I wish everyone a Happy & Healthy Holiday Season, please stay safe.

Those of you you want to track the latest news on Canada's large pensions, you can do so via the links below:

• AIMCo latest news here
• BCI latest news here
• CAAT Pension latest news here
  
• CDPQ latest news here
  
• CPP Investments latest news here
• HOOPP latest news here
  
• IMCO latest news here
  
• Ontario Teachers' latest news here
• OPTrust latest news here
  
• OMERS latest news here
• Vestcor latest news here

I think I got them all, at least the public ones.

You can also track general pension news on Google here. 

Some of the big stories that hit the news wire last week:

• Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ) said on Friday it would invest $1 billion in Invenergy Renewables LLC, the largest private developer, owner and operator of wind and solar projects in North America. Read the article here and press release here.
  
• Canada Pension Plan Investment Board (CPP Investments) and its partners AustralianSuper and UniSuper, will acquire 50% of Transurban Chesapeake, a toll-road business comprising the 495, 95 and 395 Express Lanes located in the Greater Washington Area in the United States. CPP Investments will hold a 15% interest in Transurban Chesapeake with an initial investment of US$624 million, plus a potential earn-out payment to Transurban over the next five years of up to US$21 million. Transurban will retain a 50% stake in the business. Read the press release here.

I also want to congratulate CAAT Plan’s Julie Cays for being awarded CIO of the year: 

In December 2020, Julie Cays was named CIO of the Year by the Canadian Investment Review. The award is presented to a leader in pension investing who has demonstrated significant improvements to her organization’s investment processes. This award takes a comprehensive view of success and considers environmental, social and governance factors to determine the deserving award recipient 

“I am immensely proud of Julie. This is a recognition that is well deserved. She is an exceptional CIO and leader, a valued colleague, and a friend. I couldn’t be more delighted for Julie,” says Derek W. Dobson, CEO of the CAAT Plan.

Julie Cays joined CAAT in 2006 and has led the CAAT fund in transitioning from a traditional asset mix with $5.3 billion of assets under management to a highly diversified portfolio with more than $13.5 billion under management, including alternative assets. The CAAT plan’s investment performance has seen a 10-year annualized rate of return of 10 per cent. Julie also oversaw the implementation of CAAT’s private market fund and co-investment programs in private equity, infrastructure, and real estate. Further, in December 2019, her team allocated an approximately $1 billion in pension asset transfers following the pension mergers with Torstar Corporation and the Canadian Press.

As CIO at CAAT, Julie has been an integral part of shaping and delivering all aspects of the organization’s strategic plan. She has also been active in industry associations, assuming leadership roles with the Canadian Coalition for Good Governance (CCGG) and Pension Investment Association of Canada (PIAC).

Alright, that's all from me, remember to watch all the cheesy Christmas movies on Netflix. My wife and I have seen many of them and plan on watching a few more over the holidays but our favorite Christmas movie of all time is The Sound of Music (PG). For laughs, nothing beats Bad Santa 1 & 2 (these aren’t PG and not fit for everyone).

Lastly, on a more somber note, many people have lost a loved one to COVID-19 and will be missing their loved ones either because they died or are unable to be with the family yet.

Also, over the weekend, we learned that Bridgewater's founder, Ray Dalio, lost his 42-year-old son Devon in a tragic car accident late last week:

We know that the terrible pain we are feeling has been and continues to be felt by so many others so our sympathies go out to them. May God be with you and may you cherish your blessings, especially at this time of year.

— Ray Dalio (@RayDalio) December 19, 2020

Along with many others, I'd like to publicly express my deep condolences to Ray, his wife Barbara and the entire Dalio family for their loss. I know I speak for everyone reading this that our thoughts and prayers are with you during this difficult time.

Below, Nana Mouskouri singing Stille Nacht, heilige Nacht (Silent Night in German). Stay safe everyone, wish you a Happy & Healthy Holiday Season.

On to my Outlook 2021. This year I'm bringing back Mr. X to discuss markets with me. Mr. X is a very wise, shrewd, experienced and skeptical investor, and he's a total figment of my imagination, basically my alter ego which keeps asking questions on everything I'm observing.

First, Michael Santoli of CNBC reports investors are handicapping the new market year see similarities to 2010′s recovery and 1999′s risk binge:

So many questions swirl as the calendar turns — including what year has just started.

What year or years from the past, that is, have the most relevance for the current market and economy. Before the objections are uncorked: Of course, there are no exact replays of history, and the key to tomorrow is not lying in a musty archive.

Yet each year contains its own distinct blend of prior patterns which we interpret as cycles and convert into probabilities for future outcomes. There are always rough precedents even for periods that feel wholly unprecedented.

With that in mind, the year 2021 begins as an apparent hybrid of 2010 (early-cycle recovery), 1999 (late-cycle risk binge) and – a far lesser-discussed antecedent – the early-1940s. (There’s another narrative in the air of a Roaring Twenties repeat. That’s a subject for another time but seems as much a wishful hot take as a considered analogy.)

A War Story

Before getting to the more recent historical touchpoints, a word on the World War II market and policy backdrop to illuminate the market’s powerful run amid the awful global experience under the coronavirus.

During the war, as the government ran record deficits to finance the military effort, the Fed and the Treasury set government-bond yields from short- to long-term maturities at low levels, to promote demand for record amounts of debt and keep the yield curve positively sloped. Today’s is not quite doing the same, but its promise to keep short rates at zero and buy bonds unless and until full employment and higher inflation are achieved is serving a similar purpose.

And then there’s the market’s behavior. The U.S. had little military success in the first months after entering the war. All knew it was going to be a dauntingly long, uncertain and painful ordeal. Yet as soon as the U.S. had its first military success in the Pacific in 1942, the market bottomed decisively and ran almost straight up – even as the bulk of the war and casualties and expense lay ahead.

One can imagine the equivalent of bloggers and tweeters at the time noting with alarm that Wall Street appeared alarmingly out of touch with the realities on the ground, as we’ve heard since March 2020.

Echoes of 2010

The main resemblance to 2010 comes in the market action itself. A powerful upside reversal from a panicked sell-off in March followed by an uncommonly broad and persistent rally that for months investors treated as fragile, premature or misguided.

Nicholas Colas, co-founder of DataTrek Research, notes: “Like the March 9, 2009, lows for US stocks, the March 23 lows [in 2020] marked ‘peak unreliability’ in terms of investors’ judgements about their environment. In both cases, fiscal and monetary policy went to work to reestablish market confidence.”

Plenty of Wall Street handicappers have been noting the synchronicity between the 2020 equity advance and those of 2009 – and, for good measure – the decisive rally in 1982 that launched the greatest-ever bull market.

There are also macroeconomic echoes. The typical early-cycle swing higher from deeply negative manufacturing indexes, corporate earnings and consumer confidence, for example.

The overwhelming central-bank and fiscal responses are similar in effect. In each case, the Federal Reserve’s actions (quantitative easing then, a promise of heavy accommodation until explicit inflation targets are reached now) were novel and generated awe.

Arguably the Fed’s stance and message now is more supportive for asset markets than in 2010. Early in 2010, the Fed ended QE1 and at the time investors assumed rates would “normalize” fairly soon. As the above chart shows, the market turned choppy and corrected early in 2010 as it digested the massive ramp off the lows.

Is the Fed’s current “zero rates for years” position more believable and durable?

Liquidity, after all, is not a quantity of a substance called money, not the nominal size of the Fed’s balance sheet or bank reserves; liquidity is a promise believed. In this case the promise of easy conditions until unemployment falls a lot and inflation surpasses 2% for a while. Perhaps investors’ belief in this promise will be tested, if the economy and markets start to run a good deal hotter?

Other ways that today differs from 2010 argue against assuming a clean replay. The 2020 downturn, unlike 2007-2009, was not a grinding 18-month reckoning that cost the stock market half its value, threatened the financial system itself and wrung out years of dangerous imbalances in the credit markets and household finances.

It was a mandated shutdown, a flash recession, with a quick fear-driven market collapse halted by enormous, proactive policy measures and left the aggregate consumer balance sheet in good shape, with spending holding up and more than $1 trillion in additional savings.

The 2009 rally took the S&P 500 back up to levels first reached almost 12 years earlier, while the 2020 rebound led to new record highs within a few months. Credit spreads improved tremendously by the end of 2009, but were still far above peak pre-crisis levels. Today credit conditions are even stronger than before the Covid shock, leaving less room for more improvement there to bolster equity valuations further.

And as for valuations…

’99 on the mind

In recent months investment pros have not been able to resist comparisons with the fevered market run-up of the late-’90s, which culminated in a vertical melt-up in tech stocks that capped the indexes for more than a dozen years. Understandably.

Today’s price/earnings ratio on the S&P 500 of more than 22 is the highest since 2000, though a bit below the peak P/E of nearly 26 then. Yes, bond yields are far lower today, and Fed Chair Jerome Powell cited this fact to say equities were not worrisomely overvalued now.

But while lower yields explain higher valuations they don’t boost forward asset returns, and 22-times earnings is likely not a great starting point for delectable long-term gains from here, such as the 18-percent total return the S&P has delivered since March 9, 2009. Unless – and this is not impossible – the old investment math is under revision. 

The atmospherics are what have the bubble-callers exercised about 1999 similarities. The rush of IPOs that surge in price, the stampede of newer smartphone investors who chase price and ignore traditional valuation, the entry of Tesla into the S&P 500 in a way that evokes Yahoo’s inclusion in late-1999.

Ark Innovation ETF can stand in for the Janus 20 fund in the late-’90s – a concentrated portfolio perfectly tuned to the technology advances and market themes of the time, spinning great performance to massive inflows which drive its stocks up even more, for as long as it lasts.

Most of the action is rhyming with the 1999 tune but has not run for as long, grown quite as extreme or become quite as pervasive. Non-tech growth stocks now are not as expensive as then. And this market has shown a knack for deflating some of the wilder sub-sectors while the broader market stays supported.

The late ’90s also were discounting the genuinely massive promise of new technologies and turned tech from a sector that always traded at a discount (due to cyclicality) to one valued at a persistent premium. In other words, much of the excitement was well-grounded but was carried to indiscriminate extremes. And even then the fun didn’t end until the Fed began tightening aggressively in 2000.

The upshot: 2021 is serving investors a cocktail of early-cycle recovery forces and policy inputs, with late-cycle valuation and risk appetites. It could well provide a kick.

Some jobs will never come back, others are very fragile right now, so it remains to be seen if consumers will start spending like drunken sailors once vaccinated or remain in savings mode worried about what lies ahead.

There are entire industries like air travel, restaurants, tourism and hospitality, retail, which remain on edge and will remain on edge until the health crisis dissipates.

Mr. X. : And will the health crisis dissipate?

LK: Eventually, it will but in the short run, nobody really knows, including infectious disease experts. We are all praying it will go away like other pandemics but it remains to be seen what happens over the next five years.

We know the virus mutates and there are already worse strains out there but luckily, for now, the vaccines remain effective against these strains. 

Then there is the question of vaccine rollout. So far, only one country, Israel, is way ahead of everyone else in terms of vaccinating a large percentage of its population. Israel was well prepared, a lot better than most other countries.

There are now questions on how the vaccine rollout should proceed. Some countries like the UK and Canada are considering administering one dose to as many people as possible, but some healthcare professionals are advising against this.

On Sunday, Operation Warp Speed chief Moncef Slaoui said on “Face the Nation” that health officials are considering giving two half doses of the Moderna vaccine to speed up immunizations in the US.

But what really worries me right now is the surge in cases all over the world and the long-term health consequences. The New York Times reports that recurring admissions don’t just involve patients who were severely ill the first time around.

“Even if they had a very mild course, at least one-third have significant symptomology two to three months out,” said Dr. Eleftherios Mylonakis, chief of infectious diseases at Brown University’s Warren Alpert Medical School and Lifespan hospitals, who co-wrote another report. “There is a wave of readmissions that is building, because at some point these people will say ‘I’m not well.’”

Many who are rehospitalized were vulnerable to serious symptoms because they were over 65 or had chronic conditions. But some younger and previously healthy people have returned to hospitals, too.

