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It was the Supreme Court’s first full day with new Justice Neil Gorsuch, and the case they heard: California Public Employees’ Retirement System v. ANZ Securities.

CalPERS on Monday argued in favor of loosening the deadlines for investors to file securities lawsuits.

More from the National Law Review:

The case before the court, California Public Employees’ Retirement System v. ANZ Securities, dealt with a narrow issue of deadlines for initiating litigation. But it comes up when investors seek to opt out of settlements and sue issuers individually for false information in registrations.

The Securities Act of 1933 states that lawsuits cannot be filed more than three years after the securities offering. But citing a 1974 Supreme Court precedent American Pipe & Construction v. Utah, CalPERS claims that deadline can be tolled or delayed while class actions are under way.

“All manner of satellite litigation” could proliferate if statutory deadlines are interpreted too strictly, Tom Goldstein of Goldstein & Russell told the justices on behalf of the California pension fund, the largest in the nation. Because of the complexity of securities litigation, a three-year “statute of repose” limit advocated by defendants is too short, Goldstein argued, and would compel investor groups to file separate litigation early to protect their rights to opt out of class actions.

But Paul Clement of Kirkland & Ellis disputed Goldstein’s “parade of horribles,” noting that the three-year statute of repose has been in place for several years in the Second Circuit, without an avalanche of new litigation.

Justices Neil Gorsuch and Anthony Kennedy asked several pointed questions suggesting they weren’t very sympathetic towards CalPERS.

More background on the case, from the NLR:

The case before the court stems from the financial crisis of 2008. CalPERS sued the bankrupt Lehman Brothers and ANZ Securities, one of its underwriters, claiming false statements in registration documents. The pension fund had been part of a class action, but it opted out after a settlement was reached.

The timeline resulted in a conflict between statutory provisions that impose a deadline on when such lawsuits must be filed. The U.S. Court of Appeals for the Second Circuit ruled that the three-year deadline could not be put off. But the Second Circuit ruling also said the issue was “ripe for resolution by the Supreme Court” because of a circuit split over the issue.

President Trump last week signed a resolution that nixes a rule, implemented by Obama, that allowed cities to require small businesses without any retirement plan options to offer employees a 401k.

No city had yet created such a rule, but several major cities — including New York City and Seattle — were considering it.

From the Society for Human Resource Management:

Cities and counties will now be barred from requiring small businesses without 401(k)-type retirement plans to enroll workers into a government-run individual retirement account (IRA).

Meanwhile, a measure to block a requirement for similar small businesses to participate in auto-enroll IRAs run by the state still awaits a Senate vote.

On April 13, President Donald Trump signed Congressional Review Act (CRA) resolution H.J. Res 67, which blocks an Obama-administration Department of Labor rule to push local governments to create auto-IRAs. The House and Senate had voted in favor of the resolution to nix the rule by party-line votes in March.

No municipalities had launched their own IRAs for nongovernment workers, although New York City, Philadelphia and Seattle all have considered doing so under the Labor Department rule, the New York Times reported.

The House also passed a resolution, H.J. Res 66, to roll back a DOL rule allowing state governments to set up mandatory auto-IRA programs for small employers that don’t provide retirement plans for their employees. A Senate vote is expected when Congress returns later in April from its Easter recess, as May 9 is the deadline for passing a CRA resolution to block the rule.

Business groups support the rollback, but other groups and states strongly supported the rules.

CalPERS is conducting an internal review on its private equity portfolio and considering changes to the program, according to the Wall Street Journal.

The pension fund is looking to cut costs — although it’s not necessarily looking to cut its private equity allocation — and it’s weighing a variety of options. From Reuters:

It is considering moves that would give it greater latitude in selecting and managing its private equity investments in an attempt to reduce costs, the Journal reported.

Some of the options under consideration include buying a private equity firm or creating a private equity fund outside of CalPERS, the Journal said, or it could also choose to act as sole investor in more customized accounts with outside managers.

CalPERS has even considered asking its staff members to make private equity investments directly, the Journal added.

CalPERS’ private equity portfolio has returned 12.3 percent annually for the last 20 years, but would have achieved much greater return had it not been for fees.

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

Benefits Canada reports, OMERS enters into infrastructure investment in Chile:

Borealis Infrastructure, the infrastructure investment manager of the Ontario Municipal Employees Retirement System, has signed an agreement to acquire a 34.6 per cent stake in a liquified natural gas company based in Chile.

The remaining stakeholders in GNL Quintero S.A. include Enagás, a large builder and operator of regasification plants and pipeline systems and Empresa Nacional del Petróleo, Chile’s state-owned energy company. As part of the transaction, OMERS has agreed to grant Enagás a 12-month call option for five per cent of its shares.

“Today marks not only our first direct infrastructure investment in Chile, but also signals our entrance into South America,” said Ralph Berg, executive vice-president and global head of infrastructure at OMERS Private Markets.

“GNLQ is a well-managed, world-class asset that aligns closely with our ongoing effort to diversify our global portfolio of core infrastructure holdings — and pay pensions to our members. We look forward to working constructively with our fellow GNLQ shareholders, GNLQ management and all local stakeholders in the years ahead.”

Located northwest of Santiago, Chile, GNLQ is a land-based terminal dedicated to the receiving, unloading, storage and regasification of up to 15 million cubic meters per day of liquefied natural gas. It’s focused on providing clean, efficient and safe energy to markets, which include residential and industrial users, power generators and the transportation sector.

Since it commenced operations, GNLQ has served nine gas-fired power plants, two refineries, 450 industries, more than 700,000 commercial and residential customers and 7,000 commercial vehicles. As well, the terminal has dispatched more than 40,000 liquefied natural gas tanker trucks to serve customers that aren’t connected to the pipeline grid, through satellite regasification units located up to 1,000 kilometres away from the facility.

You can read OMERS’s press release on this deal here, but it basically goes over the same things mentioned above.

Canada’s large pensions have a long love affair with Chile. In fact, it was over ten years ago that a consortium led by Brookfield Asset Management, which included Canada Pension Plan Investment Board (CPPIB), British Columbia Investment Management Corporation (bcIMC) and another institutional investor, entered into a definitive agreement to acquire Transelec, the largest electricity transmission company in Chile, from Hydro-Quebec International Inc. for US$1.55 billion.

Ontario Teachers’ has major stakes in two Chilean water utilities and last year made a $1.35 billion bet on Latin American infrastructure in a partnership with CPPIB and Latin American infrastructure group IDEAL, an infrastructure development and operating company that is among the holdings of Mexican billionaire Carlos Slim.

That toll road deal was CPPIB’s first infrastructure investment in Mexico, but there are others in South America including two in Chile, and a gas pipeline in Peru.

Back in 2012, CPPIB committed $1.14 billion to acquire about half ownership in five major toll roads in Chile, part of its strategy of making long-term investments to support future benefit payments.

In early 2016, Alberta’s AIMCo sold its stake in a Chilean toll highway for about $1.5-billion to its partner. AIMCo bought a 50 per cent interest in Autopista Central de Chile in late 2010 for $878-million and made a great return on it.

So what is it about Chile that attracts so much attention from Canada’s large pensions? For this, let’s examine a recent article by Nathaniel Parish Flannery of Forbes, How Will Chile’s Economy Perform In 2017?:

Since the 1990s Chile has earned a reputation for being the best managed economy in Latin America. Policymakers built up strong institutions, developed new industries and helped foster more than two decades of impressive growth. Although copper mining is still the backbone of Chile’s economy companies such as FirstSolar and SunEdison have invested heavily in the country’s burgeoning solar energy sector.

Still despite its sizable upside, Chile is still defined by extraordinarily high levels of inequality and in recent years has been rocked by a number of massive and sometimes violent protests. Voters have grown disenchanted with current left-of-center president Michelle Bachelet (who also served a previous term as president from 2006 to 2010). Voters will elect Chile’s new president in November 2017. With Bachelet so unpopular right now the election will be worth watching. Voters could choose right-of-center billionaire businessman Sebastian Piñera who served as president from 2010 to 2014 and placed his assets  in a blind trust. (Forbes estimates Piñera’s assets are worth $2.7 billion. He is the wealthiest top-level politician in Latin America.)

With so much unrest bubbling under the surface of Chile’s well-polished veneer of stability and civility, voters could also turn to a candidate who is more independent from the political establishment. Already this year companies such as BHP Billiton have been affected by labor unrest and a longstanding conflict with the country’s Mapuche indigenous group continues to simmer. To get a sense of what people can expect from Chile’s economy in 2017, I reached out to Michael Baney, a Latin America expert and senior analyst at Allan & Associates, a boutique political risk consultancy.

Nathaniel Parish Flannery: What can we expect in terms of GDP growth in Chile this year? Some economists are estimating growth is going to be a bit slower than what we’ve seen over the last few years. Do you seen any causes for concern?

Michael Baney: A few days ago, Chile’s central bank revised its growth projection range down to 1% to 2%, largely based on concerns over the impact of a recent strike at Escondida, the world’s largest copper mine. Chile’s economy is heavily dependent production and export of the red metal: copper and copper products account for just under half of its exports, with China being by far its largest trading partner.

Even if growth in Chile reaches 2% this year, it would still be far more sluggish than what was seen during the height of the global commodities boom. Back in 2004, growth reached 7%, for example, and after it dipped during the financial crisis, it recovered to 5.8% in 2011 and 2012.

