The private equity industry has changed the most in decades as its investor base evolves and clients demand more fee concessions, Carlyle Group LP’s David Rubenstein said.

“The industry has changed more in the four or five years since the crisis than in the previous 45 years,” Rubenstein, Carlyle’s co-founder and co-chief executive officer, said Sunday on the television program “Wall Street Week.”

From the 1970s to early 2000s, public pension plans were the biggest investors in the industry, said Rubenstein, who started Washington-based Carlyle in 1987 and has expanded it to manage $193 billion. Private equity firms use the money they collect to buy companies and later sell them for a profit. Today, sovereign-wealth funds are overtaking pensions in allocating money to the firms, of which Carlyle is the second-biggest, he said.

Large investors and those who commit early to funds are also able to extract discounts on the fees they pay the buyout firms, Rubenstein said, whereas in the past all clients were charged the same percentage on their committed money.

In addition, big clients are increasingly seeking separately managed funds with the firms, rather than solely committing to commingled funds with other investors, he said.

Retirement Money

Rubenstein, 65, said the “great revolution” coming to the industry will be the ability to add non-accredited investors, or those with a net worth lower than $1 million or those earning less than $200,000 a year. Regulations of fund structures should change to allow such people to put some of their retirement savings in private equity vehicles, said Rubenstein.

“Wall Street Week” is produced by SkyBridge Media, an affiliate of SkyBridge Capital, the fund-of-funds business founded by Anthony Scaramucci. SkyBridge, which sometimes has other business relationships with the show’s participants, advertisers and sponsors, pays Fox stations in key markets to broadcast the show and also streams it online every Sunday at 11 a.m. in New York.

The acquisition of LeasePlan Corporation NV from German car maker Volkswagen AG and Fleet Investments is PGGM’s largest direct private-equity transaction, according to PGGM spokesman Maurice Wilbrink.

The Dutch fund has been building its in-house team to invest in companies directly, alongside private-equity firms and other investors, after selling its private-equity investment unit in 2011. Investors from the Canada Pension Plan Investment Board to Singaporean sovereign-wealth fund GIC are increasingly seeking to buy assets directly, rather than just through private-equity firms. Several pension funds have publicly voiced their concerns over the level of fees charged by the private-equity industry.

By acquiring companies directly, PGGM avoids paying private-equity firms annual fees of between 1% and 2% of the money invested. It also avoids the 20% fee known as carry that private-equity firms keep from the sale of profitable assets.

Most of the money that PGGM manages is on behalf of PFZW, a pension fund for Dutch nurses and social workers. In 2014, PFZW paid €445 million of fees to private-equity firms—more than half of its €811 million fee bill to money managers. Yet private equity only accounts for €9 billion, or 5.6% of PFZW’s €161.2 billion of assets, according to its annual report.

“We are looking at all kinds of ways to lower management fees and also performance fees,” Mr. Wilbrink said. “We think the private-equity sector should lower its fees and should accept that more money should go to the beneficiaries because they are the capital providers and it’s their money.”

PGGM also makes its own infrastructure investments to avoid paying fees to infrastructure funds.

PGGM is buying LeasePlan in partnership with Singaporean sovereign-wealth fund GIC; the Abu Dhabi Investment Authority, or ADIA, also a sovereign-wealth fund; ATP, Denmark’s largest pension fund; the merchant-banking unit of Goldman Sachs ; and London-based private-equity firm TDR Capital LLP.

GIC, ADIA and ATP are also part of the trend among traditional investors in private-equity firms to increasingly invest directly in takeovers of companies.

The investors will pay for the acquisition with an equity investment equal to about half of the purchase price, a convertible bond of €480 million and a loan of €1.55 billion, LeasePlan said in a statement. Unlike in a traditional private-equity-backed leveraged buyout, the debt won't be secured on the company that is being acquired.

“None of the debt raised by the Investors would be borrowed by LeasePlan and the company would not be responsible for the repayment of such debt,” LeasePlan said.

LeasePlan reported net income of €372 million in 2014, operates in 32 countries and has a workforce of more than 6,800 people.

"More and more sponsors are paying up where they think they have a material informational advantage,” said Justin Abelow , a managing director of financial sponsor coverage at investment bank Houlihan Lokey Inc.

Private equity firms, armed with $1.2 trillion in uncalled capital, need to fend off peers and strategic buyers in the fierce pursuit of assets.Standard & Poor’s Capital IQ Leveraged Commentary and Data said that as of the first half of the year, the average private equity purchase price multiple crept up to 10.1 times the target company’s trailing earnings before interest, taxes, depreciation and amortization, topping a historical high of 9.7 times in 2007.

As we report in the July issue of Private Equity Analyst, some firms looking for an edge in deals are taking a trip down memory lane.

Cleveland’s Riverside Co., for example, in May bought for a second time Health & Safety Institute, a provider of training materials and cardiopulmonary resuscitation courses. It previously owned the business between 2006 and 2012.

Partner Karen Pajarillo said her firm “didn’t have as much of a learning curve as others who are new to the business,” though HSI’s mix of revenue has changed over the years to include more online learning material.

Advent International is donning yoga pants once again, acquiring nearly 14% of yoga-gear maker Lululemon Athletica Inc for $845 million last year. The New York firm invested growth capital in the Canadian apparel company in 2005 at an enterprise value of 225 million Canadian dollars, taking the company public two years later in a $327.6 million offering. Lululemon share prices have risen by about 55% since Advent’s second investment in the company.

Revisiting old investments has proved profitable in the past for some firms.

San Francisco firm Friedman Fleischer & Lowe made a 10-times return on foam-mattress company Tempur-Pedic International Inc . in 2006 when it exited the $350 million investment it made in 2002. The firm reinvested in the company in 2008, re-exiting in 2011 at a 3.3-times return.

But second time isn’t always a charm, and firms must stay mindful that times change and the formula used previously may not work again, private equity executives said. Charterhouse Capital Partners lost control of U.K. washroom services provider PHS Group after the company was taken over by lenders. Charterhouse took PHS public in 2001, before taking it private again in 2005.

Quiz time. Who runs BC Partners? Who is the chairman of the British Private Equity & Venture Capital Association? And who is the top dog at Cinven?

If you drew a blank with any of those questions, you are not alone. The private equity industry, once the domain of larger-than-life characters, is full of curiously understated individuals these days.

Most of the buyout pioneers that founded Europe’s private equity industry have retired over the past decade. Men like Apax Partners’ Sir Ronald Cohen, CVC Capital Partners’ Michael Smith, Charterhouse Capital Partners’ Gordon Bonnyman, Permira’s Damon Buffini and Terra Firma’s Guy Hands got outsized returns for their investors and often had outsized personalities – charismatic, bombastic or just plain mouthy.

But, for the most part, they have stepped back to be replaced by committees and a generation of top executives with a lower profile. This new generation are more bureaucrats than entrepreneurs.

Industry roots

Thomas Kubr, managing director of investor Capital Dynamics, said he “absolutely” thought that Europe’s private equity leaders had changed in style over the past decade. Part of that was down to the early roots of private equity, he said: “The industry was started by people who never in their life thought they would be doing private equity because they had no clue what that was. Now you have entire career paths structured around the industry.”

Many of Europe’s biggest private equity firms began life in the banks. They were staffed by smart people that the banks were not sure what to do with, according to Ian Simpson, founder of placement agent Amala Partners, who has worked in the industry for 27 years.

The first industry leaders were the ones deemed by the banks to be “too dangerous to lend money but too bright to stick in HR”, he said.

Those years were a heady time for private equity: it was still almost a cottage industry and deal-doers were able to score blockbuster returns. Guy Hands made around £3 billion profit working for Nomura in the 1990s, for instance. Under Bonnyman’s leadership, Charterhouse invested €73 million in UK government leasing company Porterbrook in 1996, eventually getting a $481 million profit when it flipped it a year later.

In 1996, under Cohen’s leadership, Apax built up a 33% stake in Cambridge-based software company Autonomy, later selling its holding during the technology bubble of 2001 for a capital gain of more than £1 billion.

After pioneering the techniques used on buyouts at the banks, many of these trail-blazers decided to spin out and start their own firms. Buffini led the management buyout of Permira from Schroders Ventures Europe in 2001, Bonnyman led the spin out of Charterhouse Capital Partners from HSBC in 2001 and Hands left Nomura’s principal finance arm to set up Terra Firma in 2001.

New leadership style

Over the early 2000s, those new firms grew rapidly from small operations into huge asset managers with money pouring in from investors. Returns also began to slide as more players entered the market and the business became more institutionalised.

In the years around the financial crisis, many of the founders handed the reins over to the next generation of leaders or even groups of leaders, many of whom had lower public profiles than their predecessors. Cohen stepped back from running Apax in 2004, handing over to Martin Halusa; Buffini handed control of the firm to Kurt Björklund and Tom Lister in 2007; and Smith retired as chairman of CVC in 2012, handing control to Rolly van Rappard, Donald Mackenzie and Steve Koltes.

Antoon Schneider, a senior partner at The Boston Consulting Group, said the new generation were more managers than entrepreneurs but that a different financial environment called for a fresh style of leadership.

He said: “The great deal guys became the founding partners of the industry. The best dealmakers got to the top but now, with the second generation, it’s less about that. They are less entrepreneurs than they are managers. These are now larger, more complex organisations and the fact that you aren’t necessarily in a high-growth environment, you could argue that calls for a different kind of leader.”

A focus on the institution rather than on the individual is now reflected in the agreements made between investors and the buyout firms, known as limited partner agreements. These documents traditionally named one or two “key men” – if these named individuals left or died, investors could put investment from the fund on hold. These days there are usually a large group of key men mentioned in fund documents, reflecting how much more institutionalised and less focused on individuals the asset class has become.

Is the industry missing out on the entrepreneurialism of the early mavericks? Simpson said investors now want consistency from their managers rather than the bursts of genius that became the mark of the old guard.

He said: “They were a bit more entrepreneurial. The people in private equity come from a much more consistent background now. Everyone is a lot more interested in process and repeatability. Investors push that way.”

Jim Strang, a managing director at Hamilton Lane, thinks this change in leadership style has been a positive step for investors and has made the industry more professional. He said: “As PE firms have evolved, they have become large, complex businesses in their own right. The tools that you need to be a great business manager are different to being a great deals professional. So the fact that you have a different look and feel is probably a good thing.”

Minimising risks

He added that the new generation of leaders were more focused on how to run their firms and grow their businesses than their traditional deal-doing forefathers. He said: “The industry is way more competitive, way more sophisticated and developed than it was back in the day. They have got much better thinking about how to institutionalise their business to make it less risky.”

Perhaps the change was inevitable. As the industry has matured, it is natural for the focus to shift from the individual to the institution. But it does mean that many of the largest firms have become faceless behemoths that are tricky to tell apart.

Kubr summed it up: “You’ll find it in any industry. You get the true pioneers who develop a lot of the structures – but what comes afterwards is that you have to get professionalised. I guess I would say it’s neutral. It’s just a different style.”

Paul Singer's $27 billion hedge fund Elliott Associates is worried about Europe's prospects and is bracing for fresh market turbulence.

In a letter to investors dated July 23 and seen by Reuters on Thursday, the New York-based firm told clients that it has returned 2.8 percent in its Elliott Associates, L.P. and 2.2 percent in its Elliott International Limited.

While both funds beat the Standard & Poor's 500 Stock Index's 1.2 percent gain, the fund spent pages explaining its more cautious approach and warning that even after a six-year bull market in stocks, there is "no such thing as a permanent trend in the markets."

It worries about central bankers' easy money policy noting that governments that have "abused the power to create 'money' have always, eventually, paid a huge price for their profligacy."

"We are not bragging about our record, nor do we feel defensive about not keeping up with the S&P 500 in the last few years," adding that it invests carefully especially at a time it sees more chance for severe market turmoil.

It also expressed concern about Europe even after the region found a solution to Greece's debt problem and worries that long-term problems have not been adequately addressed, possibly causing "the breakup of the euro."

"The bottom line in our view is that Europe is in a very difficult situation," the fund wrote.

Still Elliott sees what it calls "attractive opportunities in the activist equity area and a few interesting situations in event arbitrage." The firm recently lost a campaign to block the merger of two Samsung affiliates in Korea.

It also said it is cooling on real estate investments, noting "the balance in our real estate securities trading has turned to the sell side."

The firm recently raised $2.5 billion in new capital, calling it "dry powder."

But it also warned investors in the normally secretive hedge fund world to stop sending its closely followed letters to journalists and others.

"We have learned the identities of certain individuals who breached their confidentiality obligations by disclosing the contents of Elliott's quarterly reports," the firm wrote adding "We are taking action and seeking monetary damages from violators."

The Wall Street Journal first reported on Elliott's tough stance to keep its letters private.

One of the big hedge fund winners of the credit crisis has become a major loser in the era of easy money.

London-based bond-trader Mako Investment Managers LLP was a star performer in 2008 and investors poured money into its flagship Pelagus Capital Fund. But assets under management have fallen 95% since the end of 2012 due to weak returns and because investors have yanked their money.

Pelagus’s assets stood at $1.14 billion at the end of 2012, according to a person familiar with the matter, and have fallen to just $59 million at the end of June, according to an investor letter reviewed by The Wall Street Journal.

The decline highlights the difficulties faced by bond funds that have struggled to generate performance as huge quantitative easing programs by major central banks have suppressed volatility in the market.

On average, hedge funds that trade sovereign bonds are up 2.1% in the first half of this year, according to Hedge Fund Research, having gained just 1.2% in both 2013 and 2014—those results significantly lag the average return from hedge funds as a whole.

“QE has almost killed these strategies,” said one major European investor in hedge funds.

Among funds to have struggled trading interest rates in recent years is Brevan Howard’s $21.7 billion flagship macro fund, which last year posted its first-ever down year, according to a letter to investors. The BlueCrest Capital International fund, another major macro fund, made just 0.1% last year, according to regulatory filings. Macro funds bet on stocks, currencies, bonds and other assets.

Mako’s chief investment officer, Bruno Usai, said “near-zero interest rates and low market volatility” mean it is tough for funds such as Pelagus to make the double-digit returns of previous years.