COVID-19 "long-haulers" share stories of debilitating symptoms: "I will never be the same person"https://t.co/6NzjDs9ZBr

— CBS News (@CBSNews) January 5, 2021

What this tells me is vaccines are not enough, on top of vaccines, we need better treatments to treat COVD-19 and better, faster and cheaper tests to detect it to ensure people traveling and going to restaurants and malls are safe.

Mr. X.: And do you see better treatments and tests ahead?

LK: I do, some are being tested right now on critically ill COVID patients and are showing great promise in smaller trials but it remains to be seen whether they are as promising in larger, placebo controlled, double blinded studies. 

I also see better testing on the horizon but that too takes time and we need to remain patient and vigilant in the meantime.

Mr. X: Do you have any health advice for your readers?

LK: Yes, we are by no means out of the woods. Respect public health guidelines, stay at home as much as humanly possible, if you go out, make it quick, always wear your mask, disinfect your hands, keep a safe distance from people and wash your hands thoroughly the minute you get back home.

But I also encourage everyone to eat properly, sleep well, exercise moderately and take at least 1,000 IUs of vitamin D a day, if not three to five times that amount in the winter. Start slowly as you may experience gastrointestinal discomfort if you go heavy from the start and take it with a meal as it's fat soluble.  

Mr. X: You're a big believer in vitamin D? 

LK: Huge believer, not just for COVID but the flu and other illnesses like autoimmune diseases and many other illnesses. People need to check their vitamin D levels and make sure they're sufficiently high. For most people, they aren't. Smart doctors recommend D to their patients, dumb ones don't.

Mr. X: Alright, let's get to markets now and what you think lies ahead. What are your overall thoughts?

LK: Like I said, policy remains very accommodative for the economy and markets. Global central banks and all governments around the world are in highly stimulative mode.

This is generally very good for markets but there's a hitch, a lot of unknowns remain as we enter the new year:

• Vaccine rollout, uptake and how the virus mutates and whether we will be able to respond fast enough if it does.
• A new administration is coming in the US. I don't expect a huge shift in policies but there will be a shift and it remains to be seen how markets respond. 
• Will there be another credit crisis or will we avoid it via policies, private equity funds lending money to businesses?
• Will all this stimulative policies cause a surge in inflation, forcing the Fed and other central banks to raise rates much faster than anticipated?

Mr. X: Hold on, do you really see a risk of inflation?

LK: No, I don't, Gavekal and others do, but I firmly remain in the deflation camp and explained my reasoning in a recent comment on CPPIB and inflation risks here.  

Investors always mix up cyclical and secular inflation and I don't see the latter. You might get some cyclical inflation in the US because the US dollar got clobbered last year, but the Fed won't respond to this by jacking up rates, first because it knows it's transient, and second and more importantly, because it is in record stating it is willing to accept much higher inflation for a time.

Mr. X.: I'm glad you brought up bonds and the greenback. You're still bullish on bonds and the US dollar, right?

LK: I wouldn't say I was super bullish on either last year but I certainly wasn't bearish and think a lot of the bearish talk on long bonds and the US dollar was way overblown.

Let's look at US long bond prices (TLT) first and it should be noted, all the charts and data I use here are as of the end of last Thursday when markets closed out their year:

But to put things into perspective, the yield on the 10-year US Treasury note started at 1.9% in 2020, reached a low of 0.39% when markets got clobbered and it has been hovering near 1% lately (it's 0.9% today). 

Importantly, this isn't the big, bad bond bear market bond bears have been warning of for years and if my prediction of a long bout of deflation comes true, we have yet to see the secular low on long bond yields.

Long bond prices could sell off more (long bond yields back up more) because of cyclical inflation, but I just don't see this as the start of a multi year bond bear market.

Now, as far as the US dollar, I'm a long-term bull and so are Canada's large pensions which by and large don't hedge their US dollar exposure over the long run.

Look at how the US dollar ETF (UUP) performed relative to the euro (FXE), the yen (FXY) and Canadian dollar ETF (FXC) since I'm Canadian:

What do you see? The US dollar sold off hard last year because the Fed was way more aggressive than the ECB and BoJ in raising its balance sheet, engaging in more QE.

But that's not the only reason. There was a global Risk On trade last year benefiting emerging markets stocks and bonds, and benefiting commodities and commodity currencies like the loonie.

What else? US stocks outperformed all other major stock markets and since global investors are long US stocks, they had to hedge and sell US dollars forward, exacerbating the trend. 

Lastly, commodity trading advisors (CTAs) went short US dollars (not bonds), and that too exacerbated the move in the greenback.

Mr. X: Very interesting and what do you see going forward for the greenback?

LK: I'm long and remain long the USD. My best advice to Canadians and other investors is to ignore all the gloom and doom nonsense on the greenback and focus on the facts. 

And the most important fact remains euro area deflation is still a huge concern, more so now that the euro rallied so sharply last year. Can it go a bit higher? Maybe but it's set to tumble hard if you ask me.

The same for the yen. There's no way the ECB or BoJ are going to absorb lower import prices indefinitely and risk stoking their deflation demons further.

Currency strategists who understand this dynamic understand why big moves in any currency can occur in any given year but they tend to revert back the following year.

The same goes for the Canadian dollar. All these commodity bulls out there claiming the US dollar lows aren't in might be right but I wouldn't risk it here, the loonie might hit 80 cents but my best advice is to short it right here, right now and stay short (lots of reasons why, our ballooning deficit is starting to worry me a lot).

Mr. X: Alright, you gave us your global macro thoughts, did you miss anything?

LK: Not really, like I said, last year, the global Risk On trade dominated and that benefited emerging markets stocks (EEM), bonds (EMB), commodities and commodity currencies.

Still, unless I see emerging markets (EEM) hit a new high, I'm not ready to proclaim a new bull market in commodities (DBC) is starting. 

Mr. X: Alright, I sense you're anxious to talk about stocks and sectors specifically and start wrapping it up here.

LK: Yes, to be honest, my head is spinning, I'm a bit tired, so let's get to stock market stuff, that's what I love and why people love reading my market comments.

Mr. X: Before we go to specific sectors, can you provide your overall thoughts on the major indices?

LK: Well, after a year like 2020, things are definitely not cheap out there, it wouldn't surprise me if investors are reblancing here and locking in profits on stocks in general, especially those that ramped up a lot last year:

Mr. X: Can this outperformance in technology shares last? Will we see a third year of incredible gains?

LK: I wouldn't bet on it given that the Nasdaq (QQQ) has doubled over the last two years:

But you just never know. That chart above is breaking out, investors can't get enough of old tech and new technology companies, and in a world of ultra low interest rates, we might just see a third year of record gains in technology stocks.

Having said this, investors need to brace for more volatility ahead, stocks don't go up or down in a straight line and even before today's market selloff, the VIX index was set to jump higher:

Don't get me wrong, I'm a secular bull on solar and biotech shares but when you see a parabolic move like the one above in solar stocks, you know rebalancing is going to occur.

The same can be said on biotech shares but here I warn investors, the index isn't where the alpha lies, there are a lot of small biotechs I'm tracking that are set to have a huge year this year (or they will crumble and flop, thus is the nature of the biotech beast!).

Mr. X: So, you're cautious on the overall markets and tech shares in particular?

LK: Yes, I think that's a fair statement, people get too wrapped up in the most recent performance but these markets with these record low rates have taught us to always be wary and prepared for anything, as things can change on a dime. 

Sure, tech stocks look great, led by semiconductor (SOX), fintech (FINX), and other stocks but a lot of the good news is already priced in, especially in hyper growth stocks, so you really need to be careful.

Mr. X: What about cyclical shares? Do you see the return of value over growth this year?

LK: I'll break that down in two parts. First, let's look at Financials (XLF), Industrials (XLI), Energy (XLE) and Materials (XME), collectively known as cyclical stocks which are more sensitive to the economy, and I'll throw in small cap stocks (IWM) here as they too are very sensitive to the economy:

As you can see, Financials (XLF) have yet to make a 5-year high, only Industrials (XLI) have and Energy (XLE) remains very weak despite a strong Q4 last year. Materials (XME) rallied sharply last year mostly owing to the strong performance of gold (GDX) and copper miners (COPX) which had a fantastic year:

 

But small caps seem to be rolling over here after breaking out to a new record 5-year high and that tells me the economy can't sustain these moves. 

It's a bit confusing because a lot of small cap biotech shares are now part of the Russell 2000 index and that is fudging the relationship between small caps and the overall economy.

Mr. X: And what about the whole value vs growth debate?

LK: What about it? 2020 was the worst year ever for contrarian investing and the battle between value (IWV) vs growth (IWF) rages on, and you can read about it here.

The only thing I can say is in a market dominated by mini manias on some tech shares and where rates remain at ultra record-low levels, you shouldn't be surprised that momentum factors have propelled some ETFs much higher:

Again solar, fintech, cloud computing, clean energy, ESG, Ark ETFs, IPOs, all did really well last year and it shouldn't surprise you given the Fed printed $3 trillion and Wall Street took that money and speculated (retail investors went along for the ride!).

Mr. X: So you think momentum will still carry the day this year?

LK: Honestly, I haven't a clue but I'm sure of one thing, momentum stocks that make parabolic moves will get clobbered at one point this year.

Mr. X: Like which ones specifically?

LK: Like Tesla (TSLA) and Nio (NIO) which were both up again today after posting stellar returns last year:

These parabolic moves make me very nervous, it doesn't mean these stocks can't go higher as momentum is clearly on their side, but you really need to be careful trading or investing in some of these bubble stocks. 

Momentum is fun on the way up but it stings like hell on the way down, just look at what happened to QuantunScape (QS) today and fubo TV Inc. (FUBO) recently:

You can buy the dips, just make sure you sell the rips or else your portfolio will go from FUBO to FUBAR at a moment's notice!

Mr. X: Wow, that's insane, is there anything safe to buy in these markets?

LK: Unfortunately, there isn’t, you need to pick your spots carefully and manage your risk tightly. 

I look at hundreds of stocks every day (small cap, large cap, all cap!), know what dips to buy, which ones to avoid and I can honestly tell you these are very dangerous markets which is why I'm all cash again this year after posting solid trading returns from mid November to end of the year (was all cash before that too).

Mr. X: So you're bearish? Right?

LK: No, I'm not, I'm very cautious and will weigh every trade on its risk reward merits. For example, I was looking to buy the dip on Moderna (MRNA) shares recently but I didn't pull the trigger as I'm not so convinced it's the time and while I liked today's price action, I'll wait for a better buying opportunity here or elsewhere:

There are tons of opportunities in markets, you don't need to rush to do anything stupid, especially not after a monster year like 2020. Pick your spots carefully, manage your risk appropriately!

Mr. X: Does this include safe sectors like Staples (XLP), Healthcare (XLV), Real Estate (XLRE) and Utilities (XLU)?

LK: Yes, it does, there's nothing really safe out there except for US long bonds and they're not returning a lot here, except if you believe negative rates are coming and then you're playing the capital appreciation game (wouldn't surprise me).

Mr. X: Thank you for your time, you covered a lot here. Any parting words on markets and risks?

LK: You're very welcome, hope my readers enjoyed reading this comment. 

My only parting words are stay humble, stay disciplined, these markets will test your resolve. Don't rush into making foolish decisions, you will read all sorts of opinions on where these markets are heading and what to buy, and all of them will be wrong. 

My advice is to be patient, pick your spots carefully and manage your risk very tightly. Don't be afraid to sweep the table and take profits and cut your losses early. Wait for the right setup, if it's not there, be patient, don't force it. 

This is especially true in these markets where central banks are backstopping madness and bubbles are popping up everywhere. 

When will it end? Nobody knows but it will end in tears. That's not my opinion, Charlie Munger has said so and more recently, Jeremy Grantham is warning the stock market is in a 'fully-fledged epic bubble'. Read his thoughts here.

