency. They also publish minutes of their board minutes, which is something else all public pensions should be doing (don’t get me started on good governance, I’ll eviscerate public pension funds, including Canada’s revered top ten which provide none of this information).

As far as Jagdeep Singh Bachher, chief investment officer for the University of California and the former CIO at AIMCo, and Mark Anson, the man who basically launched CalPERS into hedge funds, then moved over to Hermes and now runs Robert Bass’s family investment firm, I think they are both on the right track. Bachher is right to seed new funds which are very hungry and performance driven, and Anson is right to put the bulk of the Bass family’s investments in smaller hedge funds.

Go back to read my comment on Ron Mock when he became Ontario Teachers’ new CEO, where he told me flat out:

…the “sweet spot” [for Teachers] lies with funds managing between $500M and $2B. “Those funds are generally performance hungry and they are not focusing on marketing like some of the larger funds which have become large asset gatherers.” He told me the hedge fund landscape is changing and he’s dismayed at the amount of money indiscriminately flowing into the sector. “Lots of pension funds are in for a rude awakening.”

Ron has experienced a few harsh hedge fund lessons so he knows what he’s taking about. And he’s right, a lot of pensions are in for a rude awakening in hedge funds, mostly because they don’t know what they’re doing and are typically at the mercy of their useless investment consultants shoving them in the hottest hedge funds they should be avoiding at all cost.

No doubt about it, there are excellent large hedge funds, but my message to you is don’t get carried away with any superstar hedge fund manager even if their name is Ray Dalio, Ken Griffin, David Tepper or whatever. You’ve got to do your job and keep grilling your hedge fund managers no matter how rich and famous they are. And if they don’t want to meet you, redeem your money fast and find a manager whose head is not up his ‘famous ass’ and is more than happy to meet you and answer your tough questions.

Let me end by plugging an emerging hedge fund manager who I really like and is getting ready to launch his new fund with some super bright people. Gillian Kemmerer of Hedge Fund Intelligence reports, Visium, Sabretooth alum Bryan Wisk preps quant fund with ex-GS, JPM techs:

Former Visium Asset Management and Sabretooth Capital Management alumnus Brian Wisk is prepping a quantitative trading fund that aims to profit from market dislocations. His recently launched firm, Asymmetric Return Capital, has contracted with Kirat Singh and Mark Higgins, the architects of prop desk trading and risk management systems at Bank of America, Goldman Sachs and JPMorgan, to design its risk management system.

“I was one of the last clerks to join the floor of the Chicago Options Exchange in the midst of everything becoming electronic,” Wisk told Absolute Return. “When I went to the buy-side, I found a serious drop-off in the level of technology. It was something people were playing catch-up with, particularly in the options and derivatives space.” Wisk aims to bring the capabilities of a large bank’s derivatives desk to his fund, which will capture data, such as macroeconomic indicators, down to a millionth of a second.

“Many institutional investors are still running their derivatives business in Excel. It’s unfortunate. Our specialized skillset post Dodd-Frank should be available to a large pension fund.”

Wisk began his career as a primary market marker for Citigroup on the Chicago Board Options Exchange. He departed in 2006 for Visium Asset Management, where he served as a senior derivatives trader. He worked as an analyst at Tiger Management-seeded Sabretooth Capital Management in 2011, and departed in 2012, when the fund liquidated, to launch ARC.

According to portfolio manager Adam Sherman, ARC is poised to take advantage of increased volatility across asset classes as quantitative easing measures slow. “We are starting to see market dislocations as central bank policies shift,” he said. “Correlations are starting to break down.”

The fund will trade futures and options across asset classes, including commodities, equity indices, rates, and individual stocks. The portfolio will manage twenty to thirty themes—the differential between commodity and equity volatility was one example given—and will trade multiple securities within that theme (in the previous example, the fund may trade individual options on the S&P 500, WTI and Brent crude oil futures). The fund may hold up to 200 individual positions, and aims to balance exposure across asset classes. The fund will take long-term volatility bets, as well as conduct intra-day and episodic trading around volatility spikes.

Kirat Singh and Mark Higgins—the men Wisk has contracted to design his fund’s trading platform—have modernized Wall Street’s prop desks for over a decade.

Singh was the architect of SecDb (Securities Database) in the late nineties, Goldman Sachs’ framework for real-time derivatives pricing and risk management. SecDb has been touted as one reason why the bank made it through 2008 relatively unscathed, and Higgins co-implemented the platform while running Goldman’s foreign exchange and New York interest rate strategies teams.

The pair departed for JPMorgan Chase in 2006, pioneering the Athena program, a cross-asset trading and risk management system. Singh built the core group that deployed Athena, which began in the fixed income business and was later rolled out across the trading desks in JPMorgan’s investment bank. Higgins implemented the trading system while running the FX, commodities, and global emerging markets (GEM) quantitative research team. The pair parted ways in 2010 when Singh departed for Bank of America Merrill Lynch to design Quartz, a derivatives and securities trading and risk analytics platform. Higgins remained at JPMorgan, rising to co-head of the quantitative research group, and moved to the foreign exchange desk as a managing director in 2012.