Such were the boom days for Chile and much of Latin America, a key source of raw materials. Those days are definitively over, however, and while 2% growth isn’t terrible for a country as wealthy as Chile, it will likely be some time before rates reach their former highs. One bright spot for Chile is that the copper glut appears to be coming to an end, which may attract further mining investment, although part of the reason for the recent increase in copper prices is concerns about labor unrest in Chile itself.

Parish Flannery: Chilean voters are going to head to the ballot box again. What’s at stake in the upcoming election? Do you think we are going to see a surprise ending?

Baney: The past year has been marked by major protests against the administration of President Michelle Bachelet, whose approval ratings have hovered around 25%. Bachelet can’t run again this year, and probably wouldn’t want to even if she could. While the country has yet to hold primary elections, leftist senator Alejandro Guillier and conservative former president Sebastián Piñera are shaping up to be the main two contenders for the presidency. Piñera has led in several polls, but after Brexit, the Colombian peace referendum, and the election of Donald Trump, I think we’ve all learned to be somewhat skeptical of political polling data.

One thing to watch is the congressional elections. Chile used to have a strange electoral system that had the effect of deadlocking the congress between the two main coalitions no matter who won the most votes. A constitutional reform made with the intent of finally completing Chile’s long transition to full democracy abolished that system, however, and this will be the first congressional election run without it.

Interestingly, the election comes at a time when party affiliation is at a low and general disgust with politics is at a high. While we may not see any surprises during this electoral cycle, the reform would make it easier for an anti-system populist from outside the two main coalitions to gain a foothold in congress, much like has been seen elsewhere in the world. It would be ironic if the reform meant to fully democratize Chile helped lead to the rise of a candidate with questionable respect for democratic institutions.

Parish Flannery: As we look ahead in 2017 are there any particular political risk flash-points that you think merit attention?

Baney: The past month has seen a major escalation of the conflict between the state and radical Mapuche groups. The Mapuche are an indigenous group in who live in the heart of southern Chile’s timber region, and some Mapuche organizations have hijacked logging trucks, burned millions of dollars’ worth of equipment and structures, and threatened to attack hydroelectric dams. A few weeks ago, one Mapuche group destroyed 19 parked trucks, a warehouse, and several pieces of industrial equipment owned by a logistics company in what was the most significant such attack the country has seen in decades. Chile has a reputation for being among the safest and most stable countries in Latin America, but it is far from being without risks.

Chile does have a great reputation but this article highlights the main risks of investing in infrastructure in Latin America or elsewhere, namely, political and regulatory risks.

We all remember the boom-bust story of Brazil. In 2013, I asked whether Eike Batista burned Ontario Teachers’ and a year later, I covered CPPIB’s risky bet on Brazil. Whether it’s Brazil, Mexico, Columbia, Chile, Peru or Argentina, investing in Latin America is risky business. You absolutely need the right partners to deal with thorny political and regulatory risks.

But there’s no denying that things are changing for the better in Latin America where growth projections and inflation expectations are relatively high compared to the G7 developed economies.

Still, there is cause for concern. Emerging markets in Latin America are inextricably linked to China and there are economic and demographic factors that can hamper future growth. In his new book, behind Upside: Profiting From the Profound Demographic Shifts Ahead, demographer Kenneth W. Gronbach outlines some of his concerns:

Gronbach also looks at trends shaping the rest of the planet. He offers a fascinating analysis on China, including the problem of a profound gender imbalance with far more men than women. He expresses concern over the impact of aging rates in Latin America. Access to information is a global shift —in the era of Big Data, we have more power than ever to read the numbers as we chart our future course. Gronbach is a well qualified, highly engaging guide.

I’ve covered Chile’s Pension Crunch when I went over the global pension crunch last year. These are serious structural issues that Chile and others need to address or else they will impact long-term growth.

What else concerns me? Samuel Gregg of the American Spectator reports the model in Chile is under siege:

Whenever anyone thinks of economic success stories, Latin America doesn’t exactly leap to mind. For the most part, modern Latin American economies have been characterized by corruption, cronyism, statism, populism, boom-bust cycles, failed reform efforts, and colossal meltdowns. There is, however, one major exception to that rule — Chile.

Beginning with General Pinochet’s military regime in 1973 and continuing after the 1990 transition to democracy, Chile’s economy underwent significant liberalization. Today, Chile is officially classified as a developed country. And the benefits have encompassed the less well-off. As the World Bank stated in 2016:

The percentage of the population considered poor (those who live on US$ 2.5 per day) declined from 7.7 percent in 2003 to 2.0 percent in 2014, and moderate poverty (US$ 4 per day) fell from 20.6 percent to 6.8 percent during the same period. Moreover, between 2003 and 2014, the average income of the poorest 40 percent of the population increased by 4.9 percent, a figure considerably above the average income growth of the population as a whole (3.3 percent).

Some nations would kill for these numbers. They are primarily the result of Chile embracing free trade, labor market deregulation, anti-inflationary policies, large-scale privatizations, and strong private property protections.

Undergirding this has been the long-term commitment by intellectuals, such as those associated with the think-tank Libertad y Desarrollo, to making tough-minded and in-depth arguments for market economies and their institutional prerequisites such as rule of law. Above all, many Chileans decided decades ago to stop blaming “the North” and mysterious “interests” “out there” for the country’s problems.

All these hard-won achievements, however, are now under threat. Since 2014, President Michelle Bachelet’s center-left administration has sought to undermine what Chileans call “the model.”

In the name of equality (by which they mean the equalization of starting points and results), Bachelet’s government is trying to turn Chile into a European social democracy. The fact that social democracies are faltering everywhere in Western Europe isn’t, apparently, a relevant consideration.

As I learned during a recent visit to Chile, the word used to describe this dismantling project is retroexcavadora (literally, “backhoe”). It was first used by a left-wing senator, Jaime Quintana, in March 2014 to explain how the government would root out the Chilean model’s political and economic foundations.

In 2016, for example, Chile’s labor market laws were changed to make it harder for businesses to let employees go. The same legislation forbids companies from extending benefits to workers who don’t belong to unions. It also privileges unions as the main bargaining unit, regardless of whether individual workers actually want to belong to them. So much for the right of free association. Instead, it’s back to the redundant “capital-and-labor” logic of the 19th century.

Chile’s educational institutions are also under assault. This involves a concerted drive by Bachelet’s government to undercut a largely user-pays, demand-driven higher education system. The goal is to extend “free” higher education to ever-increasing numbers of students. How this “free” learning will be paid for is, at best, unclear.

Accompanying this measure are efforts to diminish parental choice, private schools, and Chile’s voucher system. Vouchers, it appears, have produced good outcomes for Chilean students across socioeconomic levels. They have also boosted private school attendance. By 2011, about 40 percent of Chilean students from the lower income bracket went to private schools.

Again, however, what matters to the Chilean left is the ideological priority of equalization and its distrust of non-public institutions. Free choice is out. Leveling down is in.

The Bachelet government’s number-one target, however, is Chile’s constitution. First approved via referendum in 1980 and considerably modified through referenda and legislation since then, the Chilean left has never accepted its legitimacy. That’s partly because the constitution was implemented under Pinochet. But it’s also because Chile’s constitution limits state power in ways which are anathema to the left.

Their long-term goal is a new constitution: one that waters-down the present constitution’s strong guarantees of private property and the commitment to the Catholic principle of subsidiarity, which pervades the text. Subsidiarity’s decentralizing implications are especially important, because they ensure that Chile’s constitution attaches a higher premium to limited government than your average Latin American country.

There’s considerable evidence that Bachelet’s government is trying to rig the consultative process for the drafting of a new constitution. Moreover, based upon what Bachelet ministers have said, their preferred arrangements would take Chile closer to the constitutions adopted by left-populist governments in countries like Ecuador and Bolivia in recent years. A quick glance at these documents soon indicates that they are the polar opposite of Chile’s present constitutional provisions — not least because they amount to institutionalized populism.

Retroexcavadora, however, is now encountering problems. Just five minutes of conversation with Chilean parents soon reveals just how they resent the government’s willingness to sacrifice educational choice and quality of education to the god of equality. Angry parents means angry — and motivated — voters.

Another difficulty is that President Bachelet herself is caught up in a series of corruption scandals involving family members. Although Bachelet was once very popular, her approval ratings presently linger in the mid-20 percentiles.

Nor is a perceptible decline in economic conditions helping Bachelet’s government. Chile’s unemployment rate, for instance, is now 6.4 percent. That’s up from 5.8 percent a year ago. In 2016, the Chilean economy expanded at the anemic European-like growth-rate of 1.6 percent, down from 2.3 percent in 2015. This year’s growth projections aren’t that great either.

The question of whether retroexcavadora succeeds, however, ultimately depends on presidential and legislative elections due at the end of 2017. The constitution bars Bachelet from seeking another consecutive term. But it does allow her predecessor, the conservative pro-market Sebastian Pinera, to run. And running he is.

It’s too early to predict the likely outcome. Yet one thing is certain. If Chilean voters decide they want to maintain the model, Chile will continue to show that Latin America nations aren’t doomed to become Argentina, let alone left-populist disasters like Venezuela. On the other hand, if Chileans effectively endorse retroexcavadora, Latin America risks losing the example that shows the entire continent the politics and rhetoric of envy need not be its future.

For 647 million Latin Americans, the stakes couldn’t be higher.

As you can read, the stakes are high for this year’s elections in Chile, and you can be sure Canada’s large pensions will be following political developments there very closely.