Still, even though we don't know exactly when the madness will end, keep an eye on corporate bond spreads and corporate bond prices, this is where the first signs of stress and trouble will appear:

Lastly, follow me on StockTwits, I'll try post stuff more regularly but no promises as I'm more focused on writing this blog and less on trading these days. I'll keep writing my market comments every Friday so there will be plenty of market coverage for all you markets people.

I also want to thank all of you who take the time to subscribe and donate to this blog via PayPal options at the top left-hand side under my picture, it's greatly appreciated.

Below, David Rosenberg, chief economist at Rosenberg Research, speaks with Financial Post’s Larysa Harapyn about lessons learned from 2020, and what to look out for in the year ahead.

No surprise, Rosie doesn't think 2021 will bring as much relief as markets appear to be telling us. 

Also, CNBC's "Halftime Report" team discusses Carl Icahn's investing advice for 2021 and what the team is watching in the markets.

Third, allied with landlords and monopolists, the finance sector is extracting economic rents from the economy that's impoverishing US government, industry and labor says economist Michael Hudson discussing the chokehold of pro-finance, pro-rentier capitalism reaching into the present COVID-19 crisis. Great food for thought here, take the time to listen to this interview.

Lastly, my idea on how the markets will feel like this year, like going into the ring with the Russian Bear, praying you will come out alive. Be careful out there, we're not out of the woods on the health front and markets are vulnerable to a serious correction. Stay healthy above all else, let's all have a great year!

The key shift is Ralph Berg, current Global Head of Infrastructure, will succeed Ken Miner as Global Head of OMERS Capital Markets in April of 2021, upon Miner’s retirement. Also, Annesley Wallace, current Chief Pension Officer, will return to the investment side of the business as Global Head of OMERS Infrastructure. 

Blake Hutcheson, OMERS President & CEO, was nice enough to give me a call late last week to go over important changes they have implemented in six key areas:

• People: Ensure they have the right people in the right roles globally.
• Leadership: Promote great leadership at all levels of the organization and ensure they work collaboratively among themselves and key stakeholders
• Culture: Promote the right culture at all levels based on the right values and stay humble as they strive to achieve top results.
• Brand, communication, relationships: Protect the OMERS/ Oxford brand globally and act like ambassadors to the brand to strengthen OMERS global reputation, footprint and relationships around the world.
• Proactive for better future: Think ahead to help achieve the 2025 and 2030 vision and strategy, including taking an active role in how they advance their ESG agenda, drive operational innovation and excellence, and scale their global investment footprint for long term success. 
• Result oriented: By properly implementing the above, they can collectively achieve the required financial and non-financial results to measure their future success. 

Blake and I focused more on changes to the senior leadership team. He beefed it up to 17 people globally (including him) and still has 7 direct reports. 

The way he described it to me is "it's a bigger, more diverse and experienced team" which will allow OMERS to be better prepared for all complexities around the world as everyone will be exposed to these complexities. "This provides a better feedback loop for both coordinating and evolving every corner of the organization."

He also told me almost half of the senior executive team is now made up of women.

So, the new OMERS Executive Leadership Team now includes (in alphabetical order): 

1. Monique Allen, EVP, Data and Technology
   
2. Bob Aziz, COO
   
3. Ralph Berg, the incoming Global Head of OMERS Capital Markets
   
4. Celine Chiovitti, SVP, Pensions and Corporate Services
   
5. Anca Drexler, Head of Total Portfolio Management
   
6. Michael Graham, Head of OMERS Private Equity
   
7. Rodney Hill, Chief Risk Officer
   
8. Michael Kelly, Chief Legal and Corporate Affairs Officer
   
9. Chris Morley, VP, Government Relations
   
10. Nancy Nazer, Chief Human Resources Officer
    
11. Shelagh Paul, SVP, Global Head of Communications
    
12. Satish Rai, CIO
    
13.  Michael Rolland, CEO of OMERS Sponsor Corporation
14. Jonathan Simmons, CFO
    
15.  Michael Turner, Head of Oxford Properties
    
16. Annesley Wallace, the incoming Global Head of OMERS Infrastructure
    

Blake told me that "collectively, this refreshed team brings over 415 years of experience across more than 35 companies and 11 industries, representing multiple countries and backgrounds, with an approximate male/female split of 60/40." 

I highlighted Ralph Berg and Annesley Wallace because these are the the most important changes. Ralph Berg will be replacing Ken Miner, who has announced his retirement, effective April 1, 2021 after a "very distinguished career." Ralph Berg will be based in London.

Annesley Wallace, who has been leading the Pensions and Global Communications teams for the last three years, will return to Infrastructure to replace Ralph Berg as the Global Head of that group. She is based in Toronto.

Blake spoke very highly of both all his senior team and said he has the utmost trust in them. 

As far as the two big nominations, he told me "Ralph has a law degree, over 20 years banking experience, spent six years as Head of OMERS Infrastructure, speaks several languages and is an outstanding leader." 

"Annesley was named top 40 under 40 (she's only 39 years old), she has an MBA from York and an Engineering degree from Queen's University. She's super bright and great leader who is returning to Infrastructure investing."

It should be noted, both these people are outstanding leaders and surefire contenders to take over the top job in the future when Blake eventually steps down (not any time soon).

 What else? Blake told me Satish Rai is staying on as CIO and "he's doing a great job". Ralph Berg, Annesley Wallace, Anca Drexler, Michael Graham and Michael Turner will work closely with him.

Also,  Anca Drexler, Michael Graham and Michael Turner will join the OMERS Executive Leadership Team representing their respective large business responsibilities. 

Another key promotion not mentioned above is Michael Block, who will leave his strategy role to join the Capital Markets team as Senior Managing Director, Capital Markets, reporting directly to Ralph Berg. He's another top 40 under 40 (great young talent).

Bob Aziz will expand his responsibilities as Chief Operating Officer, to include the Global Communications and Pensions Teams. Monique Allen, Celine Chiovitti, Chris Morley and Shelagh Paul will join the OMERS Executive Leadership Team reflecting their growing responsibilities.

Jonathan Simmons will take on additional responsibilities as Chief Financial and Strategy Officer to work on strategy and asset liability management (the group is now reporting directly to him).  Blake told me: "Strategy is a natural fit with our Finance, Accounting and Actuarial divisions and this team will be a welcome addition."

Rodney Hill, Nancy Nazer, Michael Kelly and Michael Rolland (for his AC responsibilities) will also be part of this broader leadership team and will continue to report directly Blake.

What else? Blake told me while the transition will begin immediately, the formal effective date for the changes will be April 1, 2021. 

I thank Blake for speaking with me and I can sense he wants to put 2020 to rest and move on with his new OMERS Executive Leadership Team.

Blake also told me he wants to be more transparent (hence why he's reaching out to me when his predecessors laid low), more accountable and more diverse to address the coming challengers OMERS will face.

And it's not just gender and racial diversity, "it's diversity of thought" which they need.

On Real Estate, Michael Turner who heads Oxford Properties, has a seat on the new OMERS Executive Leadership Team and that is great news as they can make better decisions across public and private markets incorporating his insights (he's another contender to run OMERS one day).

Solid leaders, diverse thoughts and their big challenge will be to maintain and improve culture and to build and protect OMERS brand and global footprint to continue delivering great results. 

I wish them all much success and look forward to speaking to Blake again to cover last year's results (they had some lumps but everyone did).

Below, Blake Hutcheson, president and CEO at OMERS discusses the pension fund's investment strategy amid COVID-19, and how OMERS integrates ESG factors into its investment decision-making processes. He also talks about governments and private investors working together and finding projects that both sides want to build and invest in (October, 2020).

The Canada Pension Plan Investment Board is joining a fund managed by Banco BTG Pactual SA to make a binding offer for the fiber unit of Brazilian telecom carrier Oi SA, according to people familiar with the matter.

The bid is expected Jan. 22, along with two other binding offers, said the people, who asked not to be identified because the matter is private. Highline do Brasil, part of Digital Colony, and Ufinet, which is backed by Italy’s Enel SpA, both plan to make bids for the business, they said.

Oi is planning to sell as much as 51% of its subsidiary, known as InfraCo, with a value for the whole company of at least 20 billion reais ($3.6 billion).

Representatives for Oi, the Canada Pension Plan, BTG and Digital Colony declined to comment. Ufinet didn’t immediately respond to a request for comment outside of business hours.

Oi has been working to pare down its operations while under bankruptcy protection. The struggling carrier raised 1.4 billion reais with the sale of towers and data centers last year. It also announced the signing of a deal with Brazil’s regulatory agency Anatel reducing the fines it need to pay by half, to 7.2 billion reais.

In December, Oi got approval from Rio de Janeiro Justice to sell its mobile-phone business to Telefonica SA, Telecom Italia SpA and America Movil SAB for 16.5 billion reais, but the deal still needs to be cleared by Anatel and the antitrust body Cade.

The minimum price of 20 billion reais for InfraCo is “just a start” and was set after the telecom operator received many nonbinding proposals, Oi Chief Executive Officer Rodrigo Abreu said in an interview in August. At the time, he said he saw “huge” growth prospects for the company, adding that it could be valued up to 30 billion reais.

After receiving the binding proposals for InfraCo, Oi will schedule an auction to sell the asset.

Oi’s voting shares rose 156% in Sao Paulo last year.

Brazil’s biggest landline carrier has been trying to push through a major debt restructuring since filing for bankruptcy protection in 2016. Oi, which has seen losses mount since 2019, divided its assets into five units. Proceeds from its divestments will be used to repay debt and fund the expansion of its broadband fiber network.

Even though the bid is expected on January 22, it's clear that CPP Investments and its partner, BTG, are putting together a serious bid for InfraCo, Oi's fiber unit (subsidiary).

In early December, it was reported that Oi was expecting to receive binding offers for up to 51 percent of its fibre assets, grouped under InfraCo, in January or February at the latest, according to VP for customers Bernardo Winik. Also, according to Teletine, the timetable is for the sale to be completed by the third or fourth quarter of this year. 

The Brazilian telecom giant which filed for largest bankruptcy in Brazilian history at $19bn back in 2016, is expected to use the proceeds to pay down its massive debt and fund the expansion of its broadband fiber unit.

In June of last year, Reuters reported that Oi amended its bankruptcy plan to add the sale of its mobile unit:

Brazilian telecoms firm Oi SA announced late on Monday a proposed plan that, if approved by creditors, would allow the company to exit a long bankruptcy restructuring process that began in 2016.

Under the plan, Oi hopes to sell its mobile unit for at least 15 billion reais to refocus the company on its fiber network.

Brazil’s largest fixed-line carrier had approximately 65 billion reais ($12.65 billion) of debt when it filed for bankruptcy protection.

After selling some non-core assets, including its 25% stake in Angolan carrier Unitel, to release cash for the expansion of its fiber-to-the-home (FTTH) broadband service, Oi now seeks to amend its bankruptcy plan to add its mobile unit to the list of divestments.

All major rivals have expressed interest in buying Oi’s mobile business.

In March, TIM Participações SA and Telefonica Brasil SA informed Oi’s advisor Bank of America of their interest in kicking off talks for a potential acquisition of all or part of Oi’s mobile division.

Then, last month, Total Telecom reported that Brazil’s mobile market consolidates as Oi carved up by TIM, Claro and Telefonica. The joint bid of around $3.2 billion will see major rivals divide Oi's mobile business between themselves:

Back in summer, Brazil’s Oi, having struggled under financial pressure for some time now, made plans to split off its mobile business and prepare for a sale. The company sought around 15 billion reais ($2.9 billion) for the unit, with the funds raised to be used to reduce debt and further Oi’s fibre rollout.

The announcement quickly generated interest from all three of the company’s major rivals – TIM Brasil, Telefonica Brasil, and Claro Brasil – and ultimately a joint bid from the trio was the only one registered for the business.

TIM will be taking the lion’s share of Oi’s assets, taking on 40% of Oi’s customers (around 14.5 million people), over half of the company’s spectrum allocation (49 MHz), and 49% of its mobile sites (around 7,200 locations). Accordingly, it paid the largest portion of the bid, around 7.3 billion reai ($1.44 billion).