In 2008, Pelagus made a return of 33.1%, according to an investor letter reviewed by The Wall Street Journal, while hedge funds on average lost 19% that year, according to data group Hedge Fund Research.

But recent performance has seen the fund lose money in each of the past 12 months, according to the letter. The fund is down 3.4% so far this year to the end of June and lost 4.1% last year, having made only small gains in each of the previous three calendar years.

According to the letter, the fund underestimated how Greece’s debt crisis would hit European bond markets—European sovereign bond yields rose as the crisis escalated—meaning the fund put on some trades too early. It didn’t specify the trades it put on.

Mr. Usai said the firm plans to launch a new fund before the end of September. He said it was an “irony” that investors are leaving funds such as his “just as fixed income volatility is starting to pick up and the Fed is on course to raise official rates this year.”

"Overall, I don’t see any clear signs that the risk on, risk off mentality, which has ruled since 2008, is finally coming to an end. Yes, correlations have begun to recede a little bit here and there; however, if it is indeed a sign of bigger things to come, it is still very early days."

The collapse in commodity prices has burnt another hedge fund.

Vermillion, a commodity hedge fund backed by Carlyle Group, has seen its flagship fund's assets fall from nearly $2 billion to less $50 million, The Wall Street Journal is reporting.

What's more is the fund's cofounders, Christopher Nygaard and Drew Gilbert, have left the firm, according to the report.

The fund lost 23% in 2014, according to the report. David Rubenstein and William Conway, two of Carlyle's cofounders, invested around $30 million of their own money in the fund, according to The Journal.

Carlyle did not return messages seeking comment in time for publication.

The fund is the latest specialist commodities trader to have been hit by an incredible plunge in commodity prices. The S&P GSCI commodity index, which is made up of the most liquid commodity futures, is down around 42% over the past 12 months.

On Monday, Bloomberg News reported that London-based Armajaro Asset Management will close its $450 million commodities fund after it fell around 11% in the first half of 2015.

Bloomberg also reported that Black River Asset Management is liquidating four hedge funds, including its commodities fund.

David Einhorn's Greenlight Capital and Greenlight Capital Re, the fund's reinsurer, have also been dragged down by the slump in gold prices.

Greenlight notified clients of its returns late on Friday, according to one source who shared the numbers with Reuters.

Einhorn, who owns physical gold and called it one of his biggest bets in this month's investor letter, is now one of the first prominent fund managers to show just how deeply this month's gold rout has weighed on performance.

Greenlight, which invests roughly $11 billion, did not provide details about returns on Friday and a spokesman declined to comment.

But gold was not the only bet that hurt the long-admired investor. A 23 percent drop in Micron Technology Inc, another one of Greenlight's top long positions, also hurt as did a 4 percent drop in Apple Inc's stock price, Greenlight's biggest bet.

On Friday, gold was at $1,094.91 an ounce, down 16 percent since the middle of January and off from a record peak of $1,900 hit four years ago.

Unlike mutual funds, hedge funds are not required to disclose their monthly returns and many managers do not disclose them, so any performance numbers, especially from big name managers, are scrutinized closely for industry trends.

The broader stock market Standard & Poor's 500 index gained 1.28 percent in July.

Meanwhile Daniel Loeb's $17.5 billion Third Point fared much better this month, posting a 1 percent gain its main fund, extending the year-to-date gains to 6.8 percent, an investor in the fund said.

Traditionally Einhorn and Loeb are among the first managers to inform clients of their returns every month. Other managers may take several days to finalize their numbers.

Given that stock markets have mostly rallied of late, the exact sources of Greenlight's pain weren't entirely clear. Yet two of its larger long positions, according to filings, were down substantially: Consol Energy (CNX), which dropped 24 percent; while SunEdison (SUNE), another energy company, tumbled 22 percent.

Public filings, however, typically don't reveal an investor's short, or bearish, positions — an area in which Einhorn tends to be active.

Broadly speaking, Greenlight's shorts could have been harmed by a modest stock-market rally, which pushed the S&P 500 Index up nearly 2 percent for the month. Still, one of the stocks Einhorn has been most bearish about of late (even though he hasn't explicitly said his fund is short it), is Pioneer Natural Resources (PXD).

The shale driller is one Einhorn nicknamed "the MotherFracker," and it fell on the month.

Other sizable positions in the Greenlight portfolio, including Time Warner (TWX) and Chicago Bridge & Iron Co. (CBI), were all up for July.

In a letter to investors a few weeks ago, in which he discussed his performance for the second quarter—when Greenlight fell 1.5 percent—Einhorn described the period as "a challenging quarter for finding new long ideas."

He also wrote that although the fund had some investments in the embattled Greek markets, those positions weren't of meaningful size or influence to Greenlight's overall portfolio.

Just a few weeks after telling investors it’s time to cut bets on crude oil, Kingdon Capital Management looks like a seer, thanks to President Barack Obama’s plan to cut carbon emissions.

Kingdon, the hedge fund firm that generated a 13.4 percent gain in the year’s first half, boosted investments in solar companies, it wrote in a July 20 letter. David Einhorn, the president of Greenlight Capital Inc., also may see benefits: In October, he recommended buying renewable power company SunEdison Inc. (SUNE) as his firm built a stake that ranked as its third-largest U.S. public equity holding by the end of March.

Obama is set to detail on Monday the most sweeping new rules in the history of the Environmental Protection Agency. The White House said the measures will be tougher than the regulator’s previous proposals to combat climate change, potentially producing winners and losers among big investors speculating on how quickly the U.S. will shift to solar, wind and other renewable sources.

[...] go back to carefully read my comments on Bridgewater turning bearish on China and a tale of two markets. We could be setting up for some nice countertrend rallies in Chinese (FXI), emerging markets (EEM), energy (XLE), commodities (GSG), metals and mining (XME), and gold (GLD) shares in the next few months.

How is this possible? First, if markets deteriorate further, the Fed won't hike rates this year. Second, real rates in emerging markets remain too high relative to real rates in the developed world, so expect more central bank easing in emerging markets in the near future. Third, the reflationistas may be temporarily right,  global growth will likely come in stronger than anticipated in the next few quarters, which will help boost energy and commodity shares.

But make no mistake, my long-term forecast of global deflation remains intact which is why even though I might be tempted to trade countertrend rallies in energy and commodities, I keep steering clear of these sectors in favor of tech (QQQ) and biotech (IBB and XBI).

The problem with tech, however, is that it's a concentrated few high flyers like Amazon (AMZN) which just reported stellar numbers that are driving the NASDAQ to record highs. I find the breadth in biotech is a lot better and can find opportunities in many large, mid and small cap biotechs.

"Citadel has been actively investing in the region for 15 years, and has always maintained a constructive dialogue with regulators, including during the recent market volatility," a company statement said.

"We can confirm that while one account managed by Guosen Futures - Citadel (Shanghai) - has had its trading on the Shenzhen Exchange suspended, we continue to otherwise operate normally from our offices, and we continue to comply with all local laws and regulations."

China's securities regulator has restricted trading in 34 stock accounts for suspected trading irregularities, including abnormal bids for shares and bid cancellations that might have impacted wider market performance.

The regulator indicated it was particularly concerned over automated trading strategies.

The Chinese government has intervened massively on multiple fronts to rescue its stock market after it slumped more than 30 percent in less than four weeks following June 12. But it has struggled to produce a sustainable turnaround so far.

Scott Bessent, who’s been overseeing George Soros’s $30 billion fortune for the last four years, will leave at the end of 2015 to start his own hedge-fund firm.

Bessent, 52, is forming Key Square Group with a $2 billion investment from Soros, according to a memo sent to employees of Soros Fund Management. That will make his firm one of the largest hedge-fund start-ups ever, even before he begins raising money from other investors.

“Over the past four years, Scott has managed the firm’s assets with skill and dedication,” said Robert Soros, George’s son, in the memo. “He has decided to start his own venture because of the constraints involved in working with a family office structure, which prevent him from raising outside capital.”

Bessent has spent much of his career managing money for Soros, overseeing his European investments for about eight years in the 1990s, and returning to the firm in late 2011. Since then, the family office has made about $10 billion in profit under Bessent as investment chief, or about 13 percent annualized, according to a person familiar with the firm who asked not to be named because it’s private.

Bessent will continue to advise the family office and remains close to Soros and his family, the memo said. After he leaves, the investment strategy and asset allocation will be managed by the existing committees that Robert Soros and Bessent put in place.

Chanos, Druckenmiller

After graduating from Yale University in 1984, Bessent did stints at Brown Brothers Harriman & Co., Saudi Arabian holding company Olayan Group and Jim Chanos’s Kynikos Associates before taking a job as an analyst for Soros’s hedge fund. Soon after, he became the fund’s London-based portfolio manager, as Soros fired the European team that had been struggling to make money.

In 2000, Bessent decided to strike out on his own after Soros announced he was cutting risk and two of his lieutenants, Stan Druckenmiller and Nick Roditi, left the firm. He raised $1 billion for Bessent Capital Management, which ran a global and a European stock fund. At the time, about $150 million came from Soros.

Bessent was in the process of forming a macro fund when he was recruited by Soros’s family office in September 2011. His new fund will also try to profit from macroeconomic trends.

Bessent didn’t return a call seeking a comment.

Jack Meyer, the former head of Harvard University’s endowment, holds the record for the largest hedge-fund startup when he opened Convexity Capital Management with more than $6 billion in 2006. Druckenmiller’s former colleagues at Duquesne Capital Management opened their PointState Capital with $5 billion in 2011.

Another top investor at George Soros’s firm is leaving.

The billionaire’s Soros Fund Management LLC on Tuesday said that Chief Investment Officer Scott Bessent would exit at the end of this year to start his own hedge-fund firm. Mr. Bessent will be the fifth chief investment officer to depart since April 2000, when Stanley Druckenmiller quit to run his own firm.

The firm didn’t name a successor to Mr. Bessent and it wasn’t clear if a new chief investment officer would be chosen. For now, the firm’s investment committee will run the firm.

Running Mr. Soros’s firm is by any measure a plum job. It invests $30 billion on behalf of Mr. Soros, his family and his foundation in stocks, bonds, currencies and commodities around the world. It has 100 investment professionals and joins with other firms on investment and private-equity deals.

But in the past, some of the chief investment officers working for Mr. Soros, who is turning 85 years old next week, bristled at how he sometimes inserted himself in the firm’s operations, usually after the firm suffered losses or underperformed, people familiar with the matter said.

Mr. Bessent’s departure comes as the firm has scored gains of about 8% this year, thanks in large part to big bets on the U.S. dollar and bullish wagers on European and Japanese stock markets, according to people close to the matter. By contrast, the MSCI World Index is up 2.9%.

Mr. Bessent said in an interview that he has a good relationship with Mr. Soros but wanted to start his own firm. The Soros organization will invest $2 billion in Mr. Bessent’s Key Square Group, according to a memo reviewed by The Wall Street Journal, giving the fledgling firm a big boost. His plans were earlier reported Tuesday by Bloomberg News.

“I’ve had an intense and rewarding four years with George,” Mr. Bessent said in the interview. “He’s been a great coach, and I have a solid relationship with him and his family. I want to manage their money for a long time.”

Mr. Soros, a supporter of liberal causes and among the most successful investors of the past century, gained fame for his bet against the British pound in 1992, a trade that was the brainchild of Mr. Druckenmiller and ultimately netted more than $1 billion. Mr. Soros also made billions of dollars anticipating the global financial crisis that hit in 2008.

But about half of the firm’s assets in recent years have been invested in other hedge funds and investment firms. Last year, Mr. Bessent traveled to Newport Beach, Calif., to meet Bill Gross, the bond investor who just started a fund for Janus Capital Group Inc. after quitting the bond powerhouse he had helped start, Pacific Investment Management Co.

Eventually, the Soros firm invested $500 million in Mr. Gross’s new fund, an investment that has had mixed results.

The Soros firm still makes its share of bets in the market, however. Late last year, Mr. Bessent shifted money out of U.S. investments into Japan and Europe. The firm has largely clung to this position, which has paid off, with the view that lower interest rates abroad, and higher rates at some point in the U.S., will continue to help the dollar and boost European and Japanese stock markets, according to people close to the matter.

Scott Bessent, chief investment officer of George Soros’s $30bn family office, is setting up on his own, in what will be one of the biggest ever launches of a new hedge fund.

Mr Bessent will open his new firm, Key Square Group, with an initial $2bn allocation from Mr Soros.

The move, which will happen at the end of this year, was announced on Tuesday in a memo to the about 300 staff at Soros Fund Management (SFM), which oversees the billionaire investor’s fortune.

In the memo, seen by the Financial Times, Mr Soros’s son, Robert, who is the deputy chairman of the family office, explained why Mr Bessent was leaving.

“Over the past four years, Scott has managed the firm’s assets with skill and dedication. He has decided to start his own venture because of the constraints involved in working within a family office structure, which prevent him from raising outside capital.”

Mr Bessent was lured back to join Mr Soros in 2011 after having run his own fund for a decade.

He had been an analyst and investment manager for Mr Soros in the 1990s, including in 1992 when he was in London at the time of the famous decision to bet against the British pound. That trade, which forced the UK out of the European exchange rate mechanism, earned Mr Soros $1bn and the moniker “the man who broke the Bank of England”.

SFM gave Mr Bessent the title chief investment officer in order to lure him back, and is not immediately planning to replace him in the role.

The firm’s investment strategy and asset allocation will be managed by two existing committees, which already play an active role in both processes, according to the memo.

In 2011, Mr Soros became one of a number of veteran hedge fund managers who have returned outside money to their investors and carried on instead as family offices, managing only their own fortunes. Family offices have fewer of the regulatory burdens, including disclosure and compliance requirements, that have grown up since the financial crisis.

Key Square is named after a critical position for a player’s king during the endgame in chess. Mr Bessent’s departure was first reported by Bloomberg.

The net of fees return was 11.2% for pension and endowment Clients, and 4.4% for government and specialty fund Clients.