The duo reunited in 2014, co-launching Washington Square Technologies, a consulting firm that delivers trading and risk management systems. While the pair are not in-house, they have reached an exclusive deal with Asymmetric Return Capital to design the fund’s risk management infrastructure.

Wisk eyes a June launch for Asymmetric Return Capital, which is based in Manhattan and has five employees, including chief executive Daniel King, who previously served as a managing director and head of the financial institutions group for interest rate sales at Bank of America Merrill Lynch; chief operating officer Steven Gilson, former director of operations at Visium Asset Management; portfolio manager Adam Sherman, who most recently served as a founding partner at Quantavium Management, a systematic fixed income fund; and portfolio manager Andrew Chan, a former portfolio manager at Chicago Trading Company .

The firm will launch with a founder’s share class, the terms of which were not disclosed.

I highly recommend all my institutional readers investing in hedge funds contact Bryan Wisk and the folks at Asymmetric Return Capital. When I first met Bryan in New York City a while ago, I was very impressed with his deep knowledge of the hedge fund industry and the dangers of group think.

Another emerging manager that really impressed me is an activist / event-driven fund manager in Toronto. I met an associate of his yesterday and he told me things are moving along and this manager, who has great experience running a previous fund in California, is on his way to managing his own fund for a big alternatives outfit in Toronto.

As for Quebec, last I heard the SARA fund is closing due to poor performance and they lost a pile of dough for their investors which included the Caisse. This is hardly surprising as these are brutal markets for hedge funds, especially start-ups. And to be brutally honest, most Quebec and Canadian hedge funds stink, they simply can’t compete with the talent pool in the U.S. or England where emerging managers come from pedigree funds (there might be a few exceptions but in general, avoid Canadian hedge funds, they truly stink!).

There is another problem in Quebec and rest of Canada, we simply don’t have the ecosystem to support start-up hedge funds. The Desmarais and Weston families are too busy worrying about mutual funds, insurance companies and their bread and butter businesses, they’re not interested in seeding hedge funds. Canada desperately needs a Bass family but we got a bunch of risk averse billionaires up here and I don’t really blame them given the talent pool just isn’t here.

Having said this, Ontario Teachers is seeding a multi strat fund up here and even though the SARA fund blew up, there is a new initiative going on in Quebec. In particular, Fiera Capital, Hexavest and AlphaFixe Capital set up a $200 million fund to seed Quebec’s emerging managers. It remains to be seen how this new venture will work out but I wish them a lot of success and will be glad to talk to Jean-Guy Desjardins and Vital Proulx about talented managers worth seeding (no bullshit, I’ll give it to them straight up!).

Of course, this is Quebec, and Quebecers are terribly jealous and petty when it comes to people succeeding in finance or business. Look at the media circus surrounding the sale of Cirque du Soleil to private equity firm TPG. Some idiots in Quebec are lambasting the founder Guy Laliberté for cashing out and selling his stake but if I ever see him at LeMéac restaurant again, I’ll be the first to shake his hand and tell him bravo!! (don’t know the man but he sat behind my girlfriend and I one brutally cold winter night a couple of months ago).

 

Photo by Roland O’Daniel via Flickr CC License

Two big personnel moves played out this week at the Massachusetts Pension Reserves Investment Management, as one top official stepped down and another stepped up.

The pension fund’s chief financial and operating officer, Tom Hanna, stepped down from his post this week after 15 years. From the Boston Globe:

According to an internal memo to managers and directors of the $61 billion public fund, Hanna decided to take time off after undergoing major surgery two years ago.

There will be a search to replace Hanna. In the interim, David Gurtz, who has been in charge of risk management, will assume Hanna’s duties.

“We are grateful to Tom for his 15 years of service,’’ the fund’s executive director, Michael Trotsky, said in the memo. He said that while the Pension Reserves Investment Management group has had “many strong contributors over the years, it is hard to imagine anyone making a stronger and more positive contribution to PRIM than Tom.”

Meanwhile, the fund has promoted Sarah Samuels to deputy chief investment officer. From ai-cio.com:

Massachusetts Pension Reserves Investment Management (MassPRIM) has promoted Sarah Samuels to the position of deputy CIO.

[…]

Samuels became a member of CIO’s Forty Under Forty earlier this week. She joined MassPRIM in 2011 from Boston Advisors, and has also worked for Wellington Management. In her new role she will oversee asset allocation and research, as well as the pension’s listed equity and fixed income allocations.

MassPRIM manages approximately $62 billion in assets.