However, as I keep stressing on this blog, Canada’s large pensions have a very long investment horizon, if they’re making long-term infrastructure investments in Chile, Mexico and elsewhere in Latin America, it’s because they believe they can manage the political, regulatory and currency risks and come out ahead as these investments will offer them stable returns over the long run.

I’ll put it to you this way, Canada’s large pensions aren’t buying infrastructure stakes in airports, ports, toll roads or natural gas, electric transmission utilities to flip them a year later. Sure, if some entity offers them an attractive price, they will sell these assets on occasion, but they typically want to keep them on their books for a long time because it’s part of their strategy to meet long-dated liabilities with as much certainty as possible.

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

Jann Lee of Benefits Canada reports, OPTrust shines spotlight on DB model with new campaign:

The OPSEU Pension Trust has launched People for Pensions, an online campaign encouraging its plan members to become informed about defined benefit pension plans and how they support the economy.

People have shifted from having a mindset of pension envy to one where they yearn for financial security but don’t necessarily see the value of a defined benefit plan, says Hugh O’Reilly, president and chief executive officer at OPTrust. He notes the campaign is a chance for plan members to not only educate themselves about defined benefit plans but also share knowledge with colleagues, friends and family.

While most plan members value their plan, there’s still those who don’t understand the multiple benefits a defined benefit model brings and how it compares to other retirement savings vehicles, such as registered retirement savings plans and defined contribution plans, notes O’Reilly.

According to the People for Pensions website, OPTrust will communicate with members through the website, an email newsletter and social media channels, such as Facebook and Twitter. The campaign is also led by a representative from OPTrust who will make several workplace presentations across the province.

While the campaign isn’t necessarily targeted to younger employees, it’s designed to be modern and accessible, says O’Reilly. “It’s an opportunity to educated anyone who’s interested [in the issue]. Our whole organization is member-driven and they believe others should have what they have, a defined benefit plan.”

OPTrust put out a press release on its new “People for Pensions” program:

OPTrust launched the People for Pensions program last week to raise awareness about the overall value of defined benefit (DB) pension plans. Research has shown OPTrust members and retirees place a high value on their pensions and would like to know more about all the benefits of their pension plan.

The People for Pensions program shares information with members and encourages them to share it with their peers, friends and families. This information highlights the benefits of a defined benefit plan versus other kinds of retirement savings vehicles and how the defined benefit model supports the economy. In just three days, the community signed up more than 200 new members.

Members of a defined benefit pension plan can rely on a stable amount of pension income in retirement because payments are based on a formula using years of service, and are paid for life. Unlike retirement savings in a Defined Contribution plan that are directly impacted by ups and downs in the stock market, DB plans use a set formula to calculate pensions. DB plans make investment decisions over a long-term horizon and are structured to weather market volatility.

Any active member of the OPSEU Pension Plan can be a People for Pensions member. Retirees who are drawing a pension from the OPSEU plan and members who are entitled to a future pension can also become a member of the program. Interested people can sign up at www.peopleforpensions.com or call the community lead at 1-800-906-7738 ext 3052.

OPTrust will send information about the defined benefit pension model which program members can, in turn, discuss with their co-workers and others as they see fit. Some people may want to use the information in casual conversations while others may choose to share the information through their own social media channels.

“In addition to providing great service to our members, we are creating conversations that are intended to lead to better retirement incomes for all. Workplace pensions are an integral part of the retirement landscape in Canada but they must be nurtured and sustained,” said Hugh O’Reilly, President and CEO of OPTrust. “This is part of our work of being a Pension Citizen.”

About OPTrust

With net assets of $19 billion, OPTrust invests and manages one of Canada’s largest pension funds and administers the OPSEU Pension Plan, a defined benefit plan with almost 90,000 members and retirees. OPTrust was established to give plan members and the Government of Ontario an equal voice in the administration of the Plan and the investment of its assets through joint trusteeship. OPTrust is governed by a 10-member Board of Trustees, five of whom are appointed by OPSEU and five by the Government of Ontario.

It’s funny, this morning I was thinking how nice it would be to create an App on pensions so people can truly understand the differences between investing in a defined-contribution plan as opposed to a defined-benefit plan.

Part of good governance on pensions — and I know all about this topic, perhaps more than I’d like to know — is communication. It’s the responsibility of the board of directors and senior management to communicate effectively and on a regular basis the activities at their pension.

Here, OPTrust is taking it a step further, openly encouraging its members to educate themselves on the benefits of well-governed defined-benefit plans and to share information with other members.

Let’s face it, most members of any pension plan don’t really have a clue of what’s going on at their pension. They typically only inform themselves when something is drastically wrong, placing their pension benefits at risk.

I always tell my readers to think about pensions this way: pensions are all about managing assets and liabilities. You first need to understand the liabilities and the factors that impact them and then figure out a long-term strategy to meet these long-dated liabilities with as much certainty as possible.

Hugh O’Reilly, President and CEO of OPTrust, knows all this. He penned an op-ed comment with Jim Keohane, President and CEO of HOOPP, Looking for a better measure of a pension fund’s success, underscoring the need to place a pension’s funded status front and center when looking at its success.

This is why OPTrust is changing the conversation, focusing more on its funded status when delivering its annual results. Others like HOOPP, Ontario Teachers’ and OMERS are also emphasizing their funded status when discussing their annual results.

It’s important to remember that HOOPP, OMERS, OTPP and OPTrust are all pension plans which manage assets and liabilities. HOOPP and OTPP have adopted a shared-risk model which effectively means when their plan runs into a deficit, the risk is equally shared among the plan’s sponsor and its members. In the past, when OTPP and HOOPP were underfunded, they raised contributions or cut benefits (typically cut full inflation protection to offer partial indexation until their plan was fully funded again).

OPTrust and OMERS guarantee full indexation, which places an added burden on them to achieve fully funded status when their respective plan experiences a shortfall. They can raise contributions on active members but they try to avoid this as much as possible to maintain inter-generational equity.

In others words, there is no shared-risk model at OPTrust and OMERS, much to their detriment even if their retired members are happy knowing they don’t need to share the burden if their plan experiences a deficit.

What about AIMCo, bcIMC, CPPIB, PSP and the Caisse? They are large pension funds managing the assets of their plan members taking into consideration their liabilities which are determined by the plan’s actuaries. In other words, liabilities figure into their investment decisions but they manage assets only, not the liabilities.

It’s a bit confusing but one thing Canada’s large defined-benefit pensions all have in common is great governance separating government from their investment decisions allowing them to attract and retain very talented staff across public and private markets which in turn allows them to invest more of the assets directly, lowering overall cost of operations.

What else do Canada’s large, well-governed DB pensions have in common? They all believe in the benefits of DB pensions and are particularly aware of the brutal truth on DC plans.

I would go a step further. In my last comment I touched upon America’s growing retirement angst and someone sent me another great comment on financial insecurity gripping the nation.

Clearly the private sector solution is leaving far too many people behind. It’s not just that people are failing to save for retirement, the actual structure of their retirement leaves them far too vulnerable to the vagaries of markets.

Again, very briefly, the benefits of large public defined-benefit plans which are all ideally backed up by the full faith and credit of the federal government are:

1. Companies can focus on their core business, not pensions.
2. Pensions will be portable no matter where you work (private and public sector)
3. DB pensions pool investment and longevity risk so members are not impacted by a bad bear market and will never outlive their savings
4. Ability to invest directly in public and private markets, not only lowering costs, but also taking advantage of a pension’s long investment horizon.
5. Ability to invest with the very best managers across public and private markets all over the world.
6. Members can be assured they will get their pension promise fulfilled and plan their retirement with the peace of mind of knowing they won’t succumb to pension poverty.
7. The direct and indirect benefits to the overall economy from these large DB pensions cannot be overlooked. They create good paying jobs and by fulfilling their plan’s mission, their members can spend accordingly during retirement, allowing governments to collect more income and sales taxes. In other words, good pension policy that bolsters DB plans makes good economic policy because it lowers social welfare costs, increases aggregate demand and government revenues.

All this to say I wish OPTrust lots of success with their new “People for Pensions” program and hope others follow suit. Get the word out, educate people on the benefits of DB pensions (one lonely blogger can’t do it all by himself).

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

The annual cost of state worker pensions would increase to $6 billion in July in a recommendation from CalPERS actuaries, up $521 million from the current fiscal year and double the amount paid a decade ago.

School districts would pay $2 billion next year for the pensions of non-teaching employees, up $342 million from the current fiscal year and also double the amount paid a decade ago.

California Public Employees Retirement System rates, already at an all-time high, will continue to climb for at least another half dozen years as the last of four rate increses enacted since 2012 are phased in.

The nation’s largest public pension system is in a bind.

As rates go up, the investment earnings expected to pay nearly two-thirds of future pension costs are expected to go down. In February, CalPERS lowered its long-term annual earnings forecast from 7.5 to 7 percent.

The CalPERS investment fund was valued at $315.5 billion Monday. But like many pension systems, CalPERS has not recovered from huge investment losses during the financial crisis, when its fund plunged from $260 billion in 2007 to $160 billion in March 2009.

State worker pension funds had an average of 65 percent of the projected funds needed to pay future pensions last June, according to the new actuarial valuation expected to be approved by the CalPERS board next week.

The California Highway Patrol was the most troubled of the six state worker funds in the report, only 58.5 percent funded. Experts have told CalPERS that falling below 50 percent makes recovery very difficult, if not impractical.

A generous “3 at 50” pension formula negotiated by the Highway Patrol union and approved in landmark CalPERS-sponsored legislation, SB 400 in 1999, provides 3 percent of final pay for each year served at age 50, capped at 90 percent of pay.

