Pension360 | The Complete View of Public Pensions

Employee Savers Say Don’t Worry, Be Happy

According to a recent poll by Gallup and Wells Fargo, most investors with a 401(k) plan are upbeat about their plan and their savings. Over 90 percent of investors, according to the study, are satisfied with the 401(k) plan for their retirement. Vladimir Putin couldn’t even stuff a ballot box that would generate this level of satisfaction.

Gallup announced the results of the survey, conducted with Wells Fargo, stating:

These findings are from the latest Wells Fargo/Gallup Investor and Retirement Optimism Index survey, conducted Jan. 29-Feb. 7, 2016, among 1,012 U.S. investors. Approximately 40% of U.S. adults meet the survey’s criteria as investors; these criteria involve having $10,000 or more invested in stocks, bonds or mutual funds, either in an investment or retirement account. Seven in 10 employed investors say their current employer offers a 401(k) — and of these, 88% say they participate.

Some generational differences among attitudes included the following:

…age-related differences in preference for receiving allocation advice underscore generational gaps in the use of digital versus traditional resources:

– A majority of investors younger than 50 (58%) versus a third of those aged 50 and older (35%) use online investment calculators.

– Older investors are twice as likely as those aged 18 to 49 to consult a financial call center (21% vs. 10%, respectively).

– Younger investors (50%) are also much more likely than older investors (30%) to turn to family or friends for allocation advice.

Looks like a kind of two parallel universes – some surveys saying that investors are terrified of poverty in retirement, but this one showing that the future is so bright they need sunglasses.

For Every Democratic Action There is a Republic Reaction: New Senate Action Against the Fiduciary Rule

Well, that didn’t take long.

Within days after the new DOL fiduciary rule, Republic leaders in the Senate launched a resolution attempting to block the rules. Three GOP senators announced that the new rules would raise the bar for providing advice so high that small account holders would be left behind.

From 401k Specialist:

[U.S. Senators] Isakson, Alexander and Enzi today filed a resolution of disapproval under the Congressional Review Act to reject the administration’s new so-called “Retirement Advice Gag Rule.”

“I have worked to fight the implementation of this harmful rule since it was first proposed and promised to do all I could to overturn it before it can harm Georgia families. The introduction of this resolution is the next step in the battle,” Isakson, who is chairman of the Senate Health, Education, Labor and Pensions Subcommittee on Employment and Workplace Safety, said in a statement. “Like so many of this administration’s decisions, their new fiduciary rule harms the very individuals it seeks to protect and prevents those hardworking Americans who are trying to plan for retirement from having the opportunity to access retirement advice.

Georgia Senator Johnny Isakson is the chairman of the committee responsible for pensions and labor. He has already launched a salvo of proposed laws, including sponsoring or co-sponsoring the following, as recorded by 401k Specialist:

…the Affordable Retirement Advice Protection Act, which would require a vote by Congress before any final rule by the administration went into effect;
…the Retail Investor Protection Act, which would prohibit the Department of Labor from issuing its rule until the U.S. Securities and Exchange Commission has issued a final rule relating to standards of conduct for brokers and dealers and has satisfied additional reporting requirements; and
…the Strengthening Access to Valuable Education and Retirement Support (SAVERS) Act, which seeks to block the Department of Labor’s “harmful” fiduciary rule and provide a viable alternative …

Let the Games Begin: New Fiduciary Rules Could Trigger A Death-Match Among Advisory Firms

The new fiduciary rule could trigger a slug-fest among consultants. A recent panel of broker dealers and registered investment advisors mused that the climatic changes of fiduciary responsibility could lead to the extinction of some of the less adaptable “generalist” advisors.

According to Investment News:

“We think there will be a lot of plans in play,” said J. Fielding Miller, chief executive of CAPTRUST Financial Advisors. “This is kind of like prime hunting season for our industry.”

As opposed to retirement “specialist” advisers, who derive most of their business from the defined-contribution-plan market, generalists, or “dabblers,” tend to derive most of their business through wealth management and may have only a handful of retirement plan business.