 

Photo  jjMustang_79 via Flickr CC License

Federal officials have closed two investigations into the Arizona Public Safety Personnel Retirement System, which were examining the fund’s real estate valuations.

Federal officials said no wrongdoing was found.

From the SF Chronicle:

The board chairman for the Public Safety Personnel Retirement System says both the Justice Department and Securities and Exchange Commission have terminated their investigations after finding no criminal misconduct.

Chairman Brian Tobin announced the closures on Wednesday and says they end probes prompted by whistleblowers. A joint FBI/Justice Department investigation into the case concluded in November there was no evidence of criminal wrongdoing.

The investigations were launched in 2013 when former pension plan employees alleged senior managers inflated values to qualify for bonuses.

Tobin says the allegations were false and unjustly damaged public trust in the agency and its employees.

The pension fund recently concluded a months-long search for a new administrator, hiring Kevin Olineck.

 

Photo credit: “Entering Arizona on I-10 Westbound” by Wing-Chi Poon – Own work. Licensed under CC BY-SA 2.5 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Entering_Arizona_on_I-10_Westbound.jpg#mediaviewer/File:Entering_Arizona_on_I-10_Westbound.jpg

Early in 2015, several top Russian officials called for the abolition of the county’s traditional pension system in order to shift to a system that more resembles a savings account.

But Prime Minister Dmitry Medvedev said this week that the current pension system will remain in place.

From RAPSI:

The Russian Government has decided to keep in place pension savings, RIA Novosti reports on Thursday, citing Prime Minister Dmitry Medvedev.

Most experts and Russian citizens supported a decision to preserve pension savings, Medvedev said at the government meeting. Russia needs to develop a predictable pension system and that naturally, some of the system’s mechanisms must be upgraded and streamlined, according to him.

Medvedev instructed the Finance Ministry and the Ministry of Economic Development to submit proposals on balancing the budget, with due consideration for this decision. First Deputy Prime Minister Igor Shuvalov will oversee this process.

He also instructed the appropriate officials to draft proposals on the most cost-effective use of pension savings’ financial resources for economic growth purposes.

Over the last three years, Russia has frozen approximately $3 billion of its pension contributions. Most of the money has been diverted to plug holes in the general budget, or aid corporations hurt by Western sanctions.

CalSTRS invested $100 million with Red Mountain Capital Partners earlier this year, according to a report from Reuters.

The move is notable because CalSTRS’ allocation to hedge funds is relatively small, and because Red Mountain has produced strong returns in recent years.

More from Reuters:

Red Mountain was founded by former Goldman Sachs partner Willem Mesdag in 2005. The fund makes bets on small U.S.-based companies and works generally quietly with management to boost returns.

The $191 billion CalSTRS has less than one percent of its investments in alternatives like hedge funds, typically favoring activist investors that stay out of the headlines. It has signaled it will continue to place money with hedge funds after its larger neighboring pension fund, the California Public Employees’ Retirement System, ditched hedge funds last year.

[…]

One of Red Mountain’s recent investments was a bet on fried chicken fast food restaurant Popeyes Louisiana Kitchen, where it owned 1.2 million shares and ranked as the company’s second-largest investor after Vanguard Group at the end of 2014.

While Red Mountain tends to hold investments for a substantial period of time, it made a roughly 50 percent gain on Popeyes, prompting it to exit the stock recently, one person familiar with the move said. The firm has returned an average 12.6 percent per year over the last five years.

CalSTRS is the second-largest pension fund in the country.

 

Photo by Stephen Curtin

In January, a government panel made a series of recommendations for overhauling the U.S. military retirement system.

This week, House lawmakers say they will release a defense budget that includes many of those recommendations, including a shift from a defined-benefit system to a hybrid system with qualities of a 401(k).

From Stars and Stripes:

A blended 401(k)-style retirement system was suggested in January as part of a landmark study by the congressionally appointed Military Compensation and Retirement Modernization Commission and has sparked wide-ranging debate among servicemember and veteran groups.

“We think there is benefit in requesting the [Defense Department] come back to us probably within six to eight months with an implementation plan,” said Rep. Joe Heck, R-Nev., who is chairman of the Armed Services subcommittee on military personnel.

Under the blended retirement system, the military would give all new service members a Thrift Savings Plan account and provide matching contributions throughout their service. Troops who separate after 20 years would still get a pension but only 80 percent of what those already in the system today will get.

[…]

The bill will require the transition to the new retirement system be complete by October 2017, according to Heck, who will introduce the legislation Wednesday, and Rep. Mac Thornberry, R-Texas, chairman of the Armed Services committee.

The bill currently sits in the House Armed Services Committee.

According to Stars and Stripes, the committee is expected to vote on the measure next week. Then it must be passed by the full House and merged with a similar bill in the Senate.

 

Photo by Brian Schlumbohm/Fort Wainwright PAO