The “3 at 50” formula was widely adopted by local police and firefighters. Critics say the high cost of pensions for crucial safety workers, who are a large part of local government budgets, is one of the reasons retirement costs are crowding out funding for basic services.

In 2007 the rate paid by the state for Highway Patrol pensions was 32.2 percent of pay. The Highway Patrol rate recommended for the new fiscal year beginning in July is 54.1 percent of pay. By 2023 the Highway Patrol rate is projected to be 69 percent of pay.

The miscellaneous rate for most state workers in 2007 was 16.6 percent of pay. The recommended miscellaneous rate for next fiscal year is 28.4 percent of pay, projected to increase to 38.4 percent of pay in 2023.

Highway Patrol members contribute 11.5 percent of pay to their pensions and do not receive Social Security. Miscellaneous members, who do receive Social Security in addition to their pensions, contribute 6 to 11 percent of pay, many of them at 8 percent.

A cost-cutting pension reform requires state workers hired after Jan. 1, 2013, to work two years longer to receive the same pension benefit as previously hired workers. Due to their union clout or other factors, state workers are exempt from a reform cost-sharing requirement.

The reform requires new hires in CSU, the California State Teachers Retirement System, 21 independent county systems, and CalPERS school plans to pay half the “normal” cost of their pensions, excluding the now large debt or “unfunded liability” from previous years.

As new hires fill positions, the reform is expected to curb growing pension costs, but significant results are likely years away (see Los Angeles Times/CalMatters analysis). Meanwhile, CalPERS state rates will continue to climb.

In 2007 the state paid CalPERS $2.7 billion, less than half the $6 billion recommended for the new fiscal year. School districts and other education employers paid CalPERS $920 million in 2007, less than half the $2 billion recommended for the new year.

School districts pay a higher rate for non-teaching employees in CalPERS than for teachers in CalSTRS. And unlike teachers, non-teaching school employees receive Social Security in addition to their pensions.

The CalPERS rate recommended for non-teaching school employees next fiscal year is 15.5 percent of pay. Last week the CalSTRS board approved a rate of 14.4 percent of pay for teachers in the new fiscal year.

Under a funding plan enacted by legislation three years ago, the CalSTRS rate for teachers will reach 19.1 percent of pay in 2020. The CalPERS non-teaching rate is projected to be 23.8 percent of pay in 2020 and 27.3 percent in 2023.

The pension rate hikes will take a big bite out of school district budgets. In 2013 the combined rate was 19.65 percent of pay (CalPERS 11.4, CalSTRS 8.25). In 2020 the combined rate is expected to be 42.9 percent of pay.

Teachers pay more toward their pensions than non-teaching school employees. Teachers hired before the reform contribute 10.25 percent of their pay to CalSTRS. Non-teaching school employees hired before the reform contribute 7 percent to CalPERS.

The CalPERS rate for new non-teaching school employees hired after the 2013 reform is recommended to increase to 6.5 percent of pay in the new fiscal year, up from 6 percent. The CalSTRS rate for new teachers, 9.2 percent of pay, is not expected to increase until 2018.

CalPERS rate increases began in 2012 when the earnings forecast used to discount future pension costs was dropped from 7.75 percent to 7.5 percent. An actuarial method that no longer annually refinances debt was adopted in 2013.

A rate increase for a longer retiree life expectancy adopted in 2014 is still being phased in. One of the reasons listed for the CalPERS school rate increase next fiscal year is “the second year of a 5-year phase in of 2014 change in assumptions.”

And one of the reasons for the CalPERS state worker rate increase is the first year of a three-year phase in of lowering the discount rate from 7.5 to 7 percent. The discount rate next fiscal year is 7.375 percent.

Yet another complication is a five-year phase in of the rate increase resulting from the lower discount rate. As a result, the new actuarial report can project annual rates through 2023.

New actuarial valuations recommending rate increases for the pension plans of 1,581 local governments are expected this fall. The cities, counties and special districts in CalPERS have a wide range of funding levels.

This week Marc Joffe of the California Policy Center issued an updated report saying local governments will pay about $5.3 billion to CalPERS in the new fiscal year. He projects the payments to CalPERS will rise to $9.8 billion in fiscal 2022-23, an increase of 84 percent.

“In Fiscal Year 2015-16, at least 26 California cities and counties devoted over 10 percent of their total revenue to pension contributions,” said Joffe’s report.

“San Rafael, San Jose and Santa Barbara County shouldered the highest pension burdens — exceeding 13 percent of revenue. Major local governments that have recently surpassed the 10 percent pension contribution of total revenue threshold include Contra Costa County, Berkeley and Newport Beach.”

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

Last week, John Mauldin published an important comment, Angst in America, Part 3: Retiring Broke:

Today we continue looking at angst in America, the financial worries that so afflict us here in the world’s largest economy and by extension in much of the developed world. We may be the envy of the world in some ways, but we also have no shortage of stress. Today we’ll look at some data on retirement savings – or lack thereof.

Let’s start by backing up a little bit. I’m not the only one talking about financial anxiety. Last week I ran across a survey from NerdWallet on this very issue. They engaged the Harris Poll to ask 2,000 Americans of all ages about their biggest financial concerns. Here’s a chart showing the top worries (click on image).

The biggest worries are healthcare expenses, lack of emergency savings, and lack of retirement savings. Yet only 28% worry they lack retirement savings? Compare this with what we know about people’s actual savings, and that number is far too low.

We can see in another recent survey by GOBankingRates.com that more people should be worried about their retirement (click on image).

Here we see that 33% of Americans have no retirement savings at all; another 23% have less than $10,000; and a further 10% have less than $50,000. So that’s 66%, a full two-thirds of Americans, with either no savings at all or not enough to generate significant income. (If you have $50,000 and can pull out 4% a year without drawing down principal – which is hard to do – you’ll get something like $160 a month.)

The NerdWallet survey also shows that 13% have accumulated $300,000 or more in retirement savings. I am skeptical of that number, too, unless it includes the cash value of defined-benefit plans held by government employees. And for them that value is mostly an illusion; for many of them, their plans can’t possibly deliver anything near what the workers were promised. But that’s another subject.

How much do we Americans really have saved? A Motley Fool article last year, citing data from the Employee Benefit Research Institute, looked at actual Individual Retirement Account balances. As of year-end 2013, 20.6 million individuals held a total $2.46 trillion in IRA accounts. Some of those unique individuals are each other’s spouses, so the number of family units would be lower.

Do the math and we find that the average IRA holder’s balance was around $120,000 as of three years ago. But remember, the average IRA holder is not the average American. If only 20.6 million of us have IRAs, then over 300 million of us don’t have them. Some no doubt have other retirement vehicles, like 401(k)s. But this still suggests that a large plurality of Americans, and maybe a majority, have little or nothing saved for retirement. This shortfall is a problem, and not just for them.

Social Insecurity

It’s easy for those of us in the Protected Class to think the masses will be fine. They at least get Social Security and Medicare, enough to keep them out of poverty, right?

No, not right. We know this straight from the horse’s mouth, too. The Social Security Administration publishes a very handy annual “Fact Sheet.” As is the case with most bureaucracies, the SSA’s goal is partly to demonstrate how indispensable they are, but in the process they tell us a few things that should make us uncomfortable.

In 2017, the average monthly retiree benefit is $1,360. Multiply that by 12 months and divide by 52 40-hour weeks, and living off Social Security is equivalent to being a full-time worker who earns $7.85 an hour (and remember, this is the average; many people receive less). Social Security benefits are worth a little more than the same amount in wages, net of taxes, but they still aren’t much. Guesstimating the tax differential suggests an equivalent hourly wage of about $8.50 an hour.

Social Security’s fact sheet also says benefits represent about 34% of the elderly population’s income – but that number is heavily skewed in favor of the wealthy. Among retirees, 21% of married couples and 43% of unmarried persons rely on Social Security for 90% or more of their income.

Currently, 41.2 million retired workers and 3 million dependents receive Social Security benefits. So that means 15 million or more retirees must be living on an income that’s meager by any definition.

But at least they don’t have to worry about medical bills, you say; Medicare covers them all. Well, yes, it does cover them, but that’s not the same as covering their expenses. Copays and deductibles add up quickly unless you have supplemental insurance, which itself is expensive. Medicare recipients are responsible for 20% of hospital bills, and for these people even a short stay can wipe out months of income.

Forty-one percent of Americans have no savings at all. An article in Forbes cites data that shows that just 37% of Americans have savings to cover an emergency that costs over $500. And understand, that is not just medical emergencies. What happens when your car breaks down? You have to get it fixed because you have to get to work. Having extensive experience with my seven children (and now seven grandchildren!), I can tell you that emergency expenditures seem to be the norm, not the exception (at least in the Mauldin household). Now the kids are adults and trying to make it on their own, but there are still times when The Bank of Dad has to help out in emergencies.

The Social Security fact sheet has some other chilling numbers. It says 51% of the private workforce has no private pension coverage. Those are presumably people who work in small businesses or are self-employed or “gig” workers. Confirming NerdWallet’s figure, Social Security says 31% of workers report they and/or their spouses have no savings set aside specifically for retirement. Depending on the survey, another 10% have less than $10,000. It wouldn’t take very long to run through someone’s entire savings, given a significant hospital stay or illness.