Annually, the board and management agree on active return targets consistent with top quartile return on active risk. Since 2009, AIMCo has earned its Clients value add of $2.5 billion net of fees.In 2014, AIMCo earned a net of fees return of 9.9%, underperforming its active return target of 10.5% by 0.6% or $401 million net of fees.

Public markets investments performed strong with public equities contributing $369 million and fixed income adding $167 million to value add. Private market investments also demonstrated strong returns in certain asset classes with real estate generating $145 million.

The primary driver of underperformance in 2014 may be attributed to losses incurred by AIMCo’s global tactical asset allocation strategy and the revaluation of certain prior year investments. In addition, certain illiquid asset classes lagged behind the very strong performance of their listed benchmarks, a not unexpected outcome given the diversification rationale for investment in these asset classes.

Our commitment is to be both client dedicated and performance driven in all aspects of our business, always seeking continuous incremental improvement. Ultimately it is to be truly world-class, not only in benchmarking our returns but in all facets of our business compared to the best asset managers wherever they may exist. We will do this in a spirit of collaboration internally with all employees, and with our clients and all stakeholders.

AIMCo remains committed to seek out the best investment opportunities for our clients with careful consideration of their unique liability and risk-return profiles. We will strive to be a transparent and trusted advisor and will work closely to understand client needs. We will match those needs to our capabilities and ensure that long-term stakeholder obligations are satisfied.

AIMCo’s performance benchmarks measure what our Clients could earn by passively implementing their investment policy with bond and stock market index investments. The incremental return above what markets provide measures the contribution of active management, referred to as value add.

The selection of appropriate benchmarks is important in investment management. Done properly, it ensures alignment of the Client’s risk and return objectives to the investment strategy of the asset manager. Public market investment benchmarks comprise all of the attributes of an unbiased effective measure – transparent, stable, and investable. Illiquid asset classes are more difficult to benchmark given the lack of readily available comparison data for the physical assets invested in and due to the fact that by their very nature, these investments are expected to provide an illiquidity premium relative to the nearest listed proxy.

AIMCo and its Clients work together to identify the most appropriate benchmarks against which performance should be measured

1) Why exactly did AIMCo underperform its benchmark in 2014? What repricing of which assets?
2) Performance of private equity is NOT clear. On one table (p. 34) with all the asset classes it is 11.9% vs benchmark of 13.5% but then on p. 38 it says private equity returned 21.7% outperforming its benchmark by 8.1%...very confusing!
3) AIMCo is now making opportunistic real estate investments outside of Canada (small percentage) but using a Canadian AAA real estate index?

Copied Leo de Bever here as he was the CEO in 2014. Also, with Alberta oil revenues falling fast, how will this impact AIMCo?

1) Why exactly did AIMCo underperform its benchmark in 2014? What repricing of which assets?

As discussed elsewhere in the Annual Report, AIMCo’s illiquid investment classes such as Infrastructure, Timber and Private Equity use Public Market benchmarks. Combined, these asset classes account for approximately $7.5 billion or 9% of our AUM. The Public Market benchmarks experienced strong performance during the relevant period, resulting in a corresponding underperformance of the illiquid asset classes. We are continually reviewing our methods of measuring performance and in 2015 have undertaken a review of certain of our illiquid benchmarks in collaboration with our clients.

AIMCo holds illiquid investment in certain insurance-linked assets. These assets were revalued in 2014 for a number of reasons, including updated information, better clarity on the application of accounting principles and the increasing sophistication of the relevant market.

2) Performance of private equity is NOT clear. On one table (p. 34) with all the asset classes it is 11.9% vs benchmark of 13.5% but then on p. 38 it says private equity returned 21.7% outperforming its benchmark by 8.1%...very confusing!

The $3.3 billion Private Equity asset class noted on Page 34 is an aggregated total comprising three main strategies – Private Equity Investments, as well as, AIMCo’s Relationship Investing and Venture Capital. The aggregate return of 11.9% does not provide a true picture of how each strategy performed, so to provide the reader additional detail, we chose to break out the MD&A by specific strategy on Page 39. I appreciate how it can be confusing, so in future reports we will consider adding a line to clarify.

3) AIMCo is now making opportunistic real estate investments outside of Canada (small percentage) but using a Canadian AAA real estate index?

We invest opportunistically in real estate in foreign markets as an alternative to investing in Canada. We use the REALpac / IPD Canadian All Property Index – Large Institutional Subset to judge the performance of those foreign assets against what we would have earned had we instead invested within Canada.

U.S. employment rose at a solid clip in July and wages rebounded after a surprise stall in the prior month, signs of an improving economy that could open the door wider to a Federal Reserve interest rate hike in September.

Nonfarm payrolls increased 215,000 last month as a pickup in construction and manufacturing jobs offset further declines in the mining sector, the Labor Department said on Friday. The unemployment rate held at a seven-year low of 5.3 percent.

Payrolls data for May and June were revised to show 14,000 more jobs created than previously reported. In addition, the average workweek increased to 34.6 hours, the highest since February, from 34.5 hours in June.

"If you thought that the Fed was going to go in September, this report would suit that thematic nicely. I don't think anything has changed in that regard. I think it's another step toward the eventual lift-off," said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York.

U.S. stock index futures and prices for shorter-dated U.S. Treasuries were trading lower after the data. The dollar rose to a two-month high against the yen and firmed versus the euro. The swaps market was pricing in a 52 percent chance of a September rate hike, up from 47 percent before the jobs data.

Though hiring has slowed from last year's robust pace, it remains at double the rate needed to keep up with population growth. The Fed last month upgraded its assessment of the labor market, describing it as continuing to "improve, with solid job gains and declining unemployment."

Average hourly earnings increased five cents, or 0.2 percent, last month after being flat in June. That put them 2.1 percent above the year-ago level, but well shy of the 3.5 percent growth rate economists associate with full employment.

Still, the gain supports views that a sharp slowdown in compensation growth in the second quarter and consumer spending in June were temporary. Economists had forecast nonfarm payrolls increasing 223,000 last month and the unemployment rate holding steady at 5.3 percent.

Wage growth has been disappointingly slow. But tightening labor market conditions and decisions by several state and local governments to raise their minimum wage have fueled expectations of a pickup.

In addition, a number of retailers, including Walmart, the nation's largest private employer, Target and TJX Cos have increased pay for hourly workers.

NEARING FULL EMPLOYMENT

The jobless rate is near the 5.0 percent to 5.2 percent range most Fed officials think is consistent with a steady but low level of inflation.

A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell to 10.4 percent last month, the lowest since June 2008, from 10.5 percent in June.

But the labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, held at a more than 37-1/2-year low of 62.6 percent.

The fairly healthy employment report added to robust July automobile sales and service industries data in suggesting the economy continues to gather momentum after growing at a 2.3 percent annual rate in the second quarter.

Employment gains in July were concentrated in service industries. At the same time, construction payrolls rose 6,000 thanks to a strengthening housing market, after being unchanged in June. Factory payrolls increased 15,000 as some automakers have decided to forgo a usual summer plant shutdown for retooling, after rising 2,000 in June.

More layoffs in the energy sector, which is grappling with last year's sharp decline in crude oil prices, were a drag on mining payrolls, which shed 4,000 jobs in July. The mining sector has lost 78,000 jobs since December.

Oilfield giants Schlumberger and Halliburton and many others in the oil and gas industry have announced thousands of job cuts in the past few months.

Federal Reserve Chair Janet Yellen said less than a month ago that she expected the dollar's drag on the American economy to dissipate. She may not have foreseen that the greenback would surge to an 11-year high against the currency of the U.S.'s biggest trading partner.

As the greenback's advance against the euro and the yen subsided, its 5 percent rally against the Canadian dollar this quarter may prove to be more detrimental to the world's biggest economy. The U.S.'s northern neighbor buys about 17 percent of America's products, more than any other nation, data compiled by Bloomberg show. And shipments already have declined after reaching a record last year (click on image below).

A firm dollar makes American goods relatively more expensive abroad, presenting a hurdle for Fed officials as they prepare to raise interest rates for the first time since 2006.


The central bank's trade-weighted dollar index is approaching the March high that prompted Yellen at the time to warn the currency is weighing on exports and inflation. The index, which includes only major currencies, gives an almost 13 percent weighting to Canada, trailing only the euro area's influence.

``Since late June, the speed in the dollar rally is probably equivalent to what we had earlier,'' said Charles St-Arnaud, senior economist at Nomura Holdings Inc. in London. ``I can hear some investors saying, `Oh yeah we're back to where we were in March when the Fed started to be worried about the dollar.'''

Andurand Capital Management, run by Pierre Andurand, gained 3.5 percent in July, bringing his 2015 gains to 4.8 percent, according to a person familiar with the matter. The fund, which manages about $500 million, delivered a 38 percent return in 2014. The company declined to comment.

Simon Clark of the Wall Street Journal reports, Dutch Pension Fund Demands Full Fee Disclosure From Private-Equity Firms:

A Dutch pension fund running €186.6 billion ($204 billion) is to cease investing in outside money managers, including private-equity firms, that don’t fully disclose their fees, a move that echoes concerns raised by a host of U.S. investors.

In a document seen by The Wall Street Journal, Dutch fund PGGM sets out for the first time what it deems to be acceptable compensation for money managers. It is worried that the pensions of its clients—social workers and nurses—are being undermined by high fees.

“The interests of our beneficiaries and the interests of the asset management industry are not always aligned,” Ruulke Bagijn, PGGM’s chief investment officer for private markets, said in an interview. “We are on the side of pension funds and we no longer want to turn a blind eye on difficult subjects like fees and compensation.”

Ms. Bagijn oversees investments including private equity, which accounts for a high proportion of the fees PGGM pays to managers, especially when compared with the amount invested in the asset class. Most of the money that PGGM manages is on behalf of the PFZW pension fund. More than half of PFZW’s €811 million fee bill in 2014 went to private equity. Yet private equity only accounts for 5.6% of PFZW’s €162 billion of assets.

PGGM’s determination to reduce fees coincides with a Securities and Exchange Commission investigation into the private equity industry which has focused on expenses. The SEC has been helpful in highlighting the issue, Ms. Bagijn said. In addition to annual management fees and keeping a share of profits, private-equity firms sometimes charge less-visible administration and transaction fees. In July, a group of U.S. state and city officials wrote to urge the SEC to require private-equity firms to make better disclosure of expenses.

PGGM will gradually introduce its new rules and will stop investing in funds that don’t disclose all fees by 2020, according to the document. It will also stop investing in funds whose fees are deemed to be “considerably higher than costs.” PGGM expects remuneration to be based mainly on the performance of managers’ funds, and it is monitoring how much of each manager’s own money is invested in their funds.

“Writing what we find acceptable and what we don’t find acceptable is new,” Ms. Bagijn said.

She wouldn’t disclose the share of fees from PFZW that PGGM keeps. The fees which PGGM retains for itself, rather than passing on to asset managers, are “a very small part of the overall fees that PFZW is reporting,” Ms. Bagijn said.

PGGM sold its private equity investment unit in 2011. It continues to invest in private equity despite higher costs because of the relatively high returns. Private equity returns over a 40 year period add almost 5% to PFZW pensions, according to PGGM. The fund faces the dilemma of reducing costs at the same time as maintaining high performance.

To reduce its fee bill, PGGM stopped investing in infrastructure funds and started investing directly in infrastructure assets a few years ago. As a result, annual infrastructure fees have declined from more than 2% of assets to less than 1% and PGGM expects them to decline further. PFZW paid €36 million in infrastructure fees in 2014 and had €4.3 billion in the asset class last year.

In private equity, the pension fund has started to invest directly in takeovers, such as the €3.7 billion purchase of car leasing company LeasePlan Corporation NV in July. It is also backing the creation of new private-equity firms in exchange for better terms on fees. Last year, PGGM supported the spinout of Nordian Capital Partners, formerly the private equity unit of Rabobank. The fund is also committing larger amounts to some managers to gain more favorable terms.

“We are able to make progress because we are going more direct,” Ms. Bagijn said. “That is already resulting in lower costs for our clients and further cost reduction will be substantial going forward.”

Kudos to Ruulke Bagijn, she's definitely on the right track pushing hard against powerful private equity interests who basically want to continue charging exorbitant fees and steal from clients by not disclosing lucrative arrangements they have with third-party providers.

And it's not just PGGM that's hopping mad about private equity fees. Sophia Greene of the Financial Times reports, An outburst of outrage about private equity fees:

It turns out the biggest US pension funds, which have large allocations to private equity, have no idea what profits their private equity managers have made off those allocations.

Every time FTfm publishes more details of this ridiculous situation, there is an outburst of outrage on social media, where a small faction believes we are conducting a campaign against private equity. Either investors should not care about the private equity managers’ earnings, because they only exist if the returns are positive, or investors should stop complaining because they knew the deal when they handed their money over.

This is wrong on pretty much all counts.

First, just to be clear, we have nothing against private equity. It is a perfectly valid asset class and many managers add significant value to their investments and the wider economy through their judicious capital allocation and the support they give their investee companies. This does not excuse poor performance, bad practice or overcharging.

The other two ideas need rather more careful consideration. Does it make a difference what your manager makes on the back of your investment? Private equity managers charge a pro rata management fee, which is agreed upfront and about which there is no mystery. However, they also get to hold on to a share of whatever profits they make for a client. No profit, no share for the manager.

Provided the net returns are acceptable, should it matter to the pension fund what their manager is getting? Of course it should. Without transparency, how can they know if they are getting value for money? How can they negotiate the best deal for themselves, or rather for their members? This is key. Pension funds have a fiduciary duty to their members and it is hard to see how derogating all responsibility for a chunk of that money is meeting that duty.

Collectively it is also important that private equity fees are clearer, because this is supposed to be a competitive market. Managers would no doubt claim the competitive differences lie in their skill rather than their fees, but investors might like to take account of how much it costs as well.

Look at Calpers, the Californian pension fund that is only just about to start finding out how much its private equity managers are charging in total. This will be useful to it in its current review of private equity, which aims to cut the number of managers in half. How would they be expected to go about choosing the better half without knowing how much they are paying for these services?