Telefonica paid around 5.5 billion reai ($1.08 billion), gaining 10.5 million customers, 43 MHz of spectrum, and 2,700 mobile sites. Meanwhile, Claro’s 3.6 billion reai ($710 million) gained the company around 11.6 million customers and 4,700 mobile sites, but no spectrum.

These pieces of the pie were carved out with national regulations in mind; TIM, with the smallest current share of the market, was allowed to buy up the largest share to ensure that market competition was not jeopardised.

With expensive 5G to rollout throughout the country, especially with an even further delayed spectrum auction, this purchase will provide a major boost to the three operators.

The deal will require regulatory approval from both the national regulator and the Administrative Council for Economic Defense, and is expected to close in 2021.

I expect this deal to close, and I expect CPP Investments and BTG's binding offer InfraCo will ultimately prevail.

In Brazil, Banco BTG Pactual (BTG) is the partner of choice, they're in the loop on every major deal taking place in the country. 

Why is CPP Investments and BTG making an offer for InfraCo? Simply put, it sees a great long term opportunity to acquire these assets now from Oi which is focusing its attention on funding the expansion of its broadband fiber unit.

Brazil is growing, it needs to modernize its telecommunications infrastructure to remain competitive, and Oi will play an integral part in this.

And this is crucial as Brazil is still reeling from the pandemic and needs to move ahead.

Of course, some critics are warning that Bolsonaro’s mixed China policies could burn Brazil:

Brazilian President Jair Bolsonaro seemed to be walking on a tightrope, apparently favoring cooperation with China at the recent BRICS summit but doing his best to ban Huawei and Chinese-made vaccines from Brazil. These contradictory postures risk sinking the Brazilian economy and worsening the country’s Covid-19 epidemic.

At the 12th BRICS Summit last month, Bolsonaro pledged to work with the other four leaders (of Russia, India, China and South Africa) to address Covid-19 and economic recovery in the post-pandemic period. God only knows that Bolsonaro needs the support of his fellow BRICS leaders because it is the third-worst-hit country, after the US and India, in the world, in terms of infections and deaths from the disease.

The Brazilian economy was also one of the hardest hit by the pandemic, sinking nearly 10% in the second quarter of this year. But thanks in part to trade, particularly with China, the economy was expected to register positive growth in the last half of 2020, reducing economic contraction by only 4.7% for the full year.

But that economic “improvement” may evaporate if Bolsonaro succeeds in blocking Huawei and other Chinese-made equipment from the country’s 5G (fifth-generation telecommunications) rollout. In the first place, it will be costly and delay the country’s establishment of the 5G network because Huawei equipment accounts for more than half of Brazil’s four major telecom companies’ hardware, which explains why those firms were contemplating legal action against the Bolsonaro government.

Dismantling and replacing Huawei equipment could take years and cost telecom companies billions of dollars for no reason other than Bolsonaro “idolizing” his American counterpart Donald Trump. Brazilian telecom companies have been using Huawei products for more than two decades, yet there have never been any “national security” issues.

As well, installing Ericsson, Nokia or Samsung equipment is no guarantee that the country’s security will not be breached, because some parts of their equipment are produced in China or integrated into the same ecosystem.

As for Bolsonaro banning Chinese-made Covid-19 vaccines, it has nothing to do with safety or caution, but is just another decision influenced by his hero, Donald Trump. His excuse was that since the pandemic “originated” from China, Chinese vaccines are “untrustworthy.”

Such ideological biases against China and inept management of the Covid-19 pandemic could exacerbate Brazil’s health-care problems and increase the number of deaths from the disease.

Indeed, The Guardian reported on December 13 that one of Brazil’s news portals, Folha de Sao Paulo, had said Bolsonaro’s decision not to use Chinese vaccines amounted to “homicidal negligence.” The Brazilian news outlet complained that the government had abandoned the people, leaving them to die necessarily for ideological or political reasons.

Should Bolsonaro succeed in banning Huawei and Chinese vaccines, Brazil’s economy could “burn” for a number of reasons. First, the additional cost and delay in replacing Huawei equipment could distort the economy. Because 5G technology speeds up business decisions, thus making production and distribution of goods and services more efficient, its delay would put Brazilian industries at a disadvantage relative to other economies.

For example, Brazilian soybean farmers using Huawei 5G products increased production, one reason for the third-quarter economic expansion. The Chinese company’s 5G equipment offered fast broadband communication and real-time data processing, enabling farmers to retrieve the necessary information in one hour as compared with three days using older technology.

Furthermore, the rise in the cost of telecommunication services could reduce real household income, thus reducing consumption. Accounting for more than 85% of GDP in 2019, according to World Bank figures, an erosion in private consumption would undermine economic recovery.

Allowing policies to be dictated by Trump and personal or ideological biases, Bolsonaro could lead Brazil down the garden path, prolonging the recession and costing more human lives.

China is Brazil’s largest trade partner, with two-way trade exceeding 100 billion in 2019. A June 2020 Forbes report revealed that China bought 40% of Brazilian exports, mostly agricultural products and commodities such as iron ore.

As export markets dried up in the West and other major economies, China became even more important to Brazil. Surging numbers of Covid-19 infections in the West, Japan and India forced the imposition of harsher lockdown measures, prompting further economic downward movements.

China, on the other hand, is the only major economy expected to record positive growth of 2% and 8% in 2020 and 2021 respectively, allowing it to buy large quantities of natural resources from Brazil.

Chinese economic growth is maintained by domestic demand, and increasing consumption through urbanization and infrastructure investments. Building new cities and high-speed railways to connect them will require considerable iron and other commodities from abroad.

Taking the analysis to its logical conclusion, caving in to Trump’s demand that Bolsonaro “get tough” on or decouple from China would not only set the country burning, but could end the Brazilian president’s political career. Bolsonaro has only 37% of the people’s support, after all.

Indeed, Bolsonaro should consult with Australian Prime Minister Scott Morrison before he pursues his anti-China agenda. Australia’s economy is struggling to remain above water even though Morrison has strong public support for his anti-China policies, whereas many of Brazil’s political and business establishments are opposing Bolsonaro’s anti-China stances.

Biting the hand that feeds you can only lead to disaster, particularly if the reason for doing so is largely if not solely based on perceived threats. China has done nothing to Brazil, except help its economic development. 

Brazil's economy is inextricably tied to China, as are those of many other nations, but Brazil is walking a tightrope here.  

I think Brazilian President Jair Bolsonaro will allow cooler heads to prevail now that President Trump is on his way out, but I'm not sure the Biden administration won't have its say as to how Brazil rolls out its 5G network and whether it should use China's equipment.

All this won't impact CPP Investments' bid to acquire Oi's fiber unit but I'm giving you an important background as things are far from simple in Brazil and if its economy does falter for any reason (more than it already has), then that can impact the value of these assets CPP Investments is looking to acquire (over the short term, not over long term).

I'm more optimistic and so are markets as Brazilian stocks (most resource plays like Vale) are being bid up nicely lately:

In other related news, last week, CPP Investments announced it committed up to €245mn to its U.K.-based platform – Renewable Power Capital Limited (RPC), in support of RPC’s first investment in European renewables. RPC was launched by CPP Investments in December 2020. See details here. 

Below, CGTN Correspondent Paulo Cabral looks into Brazil’s economy in 2020 and its impact on the country’s politics. Like I said, Brazil is a powerhouse but it has its share of challenges. This is why investors like CPP Investments need strong partners when entering into these markets.

The United Nations is looking for a new chief investment officer to head its investment management division, which works on behalf of its Joint Staff Pension Fund — just months after an internal audit revealed accusations of a "toxic" workplace environment in the office.

The job listing comes after a tumultuous year for the complex $80 billion pension, which also faced a major resignation and investment volatility amid the coronavirus pandemic. 

A spokesperson for the pension said via email that at the end of November 2020, the UN announced that its current CIO, Herman Bril, will leave at the end of the first quarter of 2021 after nearly five years in that role. Under Bril's tenure, the value of the fund's assets increased by more than 50 percent, the spokesperson added.

The new CIO will oversee the UN pension fund’s five portfolios, lead its sustainable investment team, and work as chair of the internal investments committee, the private markets committee, and the best execution committee, among other duties. The deadline to apply is February 21, according to the listing, which was published on January 8.  

On March 29, 2020, the UN announced that the Representative of the Secretary-General for the investment of the pension fund’s assets, Sudhir Rajkumar, stepped down.  

By the end of that month, just as the coronavirus pandemic was rocking markets, the pension fund’s assets dropped to $63 billion — a loss of $10 billion in a single month, according to a July report to the pension staff board. Those losses were recouped by the year’s end.  

Rajkumar’s resignation also came amid an internal audit of the investment management office, which took place from February through May 2020. According to a July report from the UN, the audit revealed “divisiveness” among staff and a culture many called “toxic.”    

“In addition to the perceived micromanagement by certain senior managers, the attitude and approach adopted by them in response to dissenting views and criticism were perceived as intolerant and even retaliatory,” the audit said.    

This caused distrust, fear, and infighting among staffers, leading to several complaints and counter-complaints being filed, according to the report. The audit said the UN came across instances in which the performance evaluation process had been used against staff.  

“Such conditions pointed to the lack of an appropriate tone at the top with regard to the highest ethical standards of behavior that are expected of officials entrusted with fiduciary responsibilities,” the report said.    

“Since arriving in April 2020 as the Secretary-General’s new representative for the investments of the UNJSPF, Pedro Guazo has worked with staff to create a culture of harmony and high-performance where all feel they are empowered and heard,” the UN pension spokesperson said in a statement. “This effort to transform the culture and atmosphere in the office is based on the results of dialogue within the office, involving staff and management. This is a medium-term plan that will be monitored by management and internal auditors.”

A year before the publication of this audit, Rajkumar said in a statement included in the program budget that the UN’s Office of Investment Management was “in some respects malnourished” when he began his role in 2018. He noted that a benchmarking study conducted by a consulting firm showed that the office was understaffed by between 25 to 40 posts. Rajkumar did not respond to a request for comment by the time of publication. 

“Specific gaps and staffing priorities were identified and additional investment staff were approved by the UN General Assembly,” a senior official in the UN Joint Pension Fund told Institutional Investor in February 2020. “The newly approved investment staff positions are expected to be filled during 2020, in accordance with UN HR rules and processes.” 

According to the job listing, 85 percent of the pension fund, which is fully funded, is managed actively in-house. Its assets under management grew 11 percent in 2020, according to a December message published online by Rosemarie McClean, chief executive officer of pension administration, and Pedro Guazo, the representative of the Secretary-General who replaced Rajkumar.

Their message also revealed that the pension’s investment office will be allowed to use exchange-traded futures, swaps and foreign exchange forwards on a trial basis for two years in a bid to “strengthen risk management and efficiency and help us lower the transaction costs and hedge risks while implementing various investment strategies,” their message said.  

Recall, back in November, I wrote a comment on why the UN Pension is kicking reforms down the road where I stated:

[...] I see bigger problems at the  United Nations Joint Staff Pension Fund that are structural, not operational in nature.

In particular, they need to totally bomb the current governance framework and replace it to something akin to what Ontario Teachers' Pension Plan where Rosemarie used to work or CPP Investments or any of Canada's large pensions have in terms of governance.

Importantly, the UN pension fund should have an independent board where top investment and other professionals are appointed not by politics but by qualifications and this board has to be completely independent from the UN. 

Huh? What? You heard me, get the UN completely out of the operations of its massive pension fund, let an independent board oversee senior managers who run the day-to-day operations of the Fund and they can publish a very transparent annual report of their activities every year.

What else? Move the hell out of New York City! The UN pension fund should be based here in Montreal. Not New York City and not even Toronto, the North American mecca for pensions but Montreal which is multilingual and has two of the largest pensions in Canada and tons of pension talent.

[Note: On the sixth of June 1946, toward the conclusion of the first PICAO Interim Assembly, Montreal, Canada was selected as the permanent headquarters of the International Civil Aviation Organization (ICAO), by 27 votes. I think the UN should move its pension fund here.]