The Department of Labor’s new rule, which raises investment advice standard in retirement accounts, puts pressure on the dabblers to reconsider if they want to be in the retirement business, Mr. Miller said Tuesday morning at the National Association of Plan Advisors’ 15th annual 401(k) summit in Nashville.

INCREASED LITIGATION RISK. Several smaller firms will struggle to comply with the new rule, and the additional risk of private litigation action will “scare” some providers to turn away from the retirement business, according to Edward O’Connor, managing director of retirement strategy at Morgan Stanley.

Rolling Over the Rollover Shops

Additionally, Brokers that made lots of money on plan rollovers may be in for a rough ride.

From Investment News:

The panelists also discussed the impact of the rule on rollover business, saying there will likely be less rollovers as fewer brokers and advisers recommend rollovers, and more participants will keep their money in-plan as a result.

Retirement assets staying in plan will be a boon to plan providers, the panelists said.

“This is definitely a tailwind for them,” according to Mr. Chetney. “There will be less ‘shysters’ trying to take money out on an unreasonable basis.”

Those firms for which rollovers represent a primary part of their economic model will have to rethink that business model, according to Mr. O’Connor. “Rollovers will become a less important part of anyone’s business model,” he said.

My Brother’s Keeper: Annuities Face Stricter Customer Care Rules

Among the many, many, many aftershocks of the new fiduciary rules is the application of the new Best Interest Contract Exemption to fixed indexed annuities. The Department of Labor produces millions of pages of rulings and rules, but only just determined that fixed indexed annuities were complicated.

According to the Retirement Income Journal:

The DOL likened FIAs to variable annuities in their cost and complexity. “Given the risks and complexities of these investments, the Department has determined that indexed annuities are appropriately subject to the same protective conditions of the Best Interest Contract Exemption that apply to variable annuities,” the final BICE text said. FIAs have gotten even more complex in recent years, especially with the introduction of hard-to-value “hybrid” indices that allow issuers to offer supposedly “uncapped” gains even though the gains of FIAs are by design strictly limited. But it’s not clear if this trend influenced the DOL.… The DOL said that it put FIAs under BICE because they’re so complicated and hard to understand. “Retirement Investors are acutely dependent on sound advice that is untainted by the conflicts of interest posed by Advisers’ incentives to secure the annuity purchase, which can be quite substantial.

It may be a case that one man’s level playing field is another man’s valley of death. Says Retirement Income Journal:

In addition, the DOL said that it wanted to create a “level playing field” for FIAs and VAs, and to avoid “a regulatory incentive to preferentially recommend indexed annuities,” as the original proposal could have created. But, arguably, the DOL has chosen to provide a disincentive to recommend VAs and FIAs, and gives an implied encouragement to the sale of fixed deferred and fixed income annuities, including single premium immediate annuities, deferred income annuities, and qualified longevity annuity contracts.

Texas Handcuffed on Pension Funding?

A hearing this week in Texas’ House Appropriations Committee shed some light onto the state’s pension funding situation – and the funding limitations that are baked into state law.

Keith Brainard of the National Association of State Retirement Administrators (NASRA) testified that the lower and upper bounds of Texas’ annual pension contributed are defined by law.

From the Houston Chronicle:

Texas — unlike Arizona, Louisiana, Maine and Montana – has set constitutional limits on how much the state will contribute to pension plans: no less than 6 percent and no more than 10 percent of the plan’s cost.

“Texas is the only state in which the constitution limits the state’s ability, the employer’s ability to adequately fund its pension plan,” Brainard said.

That point is critical because of the mounting obligations of the four current pension plans for state employees, of which only one is a pay-as-you-go plan. According to the Employee Retirement System, the debt obligation is $8 billion and growing.

Two rounds of benefit adjustments and an infusion of state cash last session under House Bill 9 have only slowed the growing obligation. Outgoing Appropriations Chair Rep. John Otto, R-Dayton, has pressed hard on the issue of a lump sum appropriation, or increased contribution, to defray the cost of current obligations: The Legislative Budget Board has said no while ERS has said yes.

What is not in doubt is the heavy blow long-term financing will be. Porter Wilson, the new executive director of ERS, noted the current trajectory of funding would pay off current obligations in 2048, at a cost of $29.1 billion. Pump in $1 billion and that obligation drops to $20.7 billion; $4 billion will be $11.7 billion; and an $8 billion infusion would cost $9.5 billion and actuarial soundness in 2018.