The other argument put forward to imply this is all a storm in a teacup might be described as victim blaming. The pension funds are big enough and ugly enough to look after themselves, to read the contracts and decide if the deal offered is worth it.

There may well be an element of truth in that — the pension funds certainly should have acted more in line with their description of being “sophisticated investors”, but it does not mean private equity managers have come out of this looking squeaky clean.

Considering the terms and conditions of private equity contracts, it is apparently standard practice to include a clause saying that not only will the managers not reveal the fees they pay themselves out of the funds, but they will feel free to charge all sorts of expenses (including travel expenses “without limit”) to the portfolio companies, which will then be reimbursed from the fund. Any such reimbursements will of course not be disclosed, despite the acknowledged conflict of interest.

Investors should have known better than to accept such terms, but it looks as though these deals may no longer be sustainable. Private equity managers may be about to find out whether their business models are viable without being shrouded in secrecy.

Anyone looking for the shades of 2006 in this year’s sky-high, credit-infused markets will have noticed one big missing piece: the large leveraged buyout.

Buyouts are certainly back. In Europe and the UK alone, private equity deals worth £100m and over are being signed at rates that would bring volumes close to levels last seen in 2006, if the pace is sustained throughout this year, according to Canaccord Genuity.

That would be about €190bn and £65bn, respectively. Yet the single deal valued at more than $10bn, a common sight in 2006, is nowhere close to reappearing partly because investors do not like the big exposure.

In the first half of the year — one of the busiest six months on record for dealmakers — only six cents in every dollar of M&A came from buyouts, according to Thomson Reuters data.

This even though private equity groups are sitting on $1tn of “dry powder” — money committed but not yet invested in deals. Although they are flush with capital — and using buoyant public markets to realise even more cash on selling assets — private equity groups are scrambling to avoid paying high prices for a shrinking pool of large investments that might threaten future returns.

“It is a big issue,” says Harry Hampson, the head of financial sponsors for JPMorgan in Europe. “If you think of the money that has been raised, they really need to deploy capital.”

Instead they are increasingly buying smaller assets, often then expanding them through an acquisition spree. This sounds simple, but is a profound change in how private equity has aimed to make money historically.

One way private equity, which uses debt to buy companies, traditionally drove returns was simply to exit an investment with its value at a higher multiple of earnings than when it was bought. That has become increasingly untenable in the post-crisis era.

At the end of 2014 the average target was already valued at nearly 10 times its earnings, before interest, tax, depreciation and amortisation, at the end of 2014, going by S&P Capital IQ figures. That figure has since edged over 10, beating records set in 2007.

Private equity have at least taken advantage of such valuations as sellers of investments, exiting at an impressive pace recently.

In the 12 months to the end of the second quarter, Apollo, KKR, Carlyle, and Blackstone, four US titans of the industry, alone realised more than $90bn on listing or selling investments, including real estate.

There are more exits to come. KKR’s First Data, a leveraged buyout when bought for $30bn in 2006, has filed to list this year after ebullient credit markets refinanced its heavy debt.

For some investors in buyouts recycling this cash into new funds, avoiding mega-sized deals may be a blessing in disguise.

Entering an investment at a multiple that is hard to grow further presents a problem for private equity’s traditional promise to more than double an investors’ money over the years capital is locked in a fund.

Rising market multiples are also directly feeding the competition: listed corporate acquirers. They can bid for assets with a lower cost of capital, by using their stock as acquisition currency, or through issuing cheap debt.

Both factors seem to be leading European groups off the beaten path and into closer involvement with portfolio companies’ expansion plans.

So far this year CVC, one of the largest of the European buyout houses, has snapped up assets as diverse as the energy unit of Poland’s state railway, a Mamma Mia!-producing Dutch theatre group, and a New Jersey generic drugmaker.

Similarly Permira, a rival to CVC, has done tech-focused deals including Informatica, one of the year’s largest leveraged buyouts, and acquiring eBay’s enterprise unit. Such businesses may have potential for international expansion or lie in a sector where growth is fast, enough to justify seemingly big multiples.

Another option is to go empire-building: the “buy-and-build” strategy. After completing a buyout, private equity can use the freshly-acquired company to acquire similar businesses — given the excess capital in the industry, groups are likely to have the firepower for further deals.

This allows them to find smaller assets at more attractive investments and combine their revenues to accelerate growth, before selling or floating the bulked up company.

Credit markets at the moment are ideal for this model, with few covenants or hefty repayment demands in new loans to limit an acquisition spree. It is also a way around investors’ phobia of large leveraged deals after the 2006 blow-ups. Building a bigger business also gives private equity more options when the comes time to exit, such as a stock market listing.

Cinven, the London-based private equity group, has used buy-and-builds in the past to roll up assets ranging from life insurance to generic drugs. Now it is betting medical diagnostics laboratories in Europe, key to its health services cutting costs by focusing on prevention, are fragmented and ripe for consolidation.

In May Cinven bought French medical diagnostics company Labco for €1.2bn and one month later it bolted on Germany’s Synlab. Combined, the two had a respectably-sized €2.9bn enterprise value.

The risk of buy-and-build strategies is being tempted to overpay for assets, with the hope of finding acquisitions to fill the gap later.

“A disciplined investor should not be paying synergistic multiples on the first deal,” says Stuart McAlpine, a Cinven partner. “You’re 15-love down before you’ve started.”

An army of “zombie funds” are stalking the Street. Zombie funds are private equity vehicles that deployed investor’s capital at peak valuations, often just before the market tanked during the recession, and then were forced to hang onto their assets much longer than the norm, looking for a way out. After years of economic recovery they are still unable to sell off their assets at a profit, even during our current good times, which is resulting in yet more such private equity funds turning into ghouls.

At the end of July, the number of private equity zombie funds, originally formed between 2003 and 2008, rose 12.5% to 1,180 versus this time last year, according to industry tracker Preqin. In the past two years, assets held by zombies ballooned by 45% to $126.6 billion, as yet more funds formed in 2008 have joined the ranks of the undead.

That’s a sobering thought and seven years into the bull market it’s worth extracting some lessons from the excesses of the previous boom and bust, particularly as private equity valuations are again sky-high and reminiscent of the previous pre-recession gorge-fest.

First, some number crunching: Zombie funds formed in 2004 had a median distribution of 37.4% versus 94.4% for the overall industry. Faring even worse were the zombie funds launched in 2007, which have paid out just 21.6% to date. While they sit on their underwater deals, the zombies feed off their management fees. According to Preqin, the average zombie fund charged investors the industry-typical 2% annual management fee – and they continue to plague wealth investors’ portfolios to this day.

Why does all this matter today? “In North America and Europe, we’re seeing peak pricing yet again,” warns Dan O’Donnell, Citi Private Bank’s head of private equity and real estate. Private equity deals in both of those regions are currently valued at roughly 10 times EBITDA (earnings before interest, taxes, depreciation and amortization) on average versus about 7 times in 2002, he says. That means investors today are buying in at historically-elevated valuations and, as is typical in private equity, are then locked in for five to ten years. That makes O’Donnell nervous. At current pricing, it’s hard to justify that illiquidity, he says, since “you have to price in some level of contraction over the next five to seven years.”

But it’s not all bad even in this environment, O’Donnell says, if you know where to look. He continues to believe in an earlier bet Citi made on behalf of clients: investing in European non-performing loans—those in which borrowers have not made payments for at least 90 days— which are being sold off in an effort to recapitalize the continent’s struggling banks. According to a PwC estimate, the value of Europe’s bad loans at the end of 2014 was €1.9 trillion ($2.1 trillion), up from €1 trillion just two years ago. KKR, Blackstone Group, Cerberus, PIMCO and Apollo Global Management have all launched funds to snap up these distressed loans.

As Penta noted in a previous story, banks were selling these NPLs at such steep discounts, in the 30-to-50 cents range, helping investors to realize returns, net of fees, in the mid-to-high teens over the next five years. Citi’s early bet already appears to be paying off. Citi Private Bank has invested in two PIMCO Bravo funds on behalf of it’s wealthy clients. The first fund was launched more than three years ago and has realized annual returns of 19%, net of fees. With continued turmoil in Europe, O’Donnell still sees “attractive discounts” in European NPLs today, especially for American investors who are buying up these assets with stronger dollars. The dollar is up 18% in the past year versus the euro.

In essence, investors need to dig a little deeper to find deals in today’s heady private equity market. If zombie funds can teach us anything, it’s that when buying into a maturing bull market, investors need to be hyper wary of overpaying for investments that look good on paper – but are, in fact, already the walking dead.

Ontario’s pension plan will come in waves, but all employees in the province will be covered by a workplace plan or the new provincial design by 2020, Premier Kathleen Wynne said Tuesday.

The Ontario Retirement Pension Plan will start requiring contributions from the largest employers, those with more than 500 workers, in 2017. However, employers who already offer mandatory, registered pension coverage will be exempt if their plan is deemed comparable to the ORPP by the province. Companies whose pension plans are currently optional for employees or who don’t meet that threshold will have until 2020 to bring their plans up to snuff.

After the announcement, she admitted that the Liberals have no idea how much it will cost to run the new pension plan.

“We don’t know what those costs will be yet,” she said.

The pension plan was a major plank of the Liberals 2014 budget and the subsequent election campaign. Though some details were announced at the time, Tuesday marked the first time the province clarified who the ORPP would capture and how it plans to phase in the plan.

In 2022, people who are 65 or older can start drawing on the ORPP, though how much they will be eligible for is not yet known. Workers, whether part-time or full-time, will start contributing at age 18 and can do so until they turn 70. The Canada Pension Plan, upon which the ORPP is modelled, exempts workers who make less than $3,500 a year, but the province is still consulting on that minimum threshold.

The goal is to bridge the gap for the two thirds of Ontarians without a workplace pension plan and the half of workers who contribute to neither a workplace plan nor an RRSP. The hope is 3.5 million Ontarians will be part of the plan by 2020 and all workers will be enrolled either in the provincial option or a workplace pension.

The plan will collect 1.9 per cent of a workers’ income up to $90,000 from both employers and employees to a total of 3.8 per cent, or a combined total of $3,420 a year. That means those making $90,000 a year would pay just under $33 a week into the ORPP if they don’t have a comparable workplace plan and their employers would match that. That province believes that will result in over $12,800 a year in retirement income once the plan is fully implemented and if they pay into the ORPP for 40 years.

People making $45,000 a year, would pay just over $16 a week into the plan, which would also be matched by employers for an annual combined contribution of $1,710. Estimates suggest they will receive over $6,400 a year in retirement income once the plan is fully implemented and if they pay into the ORPP for 40 years.

The contributions will likely be slightly lower once an exemption for the first few thousand dollars of income earned is accounted for, as is the case with the Canada Pension Plan

Administration costs for the plan will likely run between $130 a person and $200 a person, officials said.

Employers with mandatory defined benefit plans — plans that offer a set amount of retirement income that remains constant over employees’ lifetimes — that save at least 0.5 per cent will be exempt. Employers with defined contribution plans — plans that don’t offer a set amount of income but are instead open to the fluctuations of the market — must sock away at least 8 per cent of employees’ income. All employees in a company must be enrolled for it to be exempt. Employers with optional plans will have until 2020 to make them mandatory or they will have to join the ORPP.

The costs to employers who must enroll will be 1.9 per cent of their total payroll.

Premier Kathleen Wynne is standing firm on bringing in a made-in-Ontario pension in the face of widespread criticism.

After details for the proposed Ontario Retirement Pension Plan ‎(ORPP) were revealed Tuesday, Wynne said something has to be done for the two-thirds of workers in the province who don’t have a workplace pension.

“I believe it is the right thing to do,” Wynne said of the plan, noting that two our of three Ontario workers have no pension plan other than the Canada Pension Plan (CPP), which she says is just not enough at an average of $6,900 a year.

Her biggest critic, federal Conservative Leader Stephen Harper, who was campaigning in the GTA, said the proposed pension plan was a job-killing tax.

“That’s a huge tax hike. It’s not a good idea. It’s a bad thing for the middle class and it’s obviously a bad thing as well for jobs. And it’s a bad thing for our economy,” said Harper in Markham.

The Canadian Federation of Independent Business, representing small- and medium-sized business, is also fiercely critical of the Ontario pension plan, predicting it will result in job loss.

Wynne acknowledged the missing piece remains how much it could cost to create the ORPP.

But she said she is determined to ignore the critics and push ahead on the plan that would see all Ontario employees belong to a workplace pension plan of one kind or another in five years.

Companies that already have comparable workplace pension plans will be exempt from the ORPP, which is to be phased in by 2020. Like the Canada Pension P‎lan, the ORPP would be equally funded by both employers and employee — 1.9 per cent from each.

ORPP details show that a person making $45,000 a year will pay $2.16 a day. It will go up to $4.50 a day for someone making the maximum of $90,000 annually.

The plan, according to a Liberal government release, will be fully implemented by 2020 and affect about 3.5 million in Ontario, with benefits starting to be paid out two years later. Participants must be 65 or older before they can collect.

According to the ORPP details, a person making $45,000 a year for 40 years will receive $6,410 a year for life, compared to $12,815‎ a year for life for the top $90,000 earners — equal to about a 15 per cent return after four decades.

If approved, the ORPP would begin in 2017 with large-size employers — 500 or more employees — without registered workplace pension plans. Medium-size employers with 50 to 499 employees without registered workplace pension plans would start to contribute in 2018. The plan will not include small-size employers until 2019.

Harper has refused to increase CPP benefits as requested by several provincial leaders; he has also has decided the federal government will not administer the plan for Ontario.

He said he was “delighted” his government’s refusal to co-operate with the plan is making it harder for the Ontario government to implement the program.

Wynne said Harper, whose federal pension would be about $140,000 a year, has decided there isn’t a need across Canada for supplementary provincial pension plans “and is now standing in the way of trying to help us implement this plan.”

Federal Liberal Leader Justin Trudeau has said if his party were to form a government it will look at expanding the CPP, along the lines of what Wynne is suggesting.