I've been saying this for years: get the UN pension fund out of New York City and as far away from the UN as possible and more importantly, get the governance right once and for all. 

Again, this is me, Leo Kolivakis, publisher of Pension Pulse talking, not Rosemarie McClean. I haven't exchanged a peep with Rosemarie since she assumed her new role and I suspect she is extremely busy and it's not an easy job to assume in the middle of a pandemic.

I have extremely strong views on the United Nations Joint Staff Pension Fund. I make no apologies whatsoever and I know enough about the UN and how much dirty politics goes on in that organization.

Too many people there are power hungry and they think they're smarter than everyone else, but when it comes to their pension plan, most of them are completely and utterly clueless as to how to improve its governance and what really needs to be done to improve it over the long run.

In short, get the United Nations out of managing anything in regards to its pension fund. Nominate an independent and qualified board, pay professionals to manage assets in-house and let them do their job focusing on the mission of the plan and what is in the best interests of its members over the long run.

Alright, maybe I was too harsh but the United Nations is a highly political, highly bureaucratic organization by its very nature and when it comes to its massive pension fund, they never got the governance right to make sure there is no undue influence and outside interference and there are plenty of politicos there who try to stick their nose into the UN Pension Fund.

Now we learn there was a "toxic" culture hampering the pension fund and the current CIO, Herman Bril, is resigning at the end of the first quarter.

I don't know much about Mr. Bril, he's obviously highly qualified, but in my experience, whenever someone else is brought in from some foreign country, oftentimes there is a cultural mismatch.

This was the case at Ontario Teachers' when they brought in Bjarne Graven-Larsen as CIO from Denmark where he was CIO of ATP. He is a brilliant guy but didn't fit well in that organization.

Mr. Graven Larsen was eventually replaced by Ziad Hindo, someone who worked at Teachers' for a long time and is a much better cultural fit.

Sometimes bringing in someone from the outside works out just fine as they bring new energy and fresh ideas. Look at Eduard van Gelderen who was appointed PSP Investments' CIO in 2018, he has meshed perfectly into that organization and is doing an outstanding job.

But sometimes bringing in someone from the outside brings a lot of angst and yes, toxicity.

Every organization has suffered from "toxicity", not just the UN Pension Fund.

Typically, it's due to one or two senior managers who abuse their power, are just terrible managers and quite honestly, don't deserve the responsibilities they are given. 

The worst types of senior managers are arrogant, insecure weasels who only look after their best interests, and don't give a damn about their employees.

They keep things close to their chest, are not transparent and do not take the time to communicate openly with their team.

Luckily, these bad managers tend to have short careers but some are there a lot longer than needed and in the process, do immense harm to the organization.

Culture. Everyone talks about the importance of culture but very few organizations do the hard work which is required to promote and enhance great workplace culture.

And it's not just from the top down, every single employee needs to work hard to ensure that workplace culture is at the level it should be.

That comes down to values, ethics, hard work, being open, transparent and going the extra mile to help not only your boss but also your colleagues when needed and in return, they should reciprocate.

In many ways, this is all common sense but it only takes one jerk of a manager or a jerk of a colleague to ruin workplace culture.

Interestingly, with the pandemic, a lot more people are working from home.

I was talking to a former colleague of mine earlier who is now working at a major insurance company and they did a survey which found 60% of employees prefer working from home, 25% didn't care either way and only 15% wanted to go into the office.

If you ask me, it's not just because they avoid commuting to and from work, for a lot of people, they can avoid toxic workplaces and focus on their job. 

How do you know if your organization suffers from toxicity? Any easy indicator is the turnover rate, if a lot of people are leaving your organization, or certain teams in your organization, it's a telltale sign of toxic culture (and other problems).

CEOs can't be privy to everything that is going on at their organizations and sometimes they don't see toxic culture even though it's definitely there.

And addressing toxic culture is critically important because it impacts results.

Go back to read Part 6 and Part 7 of a series Mihail Garchev and I put together on total fund management where we discuss culture and how it impacts TFM capability.

Trust me, Mihail and I have seen our share of good and bad culture at pension funds (mostly good but it's always the bad that leaves scars in your mind).

I've always asked myself, is it the investment management industry which brings out the worst in some people or is it that every profession has rotten apples who are just toxic by nature.

Anyway, I've rambled on long enough but when I saw this article on the UN Pension, I couldn't resist to to use it to discuss toxicity at the workplace, especially at pensions.

The important point is it goes on everywhere, not just at the UN Pension, and it's critically important to address it because it truly is like a cancer which metastasizes and spreads, and it impacts not only results, but more importantly, the well-being of your employees.

Nobody wants to work in a toxic workplace, nobody. Life is too short to deal with toxic people at their workplace (both men and women).

Will the UN Pension Fund survive this toxicity? No doubt, it will, it looks like they've already implemented the right course of action.

As far as their search for a new CIO, I have a few outstanding people in mind, some that have worked with Rosemarie McClean at OTPP but others too (I don't need to list them, she knows them well).

Lastly, the good thing is the UN Pension remains full funded and that truly is the best sign of a pension's health. Let's hope this continues and that they address these workplace challenges.

Below, Simon Sinek discusses the biggest mistake that companies make when trying to make cultural transformations, treating it like a marketing campaign and why purpose should be prioritized over metrics. Take the time to watch these clips.

But it's the third clip on empathy and perspective which I really want you to pay attention to, it's fantastic, one of his best speeches ever where he imparts sound wisdom for all leaders and employees. If you want to get workplace culture right, make sure you get the right leaders with their right empathetic attitudes.

Australia’s AMP Capital and Canada’s PSP Investments have agreed to sell their stakes in one of Europe’s largest train-leasing company for undisclosed sums to two Dutch pension firms.

In separate transactions, AMP Capital has agreed to sell its stake to APG –  which already has an indirect interest in Alpha Trains – while PSP will sell its stake in the rolling stock leasing firm to PGGM, a Dutch pension fund service provider.

The transaction will make APG and PGGM’s Infrastructure Fund new shareholders in Alpha Trains.

Alpha Trains leases trains across 17 European countries with a fleet of 855 trains and locomotives, most of which are electric.

AMP and PSP have been investors in Alpha Trains since it was founded in 2008, since which the firm has doubled the the size of its fleet and increased EBITDA more than three-fold since 2012.

In recent years the firm has also expanded its operations into new countries. Spain, France and eastern Europe.

Adam Petrie, AMP’s head of transport and asset management for Europe, said, “Alongside our co-shareholders and management team, we are proud to have driven the development and growth of Alpha Trains from its inception to become the leading European rolling stock company.

“Throughout this time Alpha Trains has capitalised on the liberalisation of the European rail industry while delivering market-leading ESG performance.”

PSP Investments put out a detailed press release on this transaction:

Alpha Trains today announced that AMP Capital, on behalf of investors in its global infrastructure equity platform, has agreed to the sale of its stake in Alpha Trains to APG, which already owns an indirect interest in Alpha Trains. In a separate transaction, the Public Sector Pension Investment Board (PSP Investments), one of Canada’s largest pension investment managers, has also agreed to sell its stake in Alpha Trains to PGGM Infrastructure Fund.

Alpha Trains is one of the leading rolling stock companies in Europe, providing flexible leasing solutions to train and locomotive operators across 17 European countries. Its portfolio consists of approximately 855 trains and locomotives. The majority of its fleet is electric, positioning Alpha Trains as a leader of the clean energy transition in European rail.

Shaun Mills, Alpha Trains CEO, said: “Alpha Trains continues to be the leading Continental European rolling stock lessor and our resilience through 2020 highlights the strength of our business. I would like to thank AMP Capital and PSP Investments, our two exiting shareholders, for their support over the last 12 years and I look forward to working with our new shareholders, APG and PGGM Infrastructure Fund, alongside existing shareholder Arcus, to continue to grow and develop the Alpha Trains business.”

AMP Capital and PSP Investments have been investors in Alpha Trains since its establishment in 2008, supporting the business to achieve significant milestones, including:

• Doubling the size of the fleet and increasing EBITDA more than three-fold since 2012;
• Enhancing the resilience of the business by leveraging Alpha Trains’ competitive advantage in key passenger markets, pivoting to a circa 70% passenger / 30% freight asset portfolio;
• Expanding the operating footprint in existing and new geographies, such as Spain, France and Eastern Europe;
• Realising Alpha Trains’ commitment to sustainability and clean transport to not only consistently achieve a five-star GRESB rating since 2017, but also successively improving the score year-on-year as a Sector Leader; and
• Successfully concluding a complex refinancing to create a flexible and sustainable financing platform to support future growth and become the first ROSCO in Europe to develop and publish a Green Finance Framework fully aligned with the Green Bond and Green Loan Principles.

Adam Petrie, Head of Transport and Head of Asset Management, Europe, AMP Capital, said, “Alongside our co-shareholders and management team, we are proud to have driven the development and growth of Alpha Trains from its inception to become the leading European rolling stock company. Throughout this time Alpha Trains has capitalised on the liberalization of the European rail industry while delivering market leading ESG performance. Alpha Trains is a high-quality business with an important role in the future of European rail and we wish the business continued success.”

Arjan Reinders, Head of Infrastructure Europe, APG, commented: "Alpha Trains is an excellent business with a strong position in the Continental European rail market, together with an attractive and diversified portfolio of assets which generate long-term and resilient cashflows, which fits perfectly with the requirements of our pension funds clients. APG is making a strategic investment in the business, its management and its people, and we intend to further contribute to Alpha Trains’ success and growth over the long term."

Patrick Samson, Senior Managing Director and Global Head of Infrastructure Investments, PSP Investments, added: “Alpha Trains is a unique business with a solid foundation and strong leadership team. As the leading provider of flexible rail leasing solutions, we are proud to have supported and contributed to their growth and success alongside our partners. We are confident that PGGM Infrastructure Fund will be a positive addition to an already strong partnership – further supporting Alpha Trains’ potential.”

Erik van de Brake, Head of Infrastructure, PGGM: “Alpha Trains is a valuable addition to the growing PGGM Infrastructure Fund. We expect the company to continue its strong performance and generate long-term stable revenues for the fund’s participants, including Pensioenfonds Zorg en Welzijn, who are working towards a more sustainable investment portfolio. This investment enables long-term pension capital to support the growing demand for sustainable ways of transport in Europe.’’

Closing of the transactions are subject to approval by the relevant regulators.

So, why are PSP and AMP Capital selling their stakes in Alpha Trains to APG and PGGM Infrastructure Fund in the middle of a pandemic?

A few reasons which were outlined in the press release. 

First, AMP Capital and PSP Investments have been investors in Alpha Trains since its establishment in 2008, supporting the business to achieve significant milestones, including doubling the size of the fleet and increasing EBITDA more than three-fold since 2012.

Moreover, they pivoted to a 70% passenger / 30% freight asset portfolio and expanded the operating footprint in existing and new geographies, such as Spain, France and Eastern Europe.

In other words, they realized significant gains in their value creation plan over the years and are selling this excellent asset to two top Dutch pensions, APG and PGGM.

The fact that Alpha Trains leases electric trains is an added bonus because both APG and PGGM Infrastructure Fund have an ESG mandate.

Did AMP and PSP sell their stakes in Alpha Trains at a deep discount because of the pandemic? I strongly doubt it, they're long term investors and so are APG and PGGM which will hold this asset for a decades.

One year of revenue hit doesn't make a difference over the long run.

Also, keep in mind, this asset was part of AMP Capital's global infrastructure equity platform.

AMP Capital manages over US$16 billion in infrastructure, real estate, fixed income and other assets. It has a leading infrastructure fund with a truly global presence. It is one of Australia’s longest established managers of infrastructure investments with over 30 years experience.  

In 2017, AMP Capital raised US$2.4 billion for its global infrastructure platform at final close, with more than 50 institutional investors committing to its global mandate to invest in high-quality assets offering the best relative value. 

After many years, it's only normal it wanted to realize on its investment in Alpha Trains so it can move on to raise its next fund and buy other infrastructure assets.

In short, if the price is right, you can sell infrastructure assets, you don't need to keep them on your books forever.