View the hearing presentations here.

Stanford Professor Pushing the Case for Cost-Cutting Pension Reform

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com.

A leading advocate of the view that public pensions are alarmingly underfunded thinks rising costs could, in the next five to ten years, push some cities into bankruptcy and some states into insolvency.

Joshua Rauh, a Stanford University finance professor, said in a new study issued by the Hoover Institution that 564 state and local pensions systems reported a “net pension liability” of $1.2 trillion under new government accounting rules.

But Rauh believes the debt is nearly three times larger, $3.4 trillion, because the pension systems, even under the new rules, use an overly optimistic annual earnings forecast, 7.4 percent, for investments often expected to pay two-thirds of future pensions.

Rauh used a 3 percent risk-free Treasury bond rate. That not only follows the basic principles of finance, he said, but is more realistic given low interest rates, the failure of pension funding levels to recover after a major bull market, and other factors.

“More and more money is going to have to go into these funds, and you are going to see more and more bankruptcies along the likes of Detroit, San Bernardino, Stockton, California,” Rauh told CNBC last week. “And over a five- to ten-year horizon, I would expect there to be a number — many, many more cities going bankrupt and many states that are insolvent.”

Most state and local governments in the nationwide study contribute 7.5 percent of their revenue to pensions, Rauh’s study concluded, but need to contribute 17.5 percent to keep pension liabilities from rising.

“Even contributions of this magnitude would not begin to pay down the trillions of dollars of unfunded legacy liabilities,” he said. None of the “50 worst cities” listed in the study, ranked by additional contributions needed to prevent more debt, are in California.

An oncoming wave of bankruptcies may be an extreme view, not to mention a 3 percent long-term earnings forecast. But a Citigroup study last month shares Rauh’s view that exposing “hidden” pension debt is a first step toward public pension reform.

Citigroup estimates that the total unfunded government pension liabilities for 20 industrialized countries is a “staggering $78 trillion,” nearly double the $44 trillion they have reported.

“Making these contingent liabilities more clear or complete is the first step towards further pension reform to address the increased risks from a rising dependency ratio (retirees vs. active workers) and a rising cost burden of public pension systems,” said Citigroup.

Last week, a state Senate committee rejected a bill requiring the nonpartisan Legislative Analyst’s Office to create an internet website listing major state debt, including pensions and retiree health care, that also would be shown on a page in the ballot pamphlet.

State Sen. John Moorlach, R-Costa Mesa, said his “California Financial Transparency Act” (SB 1251) would give voters “basic reliable nonpartisan financial information” as they consider bonds, spending measures, and candidates.

Moorlach, an accountant and financial planner known for predicting that risky investments would lead to the Orange County bankruptcy in 1994, created a website to show what the basic financial information might look like.

The bill, rejected on a party-line vote, was opposed by public employee unions who argued that ballot measures have a nonpartisan financial analysis and that the broad debt numbers have no direct relation to ballot measures, lack context and might confuse voters.

Pension debt can seem distant, with most bills not due for decades, and unpredictable or even unknowable as the reported unfunded liability swings up and down with the stock market and the yield from huge investment funds.

The bite taken from employer budgets by annual contributions to the pension funds is less abstract. Some call it “crowd-out” as growing pension costs reduce the money available for basic government programs, services and personnel.

Stephen Eide of the Manhattan Institute issued a “California Crowd-Out” study last year that found, among other things, government staffing in December 2014 remained 8 percent below the December 2007 level, while private-sector jobs were 2.4 percent higher.

The “crowd-out” from pension and retiree health care costs was an issue as voters in San Diego and San Jose overwhelmingly approved cost-cutting pension reforms four years ago.

The ballot pamphlet argument in San Diego said Proposition B means more money for “fixing potholes and street repairs, maintaining infrastructure, restoring library hours, and re-opening park and recreation facilities.”

In San Jose, the ballot argument for Measure B said: “Retirement costs consume more than 20% of the general fund and are projected by independent actuaries to increase for years. This is unsustainable.”