Harper was not alone in his condemnation of the ORPP, which would be phased in over the next five years for firms that don’t have a pension plan at all, or one that is not comparable to the ORPP. Business leaders say ‎many companies simply can’t afford it and that if it is forced on them it could mean layoffs.

“I have to make it clear that most small- and medium-size businesses don’t have a pension plan right now, not because they don’t want to have one, it’s because they can’t afford it. And I think that is a point this government has missed since the very beginning of this conversation,” said Plamen Petkov, CFIB’s Ontario vice-president.

Petkov said employers will be left with having to leave the province altogether or reduce staff in order to cover their pension contributions.

Progressive Conservative MPP Julia Munro said people are going to lose their jobs because of this pension plan.

“Small businesses in particular will be forced to reduce their staff to compensate for the mandatory contribution of nearly 4 per cent (in total) from each employer and employee,” Munro said, who further criticized the government for not producing a cost/benefit analysis.

Allan O’Dette, president and CEO of the Ontario Chamber of Commerce, said the OCC remains concerned the ORPP in its current form “will have a negative impact on business competitiveness.”

Sid Ryan, president of the Ontario Federation of Labour, said the fact the ORPP is not going to be universal — unlike the CPP — will cause no end of problems, including driving up the cost of administration.

“The magic of the CPP is that it is universal — all workers are covered — and as a result of that you have low administration costs. What was announced today is a mish-mash of that,” he told reporters.

Meanwhile, the Canadian Labour Congress is calling for a doubling of the CPP benefits.

By the numbers

— With files from Bruce Campion-Smith

For the 3.5 million workers expected to participate in the Ontario Retirement Pension Plan:

• An employee making $45,000 a year will contribute $2.16 a day or $788.40 a year.
• An employee paid $70,000 a year will contribute $3.46 a day or $1,262.90 a year.
• An employee earning the maximum of 90,000 annually will shell out $4.50 a day or $1,642.50 annually.

Payouts after 40 years:

• An employee making $45,000 a year would receive $6,410 a year for life.
• An employee with a salary of $70,000 a year would receive $9,970 a year for life.
• An employee making $90,000 a year would receive $12,815‎ a year for life.

When fully implemented the ORPP would bring in about $3.5 billion annually.

On Tuesday morning, Ontario Premier Kathleen Wynne stood in front of a group of reporters as they asked her questions about the new provincial pension plan, to be rolled out in phases between 2017 and 2020. The premier had just delivered a near 20-minute monologue about the accolades of the new program, despite the fact that many of the specifics will surely depend on who forms the new federal government after the October election. Indeed, it probably would have made more sense to give an update in the fall, but why put off until tomorrow when you can remind Ontarians that Stephen Harper is “standing in the way” of comfortable retirement today?

Tuesday marked the first time Wynne clarified some of the exemption rules of the Ontario Retirement Pension Plan (ORPP), which the Liberals campaigned on during last year’s provincial election. As of 2017, companies with more than 500 employees will be required to start contributing to the plan, unless they already offer comparable mandatory defined benefit or contribution pension plans. Those without will be required to contribute 1.9 per cent of each employee’s salary up to $90,000, which combined with an equal contribution from employees will mean a total of 3.8 per cent. According to briefing documents, those earning $45,000 would contribute $2.16 per day to the plan, whereas an employee earning the maximum amount — $90,000 —would contribute $4.50 per day. By the time the program is fully implemented to include all employers by 2020, the government expects 3.5 million Ontarians will be covered by the ORRP.

Naturally, the briefing left some questions unanswered: How will the ORPP incorporate self-employed Ontarians? Would the Ontario government scrap the program if the federal government expands CPP? And what will be the administrative costs of rolling out the program?

The answer, in each case, was essentially a shrug: “We are working to make this a low-cost plan,” the premier said, conceding that at this point she can’t speak to numbers. That is, of course, quite rich from a government lecturing Ontarians about improperly managing their finances. Pressed on how the plan might affect employees who might not be able to afford setting aside an extra 1.9 per cent, Minister of Finance Charles Sousa cited the billions in unused RRSP contributions as evidence that people can save for retirement, but are choosing not to.

In fact, there is ample evidence that Ontarians are much better prepared for retirement than the government would have us believe, between CPP, Old Age Security, RRSPs, savings and private equity. Indeed, a June report from the C.D. Howe Institute suggested that most of us can retire comfortably on less than the traditional 70 per cent of pre-retirement income target, considering that many of our daily budget strains (childcare, mortgage payments, etc). settle by the time we reach retirement age.

What’s more, another recent study from the Fraser Institute found that forced government savings plans might very well offset Canadian households’ private savings after looking at CPP investment in the 1990s and finding that with every percentage point increase in CPP contributions, private savings dropped by 0.895 percentage points. This suggests that Ontario’s forced savings plan won’t actually ensure that Ontarians save more, but simply that they save differently. It also just so happens to ensure that the $3-billion or so to be collected annually by the time the ORPP is fully implemented in 2020 will kept in the hands of the government, allowing for “new pools of capital for Ontario-based project such as building roads, bridges and new transit,” as stated in last year’s budget. Oh yes, and for your retirement.

In sum, the Ontario government is excitedly moving forward on a plan that will cost X, to solve Y, which will cost you 1.9 per cent of your annual income. The government may or may not abandon the plan if the federal government expands CPP, but hey, we might be able to finance new roads! Ontarians cannot afford to retire, but they can afford another forced savings plan. Any questions?

[...] there is no denying that Ontario has the best pension plans in the world. Go read my comment on Ontario Teachers' 2014 results as well as that on the Healthcare of Ontario Pension Plan's 2014 results. There are a lot of talented individuals working there that really know their stuff and you have to pay up for this talent. The same goes for CPPIB, OMERS, and the rest of the big pensions in Canada. If you don't get the compensation right, you're basically condemning these public pensions to mediocrity.

What else does the National Post comment miss? It completely ignores the benefits of Canada's top ten to the overall economy but more importantly, it completely ignores a study on the benefits of DB plans and conveniently ignores the brutal truth on DC plans.

But the thing that really pisses me off from this National Post editorial is that it fails to understand costs at the CPPIB and put them in proper context relative to other global pensions and sovereign wealth funds with operations around the world and relative to the mutual fund industry which keeps raping Canadians on fees for lousy performance. It also raises dubious and laughable points on the Caisse and QPP with no proper assessment of the success of the Quebec portfolio or why our large public pensions can play an important role in developing Canada's infrastructure.

But the National Post is a rag of a national newspaper and I would expect no less than this terrible hatchet job from its editors. The only reason I read it is to see what the dimwits running our federal government are thinking. And from my vantage, there isn't much thinking going on there, just more of the same nonsense pandering to Canada's financial services industry and the brain-dead CFIB which wouldn't know what's good for its members if it slapped it across the face (trust me, I worked as a senior economist at the BDC, the CFIB is clueless on good retirement policy and many other policies).

West Texas Intermediate crude oil is at a six-year low of $43 a barrel.

And back in December, "bond king" Jeff Gundlach had a serious warning for the world if oil prices got to $40 a barrel.

"I hope it does not go to $40," Gundlach said in a presentation, "because then something is very, very wrong with the world, not just the economy. The geopolitical consequences could be — to put it bluntly — terrifying."

Writing in The Telegraph last week, Ambrose Evans-Pritchard noted that with Brent crude oil prices — the international benchmark — below $50 a barrel, only Norway's government was bringing in enough revenue to balance its budget this year.

And all this as the Federal Reserve makes noise about raising interest rates, having some in the market asking whether these external factors — what the Fed would call "exogenous" factors — will stop the Fed from changing its interest-rate policy for the first time in over almost seven years.

On December 9, WTI was trading near $65 a barrel and Gundlach said oil looked as if it was going lower, quipping that oil would find a bottom when it starts going up.

WTI eventually bottomed at $43 in mid-March and spend most all of the spring and early summer trading near $60.

On Tuesday, WTI hit a fresh six-year low, plunging more than 4% and trading below $43 a barrel.

In the past month, crude and the entire commodity complex have rolled over again as the market battles oversupply and a Chinese economy that slowing.

And all this as the Federal Reserve makes noise about raising interest rates, having some in the market asking whether these external factors — what the Fed would call "exogenous" factors — will stop the Fed from changing its interest-rate policy for the first time in over almost seven years.

In an afternoon email, Russ Certo, a rate strategist at Brean Capital, highlighted Gundlach's comments and said the linkages between the run-up, and now collapse, in commodity prices since the financial crisis have made, quite simply, for an extremely complex market environment right now.

"There is a global deleveraging occurring in front of our eyes," Certo wrote. "And, I suppose, the smart folks will determine the exact causes and translate what that means for FUTURE investment thesis. Today it may not matter other than accurately anticipating a myriad of global price movements in relation to each other."

...it should not be surprising that the 10-year yield will shoot up to at least 2.5% if and when the Fed hikes rates. This will provoke considerable excitement in the business press, and "I told you so!" comments by bond perma-bears. But once that initial surge has passed, the market would revert to rather boring range-trading around a slowly rising trend. In particular, analysts who use fair value models based on a regression of 10-year yields versus the Fed Funds rate (with a regression beta around 1), may be shocked by the lack of movement in the long end relative to the policy rate.

Bonds might underperform cash (or equivalently, short duration strategies outperform), but it will be a game of inches, not a fixed income apocalypse.

• The global jobs crisis: Jobs are vanishing all around the world at an alarming rate. Worse still, full employment jobs with good wages and benefits are being replaced with partial employment jobs with low wages and no benefits.
• Demographics: The aging of the population isn't pro-growth. As people get older, they live on a fixed income, consume less, and are generally more careful with their meager savings. The fact that the unemployment rate is soaring for younger workers just adds more fuel to the fire. Without a decent job, young people cannot afford to get married, buy a house and have children.
• The global pension crisis: A common theme of this blog is how pension poverty is wreaking havoc on our economy. It's not just the demographic shift, as people retire with little or no savings, they consume less, governments collect less sales taxes and they pay out more in social welfare costs. This is why I'm such a stickler for enhanced CPP and Social Security, a universal pension which covers everyone (provided governments get the governance and risk-sharing right).
• Rising inequality: The ultra wealthy keep getting richer and the poor keep getting poorer. Who cares? This is how it's always been and how it will always be. Unfortunately, as Warren Buffett and other enlightened billionaires have noted, the marginal utility of an extra billion to them isn't as useful as it can be to millions of others struggling under crushing poverty. Moreover, while Buffett and Gates talk up "The Giving Pledge", the truth is philanthropy won't make a dent in the trend of rising inequality which is extremely deflationary because it concentrates wealth in the hands of a few and does nothing to stimulate widespread consumption (I know, we can argue that last point but for the most part, you know I'm right).  
• High and unsustainable debt in the developed world: Government and household debt levels are high and unsustainable in many developed nations. This too constrains government and personal spending and is very deflationary.

Hedge funds had to publish their 13F filings on Friday, and that means we have insight into what the biggest names in finance were buying and selling in the second quarter.

There are a few standout investments: Tech-focused hedge fund Tiger Global took a big position in Netflix, while Jana Partners invested in Precision Castparts right before Warren Buffett announced a takeover of the company.

A number of funds also took positions in pharmaceuticals stock Perrigo, including Kyle Bass of Hayman Capital.

Alibaba was another stock to see hedge fund action in the second quarter. David Tepper's Appaloosa Management bought into the Chinese e-retailer, while Tudor Investment Corporation — led by billionaire Paul Tudor Jones II — sold out.

Here is a breakdown of what the biggest names in finance were buying and selling in the second quarter, based on Bloomberg data on the top buys and sells by market value.

Leon Cooperman at Omega Advisors

The $9 billion hedge fund opened positions in Priceline, Google, Springleaf Holdings, Gulfport Energy, and MGM Resorts in the second quarter, according to his fund's 13F filing. The hedge fund sold out of Humana, Caesars Entertainment, IBM, SandRidge Energy, and Time Warner Cable.

Carl Icahn at Icahn Associates

Activist investor Icahn Associates opened positions in Gannett Co. and Cheniere Energy, and it sold its stake in Netflix, according to the fund's 13F.

Dan Loeb at Third Point

Third Point opened positions in Baxter International, T-Mobile US, Sealed Air, Devon Energy and Perrigo, according to the fund's 13F. It sold out of Dollar General, McKesson, Edgewell Personal Care, Maxim Integrated Products, and FleetCor Technologies.

Paul Singer at Elliot Management

Elliott Management took new positions in Comcast, Citrix, and Ryanair, and also put money into two exchange-traded funds: a Vanguard long-term corporate bond fund and an iShares iBoxx investment-grade bond fund. The hedge fund sold out of Airgas, Tenet, Melco Crown Entertainments, ONEOK, and an iPath S&P 500 Vix exchange-traded note.

Crispin Odey at Odey Asset Management

London-based hedge fund Odey Asset Management took new positions in Wells Fargo, Deutsche Bank, Yahoo, Nimble Storage, and JPMorgan, according to the fund's 13F. It sold out of IPG Photonics, Solaredge Technologies, Briggs & Stratton, Comcast, and JM Smucker.

David Tepper at Appaloosa Management

Distressed-debt specialist Appaloosa, which manages in the region of $20 billion, took three new positions in the second quarter: Apple, Alibaba, and Mylan. It sold out of Google and Micron Technology.

Kyle Bass of Hayman Capital

Texas-based hedge fund manager Bass took positions in Perrigo, Mylan, C&J Energy Services, Valeant Pharmaceuticals, and Pfizer in the second quarter, according to the fund's 13F.

Chase Coleman of Tiger Global

Tech-focused hedge fund Tiger Global took positions in JD.Com, Netflix, Priceline Group, Tableau Software, and Kate Spade in the second quarter. It sold positions in Alibaba, TransDigm Group, Charter Communications, Vipshop Holdings, and Liberty Ventures.

Barry Rosenstein at Jana Partners

Jana Partners took positions in Conagra Foods, Johnson Controls, Precision Castparts, Time Warner Cable, and Williams Companies in the second quarter, according to the fund's 13F. It sold out of Supervalu, Market Vectors Gold Miners, Yum! Brands, Applied Materials, and the Industrial Select Sector SPDR exchange-traded fund.