All the stakeholders in this deal are gaining, especially Alpha Trains which now has two top Dutch pensions as its owner. They will undoubtedly improve the business and expand its global footprint over the next decade.

That's all I can add on this deal at this time.

Earlier today, I reached out to Neil Cunningham and Patrick Samson but they "don't talk to the media", unless of course, it's to toot their own horn when it comes to promoting ESG disclosure and deflect attention from all the bad press they received on their Revera holding during the pandemic. 

PSP knows me very well, I'm not a reporter, I'm a senior investment analyst doing my civic duty, blogging on pensions. The least they can do is give me a few minutes to chat about this and other deals.

The same goes for all of Canada's large pensions, I appreciate those of you who take the time to discuss deals in a little more detail with me and most of all, I appreciate your support.

Alright, let me end it there, if there's anything else to add, please reach out to me at LKolivakis@gmail.com.

Below, a nice clip showing you what Alpha Trains is all about. Great asset, it's almost too bad PSP Investments is selling its stakes in it, but the time is right and I'm confident this will continue to be a great asset for APG and PGGM Infrastructure Fund.

Stocks fell on Friday to close out a tough week as traders weighed President-elect Joe Biden’s $1.9 trillion stimulus plan along with the latest earnings from some of the biggest U.S. banks.

The Dow Jones Industrial Average closed 177.26 points lower, or 0.6%, at 30,814.26. Earlier in the day, the Dow was down more than 300 points. The S&P 500 dipped 0.7% to 3,768.25, and the Nasdaq Composite slid 0.9% to end the day at 12,998.50.

Dow Inc. and Chevron both fell more than 3% led the 30-stock average lower. Energy dropped 4%, posting its worst one-day decline since late November, pressuring the S&P 500. 

The Dow and Nasdaq posted weekly declines of 0.9% and 1.5%, respectively, to snap four-week winning streaks. The S&P 500 also lost 1.5% over that time period.

Biden’s proposal, called the American Rescue Plan, includes increasing the additional federal unemployment payments to $400 per week and extending them through September, direct payments to many Americans of $1,400, and extending the federal moratoriums on evictions and foreclosures through September.

The plan also calls for $350 billion in aid to state and local governments, $70 billion for Covid testing and vaccination programs and raising the federal minimum wage to $15 per hour.

“There is real pain overwhelming the real economy — the one where people rely on paychecks, not investments, to pay for their bills and their meals and their children’s needs,” Biden said during a speech in Delaware Thursday night.

Tom Essaye, founder of The Sevens Report, said the proposal was “being met by a ‘sell the news’ reaction as markets already priced in most of what was included.”

“Plans for future historical stimulus, easy Fed policy and vaccines are now well known, and as such those catalysts simply don’t have the positive influence on stocks that they have over the past few months,” he added.

A third major relief bill has been widely expected in recent weeks, especially after the December labor market report saw the economy lose jobs and Democrats won two key Senate races in Georgia, giving Biden’s party narrow control of both houses of Congress.

“There was a fair amount of transparency as this deal came to fruition,” said Keith Buchanan, portfolio manager at GLOBALT. This made it easier for investors to price in the proposal’s potential impact on risk assets ahead of time, he said.

It remains unclear whether Biden’s proposal will be welcomed in a sharply divided Congress. Though Democrats hold both houses, they will need to sway moderate members of their own party, such as West Virginia Sen. Joe Manchin, and some Republicans to increase spending. Democrats originally pushed for another multi-trillion package last year before agreeing to a $900 billion bill in December.

Nonetheless, CNBC’s Jim Cramer noted that famed investor David Tepper’s outlook on stocks is still positive.

“I don’t want to say he’s wildly bullish. I would say he’s very constructive,” Cramer said Friday on “Squawk on the Street.” “He saw this coming. He knew to get out and now he feels there are pockets where you should be in, pockets of very reasonable valuations.”

On Friday, investors got fresh looks at major banks such as JPMorgan Chase, Citigroup and Wells Fargo. JPMorgan reported better-than-expected earnings, but the stock fell more than 1%. Wells Fargo and Citigroup also declined 7.8% and 6.9%, respectively, even after posting earnings that beat analyst expectations.

Meanwhile, the U.S. Commerce Department said retail sales fell 0.7% in December. Economists polled by Dow Jones expected sales to remain flat.

Alright, it's TGIF Friday and time to cover these markets again.

Before I begin, if you have not taken the time to read my Outlook 2021, please do so here, as it's more comprehensive and I'll be referring to it when making some points in this comment.

First, let me begin with rumblings of a big bond bear market. As I stated in my Outlook 2021, I don't see persistent inflation, maybe cyclical inflation because the US dollar got hit last year raising import prices, but not sustained inflation which only comes from sustained wage gains which are not there.

Anyway, whenever Treasuries sell off, markets get nervous, Jeff Gundlach appears on CNBC and warning of rising inflation as the Fed pledges to keep rates low and its monetary stimulus programs running and a bunch of bond bears show up warning of another major backup in bond yields.

I don't get too excited and will refer my readers to a recent comment Brian Romanchuk of the Bond Economics blog posted on why the Treasury sell-off is following past patterns. 

Suffice it to say, the backup in bond yields is very normal, nothing to worry about for now, and to be truthful, I don't see what all the fuss is about. 

Jerome Powell said this week the Fed won't raise rates unless they see troubling signs of inflation and for now, the yield on the 10-year Treasury note remains somewhat anchored around 1%:

At 2%, every major pension fund in the world is going to be hitting the bid on long term Treasuries as part of their liability-driven investment program.

Anyway, every time we get yields creeping up, some Wall Street strategist comes on air and warns that this could be it, a "regime change" in inflation, and I'm here to tell you it's absolute and total nonsense.

The only inflation I see is in the markets where some industries and sectors are in total mania mode.

That brings me to today's topic, the unARKing of the market.

I laugh whenever I see neophytes posting stuff on StockTwits about how Cathie Wood's ARK Invest is buying this or that stock.

It literally creates a feeding frenzy. To wit, check out shares of Bionano Genomics (BNGO) which recently went vertical all because the ARK Genomics Revolution ETF (ARKG) is looking to buy it:

Of course, none of this is true, if you look at detailed holdings of ARKG here, you won't find this stock, but the feeding frenzy has now taken a life of its own and millenials are convinced this small genomics play is the next CRISPR Therapeutics (CRSP), a top holding of ARK ETFs.

This whole "Cathie Wood effect" is a bit silly but it's very real. She's by far the hotttest portfolio manager in the world, has been making outstanding bullish calls not only on Tesla (TSLA) but many other tech stocks like Roku (ROKU), Zillow (Z), Square (SQ), Teledoc (TLDC) and  a bunch more hyper growth stocks that ripped higher last year (see detailed holdings of ARK Innovation ETF here, it's the flagship ETF millennials love).

But there's an old saying, what goes up in the market too fast, typically comes down even faster.

Of course, in these markets, where central banks backstop madness, and short sellers are nowhere to be found as they've been inflicted with monetary coronavirus, you see a lot of funny stuff and mini manias that remind me of 1999 but on a much more outrageous level.

And it's not Robinhoodies driving this nonsense, it's the typical Wall Street funds (Vanguard, BlackRock, Fidelity, etc.) and elite hedge funds (D.E. Shaw, Renaissance Technologies, etc.) who are playing parabolic moves like never before, with an ESG tilt, of course.

Anything related to electric vehicles (EV), solar, wind, fuel cell, genomics, cloud computing, fintech, weed, is a buy and everything else is for dying dinosaurs "who don't get it" the world is changing and "disruptive technologies and pot stocks are the ONLY place to invest."

God forbid I tell these young millennials on StockTwits to diversify out of Tesla, Nio, CRISPR, or whatever hot stock Cathie Wood's ARK Invest invests in, I'm immediately met with a chorus of "OK BOOMER!" on Stocktwits.

And who can blame them? In the make belief world the Fed and other central banks have created, hyper growth stocks only go up, you always buy the dip, even on vertical charts like this:

Earlier today, Martin Roberge of Canaccord Genuity sent me his weekly market wrap-up,  All Eyes on ARKK!, where he observes:

Equity indices have taken a little breather this week, but given the overbought nature of the market this feels like a moral victory and a reminder that the market continues to be governed by a bullish bias. That said, as discussed in Wednesday’s incubator, the real test for stocks could begin next week. So far, further rotation from growth to value, large caps to small caps, and defensives to cyclicals has kept markets afloat. Should this internal rotation persist, the likely outcome could be more churning or a time correction. Conversely, disappointing company guidance spooking elevated 2021 EPS growth expectations could lead to a price correction. Higher bond yields might also, since the equity risk premium on US growth stocks is flirting with the January 2018 cyclical trough already. Fortunately, value stocks enjoy fatter equity risk premiums, hence our decision to stay put equities for now.

Since November, FAANG and/or mega-cap growth stocks are lagging the market. Many investors think this underperformance marks an important erosion in risk appetite, putting the overall market at risk. Well, something noteworthy has occurred since November which goes against this thinking: the craze in hyper-growth stocks. We are not talking about TSLA here, but more the likes of ROKU, ETSY, MELI, FUBO, LMND, JMIA, etc. Many early growth stocks can be found in the ARK Innovation ETF managed by the very popular Catherine Wood and her team. Taken from ARK’s website, the managers look for disruptive innovators whose technology enables new products or services that potentially change the way the world works. Unsurprisingly, among ARK’s top-10 holdings, the cheapest stock trades at 60x EPS. In ARK’s defense, history shows that valuation should not be much of an issue when you are looking for the next Amazon or Shopify. After all, most investors in my dad’s generation and mine missed these two stocks because they could not get their heads around 10x, 20x, 30x sales multiples. Well, not my two sons and their generation, and this is our point today.

Our Chart of the Week shows that ARKK’s price performance is mimicking the mania seen through the dot-com bubble, while the depressed put/call ratio suggests a similar market frenzy. The outcome for ARKK does not have to be that of the post-2000 tech bubble but when it comes to gauging risk appetite, we believe the focus should be on ARKK, a proxy for hyper-growth stocks and speculative hunger.

Regarding economic data, in the US, President-elect Joe Biden proposed a $1.9T rescue package for the economy. Meanwhile, Fed Governor Powell reassured markets, saying that now was not the time to talk about tapering the bond-buying program. In all, the government wants to increase public spending and the Fed appears ready to mop up, at least partially, Treasury issues. Otherwise, we learned that headline and core inflation for December came in at 1.4% (from 1.2%) and 1.6% (from 1.6%) respectively, still below target. A low comparison base in Q2/20 could juice YoY numbers later this Spring. For now, the spike in Covid-19 infections appears to be negatively impacting the economy. The NFIB index declined to 95.9 (from 101.4) and retail sales fell -0.7% MoM in December. Manufacturing production improved a notch (+0.9%) but remains 2.8% below year-ago levels. In Europe, industrial production improved markedly in November (+2.5% MoM). However, we fear new lockdown measures will weigh on these numbers going forward. Elsewhere, in China, trade statistics show that exports increased 18.1% YoY in December while imports advanced a more modest 6.5% over the same period. Interestingly, China bought record volumes of crude oil, copper, iron ore and coal in 2020.

Now, I'm not saying it's time to go short ARK's mighty ETFs, that would be suicidal in these markets, but people reading this comment need to prepare for the unARKing of this market, and it could be very painful for a younger generation which only invests in ARK ETFs, or only invests in solar (TAN) or biotech (XBI) ETFs.

As I stated in my Outlook 2021, I'm a big believer in solar, biotech and other disruptive technologies, but you really need to pick your stocks carefully or risk getting slaughtered.

Even Cathie Wood gets dinged once in while, she's definitely hot but these momentum markets can flip on a dime and she can get clobbered too, now more than ever since everyone is following her every move.

As I stated in my Outlook 2021, be careful, stay humble, pick your spots carefully, always manage your risk accordingly or risk getting your head handed to you. 