With “spiking,” pension excess becomes even less abstract and gets a face. For example, an Orinda-Moraga fire chief, who retired in 2009 at age 50 with a pension much larger than his salary, told the Wall Street Journal he was a “poster child” for spiking but didn’t make the rules.

Last September, the Contra Costa pension board voted to reduce Peter Nowicki’s initial pension, $240,923 a year, to an amount, $172,818, that is below his final base pay, $193,281.

A review by a law firm found that Nowicki, with two contract amendments, inflated the final pay used to calculate his pension, mainly by cashing out unused vacation time with smaller amounts from holiday, terminal and retroactive base pay.

Manipulating final pay to improperly boost pensions is a common spiking method, surfacing sporadically in well-publicized incidents over the past half century. The two big state pension systems, CalPERS and CalSTRS, both have anti-spiking units.

Implied pension excess surfaces in several ways. The Los Angeles Times reported this month that at least 17 legislators including Moorlach are “double-dipping,” collecting their state salaries and a public pension from another government job or office.

The “$100,000 pension club” of retirees with big pensions was posted on the internet a decade ago by a reform group led by Marcia Fritz. Another group, Transparent California, now has a searchable database of state and local government pay and pensions.

“The main thing is to engage people when you talk about pensions, because it’s boring to people,” Fritz, president of the California Foundation for Fiscal Responsibility said in 2011. “When we put the list up, it was the same reaction as ours — unbelievable.”

Whether through debt, crowd-out or excess, the public seems to have received a message about pensions from somewhere.

A statewide Public Policy Institute of California poll issued in January 2014 found that 85 percent of likely voters think the amount of money spent on public pensions is somewhat of a problem and 73 percent support switching new hires to a 401(k) plan.

CalPERS Postpones Tobacco Study; Raises Contribution Rates

CalPERS on Wednesday postponed a plan to study whether it should re-invest in tobacco-related assets after divesting from such assets 15 years ago.

On Thursday, the pension fund also approved a contribution rate increase for state government and school districts.

The Sacramento Bee reports on the postponement of the tobacco study:

The big California pension fund Wednesday unexpectedly postponed a plan, adopted two days earlier, to launch an extensive study of whether it should reinvest in tobacco company stocks. Instead, the CalPERS investment committee will discuss the issue again May 16, said CalPERS spokeswoman Rosanna Westmoreland.

On Monday, the investment committee voted to begin a 12- to 24-month study of the pluses and minuses of tobacco investments. The vote followed a consultant’s report saying the California Public Employees’ Retirement System had sacrificed $3 billion in profits by deciding in 2001 to dump its tobacco holdings.

The investment committee consists of every CalPERS board member. As a result, approval by the full board usually is a formality. But this time it wasn’t. The representative for State Treasurer John Chiang, who opposed Monday’s decision, asked investment committee chairman Henry Jones to hold off until next month. Jones, who is also vice president of the full board, agreed.

“No public pension fund should associate itself with an industry that is a magnet for costly litigation, reputational disdain and government regulators around the globe,” Chiang said later Wednesday in a prepared statement.

A different report from the Bee also outlines the rate increase:

The state’s contribution will increase by an estimated $602 million, to $5.4 billion a year. School districts will be charged an additional $342 million, to a total of nearly $1.7 billion a year. While teachers are covered by CalSTRS, other school employees get their pensions from CalPERS.

It’s the latest in a series of rate hikes implemented by the California Public Employees’ Retirement System in recent years, primarily to cover longer retiree lifespans, salary increases and the growing pool of state and school district employees. CalPERS is also dealing with lingering financial fallout from the 2008 financial crash, which cost the pension fund tens of billions of dollars.

The rate increase is smaller than initial projections, according to CalPERS.

Pension Debt Ruling Has Implications for Private Equity

Late last month, a federal judge ruled that private equity funds are liable for the pension debt of their portfolio companies.

Observers say the ruling could shake up the private equity industry.

The legal nuts and bolts are outlined in this Lexology article; but a New York Times piece provides a more down-to-earth explanation of what this means for private equity:

Late last month, Judge Douglas P. Woodlock of the United States District Court in Massachusetts found that two private equity funds were jointly liable for the pension fund debt of one of the companies they acquired.