Erich Mindich at Eton Park Capital

Eton Park Capital, which is led by ex-Goldman Sachs partner Eric Mindich, took positions in Perrigo, Google, SBA Communications, Williams Companies, and Broadcom in the second quarter, according to the fund's 13F filing. The fund sold out of Thermo Fisher Scientific, CDK Global, Liberty Ventures, Spirit AeroSystems, and Polaris Industries.

Paul Tudor Jones II of Tudor Investment Corporation

Tudor Investment Corporation took stakes in Pall Corp, Broadcom, Omnicare, and Sigma-Aldrich, and it also invested in an iShares iBoxx high-yield exchange-traded fund. It told out of IBM, Alliance Data Systems, Alibaba, and disposed of its investments in the Energy Select Sector SPDR exchange-traded fund, and the iShares MSCI emerging-markets ETF.

John Paulson of Paulson & Co

Paulson & Co took positions in Starwood Hotels, Broadcom, Teva Pharmaceutical, Oi, and PharMerica Corp. The hedge fund sold out of Popular, Zillow Group, Strategic Hotels & Resorts, Home Loan Servicing Solution, and Allied Nevada Gold.

George Soros of Soros Fund Management

Soros took positions in Time Warner, Schwab, Alcoa, NRG Energy, and Pacira Pharmaceuticals in the second quarter, according to the fund's 13F filing. It sold out of Cenovus Energy, Kite Pharma, Tempur Sealy International, CF Industries, and Suncor Energy.

Steven Cohen at Point72 Asset Management

Point72 took positions in Charter Communication, Avis Budget, Sclumberger, Coach, and Achillion Pharmaceuticals, according to the fund's 13F. It sold out of Gilead Sciences, Qualcomm, FMC Technologies, Goodyear Tire & Rubber, and Radius Health.

Andrew Hall at Astenbeck Capital Management

Astenbeck Capital Management took a position in Exxon Mobil in the second quarter and sold out of Murphy Oil and Energen.

Andreas Halvorsen at Viking Global

Giant hedge fund Viking Global took positions in Amazon.com, Avago Technologies, Cigna, Aetna, and Anthem, according to the fund's 13F filing. The fund sold out of Mondelez, Micron Technology, Canadian National Railway, Starwood Hotels, and T-Mobile US.

Nelson Peltz at Trian Fund Management

Alternatives firm Trian Fund Management, which was cofounded by Nelson Peltz, took big positions in Pentair and Sysco and sold its position in Allegion.

Hedge fund managers are betting hundreds of millions of dollars that Cheniere Energy Inc., Pioneer Natural Resources Co. and Williams Cos. will be among the energy companies that survive the worst oil rout in decades.

Seth Klarman of Baupost Group bought 898,063 shares in Texas shale explorer Pioneer during the second quarter while Richard Perry’s firm added 6.26 million shares of Williams, according to regulatory filings.

Energy investors have lost more than $1.3 trillion in shareholder value as the price of oil dropped about 60 percent from its peak last year, according to data compiled by Bloomberg. And now hedge fund managers are on the hunt for bargains, said oil and gas restructuring specialist John Castellano at AlixPartners in Chicago. Many companies are struggling to survive as revenue falls and banks curtail their access to credit.

“Not every oil and gas company is distressed,” Castellano said. “There are good companies out there that have good assets, but because the entire market has come down everyone’s equity has been hit by a reduction in value.”

Eric Mindich’s hedge fund Eton Park Capital Management bought a stake worth about $118 million in Williams, the Tulsa, Oklahoma energy infrastructure company that rejected an unsolicited $48 billion takeover bid in June. Williams hired Barclays Plc and Lazard Ltd. to “explore a range of strategic alternatives” after saying the offer was insufficient. Investors are betting on a possible sale soon that may pay them a premium.

Perry’s Williams stake increased by $381.7 million during the quarter to $548.1 million, the biggest gain among its U.S. public equities. Perry also increased its stake in Cheniere, adding 666,568 shares.

Jana Partners, the $11 billion hedge-fund firm run by Barry Rosenstein, also took a stake in Williams, buying 4.21 million shares during the quarter.

Winners, Losers

“There hasn’t been a significant separation of the winners and the losers yet and I think we’re going to see the start of it this fall” among energy firms, said Omar Samji, a partner in the energy practice of law firm Jones Day in Houston. The winners “are going to be companies that can operate in this environment, that can make money.”

Boston-based Baupost increased its position in Cheniere by 1.56 million shares to a value of $1.06 billion as of June 30. Cheniere remains Baupost’s largest U.S. stock holding. Baupost, which has $28.5 billion in assets, also now holds a $563.8 million stake in Pioneer as of June 30, according to a regulatory filing.

Cheaper Stocks

Baupost lost about 1.4 percent last quarter as energy stocks fell. Pioneer, a fracking company that hedge fund manager David Einhorn in May called overvalued, dropped 15 percent in the quarter, while Cheniere declined 11 percent. Both stocks have extended their declines since then.

Baupost reduced its position in Antero Resources Corp., while buying a new stake in Sanchez Energy Corp.

Point72 Asset Management, the firm that manages billionaire Steve Cohen’s investments, also boosted its energy holdings in the second quarter. It EOG Resources Inc. stake increased by $242.9 million to $245.5 million, its largest U.S. equity-listed holding at mid-year. Point72 also bought more shares in Occidental Petroleum Corp., with the stake rising by $189.2 million to $212.6 million, according to securities filings.

Highfields Capital Management, the $12.5 billion management firm run by Jonathon Jacobson, took new positions in Sempra Energy and Cenovus Energy Inc., giving it respective stakes worth $137.4 million and $70 million. Highfields reduced its investment in Enbridge Inc. by 1.96 million shares, bringing the value of that investment to about $176 million.

Pickens’ Holdings

Billionaire oil investor T. Boone Pickens saw the value of his energy holdings more than double during the second quarter to $72.9 million as he added stakes in 14 new companies, including oil field contractors Pioneer Energy Services Corp. and C&J Energy Services Ltd. He sold off his interests in a dozen other companies, including Schlumberger Ltd., the world’s largest service provider.

Money managers who oversee more than $100 million in equities must file a Form 13F within 45 days of each quarter’s end to list their U.S.-traded stocks, options and convertible bonds. The filings don’t show non-U.S. traded securities or how much cash the firms hold.

Top U.S. hedge funds made bullish bets on the energy sector in the second quarter even as companies' shares began a slide toward multi-year lows on concerns about oversupply, regulatory filings showed on Friday.

Hedge funds such as Baupost Group, Magnetar Capital and Jana Partners increased or took new stakes in energy shares over the second quarter, a period when the S&P 500 energy index lost 2.6 percent.

That decline has since accelerated, with the S&P energy index now down about 13.7 percent for the year, largely reflecting renewed fears of crude oversupply and weak global demand. Two favorites among hedge funds were Cheniere Energy and Pioneer Natural Resources. However, both companies struggled in the second quarter, with Cheniere falling 10.5 percent and Pioneer dropping more than 15 percent.

Hedge fund managers had already been overweight the energy sector in the first quarter, expecting oil and gas shares to rebound as the year wore on, but the opposite has happened, even as some of these funds have added to their bets.

Seth Klarman's Baupost, which managed about $32 billion at the end of last year, increased its stake in Cheniere by 1.5 million shares, leaving it with a stake of 15.4 million shares that was worth about $1.1 billion at the end of the quarter.

The fund also raised its bet on Pioneer by about 900,000 shares to 4.1 million shares, bringing the stake's value to about $564 million at the end of the quarter.

The moves were revealed in quarterly disclosures of manager stock holdings, known as 13F filings, with the U.S. Securities and Exchange Commission. They are of great interest to investors trying to divine a pattern in what savvy traders are selling and buying.

Relying on the filings to develop an investment strategy comes with some peril because the disclosures come out 45 days after the end of each quarter, and the investor in question could have already changed their position.

Leon Cooperman's Omega Advisors made a smaller bet on Cheniere and bought 120,000 shares in the quarter. Filings from billionaire activist investor Carl Icahn, who reported an 8.2 percent stake in Cheniere earlier this month amounting to 19.4 million shares, showed that he began amassing the stake in the second quarter with ownership of 1.1 million shares.

The dip in energy stocks during the second quarter came even as crude oil prices recovered somewhat from a downdraft beginning in June 2014 in which oil fell more than 50 percent.

Since the end of the second quarter, both oil and energy stocks have been sinking on renewed concerns of oversupply. U.S. crude prices have plummeted about 29 percent so far this quarter, leaving prices down about 20 percent for the year. On Friday, prices hit a near 6-1/2-year intraday low of $41.35 a barrel.

In one recent bet against these names, Greenlight Capital's David Einhorn said he was shorting, or betting against, Pioneer on the view that it was burning through cash.

Kyle Bass's Hayman Capital, which in the first quarter took small positions in each of the five fracking companies that Einhorn would later criticize at an investment conference in early May, increased bets on those names.

Among those five, Hayman increased its stake in Whiting Petroleum the most, adding about 528,000 shares, bringing its stake in the company to 553,000 shares. Whiting shares rose 8.7 percent in the second quarter, but have since plummeted about 43 percent.

Omega opened a stake of 1.8 million shares in Oklahoma-based Gulfport Energy Corp.. Shares in Gulfport sank over 12 percent over the second quarter. Omega, however, exited its stake in SandRidge Energy after owning 24.3 million shares at the end of the first quarter.

Omega also cut its stake in WPX Energy Inc. in the second quarter by about 2.4 million shares, leaving it at 1.2 million shares.

Magnetar, which had over $12 billion in assets at the end of last year, increased its stake in Energy Transfer Partners by 3.2 million shares to 3.4 million shares. Energy Transfer's stock fell 6.4 percent in the second quarter and is down about 23 percent for the year.

Jana, an $11 billion hedge fund run by Barry Rosenstein, took a new stake of 725,000 shares in Tallgrass Energy. The limited partnership, formed by Tallgrass Development to own, operate, buy and develop midstream energy assets and which went public in early May, rose a modest 1.3 percent over the second quarter.

THIRD POINT, GREENLIGHT CHARGE INTO ENERGY

Daniel Loeb's Third Point took new stakes in Devon Energy Corp. and Williams Companies Inc in the second quarter of 3.8 million and 1.5 million shares, respectively. Devon Energy shares slipped just 1.4 percent in the second quarter, but have since plunged about 23 percent.

Einhorn's Greenlight increased its stake in Consol Energy Inc. by 2.3 million shares to 22.8 million shares. John Paulson's Paulson and Co., which reported a roughly 12 percent stake amounting to 10 million shares in Synthesis Energy Systems in April, trimmed its stake in Whiting Petroleum by just 30,100 shares, leaving it sizable at 12.4 million shares.

Billionaire George Soros’s family office sold almost all of its stake in Alibaba Group Holding Ltd. in the second quarter, as Asia’s largest Internet company saw its stock decline further because of a slowing Chinese economy.

Soros Fund Management owned about $370 million of Alibaba’s American depositary receipts at the end of the first quarter. As of June 30, it held a stake worth $4.9 million, according to a regulatory filing Friday. Alibaba has lost about $100 billion of its value since November’s record high.

Soros’s firm trimmed its energy holdings during the quarter. Crude oil reached highs for the year in June, peaking at about $60 a barrel, before plummeting to current levels of about $42. The family office sold off its stakes in Cenovus Energy Inc. and Suncor Energy Inc. and reduced its holdings in EQT Corp. and Noble Energy Inc.

The family office, which overseas about $30 billion, bought a new stake in Time Warner Cable Inc., making the company it’s second-largest U.S. stock holding. The company is awaiting regulatory clearance to merge with Charter Communications Inc. The position was worth $259 million at the end of the quarter.

Warren Buffett’s Berkshire Hathaway Inc. sold off its shares in Phillips 66 and National Oilwell Varco Inc. in the second quarter, as it continued to cut its positions in energy companies amid a global supply glut that has sent crude prices into a tail spin.

Berkshire had already sold most of its stake in National Oilwell Varco in the first quarter, when it slightly raised its Phillips 66 holdings.

Meanwhile, Berskhire kept unchanged its stakes in its “Big Four” holdings: American Express, Coca Cola Co., Wells Fargo and IBM as of June 30, according to a filing with the Securities and Exchange Commission.

Mr. Buffett seemed to hint during a television interview this week that Berkshire may have built up its IBM stake, seizing on Big Blue’s recent dip.

“I love it when it goes down,” Mr. Buffett said when asked on CNBC whether he was concerned about the IBM stock’s performance.

Friday’s filing didn’t show a share change in the IBM position, which was valued at $12.94 billion at the end of the quarter, up $171.9 million from the previous quarter. Still, the Nebraska billionaire could have built it up after June 30.

Berkshire, which for years had avoided technology stocks, first bought IBM stock in 2011, spending more than $10 billion for 5.4% of the company. The 104-year-old tech company has been trying to reinvent itself under Chief Executive Virginia “Ginni” Rometty, as sales have declined, on a year-to-year basis, for 13 straight quarters.

The four companies made up $66.87 billion of its massive stock portfolio, which stood at $107.18 billion as of the quarter’s end.

Also unchanged was its share stake in Precision Castparts Corp. Berkshire reached an agreement this week to buy the Portland, Ore., manufacturer of parts used by the aerospace industry for about $32.4 billion, in what will be Berkshire’s biggest deal. Berkshire has owned Precision shares since 2012, building a 4.2-million-share stake valued at $839.6 million at the end of the quarter, or down $42.6 million from the previous quarter.

Berkshire’s only new stake in the quarter was a 20 million share investment in auto-paint maker Axalta Coating Systems Ltd, which Berkshire bought from Carlyle Group LP for $28 a share. The stake was valued at $661.6 million at the end of the quarter.

The positions were disclosed in a 13F filing with the Securities and Exchange Commission, a quarterly requirement for investors managing more than $100 million. The report indicates the number of shares held and the value of each stake at the end of the quarter.