Last year was an anomaly. Many stocks went up 500%, 700%, 1000% or more, that's not reality, that's typically a telltale sign of a bubble and look what has happened to some of the hot stocks, like Cardiff Oncology (CRDF) which got clobbered today after running up all of last year:

By this biotech dip? Maybe, just like some bought the huge dip in Sarepta Therapeutics (SRPT) last Friday (a holding of ARK ETFs), but be careful in these markets, buying the dip can easily turn into a disaster, especially if you don't know what you're doing (and truth be told, too many people don't have a clue!).

I will end with the stock of the week, for me, at least. It's BlackBerry (BB) and I think it's a stock to watch going forward and judging by the volume today, I think many other institutions are looking closely at it:

Ontario Teachers' Pension Plan and Prem Watsa's Fairfax Financial have been invested in it for a very long time, but I noticed two leading hedge funds -- D.E. Shaw and Two Sigma -- also own it as of the end of Q3 20202:

What else? When you see a big bank like Wells Fargo (WFC) get hit after reporting decent earnings, it's typically "sell the news traders" and you need to keep an eye on it:

Can it go lower? Absolutely, big banks (KBE) tend to trade with rates and if long bond yields tumble, it can spell trouble for banks. Also, a big market correction, especially in high growth stocks, can spill over and impact value stocks like Financials (XLF), Energy (XLE) and Industrials (XLI). 

That's called the beta effect and it can impact all stocks. 

From that perspective, the unARKing of the market makes me nervous, depending on how bad it gets.

Just remember, if you made a killing buying Tesla, Nio, Plug Power, solar and biotech stocks last year, sweep the table, take a huge chunk of profits and diversify (don't be stupid, especially if you're up huge and are very concentrated in a few stocks).

Alright let me wrap it up with the top performing large cap stocks of the year so far (full list available here): 

A lot of these are going to reverse course and get whacked hard, just showing you how manias die hard in markets where central banks promote madness.

Below, the interview of the week. CNBC’s “Halftime Report” is joined by Doubleline CEO Jeffrey Gundlach to discuss how markets are trading amid the pandemic, what he expects from the Biden administration, why the U.S. isn’t out of a recession and more.

Take a lot of what Gundlach says with a pinch of salt, he's not always right on bond yields and especially not on inflation and the stock market, but I always enjoy listening to his views.

Many Canadians haven’t saved nearly enough for retirement. Those without any workplace saving program have a median savings of just $3,000. Such meager savings would not last the average retiree more than a year. Canada will see increased health care and social support system costs if we don’t address this gap in a meaningful and thoughtful way.

The truth is, it’s not easy to save for retirement. It’s difficult to start, easy to get overwhelmed and drop out and difficult to get good unbiased advice.

The best possible retirement savings plan and the one that most Canadians want is a defined benefit pension plan. Those lucky enough to have a defined benefit pension likely work in the public sector. Eight in 10 workers in government and broader public sector workers in Canada have access to a DB pension, while one in 10 private sector workers do.

When it comes to workplace retirement savings, there is an imbalance between those who have, and those who have not – sometimes described as pension envy. It raises the fundamental question, why can’t more working Canadians have access to a DB pension?

Canadians don’t need to be convinced that most Canadian DB pensions are expertly run and sustainable. They know that DB pensions are valuable and an efficient way to prepare for retirement. They also know that DB pensions are unavailable to most workers and that leaves too many Canadians with the nagging feeling that DB pensions themselves are unfair. Due to ongoing economic upheaval in the wake of COVID-19, this sentiment will only grow. We will not be able to stem the tide of pension envy until we address the proverbial elephant in the room: improving access to defined benefit pensions.

As Canada emerges from the pandemic, will the pension sector seize the moment to build better workplace retirement options that meet the needs of working Canadians and employers?

It is well known that DB plans have been in decline in the private sector since the 1990s. There are some who have already written the obituary for private sector DB plans.

Plan sponsors, especially for single-employer plans, are seeking options to reduce the financial risk to the company balance sheet. As a result, private sector employers have been steadily moving their employees to riskier and less efficient retirements savings programs, like DC arrangements, group RRSPs or to nothing at all. The move is shifting the entire risk for retirement savings to individual employees where retirement outcomes are less certain, more stressful, and are expected to deliver a lower standard of living per contribution dollar.

In addition, if you don’t have a secure lifetime DB pension, outliving your retirement savings account is a real risk. As longevity continues to improve, future retirees can expect to live beyond 90. As well, investment experts know that average returns have decreased steadily each decade over the last 40 years and that trend is expected to continue. These factors make securing a reasonable standard of living in retirement even more challenging.

While DB pensions in the private sector have been in decline, the pooling of longevity and investment risks makes them the most efficient retirement savings vehicle. They are also highly desired by Canadian workers.

According to a recent national survey on Canadian retirement income preparedness, 79 percent would rather their employer make pension contributions than receive that money as salary. As well, 82 percent said that all workers should have a pension that guarantees a percentage of their working income in retirement.

Addressing pension envy through improved access to sustainable pensions

Pension envy is real and serious and it’s in everyone’s interest to address the challenges that loom large on the horizon by providing access to defined benefit pensions for more working Canadians.

The not-for-profit CAAT Pension Plan has listened to the concerns from employers, workers, and unions and decided to take a leadership role in bridging the growing gap across Canada. Their innovative DBplus design is addressing those needs. For our part, the CAAT Pension Plan is open for growth in membership from the public, private or not-for-profit sectors in Canada. This includes workplaces currently offering defined-benefit pension plans (and want to take advantage of CAAT’s size and lower risk profile), defined contribution plans, group RRSPs, and those with no current workplace retirement savings plan.A

Although DBplus was only made available to all Canadian workplaces in 2019, members from about 50 employers have already joined. CAAT now has members across Canada from 10 industries and has support and participation from 15 unions and member associations.

And CAAT is not alone in closing the gap. For example, OPTrust Select is available to the Ontario not-for-profit sector and provides DB pensions to these groups that wouldn’t otherwise have access. CAAT also recognizes that DBplus may not work for all workplaces and will continue to participate in improving the Canadian retirement system for all.

It is through better access that we will move the discussion from pension envy to pension solutions, benefiting workers, employers, and Canada as a whole.

Let me first thank Derek Dobson, CEO of CAAT Pension Plan, for kindly taking the time to write this excellent comment. 

I'd also like to thank John Cappelletti, Senior Communications Advisor at CAAT Pension Plan for his assistance in putting this together.

Now, before I share my thoughts, make sure you also see the National Survey of Canadians’ preparedness for Retirement, which HOOPP posted in September 2020.

I covered this with HOOPP's Steve McCormick here and it's an important topic which Derek refers to.

The basic problem is this:

1. Most Canadians do not have enough retirement savings to help them live a comfortable retirement.
2. Only a small segment of the population which works in the public sector still has a defined benefit plan (DB plan) they can count on to help them achieve a decent retirement.
3. While most workplaces are closing up DB plans, there are innovative solutions to help employers meet the retirement needs of their employees which are better than group RRSPs. CAAT's DB Plus is one such solution which offers a defined benefit solution to employees and employers willing to pay a little more in exchange for a secure, defined benefit pension payment.

You can learn more about CAAT's DB plus here and read news articles related to DB Plus here.

It's not the only innovative DB solution out there. OPTrust Select seeks to address the retirement needs of Ontario's non-profit sector.

My own thinking? You already know it. The brutal truth on defined-contribution plans is they're not working, too many Canadians are simply not saving enough for retirement. 

For example, I read last year's BMO study on RRSPs and here are the main findings:

• 69 per cent of Canadians now hold an RRSP account, compared to 60 per cent last year
• Average amount held in RRSP accounts hits $111,922, up by almost $10,000 compared to 2018
• On average, Canadians plan to retire at 62 – but most are unable to estimate how much money they would need to retire comfortably

Now, even when you factor in CPP/ QPP, OAS, retiring at 62 on $112,000 is really not a lot and that's an average, not a median.

I know 50-year-old doctors, lawyers, accountants with over a million dollars in their RRSPs and they still are worried they won't be able to retire comfortably at 65 with rates at record low levels. And they have their houses paid off (they'll be fine).

My point is this, retiring at 60 or 65, you still need to plan ahead for the last 20 years of your life and figure out a way to stretch those meager savings over 20+ years.

What about TFSAs? Again, like RRSPs, they help at the margin but Canadians aren't saving enough there too and when they do, they don't utilize it properly. 

According to a BMO survey, Canadians put more money into their TFSAs in 2020 despite the financial crisis caused by the global pandemic. The annual report conducted by the bank found that the average amount held by Canadians in TFSAs rose by more than 9% to $30,921 from a year ago.

But here's the hitch, instead of investing that money wisely in dividend ETFs or stocks like BCE or Telus, Canadians are leaving in cash, which defeats the purpose.

And you don't need to invest it in dividend stocks and ETFs, you can invest in the the S&P 500 ETF (SPY) or in riskier ETFs or stocks depending on your risk profile but again, most Canadians are just leaving it in cash because either they don't know what to do or are too scared to invest it.

What does this tell you? It tells me we need to wake up as a country and come to terms with the fact that we are not providing good retirement solutions to Canadians looking to retire with a secure income stream during their golden years.

Let the big banks and insurers peddle crappy, high fee mutual funds for RRSPs and TFSAs, but if you ask my opinion, it's high time we look into providing a well governed DB plan for all Canadians.

Enhanced CPP will help once it fully kicks in but it's not enough. We need to offer more DB solutions like CAAT's DBplus and OPTrust Select to more Canadians.

Well governed, well managed pension plans investing across public and private markets all over the world which have a shared risk model embedded in them is the solution.

What worries me is too many Canadians are not enjoying a DB plan, not because they can't, but because their employer hasn't explored all the available options (and they don't cost a lot). 

Investing money over the long term is very hard, now more than ever, even for professional pension fund managers.

But if we pool investment and longevity risk and introduce risk-sharing, we can offer Canadians a defined benefit plan they can count on. And if it's one thing all Canadians understand, it's the value of a good pension.

This is what Derek Dobson so eloquently discusses in the comment above. 

I hope large and small employers are paying attention and I invite them to learn more about DBplus here.

Below, about how DBplus member’s contributions work to provide a secure lifetime pension and other valuable benefits and how employers benefit from DBplus.

Lastly, most people have seen his his iconic speech at the Lincoln Memorial in 1963 but take the time to watch Martin Luther King Jr.'s Nobel Peace Prize acceptance speech in the auditorium of the University of Oslo on December 10, 1964. Great speech, it rings true today just as it did back then.

Much has been written in recent years about the plight of US public pensions. There are growing concerns about underfunded liabilities, rising implicit tax burdens, and broken promises to beneficiaries. These are not groundless fears. Many US public pensions are indeed facing severe financial pressures.

These problems have begun to fuel doubts, among both current and future pensioners, about the reliability of their benefits over time, and thus about their economic security after they retire. But there are still many ways that investment staff, sponsors, and beneficiaries could work together to restore faith in the system. The key is first to understand the challenges facing the US public pension industry. One can then start to map out strategies for putting public pensions on a sound financial footing.

The Pension Puzzle

The main challenge facing the public pension industry is the high assumed rates of returns on pension assets relative to what equities or bonds are likely to deliver.Many US public pension funds expect a rate of return in the neighborhood of 7% per year. But in today’s capital-market environment, achieving that sustainably over the long term has become an increasingly daunting task.

In fact, this is not a new problem. As Chart 1 illustrates, the gap between the risk-free and assumed rate of return has been widening for the past four decades. In the1980s, the risk-free rate (as approximated by the yield for ten-year US Treasury bonds) was often far higher than the assumed rate of return, making it relatively easy for pension funds to hit their targets. Today, however, the risk-free rate is more than six percentage points below targeted return.

Closing the gap will require innovation, new skills, and a greater appetite for risk. But investors today face a unique challenge in the form of the “triple low”: a low real interest rate, low inflation, and low economic growth. These conditions imply that future returns will likely lag well behind historical norms.

Moreover, public pension funds also face a more idiosyncratic set of challenges,which I have dubbed the “triple high”: high expected returns, high current liabilities, and high underfunded gaps. These conditions are limiting pension funds’ investment flexibility at the same time that the triple low is tightening constraints on expected returns.