“The private equity world is all over this,” said Paul Secunda, a labor law and employee benefits expert at Marquette University Law School. “For everybody else, it’s like, what’s the big deal?”

To answer that, it helps to go back to the beginning of the story.

It started with a Rhode Island company, Scott Brass, which makes brass and copper for all sorts of industries. In 2007, an affiliate of the private equity firm Sun Capital Partners bought Scott Brass, splitting the ownership between two separate Sun Capital funds.

A year later, Scott Brass went bankrupt and stopped contributing to its pension fund, run by the New England Teamsters and Trucking Industry Pension Fund.

Federal law imposes pension liability on any “trade or business” that is under “common control” with Scott Brass. The pension fund argued that Sun Capital’s funds met that definition — and should be liable for the $4.5 million pension fund debt.

In 2013, the United States Court of Appeals for the First Circuit found that one of Sun’s funds did constitute a “trade or business” — the first time a private equity fund was classified as such. The appeals court sent the case back to a lower court to decide whether Sun’s other fund was “a trade or business” as well.

On March 28, Judge Woodlock found not only that the other fund’s activities met the test of being “a trade or business,” he also found that the two funds served as a “partnership in fact” — one that was under common control with Scott Brass. That made the funds liable for the pension debt.

And what does the ruling mean, if it’s upheld? From the New York Times:

Two years ago, the appeals court’s opinion drew a flurry of attention over whether the Sun Capital case would challenge the foundation of the private equity business model by changing how it is taxed. That’s because the appeals court relied on federal income tax principles to conclude that Sun’s private equity fund was a “trade or business” for the purposes of employee benefits law.

In theory, if the I.R.S. were to adopt the same reasoning in a tax context, it could kill the goose that lays the golden eggs of the private equity industry: its huge tax breaks. It could do it in a way that would turn the investing world upside down.

And that’s why it probably will not happen, said Gregg D. Polsky, a tax law professor at the University of North Carolina School of Law who has written critically about the industry’s practices.

“It could create all sorts of potential headaches and uncertainties for investors,” Professor Polsky said, including foreign investors and tax-exempt investors like university endowments. “I don’t think the I.R.S. is interested in doing that.”

Until now, private equity firms have looked at companies with underfunded pension plans as undervalued targets, because the private equity firms were not responsible for funding those plans once they took over the company. Now they know they might be if Judge Woodlock’s ruling is upheld on appeal, and if other courts adopt it.

Building on CPPIB’s Success?

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

Adam Mayers of the Toronto Star reports, CPP’s success may signal bigger pensions ahead:

The Canada Pension Plan expects to have assets worth $1 trillion before the middle of this century.

As recently as 17 years ago, in the first year of the plan’s Investment Board, there was just $18 million in the bank. All that money was invested in Canadian government bonds. The CPP Investment Board was a coupon clipper.

Today, our national retirement scheme is a global giant, closing in on $300 billion. By 2030 it projects to be worth $500 billion. Two-thirds of all it owns is outside Canada and there isn’t a corner of the globe where it doesn’t look for opportunity.

We get royalties from intellectual property, dividends from public and private investments. Its biggest single public stock holding worth $2.3 billion is in IMS Holdings, an American company that provides IT services to the global healthcare industry. Number two is Apple.

Our plan invests in Japanese drug companies, owns nursing homes in France and seniors’ apartments in Florida. There are 17 ports in Britain, Ontario’s 407 ETR and toll roads in Chile. Its real estate holdings include prestige shopping centres and office towers in many global capitals. There is income from investments in farmland, software and internet and telecom networks. It owns stakes in electrical utilities and water treatment plants.

Based on this success — and our contributions — the CPPIB’s actuaries believe there will be enough money to pay pension obligations at current levels for the next 75 years. That’s an enviable position when many national pension plans are in trouble.

But the CPP wants to go further. It wants an even better return. So, it’s changing the mix of its investments to add more stocks and private companies, and fewer government and corporate bonds.

It’s a “modest evolution” being done in a “prudent and gradual manner,” says the CPPIB’s senior managing director Ed Cass, who is responsible for the CPPIB’s overall investment strategy.

