investment | Pension360

Canada Pension CEO Has Eyes Peeled For Opportunities Amidst Volatility

Canada Pension Plan Investment Board (CPPIB) Chief Executive Mark Wiseman sat down with Reuters for an interview last Friday, and made some interesting comments on how his fund deals with market volatility.

Wiseman said his fund would likely be particularly active in the coming months as fluctuations in commodities and currency markets open up investment opportunities.

Wiseman’s comments, from Reuters:

CPPIB, which manages Canada’s public pension fund, said that while investment deals have been slower in recent months because assets are fully valued, recent sharp movements in commodity and currency markets should help it find acquisitions.

“We are seeing more volatility in markets and that should generate more opportunities for CPPIB,” Chief Executive Mark Wiseman said in an interview.

“If you look at increased volatility, not just in equity markets but in currency markets, in commodity markets, the long-term view and those comparative advantages that we have, in these types of market conditions … our comparative advantages are more valuable,” he said, pointing to CPPIB’s scale, long investment horizon and certainty of assets.

[…]

Wiseman said that while CPPIB did not see deflation as a particularly large risk to the global economy, the world appeared to be moving to a two-speed model, with China and the United States showing growth and Europe and Japan needing “substantial long-term structural reforms” to improve.

“Let’s talk about Europe. It’s a very difficult situation. The economy has continued to underperform since the global financial crisis, and in terms of structural reforms, they have been reasonably slow in coming, for a myriad of reasons,” Wiseman said.

The CPPIB manages $191.3 billion in pension assets.

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Canada Pension Plan Investment Board Announces Series of Executive Appointments

The CPPIB is welcoming two executives into new posts and saying goodbye to another this week.

The board has appointed or promoted two new Senior Managing Directors, one of whom will replace a departing Managing Director as Global Head of Private Investments.

More details from a release:

Mark Wiseman, President & Chief Executive Officer, Canada Pension Plan Investment Board (CPPIB), is pleased to announce the following senior executive appointments:

* Mark Jenkins is promoted to Senior Managing Director & Global Head of Private Investments responsible for leading the direct private equity, infrastructure, principal credit investments, natural resources and portfolio value creation functions. Mr. Jenkins, who becomes a member of CPPIB’s Senior Management Team, joined CPPIB in 2008 and most recently held the role of Managing Director, Head of Principal Investments.

* Pierre Lavallée is appointed to the new role of Senior Managing Director & Global Head of Investment Partnerships. Mr. Lavallée will lead this new investment department to focus on broadening relationships with CPPIB’s external managers in private and public market funds, secondaries and co-investments, expanding direct private equity investments in Asia and further building thematic investing capabilities. Mr. Lavallée, who joined CPPIB in 2012, will continue in his current role as Senior Managing Director & Chief Talent Officer until a successor is appointed.

These appointments are effective immediately.

Mr. Wiseman also announced today that André Bourbonnais will be leaving CPPIB to assume the role of Chief Executive Officer at the Public Sector Pension Investment Board in Montreal, effective March 30, 2015. Mr. Bourbonnais joined CPPIB in 2006 and was most recently Senior Managing Director & Global Head of Private Investments.

You can read the biographies of the new Senior Managing Directors here.

Chart: Investment Preferences of Pension Funds – Public vs. Private

Do public pension funds prefer to invest in different types of funds than their private counterparts?

The above graph details the percentage of public and private pensions that are currently invested in — or have a preference toward — various types of funds.

The graph is based on a survey conducted by Preqin. Read the full results here.

Chart credit: Chief Investment Officer and Preqin.

Central Player in CalPERS Bribery Case Is Too Sick For Trial, According to Lawyer

Alfred Villalobos, the ex-placement agent on trial for bribing CalPERS’ chief executive, is too sick to stand trial, according to his lawyer.

The attorney is pushing for a postponement of the trial, which was set to begin in late February.

Villalobos is 71 years old and has reportedly been in and out of the emergency room in recent months.

From the Sacramento Bee:

In a court filing Monday, attorney Bruce Funk said Villalobos has had “numerous stays in the emergency room” in the past few months. “Mr. Villalobos is not physically or mentally able to participate in his defense, or to even sit through a trial,” Funk wrote.

[…]

In the court filing, Funk said his client was “incoherent” the last time they spoke on the phone, last Wednesday.

Funk wouldn’t go into details, but Villalobos, 71, has clearly been in declining health. His trial, originally set for last March, was postponed after lawyers said he was suffering from various heart ailments and neurological problems.

When he appeared in court last July, the Reno businessman’s breathing was labored and he walked with two metal canes.

Villalobos is accused of paying $250,000 in bribes to Fred Buenrostro, the former CEO of CalPERS, in an effort to steer pension fund investment dollars to Villalobos’ private equity clients. A former California Public Employees’ Retirement System board member, Villalobos earned $50 million in commissions representing clients seeking CalPERS investments.

Fred Buenrostro, former CEO of CalPERS, pled guilty to accepting Villalobos’ bribes.

Villalobos faces up to 30 years in prison.

Photo by Truthout.org via Flickr CC License

Report: U.S. Pension System Ranks 13th Among World’s Largest Economies; Faces “Major Shortcomings”

Mercer has released its 2014 Melbourne Mercer Global Pension Index report, which ranks the pension systems of the world’s 25 most advanced economies.

The report grades pension systems on coverage, governance, investment performance, tax support and plan design, among other criteria.