Berkshire said it had omitted some information on its holdings in the filing, an action some investment managers take when they are building a new position. Such “confidential treatment” prevents others from piggy-backing on their investment ideas.

• Keep an eye out for top funds that take concentrated bets and aren't benchmark huggers. There's a reason why everyone tracks Buffett's moves but he's not the only great value investor on the planet. Guys like Seth Klarman of Baupost Group and his protege, David Abrams, the one-man wealth machine, are also known for taking concentrated bets in a few positions. The same goes for Brett Barakett of Tremblant Capital Group and a few others who take more concentrated bets. While taking concentrated bets doesn't always pan out, it shows conviction and a deeper understanding of the companies they invest in.
• Keep an eye out for top funds that are all investing in the same companies. For example, when looking at the top holders of Hertz (HTZ) and top holders Avis Budget Group (CAR), I notice some great activist and L/S funds have been buying the dips on these car rental companies as they are both well off their 52-week highs. That is a very bullish sign and these are the types of trades I love tracking when looking at these filings.
• Similarly, in specialized sectors like biotech, I like it when I see the Baker Brothers, Broadfin, Fidelity and a few other smaller funds investing in the same companies. I also like it when I see a fund like Dallas based Highland Capital Management take an abnormally huge position in a biotech like Progenics Pharmaceuticals (PGNX) as it shows me they have huge conviction on this company (Disclosure: Progenics is my largest position and I have been long since $4.50 and have added on big dips).
• Sometimes people just need common sense. Dust off your old copy of Peter Lynch's One Up on Wall Street and use your own judgment to take a position. There is a reason why Warren Buffett and Bill Gates are both long shares of Wal-Mart (WMT). It's a great company and it will greatly benefit from rising inequality and China's big bang. You're picking shares up at a deep discount at these levels as the company was hurt for all sorts of asinine reasons. For me, investing in Wal-Mart now at these levels is a no-brainer for conservative investors. If shares go lower, just add to your positions (you don't need to be a billionaire to figure that out).
• Be careful, however, to avoid reading too much in hedge funds adding on dips, especially in sectors that have been hurt like energy and commodities. Most of them are betting on global growth but oil and commodity prices could stay low for a lot longer than they think, which is why I keep warning people to steer clear of these sectors (read my weekend comment for more insights). But it's not just energy and commodities that are getting clobbered. Semiconductors (SMH) are also getting killed and when I see guys like Einhorn adding to shares of Micron (MU), I wonder if it's a red light for hedge funds. This might pan out but it might flop spectacularly if global growth falters as China's economy slows down considerably.
• Be careful with high-flyers like Steve Cohen. The perfect hedge fund predator is a shark who knows how to trade big but he churns his portfolio often and that's why I don't pay too much attention to his latest filings (or use them to find selective shorts).
• Stop reading the garbage on Zero (H)edge!! All of a sudden Stan Druckenmiller is long gold (GLD) and this blog is making a big stink of it. Druckenmiller's family office did take a sizable position in gold in Q2 (roughly a quarter of the entire portfolio) but it also invested in many other positions. Gold, commodity, energy, emerging market shares are fine for pro traders to trade but be nimble and TAKE profits quickly in these markets or risk getting slaughtered.

The Canada Pension Plan Investment Board is continuing to pursue global investments, including a large transaction in Asia, even though declines in major global equity and fixed income markets hammered the returns of the CPP Fund in the first quarter of the fiscal year.

A $4-billion increase in assets came entirely from $4.2 billion in CPP contributions as the fund posted a net investment loss of $0.2 billion during the period that ended June 30.

“In a quarter where everything essentially went against us, to be flat is… a pretty good outcome,” said Mark Wiseman, chief executive of CPPIB, which invests funds that are not needed by the Canada Pension Plan to pay current benefits.

“Amid these difficult market conditions, our private investment programs generated meaningful income, exemplifying the benefits of building a resilient, broadly diversified portfolio.”

Wiseman said his team is able to continue pursuing investments around the world, including one he described as “a large transaction is Asia,” because the fund’s size and scale and diversification, and a long-term investment horizon, provide stability in these volatile times.

“Our comparative advantages, given the choppy market conditions, are coming to the fore,” he told the Financial Post.

“At some level, volatility is our friend. In conditions like this, we are able to transact and continue to diversify and build our portfolio [when] others are running in the opposite direction.”

At the end of the quarter, public equities accounted for just shy of 32 per cent of the asset mix, with fixed income at about 33.5 per cent.

Private equities sat at just under 18 per cent, with the balance in real assets (real estate and infrastructure).

The CPP Fund’s 10-year annualized real rate is return, accounting for the impact of inflation, is 5.8 per cent.

In 2012, Canada’s Chief Actuary said the Canada Pension Plan would be sustainable for 75 years at current contribution rates with a real rate of return of 4 per cent.

Returns over the past decade are “comfortably above” that assumption, CPPIB said Friday, adding long-term returns are a “more appropriate measure of CPPI’s performance than returns in any given quarter or single fiscal year.”

Canada Pension Plan Investment Board, the country’s largest pension fund, on Friday reported a negative net return of 0.1% for its fiscal first quarter, citing in part declines in major global stock and bond markets.

CPPIB said it had C$268.6 billion ($205.6 billion) of net assets under management in the quarter ended June 30, up slightly from C$264.6 billion at the end of its previous quarter on March 31.

CPPIB said the C$4 billion increase included a net investment loss of C$200 million, after taking into account its operating costs, and C$4.2 billion in pension contributions.

“Going forward, we are expecting to continue to see volatility in markets generally, in both fixed-income market and equity markets,” said chief executive Mark Wiseman. But that turbulence is also creating potential opportunities for CPPIB, he said.

“From an investment perspective, volatility is our friend,” Wiseman said, noting CPPIB’s scale and long-term investment horizon mean the organization can “continue to invest and diversify the portfolio across asset classes and across geographies”.

It has already been a busy year on the investment front. In June, CPPIB announced plans to acquire General Electric’s unit in private equity lending, which includes Antares Capital, in a deal worth about $12 billion. CPPIB has said Antares Capital will keep its name and operate as a stand-alone business.

The transaction is on track to close during the current quarter, said Wiseman. “With the Antares transaction, we’re extremely pleased with the quality of the team that we’ve acquired.”

Earlier in the day, CPPIB said its gross investment return in the period was flat at 0.01%.

CPPIB measures its performance on an annual basis against an internal benchmark based on returns from a mix of asset classes, but it doesn’t provide quarterly returns for that index.

In its latest fiscal year ended in March, it posted an 18.3% net return, outperforming its internal benchmark return of 17%.

CPPIB, which focuses on investments that generate steady returns over the long term to help fund its pension liabilities, said it had more than 25 investments during the latest quarter.

The Caisse de dépôt et placement du Québec exceeded its six-month benchmark portfolio return in the first half of 2015, but says it sees warnings of a stormy global economic environment in the months and years to come.

“We see signs that cause us to wonder… about whether a slowdown in global growth is what we expect to see,” CEO Michael Sabia said Friday following an update of the Caisse’s yearly activities to June 30.

“It’s not time to go to the beach,” Sabia said. “It’s time to double down, lift our game, continue to outperform our reference portfolio and continue to try to do better on the market.”

Quebec’s largest institutional investor generated $1.7 billion more than projected in the first six months of 2015, with a 5.9 per cent return on clients’ funds, compared to its 5.2 per cent benchmark portfolio return.

The fund’s assets sit at $240.8 billion, up from $225.9-billion at the end of 2014.

“We think against a pretty volatile backdrop the portfolio of La Caisse has performed well with a substantial amount of value added,” said Sabia.

The CEO said he can’t predict whether this performance will continue over the second half of 2015 in an environment of growing economic and geopolitical risks.

“In the near term almost anything can happen. Markets fluctuate and this can happen on the basis of any number of things, some of them quite unseen at any particular time,” he said. “We’re not in the position to predict on a short-term basis and we don’t try to.”

The Caisse manages several large Quebec pension plans, and Sabia said it targets about a six per cent return to its depositors.

It reported a 10.2 per cent return over the past four years, adding $75 billion to its assets.

Sabia said meeting that same level of growth could prove challenging in the next four years, citing concerns over high asset valuation, a lack of central bank stimulus options and heavy indebtedness among Western countries.

“After such a long period of expansion in the market, how long is this going to continue?” he said.

“When we look across the global economy, we don’t see any big engines capable of accelerating global growth.”

Sabia says that although even the United States is showing only moderate economic growth, the Caisse is inline to make substantial investments there involving government on a municipal, state and federal level.

“I won’t go further than to say we are very upbeat about the opportunities we have in the U.S.,” he said.

The Caisse reports that over the past six months, each asset class in its portfolio generated a return above its index.

Equities returned 7.8 per cent with net investment results of $8.3 billion, while fixed income had a 2.7 per cent return, generating $2.1 billion.

Inflation-sensitive investments recorded a 4.6 per cent return, generating net investment results of $1.6 billion.

In the first half of the year, the Caisse acquired stakes in the Eurostar high-speed rail operator, and in Southern Star Central Corp., a natural gas pipeline operator in the U.S.

It also invested in the U.K. telecoms sector, SterlingBackcheck, one of the world’s largest background screening companies, and SPIE, a European engineering firm.

In Quebec, the Caisse invested in companies including Cirque du Soleil and Logistec, and launched an infrastructure subsidiary to work on projects in the Montreal area.

“The duck may look calm going across the lake, but I can assure you that there is a great deal of activity underway under the waterline,” said Sabia.

Norway's $870 billion sovereign wealth fund reported its first quarterly loss in three years on Wednesday, hauled down by sliding bond and stock markets.

The world's richest sovereign wealth fund owns about 1.3 percent of all global equities and has massive government and corporate bond holdings, so its performance and decisions are closely followed by investors across the world.

It lost 73 billion Norwegian crowns ($8.8 billion) in the second quarter - representing a negative return of about 1 percent on its investments. That was the first drop the fund had seen since the same period of 2012 - and a dramatic reversal from the record 401 billion crown gain in January-March this year.

The value of the fund's bond holdings - which account for about a third of its portfolio - fell by 2.2 percent in the April-June quarter as yields increased in its main markets, including the United States, Europe and Japan.

Its equities - which make up the bulk of its investments - lost 0.2 percent, hit by a decline in U.S. stocks, which outweighed gains in Asia and flat returns in Europe.

"The fund's results during the last several years have come from a rise in stock markets and the simultaneous fall in long-term yields, in fact in all yields," said Trond Grande, deputy CEO of the fund, which invests Norway's oil and gas wealth.

Many investors expect the U.S. Federal Reserve to start raising interest rates later this year, which would push yields higher.

"It would very quickly hit the value of our bonds ... In the short run it would necessarily have a negative development for the fund," Grande said, adding that coupon payments made from bonds could be reinvested at a higher yield if rates rose.

He declined to comment on his expectations for the global economy or on the investment plans of the fund, which holds $167,000 for each of Norway's 5.2 million people.

The value of the wealth fund's real estate investments - which account for just a fraction of its portfolio - rose 2 percent in the second quarter.

A strengthening of the Norwegian crown reduced the value of the fund by a further 53 billion crowns in the period, but this is not counted as part of its negative return as currency movements are expected to even out over time.

Currency movements had led to an increase of 175 billion crowns in the previous quarter for the fund, which makes its investments in foreign currencies but assesses its own size in crowns.

The fund has cut its share of bond investments to 34.5 percent of its portfolio, from 35.3 percent at the end of March. Its equity investments have risen to 62.8 percent, from 62.5 percent; while its property holdings have increased to 2.7 percent, from 2.3 percent.

The $870 billion fund, built on Norway’s oil riches, says the current selloff and policy shifts from China’s leadership won’t change its long-term view on the world’s second-biggest economy, where it’s prepared to increase its investment.

“We’re following the movements there and we see that they are steadily opening and taking steps in the direction of opening up the markets,” Ole-Christian Bech-Moen, chief investment officer of allocation strategies, said on Tuesday in an interview during a conference in Oslo. “We’re thinking long-term, so the short-term policies there and policy shifts -- it’s not that important for the longer-term strategic thinking.”

After years of lobbying, the Norwegian wealth fund this year had its quota for investments in Chinese A shares lifted to $2.5 billion from $1.5 billion. It had about $27 billion invested in China and Hong Kong at the end of last year.

If China’s market becomes even more liberalized, “we know that it will be a big allocation” for the fund, Bech-Moen said.

The People’s Bank of China’s surprise decision last week to allow markets greater sway in setting the currency’s level triggered the biggest selloff in 21 years and roiled global markets. Since then, 10 emerging market nations have said they are particularly at risk since China’s yuan devaluation.

Henry Paulson

Norway’s wealth fund held 9.6 percent of its stocks and 12.9 percent of its bonds in emerging markets at the end of March. It has been increasing its investments in those markets as it tries to escape dwindling returns in the developed world.

“Capturing broader aspects of global growth is something where we have a very long horizon, so it’s not really governed by short-term fluctuations,” Bech-Moen said.

Chinese officials have a tough job in confronting the economic slowdown and undertaking market reform, former U.S. Treasury Secretary Henry Paulson said at a conference in Oslo hosted by Norway’s oil fund.

President Xi Jinping “understands the importance of fixing the economy,” Paulson said. “He has unleashed a massive reform agenda that goes way beyond the economy. It goes to every part of China -- economic, social and political.”

DoubleLine Capital's co-founder Jeffrey Gundlach warned on Tuesday that it might be premature for the U.S. Federal Reserve to raise interest rates next month, given junk-bond prices are hovering near four-year lows.

"To raise interest rates when junk bonds are nearly at a four-year low is a bad idea," Gundlach said in a telephone interview.

Gundlach, widely followed for his prescient investment calls, said if the Fed begins raising interest rates in September, "it opens the lid on Pandora's Box of a tightening cycle."

Gundlach said the selling pressure in copper and commodity prices driven by worries over China's growth outlook "should be a huge concern. It is the second-biggest economy in the world."

Last year, Gundlach correctly predicted that U.S. Treasury yields would fall, not rise as many others had forecast, because inflationary pressures were non-existent and technical factors, including aging demographics, were at play.