He says it can be done safely because the CPP has deep pockets and a perpetual time horizon: The “next quarter” is 25 years, not three months.

This may eventually mean a bigger pension, or lower CPP premiums for us. Cass can’t say. The CPPIB’s mandate is to safely and profitably invest on our behalf. Ottawa and the premiers decide how much we get and how much we pay into the plan. Their third option is do nothing and keep the additional funds for a rainy day.

We sat down with Cass, who at 53 is as eclectic as the CPP’s holdings: He holds a degree in theoretical physics from Queen’s University and a law degree from Osgoode Hall.

Here’s an edited version:

What can average investors learn from the CPP?

Well, they can’t replicate what we do because we have advantages of size and scale.

But there are three things. The most important is risk tolerance. A 27-year-old should be able to take a lot more risk than a 91-year-old. We have a 75 year time horizon and so our assumptions are based on that.

The second is diversify. Diversification is the one free lunch.

It’s true, we can go to a level that’s impossible for the small investor. But there’s a ton of things individuals can do. Through Exchange Traded Funds (ETFs) you can get access to the U.S., European and Japanese stock markets. Importantly, you get diversification in terms of currency exposure.

The last thing is patience. If you can afford to be patient, be patient. If you’re changing your portfolio frequently it’s likely you’re incurring a lot of costs. Having a plan and sticking to it is very important.

What is your view of the economic outlook?

There are a number of forces that give us a lot of optimism. We think the gradual convergence of emerging market economies with developed markets is a positive development.

We think low rates may persist in the short term, but not over the long term. We see growth coming back. Not quite what we experienced in previous decades, but something approaching that.

What about interest rates?

The new normal for the overnight bank rate might be 3.50 per cent or 3.75 per cent. (That rate is currently 0.5 per cent and determines consumer rates.)

When might this happen?

Forecasting the path of rates is fraught with danger. We are confident that over our horizon, which is decades, things will normalize.

Why are you buying ports and university dorms?

They are things that are similar to bonds and have very predictable payments. As an example, take the Highway 407 (40 per cent owned by CPP). It is very easy to predict cash flow over time and it has a high income yield. That looks a lot like a bond.

The CPPIB has decided to take more investment risk. What does that mean?

Risk appetite is linked to investment horizon. We have a very long horizon, somewhere in the order of 75 years. That’s how far we look out.

Our default reference was 65 per cent equities and 35 per cent bonds, which is the (default) of an average investor. But our capacity to prudently take risk is greater than an average investor. So, we want to move to 85 per cent equities and 15 per cent bonds.

What it means is that we want a very diversified portfolio, a very safe portfolio, but one that targets a higher risk appetite than in the past.

Why now?

This is not a reaction to the current environment. This is something more fundamental. It’s predicated on those longer term views.

When you say “why now” you must place it in the context of an organization that is on an enduring path. We have undertaken several transitions since that first transfer of funds 17 years ago.

We’ve gone from 100 per cent bonds to a diversified portfolio, and from all domestic to truly global. We’ve grown from $18 million to over $280 billion today. We accomplished this in less than two decades.

So, when you consider the shift along the return/risk spectrum in this light, it is really a modest evolution. We have an exceptionally long horizon, as well as a certainty of assets. As a result, the Board concluded we can and should seek higher returns prudently.

Does that mean better pensions?

If the fund is widely successful you could increase benefits, or reduce contributions. Those are the two most logical things, but that’s a policy decision. Our statutory objective is to maximize returns without undue risk of loss.

A good interview with Ed Cass who was appointed to the position of Senior Vice President and Chief Investment Strategist at CPPIB a little over two years ago.

Mr. Cass is obviously a very smart guy, holding a Bachelor of Science (Honours) degree in Theoretical Physics from Queen’s University and a Bachelor of Laws from Osgoode Hall Law School, but the message he lays out here is very simple and clear: CPPIB is a global powerhouse with deep pockets and a very long investment horizon and can take risks in public and private markets and patiently sit through any economic cycle.