Is Social Security sustainable? To listen to politicians, Social Security obligations will always be met. Then again, looking at the mathematics, at least for those just now approaching retirement age or younger cohorts, the reality may be different. By 2035, the number of Americans 65 and older will climb from about 48 million today to over 79 million. That’s the Baby Boomer impact. Currently there are 2.8 active workers for each Social Security beneficiary. It will be only 2.2 workers per beneficiary by 2035.

And just to throw a little more fuel onto your worry fire, that figure of 2.2 workers per beneficiary assumes that labor force participation rates between now and 2035 will be stable or improved from where we are today. But the chart from Larry Summers last week showed that there are now 10 million men in America between 24 and 54 who are not in the labor force. That number could rise to as high as 20% of the labor force by 2035. Take out another 10% of the labor force, and now there are fewer than 2 workers per Social Security beneficiary. That means each and every worker, from the lowest paid to the highest, must pick up the tab for roughly $7,000 per year of Social Security expenses through their contributions and taxes – before they start to pay for any other government services like healthcare or defense (not to mention interest on the national debt). John Lennon’s song lyric comes to mind: “You say you want a revolution?”

A few more uncomfortable statistics from the SSA:

Only 39% of Boomers have tried to figure out how much they need to have saved for retirement. Of those that have, a third did not include healthcare costs in their calculations. On average, Boomers estimate that healthcare will consume 23% of their income in retirement, compared to the 33% of income that those over 60 actually spend today. Fifty-nine percent of retirees expect Social Security be their major source of income, up from 42% five years ago. Divorce is becoming a major factor in retirement: 24% of divorced Boomers expect to be worse off in retirement than if they had not divorced. Roughly 16% of Americans are taking premature withdrawals from their retirement accounts, while 30% of Boomers have stopped contributing to their accounts.

A 2016 report from the Insured Retirement Institute is likewise sobering:

The real surprise is in Boomers’ expectations for the lifestyles they will lead in retirement. Despite being under-saved and largely lacking sources of lifetime income beyond Social Security, six in 10 Boomers believe their retirement income will cover basic expenses and a limited (38 percent) or extensive (22 percent) budget for leisure activities. Only 11 percent essentially expect a subsistence lifestyle, paying for basic needs and little else, while 19 percent worry they will not have enough money to meet even basic expenses for food, housing, and health care. For these Boomers, a long-term care event would be devastating and almost certainly require state care.  (IRI: “Boomer Expectations for Retirement 2016”)

Simply put, most Baby Boomers will be down to subsistence living by the time they are 80, living on Social Security and other government benefits, with help from any capable children (click on image).

The following graph puts the stark reality of Boomer retirement in perspective. There is a massive gap between what people expect to have during retirement and what they will actually have and be able to spend (click on image).

The surprising thing, at least to me, is that there isn’t more angst in America than what we currently see.

Why We Can’t Save

The basic facts that we just reviewed aren’t complicated, or even much disputed. Up until age 30 or so, it’s easy to think you will be young forever. Then reality sets in, and you know it’s time to grow up. Or at least that’s how it was for me – the line seems to be creeping higher.

Why, then, do so few people save anything for retirement? Can people really be that oblivious? Depressingly to some of us, the answer is yes. We all have many different needs competing for our attention. We have to prioritize, and long-term needs often get lower priority than whatever need is pressing in the here and now.

I recall a very depressing conversation I had with my fishing guide last year in Maine. He had had a job in one of the paper mills, but it had closed down. He had about $150,000 in his 401(k). He was taking out about $10,000 a year (and paying the penalty) just to survive. There were no other jobs in the area, other than what he could make from his work as a guide and from other part-time gigs, jobs all of his friends were competing for. I pointed out to him that by the time he was physically going to need to retire (as the work he was doing was pretty strenuous), if he kept hitting his 401(k), there would be nothing left. It was a very sobering conversation. Basically, he didn’t know what to do. Reality was that the expenses he faced simply to maintain his home and minimal lifestyle forced him to go to his savings.

Paraphrasing Spock, the needs of the present outweigh the needs of the future.

It’s also the case that stifling the temptation to indulge in short-term pleasures is an acquired skill. It doesn’t happen automatically. I think that skill comes mostly from seeing your own parents exercise fiscal discipline while you’re a child. Boomers who grew up in times of relative prosperity may not have felt the need to be frugal and may find it hard to do so.

Still, I think most adults know on some level that retirement won’t take care of itself. They know they should be saving; they know what will happen if they don’t; and yet many still don’t do it – or can’t. That’s why, to varying degrees, surveys show that people are worried about retirement. You don’t worry about something unless you know it is both important and problematic.

Is our national behavior really a surprise? Look at our diet and health indicators. As a nation, we eat too much and indulge in all kinds of unhealthy habits. If we can’t even take care of our bodies, then it figures that we’re not very good at financial planning, either. You’re probably an exception to that rule if you are reading this article, but the data shows that people like you are not the norm.

Having said all this, it is not necessarily true that financially unprepared people don’t want to prepare. As I said above, we all have priorities. Median household income in the US is less than $60,000. That’s not much for a young parent faced with expensive housing, food, medical expenses, childcare, transportation, and all the rest, not to mention taxes. The average family making $60,000 pays about $7000 in taxes to the federal government and more, perhaps a lot more, depending on the state they live in. And it’s not just taxes; there are fees for everything – drivers licenses, car tags, deposits for utilities, and so on. Not to mention the occasional ticket from the police for some infraction. To the extent that people save at all, it will be for their children’s college fund rather than their own retirement.

There’s a stereotype, not entirely imaginary, that some Americans have plenty of money but just choose to spend it frivolously. Such people do exist, and of course they’re responsible for their own decisions. But let’s not forget that we live in a consumerist culture filled with seductive marketers telling us to buy unnecessary things. Often, they succeed. You have every intention of saving some money at the end of the month, but something comes along that grabs your attention, and you absolutely must have it. Oh well, you can save a little more next month.

Note also: The fact that a person has little or no retirement savings now doesn’t mean the person never had any. People lose jobs. Bear markets happen. In both cases, whatever retirement savings you have will either lose value or go toward your here-and-now living expenses. Faced with foreclosure or other hardships, people will swallow hard and pay the tax penalty to get the cash. (See the story of my fishing guide above.)

Speaking at conferences and reading your feedback, I’ve noticed a little subculture emerging in the last decade. It’s composed of people who, ahead of the 2008 crisis, saved their money, invested properly, and generally made all the right moves. I mean intelligent, educated, well-paid people. Then the financial crisis hit, and their retirement savings went up in flames. Having lost half of their assets, many sold to preserve what they could – just in time to miss the recovery.

Did they make a mistake? Yes, obviously. Was it because they were dumb, selfish, or short-sighted? No, it was because they were human. The moves they made might have been right in other circumstances. Yet they ended up back at square one, having lost decades of hard work and financial progress, while the clock kept ticking. On paper, their situations look much like those of people of the same age who never saved anything, but they aren’t the same at all. I try to remember this before I assume things about people.

Hitting the Wall

Whatever the circumstances, millions of Americans are growing older and headed straight toward an unforgiving brick wall. They will reach their mid-sixties and find there is no pot of gold under the retirement rainbow. Social Security plus their own savings, if they have any, won’t be enough to finance the kind of leisurely golden years they saw their parents and grandparents enjoy.

In historical context, this reality shouldn’t surprise any of us. The idea of capping off your life with a decade or two of carefree living didn’t exist before the 20th century, unless you were of royal lineage. Everyone else worked as long as they were physically able and died soon after they weren’t. That’s what was normal for most of human history, and it still is in places we rarely see on TV.

If you aren’t worried about financing your retirement, you’re either very wealthy or very oblivious. You’re not oblivious if you’re one of my readers. So to the wealthy ones, congratulations. To everyone else… join the club. I know it may feel like you’re the only one worried about retiring, since you don’t get to look at your neighbor’s balance sheet, but you’re hardly alone.

Can you do anything about your situation? Maybe. Find ways to save a little money here and there, and it will add up. Having a small nest egg is better than having none at all. At some point, you will be glad you have it.

I’ve written before about the growing number of retirees who keep working right past 65 and even into their 70s. Twenty-five percent of Baby Boomers expect to work to at least 70 and beyond. If you ask them why, the answer is often that they enjoy their work and don’t want to stop. I’m sure that’s true for many. But I’d also bet many keep working out of necessity, no matter what they tell pollsters and friends.

I don’t see anything wrong with this. I will be 68 later this year, and I’m still working as hard as I ever did, maybe more so if you count the total hours. Then again, I’m fortunate to have work that I enjoy and that is not too physically strenuous (except for the travel, which is starting to be more of a challenge). I tend to spend my “leisure time” reading and researching rather than watching TV. Those factors, along with a pretty good diet and exercise program, augmented by some medical anti-aging breakthroughs that I think are coming quite soon, should hopefully enable me to stay productive for many more years. That’s a good thing (true confession here), because the lifestyle I currently enjoy would not be possible in a traditional retirement situation. I would certainly not be destitute, and no one would feel sorry for me, but I am about as happy as I’ve ever been with my current situation.

Action over Angst

Let’s be more specific. Say you’re 60 now and woefully unprepared to retire in five years. You lost your savings or never had any. What do you do? “Give up” is not the answer. It is entirely possible, even likely, that you’ll be physically able to work for another 20 years. That’s an entire career in and of itself. It doesn’t have to be decades of drudgery, if – here’s the key – you plan ahead.

Financial planning works best when you have a lot of lead time. Compound interest takes years to do its magic. Career planning is different. It works best when you can act immediately. Take a deliberate approach and you won’t have to settle for a low-paid service job. So, if you’re behind the retirement curve, here’s what to do.