The United States’ pension system ranked 13^th overall, which equates to a “C” grade.

The report included a brief summary of how the U.S. could improve their ranking:

The overall index value for the American system could be increased by:

– raising the minimum pension for low-income pensioners

– adjusting the level of mandatory contributions to increase the net replacement for median-income earners

– improving the vesting of benefits for all plan members and maintaining the real value of retained benefits through to retirement

– reducing pre-retirement leakage by further limiting the access to funds before retirement

– introducing a requirement that part of the retirement benefit must be taken as an income stream.

Here are the overall rankings:

Read the full report here.

What Types of People Should Manage Institutional Money?

What traits does it take to be a successful manager of institutional money? A high IQ? A steady temperament? A penchant for going on lucky streaks?

Jack Gray, of the Paul Woolley Centre for Capital Market Dysfunctionality at University of Technology, Sydney, dives deep into this question in a recent article published in the Rotman International Journal of Pension Management.

From the article:

Successful investors are likely to be overweight on several the following traits:

• A paradoxical blend of arrogance, to discover and arbitrage opportunities ahead of the market, and humility, to simultaneously be skeptical about those discoveries.

• A commitment to the principle “know thyself” – for instance, recognizing when previously justified contrarianism has degenerated into unjustified stubbornness.

• The ability to make effective decisions under uncertainty, ambiguity, and pressure. A temperament that seeks comfort and stability will likely be ill-suited to investing.

• The confidence to encourage and absorb dissent yet to know when to act. Almost all organized human endeavors have at their core a paradigm of broadly agreed beliefs, stylized facts, and patterns of thought that impose a uniformity of views.

Ideas that challenge the paradigm tend to be ignored, not absorbed: Markowitz’s thesis was not rated as genuine economics, while Akerlof’s ground-breaking paper on the pricing impact of information asymmetry (Akerlof 1970) was twice rejected. Both eventually won Nobel prizes.

• The wisdom to know when to cooperate, a rare trait in a culture that has elevated competition to quasi-religious status. Much (though not all) investment information is “non-rival,” so that its value increases through sharing, as evident in open-source ventures. Yet by temperament, training, and incentives, many have an antipathy to sharing. In a study that engaged students in a game in which participants do better by cooperating, 60% of general students cooperated while only 40% of economics students did (Frank et al. 1999).

• The self-control to value patience, and so resist the short-term imperative and its eternal concomitant, being busy.

• A willingness to question and be curious, traits lacking in many boards that oversee other people’s money. After spending time embedded in American pension funds, the anthropologists O’Barr and Conley (1992) reported “a surprising lack of interest in questioning and surprisingly little interest in considering alternatives.”

Gray goes on to write that we can put people into two categories: hedgehogs and foxes. And while the investment world has plenty of the former, it is short on the latter. From the article:

Isaiah Berlin (1953) bequeathed us a crude but useful typology of people: hedgehogs view the world through the lens of a single defining, and usually substantial, idea; foxes view it through multiple lenses. Both types are needed in investing, but we are over-populated with hedgehogs who better fit compartmentalized corporate structures and are more fecund. We need more foxes, people with broader perspectives willing to trespass—a notion coined by Albert Hirschman (1981)—into foreign fields.

[…]

Cultural change is needed to recognize, support, and reward foxes, who tend to be spurned by tribal hedgehogs as soft-headed dilettantes. To Charlie Munger (1994), having different mental models is the most important thing in investing, because they expose new opportunities and drive a dialectic of risk. Investment organizations should seek more people with “contrary imaginations,” as the psychologist Liam Hudson (1967) phrases it: people with exceptional intelligence in alternative but meaningful ways; people with intelligence about the humanities, especially history and psychology, the disciplines that underlie and drive markets; people with emotional intelligence to direct and manage others; and people with organizational intelligence to get things done.

Gray provides much more analysis in the full article, which can be read here.

Photo by Nick Wheeler via Flickr CC License

Canada Pension Plan Invests $325 Million in U.S. Cancer Treatment Provider

The Canada Pension Plan has invested $325 in 21^st Century Oncology Holdings Inc., a cancer care service provider. The details, from Reuters:

Canada Pension Plan Investment Board (CPPIB), the investment arm of Canada’s national pension plan, said on Friday it has invested $325 million in privately held radiation oncology services provider 21st Century Oncology Holdings Inc through purchases of convertible preferred shares.

Fort Myers, Florida-based 21st Century operates the world’s largest integrated network of cancer treatment centers and affiliated physician practices. It has 179 treatment centers in the United States and in six Latin America countries.

The investment will give CPPIB the right to nominate two directors to 21st Century’s board.

An active global dealmaker, CPPIB manages net assets of C$226.8 billion on behalf of the Canada Pension Plan.

More details on 21st Century Oncology, from BusinessWeek:

21st Century Oncology Holdings, Inc., together with its subsidiaries, operates as a physician-led provider of integrated cancer care services.

As of February 19, 2014, 21st Century Oncology Holdings, Inc. operated 179 treatment centers primarily under the 21st Century Oncology brand, including 145 centers located in 16 states of the United States; and 34 centers located in 6 countries in Latin America. It was formerly known as Radiation Therapy Services Holdings, Inc. and changed its name to 21st Century Oncology Holdings, Inc. in December 2013. The company was founded in 1983 and is based in Fort Myers, Florida.

Photo by hobvias sudoneighm via Flickr CC License