The Los Angeles-based DoubleLine Capital had $76 billion in assets under management as of June 30.

The DoubleLine Total Return Bond Fund (DBLTX.O), DoubleLine's largest portfolio by assets and run by Gundlach, had positive inflows in July.

The Total Return fund attracted a net inflow of $390.4 million last month, compared with $81.7 million in June. It has $47.2 billion in assets under management and invests primarily in mortgage-backed securities.

German lawmakers overwhelmingly backed Friday a new bailout plan for Greece after Chancellor Angela Merkel argued that the cash-strapped country would face chaos without a deal.

Following more than three hours of debate, German lawmakers voted 439-119 in favor of opening detailed discussions on the package. There were 40 abstentions.

The German Parliament's vote capped a week in which the proposed bailout agreed Monday by the 19 eurozone leaders, including Merkel and Greek Prime Minister Alexis Tsipras, has cleared a string of hurdles.

The developments have raised expectations that Greece will secure a financial lifeline to allow the country to get back toward some sort of economic normality following a crisis that has seen banks shuttered for nearly three weeks and withdrawals at ATMs limited to a paltry 60 euros a day.

Germany is one of the few eurozone countries whose parliaments had to approve the step. Earlier Friday, Austrian lawmakers also cleared the way for the talks.

Though the broad outlines of the bailout were agreed Monday, specific terms will now be thrashed out between Greece and its European creditors. The process is expected to last around four weeks and to lead to Greece getting around 85 billion euros ($93 billion) to help it pay off upcoming debts.

Germany has been the largest single contributor to Greece's bailouts and has taken a hard line, insisting on stringent spending cuts, tax hikes and wide-ranging economic reforms in return.

"The principle ... of responsibility and solidarity that has guided us since the beginning of the European debt crisis marks the entire result from Monday," Merkel told the special session of Parliament.

The alternative to an agreement, she added, "would not be a time-out from the euro that would be orderly ... but predictable chaos."

Merkel will have to return to Parliament to seek approval for the final deal when the negotiations are concluded.

"I know that many have doubts and concerns about whether this road will be successful, about whether Greece will have the strength to take it in the long term, and no one can brush aside these concerns," she said. "But I am firmly convinced of one thing: we would be grossly negligent, even irresponsible, if we did not at least try this road."

Merkel's finance minister, Wolfgang Schaeuble, who has talked particularly tough on Greece, said Germany will do its utmost toward "making this last chance a success"— provided Greece does its part.

In Athens, Tsipras is widely expected to reshuffle his Cabinet Friday or over the weekend, following a rebellion within his party over a parliamentary vote to approve the measures demanded for the bailout talks to start.

A little more than a quarter of the 149 lawmakers from Tsipras' radical-left Syriza party either voted against or abstained in Wednesday's vote, including two cabinet members as well as the parliament speaker and the former finance minister, Yanis Varoufakis. Tsipras still won an overwhelming majority as three opposition pro-European parties backed the proposals.

The legislation, which includes consumer tax increases and pension cuts, was demanded as a precondition to the launch of negotiations on a third Greek bailout. Elements of the bill are being implemented immediately, with changes to consumer taxes coming into effect Monday, the finance ministry said.

The Greek Parliament's approval paved the way for an increase in the amount of emergency liquidity assistance to Greek banks from the European Central Bank. It also led eurozone finance ministers to approve a bridging loan to Athens so the government can make a 4.2 billion-euro ($4.6 billion) payment due to the ECB Monday.

These moves are first steps in restoring some elements of normality to the Greek economy, which has been battered over the past few weeks as bailout talks dragged and fears of a Greek exit from the euro ratcheted higher.

The first visible sign of healing will emerge when the banks open their doors again. On Thursday, the government said they would reopen Monday for limited transactions, for the first time in three weeks after capital controls were imposed June 29 ahead of a referendum Tsipras called on previous creditor proposals.

Tsipras has acknowledged that the package he signed up to went against his election promises to repeal austerity imposed over the last five years in return for Greece's two international bailouts. But he has insisted he had no other choice, as the alternative would have seen Greece forced out of the euro — a development that would have further crashed the Greek economy as well as roiling financial markets.

In a party meeting Thursday, Tsipras criticized the hardliners who voted against him, arguing that their decision was "in conflict with the principles of comradeship and solidarity and at a crucial time creates an open wound," according to a government official at the meeting. The official revealed details of the closed-door meeting on condition of anonymity.

The dissenters' decision, Tsipras said, forced him to continue governing with a minority government until Greece's bailout deal is concluded.

Economically, the new program is perverse, because it will plunge Greece deeper into depression. It envisages raising additional taxes, cutting pensions further, and implementing automatic spending cuts if fiscal targets are missed. But it provides no basis for recovery or growth. The Greek economy is already in free-fall, and structural reforms alone will not reverse the downward spiral.

The agreement continues to require primary budget surpluses (net of interest payments), rising to 3.5% of GDP by 2018, which will worsen Greece’s slump. Re-profiling the country’s debt, which is implicitly part of the agreement, will do nothing to ameliorate this, given that interest payments already are minimal through the end of the decade. As the depression deepens, the deficit targets will be missed, triggering further spending cuts and accelerating the economy’s contraction.

Eventually, the agreement will trigger Grexit, either because the creditors withdraw their support after fiscal targets are missed, or because the Greek people rebel. Triggering that exit is transparently Germany’s intent.

Finally, the privatization fund at the center of the new program will do nothing to encourage structural reform. Yes, Greece needs to privatize inefficient public enterprises. But the Greek government is being asked to privatize with a gun held to its head. Privatization at fire-sale prices, with most of the proceeds used to pay down debt, will not put Greek parliamentarians or the public in a mood to press ahead enthusiastically with structural reform.

Greece deserves better. It deserves a program that respects its sovereignty and allows the government to establish its credibility over time. It deserves a program capable of stabilizing its economy rather than bleeding it to death. And it deserves support from the ECB to enable it to remain a eurozone member.

Europe deserves better, too. Other European countries should not in good conscience accede to this politically destructive, economically perverse program. They should remind themselves that Greece had plenty of help from its European partners in getting to this point. They must continue to push for a better deal.

These partners should not allow the European project to be sacrificed on the altar of German public opinion or German leaders’ insistence on “rules.” If Germany’s government refuses to see the light, the others should find a way forward without it. Franco-German solidarity would be irreparably damaged, but Franco-German solidarity is worth nothing if the best it can produce is this agreement.

Last but not least, the German public deserve better. Germans deserve a leader who stands firm in the face of extremism, rather than encouraging it, whether at home or abroad. They deserve a Europe that can play a greater role in global affairs. Above all, given Germany’s stunning political and economic achievements since World War II, they deserve their fellow Europeans’ admiration and respect, not renewed resentment and suspicion.

Greece’s government then demanded more financial support with less stringent conditions. But, as its creditors have now recognized, providing more money will not address Greece’s insolvency. That is why the new deal requires that the government immediately cut pensions, hike taxes (beginning with the value-added tax), liberalize the labor market, and adhere to severe spending constraints. At the same time, a write-down of official debt, like the “haircut” given to private creditors in 2012, will be necessary.

Many have questioned whether agonizing reforms are entirely necessary; if the country returned to the drachma, they suggest, it could implement interest-rate cuts and devalue its exchange rate, thereby engineering an export-led recovery. But, given Greece’s small export sector, not to mention the weakness of the global economy, such a recovery may be impossible. Greece’s best bet is reform.

So far, Greece has shown itself to be unwilling to implement a painful internal-wage adjustment and reform measures forced by outsiders. Perhaps the latest deal, which was reached with Greece on the brink, will prove to be a turning point, with Greece finally committing actively to economic and fiscal reform. Otherwise, Greece’s exit from the eurozone – with all the concomitant social and economic strife – seems all but inevitable.

Asians watch with sympathy the fall from grace of the birthplace of Western civilization. But perhaps Greece should look to Asia for proof that, by taking responsibility for its own destiny, a country can emerge stronger from even the most difficult trials.

A tactical decision to shift investments into global stock markets paid off last year for British Columbia Investment Management Corp., which earned a 14.2-per-cent return (net of costs) for the year and boosted its total assets to $124-billion.

BCIMC reported it moved more assets into global equities during the fiscal year ended March 31, 2015, while reducing its weighting in fixed income holdings and mortgages, responding to volatility in Canadian stock markets as oil prices declined.

The fund ended the fiscal year with 49.5 per cent of its assets invested in public stock markets, up from 47.6 per cent a year earlier. BCIMC had 21.5 per cent of its holdings in fixed-income securities such as bonds, down slightly from 22 per cent last year, while 14.6 per cent of the portfolio is in real estate, a decline from 17.4 per cent at the end of fiscal 2014.

The fund said its Canadian public equity holdings earned a 7.5-per-cent return last year, while global public equities earned a far higher 23 per cent and emerging markets equities posted 21.4-per-cent gains, illustrating the value of shifting out of Canada’s volatile stock market.

Although the fund adjusted its weightings last year, chief executive officer Gordon Fyfe said it continues to have a long-term investment strategy to ensure member funds are able to deliver pensions to their members.

“Maintaining our discipline, while focusing on due diligence and diversification allows BCIMC to manage market risks so our investments can provide stable cash flows and will appreciate in value over time,” he said in a statement.

BCIMC said investing in passive benchmarks last year would have earned a 12.6-per-cent return, so its active investment strategy added $1.4-billion in additional returns. Over the past 10 years, BCIMC earned an average 8.1-per-cent annualized return, exceeding its benchmark of 7.3 per cent.

BCIMC published its annual report Thursday, showing its executive compensation payments for the past year. Mr. Fyfe, who joined the fund last July, earned $2.2-million in total compensation for the portion of the year he worked, while Lincoln Webb, senior vice-president of private markets, earned $1.27-million in fiscal 2015.

BCIMC oversees investments for B.C. public sector pension plans as well as other government funds. It is Canada’s fourth-largest pension fund manager behind the Canada Pension Plan Investment Board, the Caisse de dépôt et placement du Québec and the Ontario Teachers’ Pension Plan.

Our emerging markets funds were a key driver of returns in our public equity program. The Active Emerging Markets Equity Fund outperformed the benchmark by 7.2 percentage points. Over a four-year period, the fund returned 7.5 per cent against a benchmark of 4.6 per cent. China and India performed exceedingly well and clients benefited from being overweight to these regions. We continued to increase our exposure to China. bcIMC deployed an additional $200 million into the domestic China A-Share market, which gained 120 per cent last year.

Our global equity funds also drove overall returns. The Active Global Equity Fund returned 24.9 per cent against a benchmark of 22.3 per cent. The Thematic Public Equity Fund returned 30.8 per cent against a benchmark of 22.3 per cent. Our exposure to the health care theme was an important driver of the value-added performance.

With real estate investments—which account for about 18% of bcIMC’s total portfolio—the company focuses on development (buying land and building on it) rather than on purchasing property. “Returns are greater when we develop,” Pearce says, citing high real estate prices as a reason for this approach. “It’s something the larger pension plans can do in Canada.” Currently, bcIMC has 24 development projects across the country, including office, industrial, retail and multi-family apartment buildings.

The company’s real estate holdings are almost entirely in Canada because this is a market that bcIMC understood when it started these investments. But, as the program matures, it will become more international in the future, Pearce says. By contrast, he adds, the majority (77%) of the agency’s infrastructure investments are outside of the country—generally in developed nations, because fewer of Canada’s infrastructure assets have come to market. Together with renewable resources, infrastructure investments make up 6% of bcIMC’s total portfolio.

However, the corporation doesn’t endorse all alternatives. For example, it has always avoided hedge funds.“In B.C., our clients are relatively conservative. Therefore, putting leverage on the portfolio is very limited,” Pearce explains. “[And] we didn’t like the non-transparency of hedge funds.”

Ultimately, bcIMC’s goal is to invest our clients’ money and generate value-added returns. Our clients depend on these returns to pay pensions and insurance obligations long into the future. We must ensure our strategies maximize returns within our clients’ risk parameters. To keep pace with the rapid evolution of the investment world, our investment activities will become increasingly sophisticated and adapt to the changing capital markets.

Updating our investment strategies includes expanding our use of derivatives and leverage in our programs to facilitate cost-effective rebalancing of our clients’ portfolios. We view the use of certain derivative products as an efficient tool to reduce the risk of portfolios, as well as to allow for quicker transitions of assets and to produce higher returns. In short, derivatives can benefit our clients. Similarly, leverage allows us to take advantage of low interest rates, and when used as a strategy, can free up capital to be used elsewhere.

We will also increase our global investment footprint and expand our range of products to ensure our clients can benefit from a wider range of investment opportunities. These include expanding our currency management capabilities, increasing global private market investments, and adding high yield debt.

The rout in commodities deepened with prices touching the lowest since 2002 as the prospect of higher U.S. interest rates sent gold tumbling.

Raw materials are losing favor with investors as the dollar gains amid signals from Federal Reserve Chair Janet Yellen that the central bank may raise rates this year on the back of an improving U.S. economy. Higher borrowing costs curb the attractiveness of commodities such as gold, which doesn’t pay interest or give returns like assets including bonds and equities.

The Bloomberg Commodity Index dropped as much as 1.4 percent, falling for a fifth day in the longest stretch of declines since March. Gold futures sank to the weakest in more than five years while industrial metals, grains, Brent crude and U.S. natural gas also slid as a measure of the dollar climbed to the highest since April 13.

“Any increase in U.S. interest rates should further strengthen the dollar, prompting more fund outflows from commodities, metals and emerging-market assets,” Vattana Vongseenin, the chief executive officer of Phillip Asset Management Co. in Bangkok, said by phone.

The Bloomberg Commodity Index slid 1.3 percent to 96.2949 at 10:10 a.m. New York time, after touching 96.1913, the lowest since June 2002.

With raw materials fetching lower prices, shares of commodity producers are tumbling. The 15-member Bloomberg Intelligence Global Senior Gold Valuation Peers Index, which includes AngloGold Ashanti Ltd. and Newcrest Mining Ltd., dropped as much as 8.4 percent.