• Figure out what kind of work fits your aptitudes and circumstances. It may be different from your previous career. That’s OK.
• Acquire any necessary education or credentials.
• Build experience and contacts in your chosen field before you actually enter it.
• Push the start button.

The people I know who have taken this approach all describe the same experience. Step 1 is a kind of attitude adjustment, at first painful but then exhilarating. Something clicks, and they suddenly have more “life” ahead of them. They stop thinking about the leisurely rounds of golf and vacations they will miss and instead look forward to their new “encore” career.

Of course, sooner or later you will still reach a point where your health makes work too difficult. But then again, maybe the medical miracles I see coming down the path in the near future will extend your work span along with your lifespan and health span. Work, if it’s something you enjoy, is not a burden; it’s a blessing.

Whatever you’ve done all your life, you have valuable experience and knowledge. You can apply it to a new career, build savings, and avoid boredom all at the same time. Action is the answer to angst.

A Few Final Thoughts

The reality is, my simple solution won’t work for most people. Given the data we have looked at, is it any wonder that more and more Americans are increasingly anxious? Especially Baby Boomers? They want change because they feel (correctly) that the country is headed in the wrong direction; and when someone says here’s an easy solution and blames all the problems on some other group or factor (whether it’s the rich or illegal immigrants or trade or bureaucracy or – pick a scapegoat), they are speaking directly to the anxieties people feel, and that message drives polls and elections.

Some see Trump as the culmination of this expression of anxiety. I think that’s a simplistic and wrong explanation. Trump is not the culmination; he is the harbinger of a coming age of increasing anxiety in response to an even more volatile economic, social, and political climate. We are one global recession away from being in the situation that Greece found itself five years ago: They were left with nothing but bad choices. If you think the stress level in America is high, visit Greece. Or any country in Southern Europe, for that matter.

When the average American or European or even Chinese thinks about retirement, there is angst, and the level of angst is increasing. Even though I can cite reams of data showing how the world is a better place to live than it was 100 or 50 or 20 or even 10 years ago, it’s your own personal situation that you are faced with. You don’t get to live the “average,” it’s-getting-better-for-everyone experience. And growing angst is driving political polarization in countries all around the world.

Republicans fantasize that we can go back to the ’80s and President Reagan and implement the same policies he did and get the same results. Democrats fantasize that if we could just tax the rich more, things would all work out. And I use the word fantasize because unrealistic fantasies riddle thinking on both sides. Reagan had a massive demographic wind at his back; and yes, the policies he chose to put in place were the right ones at the right time, but we are no longer living with those demographics or that debt situation. And taxing the “rich” in order to spend even more will only slow down growth and opportunity for ordinary people on the street.

The real solutions are going to require massive compromise on the part of both major parties in this country – which doesn’t seem to be in the cards. Which means we are going to keep bumbling down the same path until we find ourselves up to our eyeballs in a crisis, with no good choices.

Gentle reader, if you have been reading me over the years, you may have come to believe in the correctness of the statements I made in the previous paragraph. What I’m telling you is that it’s not the end of the world for you if you take control of your own future. You cannot let yourself be subject to the slings and arrows of outrageous fortune. Your own personal future can be one of relative comfort with the ability to help others. Which in the future is about as good as it’s going to get for the vast majority of us.

John Mauldin has analyzed in-depth what I’ve been warning of for years, namely, the United States of Pension Poverty is heading down the wrong road and millions are doomed as they succumb to pension poverty.

What about workplace pensions? Well, they barely exist any longer and the ones that do exist face all sorts of problems. I have discussed America’s crumbling pension future and why I openly worry that
collapsing US pensions will fuel a much bigger crisis down the road.

But this isn’t a US problem, it’s a global one. In the UK, one in five Brits have no pension savings and face retirement poverty. The situation in Canada isn’t any better where nearly half of working-age Canadians are not saving for retirement, which is why enhancing the CPP is so critically important.

Got that last part? Unlike John Mauldin who I met in Montreal years ago and respect a lot and even share some of his conservative economic views, I believe large, well-governed public defined-benefit plans are the ultimate solution to global retirement angst.

Whenever I read John’s long comments on the retirement crisis, I’m reminded of those Lifelock commercials where you see an armed guard say “I’m not a security guard, I only monitor security problems” or a dentist say “I’m not a dentist, I am a dental monitor, yup, you have a real bad cavity” as he walks away and does nothing.

You see what John doesn’t tell you is the brutal truth on defined-contribution plans is they are an abject failure, exacerbating pension poverty.

But Leo what if we all saved more and invested in a basket of low-cost ETFs, rebalanced our portfolios every year and invested more in dividend stocks? Wouldn’t we be better off?

Yes, no doubt about it, but the reality is people aren’t saving and even when they do, they end up getting gouged on fees over the long-term or simply don’t know how to build a proper retirement nest egg.

And even if the younger generation is increasingly investing in digital (robo-advisor) platforms, it still doesn’t match the benefits of having their retirement savings managed by a large, well-governed public pension fund which can diversify investment and longevity risk, lower costs and invest directly or indirectly with top managers across public and private markets all over the world.

That’s why I was pleased to read that US pensions are adopting the best practices of their Canadian counterparts, namely, cost mitigation, a well-diversified investment portfolio across several asset classes and geographies, and a large appetite for illiquid investments.

So if the Canadian pension model is the way to go and a bigger CPP makes sense for Canada, why aren’t other countries adopting this model, enhancing their social security system?

There are a lot of political and ideological reasons as to why other countries haven’t adopted the Canadian model, but that is slowly changing. I’ve said it before and I’ll say it again, an enhanced Social Security based on an enhanced Canada Pension Plan whose assets are managed at CPPIB makes logical sense as long as they get the governance right.

Why doesn’t John Mauldin talk about this solution? I don’t know, I suspect he doesn’t know enough about it and has an ideological aversion to any public fund even if it’s well-governed and offers the best solution over the long run to America’s growing retirement angst.

Corporate DB plans could soon be going on a bond buying spree, according to a report released on Friday by Morgan Stanley.

Years of steady stock gains have pushed many corporate DB plans close to 80 percent funding; when plans get to that funding level, it’s typical to ramp up bond holdings, according to the report.

High-grade, long-term corporate bonds are the most likely to be scooped up by these pension plans.

From Bloomberg:

The biggest gainers may be corporate bonds maturing in around 30 years. Longer-term corporate bonds have risen 1.9 percent this year, including interest payments, compared with around 1.6 percent for the broader investment-grade universe, according to Bloomberg Barclays indexes.

“Pension funds’ sweet spot is out at the long end of the curve,” said Vincent Murray, who heads U.S. fixed income syndicate at Mizuho Securities USA in New York. Investors in some deals he’s worked on this year have placed orders for five times as much 30-year debt as was for sale, he said. “We’ve seen good demand.”

[…]

For long-term corporate bonds, it’s unlikely that new-issue supply will be able to meet demand in the near term. Until supply catches up, yields — particularly on 30-year debt — will likely sink, according to Hans Mikkelsen, head of high-grade credit strategy at Bank of America Corp.

“Pensions have a natural bias toward buying long-duration bonds,” Mikkelsen said. “The initial move is going to be lower long-term yields, and selling equities.”

 

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

The California Public Employees’ Retirement System (CalPERS) put out a press release yesterday, Réal Desrochers Leaving Private Equity Program:

The California Public Employees’ Retirement System (CalPERS) said today that Réal Desrochers, managing investment director of the CalPERS Private Equity program, is leaving the pension fund to take a position with a large overseas bank.

Desrochers’ last day at CalPERS is Friday, April 7. Sarah Corr, an investment director in Private Equity, will become the interim head of the program.

Desrochers joined CalPERS in 2011 from the Saudi Arabian Investment Company, where he was chief investment officer. Prior to that, he spent 11 years managing the private equity portfolio at the California State Teachers’ Retirement System (CalSTRS).

“Réal’s leadership, professionalism, and integrity are unmatched,” said Henry Jones, chair of the CalPERS Investment Committee. “Private equity is integral to our long-term success, and Réal has been invaluable in helping ensure the long-term future of the CalPERS Fund. We wish him great success as he embarks on this next chapter in his outstanding career.”

Private Equity has been CalPERS’ best-performing asset class over the past 10 and 20 years, returning 9.9 percent and 11.2 percent respectively, as of January 31, 2017. Over the past five years it has returned 11.8 percent. Since its inception in 1990 through June 30, 2016, the program has generated $33.4 billion in profits for CalPERS.

“Réal has worked for years to reduce costs and increase transparency throughout the industry, and he leaves a legacy at CalPERS of working tirelessly on behalf of our members,” said Ted Eliopoulos, CalPERS chief investment officer. “Because of him, we’ve been able to streamline the number of managers we work with, while at the same time negotiating much more favorable terms with our business partners. Réal has also been instrumental in moving the private equity industry to become much more open by adopting a standardized approach to reporting fees.”

Eliopoulos said the Investment Office will continue to review possible new business models for the CalPERS Private Equity program.

“As I outlined to the CalPERS Board last year, we’re going to continue reducing the number of general partners we do business with, and we’re going to explore how the program might eventually be adjusted to increase alignment and drive down costs even further,” he said.

About 8.5 percent of the CalPERS fund, or about $26 billion, currently is invested in Private Equity.