Now, I think it’s important Canadians understand some of the key takeaways from this brief interview (I will add some insights):

CPPIB is a global powerhouse that invests across public and private assets. It invests and co-invests with top private equity funds, top hedge funds, and invests directly in real estate, infrastructure and natural resource assets all over the world. This diversification across geographies and public and private markets and the ability to invest directly in large transactions is something that no individual Canadian investor and even mutual fund can do at the scale and scope of CPPIB.
CPPIB has huge comparative advantages over mutual funds, private equity funds, and even other large Canadian pension funds. You can read about these advantages here.
CPPIB is massive but cost efficient. Never mind that flimsy and grossly biased study from the Fraser Institute claiming it is an extremely costly plan. Real experts who understand large pensions like Keith Ambachtsheer and his partners at KPA Advisory Services tore into that study as did I for its dumb comparisons and faulty conclusions (word to the wise: never blindly trust anything that comes out of the Fraser Institute which is bankrolled by Canada’s powerful financial services industry that has its own agenda on pensions).
CPPIB is opportunistic and very patient. Go back to read my comments on CPPIB bringing good things to life and a more recent one on CPPIB going on a massive agri hunt. These are huge, scalable deals that no Canadian mutual fund can engage in and to be honest, apart from PSP Investments, very few other large Canadian pension funds can engage in.
CPPIB has a great leader at its helm. I won’t hide it, I like Mark Wiseman and think very highly of him. We don’t always see eye to eye on everything but when I talk to him and listen carefully to what he says, he comes across as an exceptionally bright, nice, hard-working leader who really understands and believes in the long view and has done an outstanding job leading this mammoth pension fund. He has put in place the right people to lead his teams and they are all doing a great job.

As far as what Ed Cass says on interest rates, I beg to differ as I think ultra low rates and the new negative normal are here to stay for years, especially once the global deflation tsunami hits us.

Then again, with China manipulating its stock market and central banks fighting deflation tooth and nail, things might be a lot better in the global economy than meets the eye. I trade stocks every day and I’m baffled at some the moves in the resource sector.

For example, shares of Teck Resources (TCK) are up another 9% at this writing on Wednesday mid-day (click on image):

Amazingly, the share price of Teck hit a low of $2.56 (USD; I only trade U.S. shares even though it was best to buy this one in Canada earlier this year) on January 13th and is now breaking out and in a position to make a new 52-week high if this momentum carries through.

And it’s not just Teck, a sample of stocks I track leveraged to global growth are indeed acting as if oil will double this year and the global economic recovery is well under way (click on image):

I remain highly skeptical of all these counter-trend rallies no matter how powerful they are and think they’re largely driven by algos and momo traders. Having said this, one Canadian hedge fund manager told me this morning: “Things have changed, adapt and leave it alone.”

Maybe things have changed, maybe the world is in much better shape than we think, or maybe we are all smoking some hopium like those nuns I mentioned in my last comment on China’s pension gamble, believing in fairy tales and unicorns. I don’t know but since mid-January the explosive moves have been in emerging markets (EEM), Chinese shares (FXI), energy (XLE), metals and mining (XME) and industrials (XLI).

So, Ed Cass is right, focus on ETFs, diversify and rebalance your portfolio when there are huge market dislocations like we had at the start of the year. Unlike him, I prefer to play U.S. ETFs (I am long USD over a very long period because I think the U.S. has the best economy by far) and I would say rebalance every time an ETF goes way above it 200-day moving average or way below its 400-day moving average (for oversold trends, I prefer using the 400-day moving average).

As far as books, I have about 300 books on finance but the ones I recommend to individuals are classics like William Bernstein’s The Four Pillars of Investing and The Intelligent Asset Allocator or Marc Litchenfeld’s Get Rich With Dividends. Of course, a simple and cheap classic to read on stocks is Peter Lynch’s One Up on Wall Street (a real classic).

On that note, it’s back to the stock market for me and trying to make sense of these schizoid markets driven by algos, high frequency traders and unscrupulous hedge fund sharks.

Multiemployer Pension Funding Took Hit in 2nd Half of 2015

The aggregate funding status of the country’s multiemployer pension plans dropped 4 percent in the second half of 2015, according to a report by Milliman.

[See the report here.]

The aggregate funding level now sits at 75 percent; the funding drop was due to flat investment returns.