For more than eight decades, CalPERS has built retirement and health security for state, school, and public agency members who invest their lifework in public service. Our pension fund serves more than 1.8 million members in the CalPERS retirement system and administers benefits for more than 1.4 million members and their families in our health program, making us the largest defined-benefit public pension in the U.S. CalPERS’ total fund market value currently stands at approximately $312 billion. For more information, visit www.calpers.ca.gov.

The last time I spoke with Réal Desrochers was after I critically examined the “private equity disaster” at CalPERS which another blog alluded to. This same blog keeps harping on CalPERS’s private equity program, suggesting they paid a consultant to whitewash private equity misconduct.

I think some blogs, just like many newspapers, post things for “shock and awe” purposes trying to garner ever more readers as they feed them a lot of garbage.

I’m all for transparency in private equity and other asset classes, but if you read some of the garbage out there, you’d think private equity is all a big fraud, the returns are all hyper-inflated, that pensions should shun this asset class because they can get similar returns with more liquidity investing in the stock market. This is all nonsense and pure fiction.

Don’t get me wrong, these are treacherous times for private equity, the influx of money coming into this asset class and lack of opportunities has led to diminished returns and there are legitimate concerns of misalignment of interests.

But there is no denying that private equity is one of the most important asset classes for all pensions and that if done properly, investing in a handful of top funds and getting co-investment and other direct investment opportunities to lower overall fees, then it’s a winning strategy. Just ask Canada’s mighty PE investors.

[Note: As part of my many links on the right-hand side, you will see links explaining various assets, including private equity in the assets section. I must admit, I don’t update these links often but I try to keep them up to date. I recommend you read a bit on the J-Curve and also go over this CalPERS’s workshop on private equity which was done in November, 2015.]

Anyway, after my conversation with Réal, I can’t say I am too surprised he is calling it quits. I think he told me he’s approaching 70 years old, and while he keeps in good shape, the job is grueling and requires a lot of travel, not to mention back-to-back meetings all day.

As I stated in my blog, when Réal arrived at CalPERS, its PE program was one giant PE benchmark because they pretty much invested with everyone. He had a tough job cleaning up that portfolio and getting the benchmark right. Moreover, there remain issues which CalPERS’s CIO Ted Eliopoulos alluded to, namely, they need to streamline it even more and ramp up co-investments to lower fees.

I wish Réal all the best in his new life after CalPERS. I think he will take some time to relax with his wife Jo and who knows, he might do some consulting work if he’s up to it.

Another big departure which did catch me by surprise yesterday was Roland Lescure, the CIO of the Caisse, who announced on LinkedIn that he is entering French politics (click on image):

I had a chance to meet Roland on a few occasions and he always left a good impression on me. The best way I can describe him is as a classy, smart and very nice French (from France) man.

In fact, he reminds me a lot of a friend and former colleague of mine from PSP, Frederic Lecoq, who is also from France but emigrated to Canada a long time ago (Roland should meet Fred who keeps me very informed on the French political scene).

Fred referred me to today’s article in La Presse which states Roland will be helping centrist Emmanuel Macron who along with far-right leader Marine Le Pen, still hold a firm lead over the pack in France’s presidential election (meanwhile, while scandal-hit conservative candidate Francois Fillon was holding on to third place, 65-year-old Jean-Luc Melenchon, a veteran far-left maverick, has moved up fast in the ratings). 

Fred also told me that Roland’s older brother is Pierre Lescure, a well-known French journalist and television executive. According to Fred: “Win or lose, Macron (who is just 39 and was virtually unknown a year ago) has a great political future in France and Roland will be instrumental in helping to guide him on economic and financial issues.”

The last time I saw Roland was when the prince of Bridgewater was in town and he was the moderator for the event. I covered that event in detail and it was thanks to Roland that I was able to attend for free. I wish him a lot of success with his political aspirations and truth be told, France and Europe needs someone with his experience, temperament and knowledge.

The Caisse put out this press release announcing Roland’s decision:

Caisse de dépôt et placement du Québec today announced that Roland Lescure has decided to leave his position as Chief Investment Officer to enter public and political life.

“I have spent the past seven years working in one of the best institutions in Canada. I worked with extraordinary people and helped build a world-class investment organisation whose success benefits all Quebecers. On the eve of the French elections, I have decided to enter public and political life because I want to play a quite active role at a crucial time for France and for Europe. Since la Caisse is apolitical and non-partisan, I will have more to say about the political commitment I am making tomorrow,” said Roland Lescure.

“From the moment Roland joined la Caisse in 2009, he has worked tirelessly to build what la Caisse is today. While building highly talented investment teams, Roland’s intellect and creativity have helped shape so many of the strategies we have pursued at la Caisse. And he has excelled at rallying his teams to deliver these strategies,” said Michael Sabia, president and CEO of la Caisse. “Over the past few months, Roland and I have discussed his involvement in public and political life, and the decision he is announcing today is a testimony to his values and who he is as a person. This kind of commitment is admirable and should inspire all of us. I am convinced that, whatever form it takes, Roland will make an important contribution to French politics and democracy,” added Mr. Sabia.

“On behalf of the Board, I would like to thank Roland for his exceptional work as an executive of la Caisse. Over the past seven years, the Board has benefited from the depth of his economic and financial expertise, the soundness of his judgment and his fundamental understanding of la Caisse’s mandate,” said Robert Tessier, chairman of the Board of la Caisse.

Given that Mr. Lescure is leaving la Caisse to enter public and political life, his departure will be effective on April 6, 2017.

An international recruitment process for the Chief Investment Officer position has been launched. In the interim, Michael Sabia, president and CEO of la Caisse, will take on Mr. Lescure’s responsibilities.

Now, who will replace Roland? That’s not a given. I can however think of a great internal candidate, Jean Michel, the Executive Vice-President, Depositors and Total Portfolio, who joined the Caisse last year after performing miracles as the head of Air Canada’s pension plan, bringing it back to fully funded status by implementing the same approach that has led to Ontario Teachers’ and HOOPP’s long-term success.

But there are great external candidates too, people like Neil Petroff, the former CIO of Teachers’, Leo de Bever, the former CEO of AIMCo, or Wayne Kozun, a former senior VP at Teachers’. And I’m sure there are a few other high profile candidates that I’m not aware of.

The problem is the job is in Montreal, you need to speak and write French, and truth be told, there are very few people who have the skill set, leadership, language skills, and political temperament for this coveted but highly demanding position which I believe oversees public and private markets (not sure of the exact responsibilities of the role in terms of private markets). Who knows, maybe Réal Desrochers or François Trahan will express an interest to come back to Montreal.

For now, Michael Sabia will assume the role of CIO, which is actually a good thing because it will allow him to detach from some of the more mundane tasks of his job to focus more on what is happening at various portfolios across public an private markets (maybe Michael can offer me a contract to help him in the interim as he searches for a new CIO).

That is all for today. I wish Réal Desrochers and Roland Lescure all the best in the next chapter of their life. Both of them have worked very hard at their respective organizations and contributed to their success and they should be proud of their accomplishments.

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

On Tuesday, OMERS Private Equity announced it acquired Inmar:

OMERS Private Equity (“OPE”), the private equity arm of OMERS, the pension plan for municipal employees in Ontario, together with management, has agreed to acquire Inmar (“Inmar” or the “Company”) from ABRY Partners (“ABRY”). ABRY will continue to be a significant shareholder in the Company.

Founded in 1980 and headquartered in Winston-Salem, North Carolina, Inmar operates intelligent commerce networks, connecting offline and online transactions in real time for the world’s largest retailers, manufacturers and trading partners across multiple industries. Inmar’s customers rely on the Company to securely manage billions of dollars in transactions across its promotions, supply chain, and healthcare platforms. In addition, Inmar’s platforms generate meaningful data and enable the Company to provide clients with actionable analytics and insights to meet the evolving needs of shoppers, patients and businesses.

David Mounts, Chairman and CEO of Inmar, said, “We are excited to partner with OPE at this stage in Inmar’s evolution and equally excited to be continuing the strong relationship we have with ABRY who I have come to respect and appreciate deeply for their collaboration and knowledge.” Mr. Mounts continued, “OPE brings significant financial resources and experience in partnering with growing companies like Inmar. With OPE and ABRY behind us we will increase investment in technology and expand into new and emerging markets. Our partnership will position us to capitalize on our platform and set in motion the next phase of substantial growth.”

“We look forward to partnering with David and the entire management team to support the Company’s next phase of growth. Inmar is an excellent addition to our growing business services portfolio,” said Eric Haley, Managing Director at OPE. “Inmar’s focus on being a trusted intermediary for its customers has continued to impress us, and we believe the Company will continue to be a leader in the markets it serves.”

“The investment in Inmar is consistent with OPE’s strategy of acquiring industry leading companies with world class management. The Company has steadily grown beyond commerce and into analytics and engagement solutions, which is an area where we see great opportunity. Unlike traditional PE firms, OPE can hold investments for longer durations, and Inmar, like recent investments in DTI/Epiq and Forefront Dermatology, matches up well with our strategy of choosing assets that have excellent long-term fundamentals,” said Michael Graham, OPE Senior Managing Director and Head of North America.

OPE will support management to continue its impressive track record of profitable growth both organically and through strategic acquisitions.

This transaction is expected to close in the second quarter of 2017.

Weil Gotshal & Manges LLP is acting as legal counsel for OMERS Private Equity. Kirkland & Ellis is acting as legal counsel for ABRY Partners and Inmar. Wells Fargo Securities, LLC is acting as financial advisor to Inmar. Credit Suisse and Wells Fargo Securities, LLC are serving as joint lead arrangers and joint bookrunners for the credit facilities in support of the transaction.

About Inmar

Anyone who has redeemed a coupon, filled a prescription or returned a product, has touched Inmar. Inmar applies technology and data science to improve outcomes for consumers and those who serve them. As a trusted intermediary for over 35 years, the Company has unmatched access to billions of consumer and business transactions in real time. Inmar’s analytics, platforms and services enable engagement with shoppers and patients, and optimize results. To learn more about Inmar’s service offerings visit www.inmar.com

About OMERS Private Markets and OMERS Private Equity Inc.

OMERS Private Markets [OMERS Private Equity and Borealis Infrastructure] invests globally in private equity and infrastructure assets on behalf of OMERS, the pension plan for municipal employees in Ontario. OPE’s investment strategy includes active ownership of a portfolio of industry-leading businesses across North America and Europe. Investments are aimed at steady returns to help deliver strong and sustainable pensions to OMERS members. OPM has offices in Toronto, New York, London and Sydney. For more information, please visit www.omersprivatemarkets.com.

About OMERS

Founded in 1962, OMERS is one of Canada’s largest defined benefit pension plans, with more than CAD$85 billion in net assets, as at December 31, 2016. It invests and administers pensions for more than 470,000 members from municipalities, school boards, emergency services and local agencies across Ontario. OMERS has employees in Toronto and other major cities across North America, the U.K., Europe and Australia – originating and managing a diversified portfolio of investments in public markets, private equity, infrastructure and real estate. For more information, please visit www.omers.com.

Interestingly, there is nothing stated about ABRY Partners, the private equity fund that presented this opportunity to OPE:

Founded in 1989, ABRY Partners is one of the most experienced and successful media, communications, business and information services focused private equity investment firms in North America. We invest in high quality companies and partner with management to help build their businesses. Since its founding, ABRY has completed over $62 billion of leveraged transactions and other private equity, mezzanine or preferred equity placements, representing investments in over 550 properties.

ABRY maximizes the value of its investments by concentrating on certain industry sectors where we have substantial operating and investment experience. Because ABRY brings deep industry insight to the investment process, we are able to quickly understand key issues, accurately assess opportunity, value and risk, and bring relevant information to bear. Simply put, we partner with skilled executives and invest significant capital to help build stronger companies that become industry leaders.

As far as Inmar, you can learn more about this company here, but I like this overview:

“Anyone who has redeemed a coupon, filled a prescription or returned a product, has touched Inmar. We apply technology and data science to improve outcomes for consumers and those who serve them. As a trusted intermediary for over 35 years, we have unmatched access to billions of consumer and business transactions in real time. Our analytics, platforms and services enable engagement with shoppers and patients, and optimize results.“

Last week, I discussed how PSP and OTPP are investing data centers and stated that over the last five years, everything in the IT space is about the rise of data storage, data analytics and cloud computing.

Michael Graham, OPE Senior Managing Director and Head of North America, states something important in the press release:

“The investment in Inmar is consistent with OPE’s strategy of acquiring industry leading companies with world class management.  The Company has steadily grown beyond commerce and into analytics and engagement solutions, which is an area where we see great opportunity.  Unlike traditional PE firms, OPE can hold investments for longer durations, and Inmar, like recent investments in DTI/Epiq and Forefront Dermatology, matches up well with our strategy of choosing assets that have excellent long-term fundamentals.”

As Ron Mock, Ontario Teachers’ CEO, explained to me last week when I went over OTPP’s 2016 results, one form of direct investment comes when the life of a private equity fund comes to end (typically after four or five years), and in order to exit from an investment, the general partner (GP or private equity fund) will sell a stake to a limited partner (LP or investor) who knows the company well and can carry it on its books for a long time.

This is what happened in this deal. OPE likely bid on it and acquired a stake in Inmar. Details of the deal are not disclosed but as stated in the press release, it matches up well with OPE’s strategy of choosing assets that have excellent long-term fundamentals. Because OPE has a much longer investment horizon than a private equity fund, it can carry this investment for a lot longer.

What else has OMERS been up to lately? A couple of weeks ago, Simon Jessop of Reuters reported, OMERS, Kuwaiti investors take stake in U.K.’s Thames Water:

A consortium of Canadian and Kuwaiti investors has agreed to buy a minority stake in Britain’s Thames Water from funds managed by Macquarie, ending the Australian group’s 11-year investment in Britain’s largest water firm.

The deal is the latest high-profile acquisition of British infrastructure by overseas investors, as pension schemes, sovereign wealth funds and others look to tap into stable returns tough to find in other financial markets.

Canadian pension fund investor Borealis Infrastructure and the infrastructure investing arm of the Kuwait Investment Authority (KIA) are buying a 26 per cent stake in Kemble Water Holdings, the holding company of Thames Water.

Borealis, infrastructure investment manager for OMERS, the pension plan for Ontario’s municipal employees, and Wren House Infrastructure Management, the infrastructure arm of the KIA, said they had agreed to buy the stake from Macquarie Infrastructure & Real Assets.

No financial details were disclosed.

Thames Water is Britain’s largest water and wastewater services provider, with 15 million customers across London, the Thames Valley and surrounding areas. It supplies 2.6 billion liters of drinking water per day.

“The Consortium has met with Thames Water’s existing management team and… will support Thames Water’s ongoing 4.5 billion pound capital investment program – for the 2015 to 2020 regulatory period – the largest in the UK water industry,” Borealis and Wren House said in a joint statement.

Macquarie, in a separate statement, said its Macquarie European Infrastructure Fund 2, which held most of the stake, was divesting as it approaches maturity and the deal would end the group’s involvement with Thames Water.

During its tenure, Thames Water invested more than 11 billion pounds, or around 1 billion pounds a year, more than twice that invested during the five-year period before privatization in 1989, it said.

“Today, Thames Water is undoubtedly a better, stronger and more customer-focused business than that which we invested in back in 2006,” said Martin Stanley, global head of Macquarie Infrastructure and Real Assets.

You can read the press release on this deal on OMERS’s website here.

Gill Plimmer of the Financial Times provided more financial details in her article, Macquarie sells final stake in Thames Water for £1.35bn:

Macquarie, the Australian infrastructure bank, has sold its final stake in Britain’s biggest water supplier Thames Water for an estimated £1.35bn.

The infrastructure arms of the Canadian pension fund Omers and the Kuwait Investment Authority have bought the 26 per cent stake.

It highlights a growing appetite for shares in British utilities as they are increasingly seen as “prized assets” for investors because they deliver steady returns.

Borealis Infrastructure and Wren House, the infrastructure investing arms of Omers and KIA respectively, bought the stake in Kemble Water Holdings, the holding company of Thames Water.

Thames Water has a regulatory capital value of £11.9bn, providing about 2.6bn litres of tap water to about 9m customers per day in London and the Thames Valley region.

The financial details of the deal were not disclosed, but it is understood Macquarie has received about £1.35bn for the sale, which had been delayed from last year in part due to uncertainties over the impact of Brexit.

The timing of the sale — a decade after Macquarie bought Thames Water from RWE for £8bn — is driven by the 10-year life of most Macquarie funds.

Last week Fiera Infrastructure paid $149m for an additional 2.4 per cent stake in Thames Water, while in February Australian fund manager Hastings Fund Management bought a 50 per cent stake in South East Water for about £200m.

“The consortium has met with Thames Water’s existing management team and . . . will support Thames Water’s ongoing £4.5bn capital investment programme — for the 2015 to 2020 regulatory period — the largest in the UK water industry,” Borealis and Wren House said in a joint statement.

The sale comes as Thames Water is due to appear in court for sentencing this week after being warned that it could receive its “biggest fine in history”.

The company has admitted that it dumped millions of litres of sewage into the river Thames at six sites in Henley-on-Thames, Didcot, Little Marlow and Littlemore, killing fish and other wildlife.

Meanwhile, construction started at the end of last year on a £4.2bn, 16-mile “super-sewer” to prevent raw sewage overflowing into the Thames.

Thames Water and the government have set up Bazalgette Tunnel Limited, a separate company, that will own, manage and finance the project during construction. Thames Water has already raised customers’ water bills to help pay for the tunnel.

In addition to its stake in Thames Water, Macquarie-managed funds own stakes in three UK power stations, airports and Arqiva, the mobile and TV mast company.

It is also tipped to buy the Green Investment Bank, a government-owned bank that invests in renewable energy projects.

Last week, I covered why the Caisse is betting big on insurance and water, and as you can see, other large Canadian pensions are also investing in the water industry, especially in the UK where they have been investing in infrastructure for a very long time.

I’m sure a few other consortia made up of Canadian and foreign investors bid on this deal but in the end, OMERS Borealis and KIA’s Wren House Infrastructure Management got it.

Infrastructure investments are very attractive for pensions but it is a heavily regulated sector which is why this was one of the terms of the deal:

The Consortium will support Thames Water’s ongoing £4.5 billion capital investment programme – for the 2015 to 2020 regulatory period – the largest in the UK water industry.

Nevertheless, these assets are extremely long term in nature and typically offer decent yields in between stocks and bonds with no market volatility. This is why pensions with long investment horizons love them.

The problem is that competition for these infrastructure assets is fierce, so consortia typically have to outbid each other on pricey deals. In other words, for now, the real winner in this deal is Macquarie Infrastructure and Real Assets.

Still, Thames Water is a great infrastructure asset, one that OMERS’ Borealis Infrastructure can add to its existing portfolio of great assets.