In today’s high-paced financial environment, in which markets tend to focus on quarterly results, it is important to remember that pension funds invest for the long run. A reasonable expectation of long-run equity returns is determined by the sum of the risk-free rate and the sustainable equity risk premium. Whereas the risk-free rate is below 1%, historical experience has shown the sustainable equity risk premium to hover around 4%.

Thus, as Chart 2 illustrates, the most that one can expect from a public-equity-only portfolio in the long run is a return of around 5% – well short of the 7% target.

The key point here is that public equity is the building block for pension plans, because it has the highest expected return among major liquid asset classes. And make no mistake: liquidity matters. Because public pension funds are sensitive to losses, liquidity management is crucial for preventing market drawdowns from spiraling into permanent losses.

Liquidity is also needed to ensure that pensions can pay member benefits on time,regardless of market volatility. But the need to preserve prudent levels of liquidity means that public pension funds’ investment options for increasing returns are necessarily more limited than they would be otherwise.

The Missing Link

Another fundamental issue is that many US public pension funds are simply underfunded, with investable assets commonly accounting for around 70% of discounted liabilities. The problem with underfunding, of course, is that it leaves a pension plan vulnerable to market drawdowns. To mitigate the market risk,underfunded pensions must diversify, typically into assets with much lower expected returns, such as bonds. And because mature schemes require more income to pay member benefits, the long-term expected return is pushed down even lower than 5%.

So, how can pensions, especially those that are underfunded, boost returns? One answer is private equity, which is generally expected to deliver returns 1.5-3 percentage points higher than public equity, owing to the illiquidity premiums and additional returns (“alpha”) that private-equity owners can extract through operational control over the businesses in their portfolios. Still, many skeptics argue that boosting returns through private equity is not enough to narrow public pensions’ funding and return gaps. This suggests that the only remaining option is for pension plans to start reducing their unreasonable targets for expected returns.

But lowering expected returns is not a decision that can be taken lightly. Public pensions are balanced on a three-legged stool of investment return, member benefits, and employer/employee contributions. Lowering expected returns thus would have a significant adverse effect on stakeholders such as employers and employees.

To be sure, over the past decade, policymakers have introduced measures to improve the stability of the public pension system by lowering expected returns, adopting benefit reforms, and demanding higher contributions. California’s 2013 Public Employees’ Pension Reform Act, for example, slowed the rate of benefit accruals and capped payments.

But, because these policies have resulted in meaningful increases in employer and employee contributions, it would be difficult to repeat them anytime soon. Accordingly, the onus has shifted once again to the investment leg of the stool:despite the challenges, there is an acute need to boost returns.

The Public Advantage

Fortunately, unlocking higher returns is possible, given the inherent advantages enjoyed by public pension schemes. For starters, because public pension funds have a long-term investment horizon, and are perpetual by design, they can capture the kind of risk premiums that manifest over time, such as illiquidity and equity-risk premiums.

Moreover, pensions are asset owners, as opposed to asset managers. While asset managers are under pressure to prevent their clients from abandoning them during times of market stress, public pension funds are spared from such concerns, and thus can ride out the storms.

Because asset ownership reinforces one’s ability to pursue long-term investments, private equity – with its long tie-up periods – is an ideal asset class for public pensions. But building a suitable private-equity portfolio is no small matter. Knowing which private-equity managers to pick requires deep, specialized knowledge; and getting allocations from the best managers is often difficult. Moreover, private equity is not cheap. The top managers demand high fees, and their strategies often lack the transparency of public markets.

Nevertheless, the benefits outweigh the costs. For the disciplined and committed long-term investor, the illiquidity and manager-expertise premiums offered by private equity can be treated as durable. That is why private equity is ultimately the“better” asset. 

Leveraging for Growth

Beyond investing in “better” assets, public pensions can also try to close the gap between expected and target returns with “more” assets. By using moderate borrowing (leverage), pension funds can increase the volume of total assets under management and thereby boost overall returns.

This option is particularly sensible in light of today’s ultra-low borrowing rates. Unlike investing in ever-riskier assets – an approach that is subject to diminishing returns, because many other investors will pile into the same strategies – borrowing to increase the size of one’s portfolio capitalizes on public pensions’ inherent advantages.

To be sure, leverage presents its own risks, such as duration mismatches between liabilities and the assets acquired, and unexpected increases in borrowing rates. But in a world of low inflation and gradual recovery, most major central banks have made clear their intention to keep borrowing rates lower for longer. Ultimately, leverage will always be a double-edged sword that can enhance returns but also amplify losses during market setbacks. As such, it should be used judiciously and with proper risk management provisions in place.

The final key to closing the gap is to harvest long-term returns. That may sound easy, but it actually runs contrary to human nature. Asset owners are prone to squander their advantage by reacting to short-term market volatility. It is well documented that investors tend to feel the pain of loss more strongly than the pleasure from gain.

Yet unlike Odysseus, it is difficult for a pension fund manager to strap herself to the proverbial mast. Having a plan and the will to stick to it is critical, requiring discipline not just from investment staff but also from those who oversee portfolio performance, such as trustees or boards.

In other words, sustaining higher returns requires courage and a well-formed strategy. It takes courage to be different and to stay the course; and the strategy must align incentives for long-term performance.

Process Makes Perfect

This is not a plea for dogmatism. Because the fundamentals can change, strategic asset allocations may need to adapt.Ultimately, the commitment should be to the process itself. Decision-makers must ask whether a judgment about the investment environment is solidly based. Are the read-throughs to probable returns, risks, and liquidity needs being properly analyzed? Is there a sufficient cushion, above all in liquidity, to meet the plan’s obligations? If these boxes can be ticked, the strategy ought to be maintained in the face of ordinary market setbacks and periodic underperformance.

Remember, during times of crisis, asset owners – unlike asset managers – do not face the threat of investor redemptions. With the ability to buy when others sell, they can rely on an intrinsic source of return enhancement. This was certainly the case for better-prepared funds during the financial market turmoil induced by COVID-19 last spring. And over time, this key advantage can compound and accrue to a plan’s sponsors and beneficiaries.

Closing US public pension funds’ large funding gaps will not be easy, but nor is it a lost cause. The best approaches will be based on these institutions’ intrinsic advantages as large-scale long-term investors. Improving returns is possible through“better” assets, “more” assets, and a serious commitment to long-term thinking.

To succeed, those overseeing pension schemes must recognize that improvements in risk management and in the structure of incentives are essential. Enhancing the rate of return is not possible without embracing risk. Investment staff therefore need to be equipped with the tools to identify, take on, and mitigate risk; and those who reward or constrain the investment staff need to appreciate the inherent advantages and challenges that come with being a long-term investor.

Above all, for pension plans to achieve their investment aims, they must be willing to innovate, to consider alternative assets and approaches to boosting returns, and to endure rough passages with an eye on the horizon, rather than on the obstacles immediately in front of them.

What a brilliant comment from Ben Meng, CalPERS' former CIO.

Let me first thank Gordon Fyfe, BCI's President and CEO, for bringing Ben's comment to my attention over the weekend.

Gordon thinks very highly of Ben Meng and so do I. I've had the pleasure of talking with him a few times since he was appointed CIO at CalPERS and not only is he brilliant, he was always very nice and generous with his time.

The last time I spoke with Ben was in the summer via a webcast where he explained that CalPERS is not leveraging its portfolio by $80 billion. We spoke about a few things and I recommend you read my comment here to gain an appreciation of everything he was tying to do at CalPERS.

That was before his crucifixion In August where he was forced to resign.  

I'm on record stating the way Ben Meng was treated was absolutely shameful and disgusting.

I don't need to expand on this, suffice it to say CalPERS lost one of the best CIOs in the world and they still haven't replaced him.

The comment Ben wrote above is spot on, he touches on a lot of points: 

• The pension rate-of-return fantasy which has plagued US public pensions for over a decade. Ten years ago, I wrote a comment on what if 8% turns out to be 0% and that's pretty much where we are now with long bond yields around the world in negative territory and zero bound.
  
• Ben discusses how closing the gap will require innovation, new skills, and a greater appetite for risk, but with rates at record low levels and meager growth, future returns will not be anywhere near what they have been over the last 20 years.
• He also discusses how lowering the discount rate (projected return assumption) isn't easy because it would impact many stakeholders who would need to contribute more.
• Moreover, he discusses liquidity management and how US public pensions are underfunded -- and many are chronically underfunded with 50% or less of assets to match future liabilities -- so it's not easy to increase risk. As I've stated many times, pension deficits are path dependent (actually Jim Leech, OTPP's former CEO, taught me that), so your starting point matters.
• Ben's solution is more private equity, moderate leverage and using the "intrinsic advantages" of asset owners with a long investment horizon to capitalize on opportunities across public and private markets and wait to harvest returns at the right time.
• Lastly, he talks about prioritizing risk management and the need to innovate and endure difficult passages.

I must say, after a year like 2020, i find a lot of people, especially young neophyte investors investing in Tesla, Nio, etc., have very skewed expected return projections for the overall market and their own portfolios.

As I explained in my Outlook 2021, last year was a liquidity driven anomaly, the unARKing of the market lies ahead, and we might be in for some very rough passages.

Yes, Janet Yellen will be confirmed as the new Secretary of the Treasury, she's ultra dovish, that's generally good for markets as she wants to pass massive stimulus packages.

But it doesn't mean that risk assets won't experience more than a few hiccups along the way, and some very big ones at that.

All this to say, temper your enthusiasm, even on private equity, it won't be easy over the next decade.

Ben Meng knows all this. Again, he wrote a brilliant comment and the only thing I'd add is that US public pensions need to adopt the governance and compensation that Canada's large pensions have adopted to manage more private assets internally and do a lot more co-investments with their general partners to lower fee drag and maintain a healthy allocation to PE.

And yes, with rates so low, moderate and intelligent use of leverage is also a critical part of the equation going forward. Leverage has been a critical component of the success at Canada's large pensions, but again, you need to hire and pay highly qualified staff to employ leverage or else it might lead to disasters.

 A long time ago, I wrote a comment for the New York Times on how US public pensions need a qualified, independent board of directors to oversee their public pensions.

I still stand by that comment but know a lot more now. 

Ben Meng adds a lot more insights to this issue as does the study from Clive Lipshitz and Walter Ingo and the paper from Sebastien Betermier and Quentin Spehner.

Canada is blessed with the world's best public pensions and the US needs to understand why and how they can incorporate elements of success. 

Alright, I've rambled on too much, let me end it there and wish Ben Meng all the best for the new year.

Below, CalPERS CIO Ben Meng discusses how private equity has been the highest returning asset class for the California pension, helping them achieve their target return.

No doubt, private equity is a critical asset class but the approach is what counts the most and the best way to meet your return requirements is to partner up with top GPs and make sure you gain access to large co-investments. This requires a strong staff which you need to compensate properly.

Public sector unions plan to launch a legal challenge after Alberta’s finance minister quietly signed ministerial orders at the end of the year that they say give the government-owned investment manager more control over workers’ pensions.

One of four orders signed by Finance Minister Travis Toews on Dec. 23 changed the terms of the Alberta Teachers’ Retirement Fund (ATRF) to allow the Alberta Investment Management Corporation (AIMCo) to reject changes proposed by the pension manager in its investment policy.

The orders, which came into effect Jan. 1, follow the November 2019 implementation of Bill 22, an omnibus bill introduced and passed within four days which moved investment control of 82,000 practicing and retired teachers’ pensions to AIMCo from ATRF by December 2021.

Toews has said repeatedly that public sector pension boards, including the ATRF, would continue to control their own investment strategies and decisions.

But according to the ministerial order affecting the ATRF, the finance minister can intervene and dictate how investment management services are provided by AIMCo to ATRF until both parties come to a deal.

ATRF and AIMCo are without an agreement, despite an initial deadline of June 30, 2020 followed by an extension to Oct. 31, 2020. 

Jerrica Goodwin, press secretary to Toews, said in a statement Wednesday the order was necessary as a temporary measure to ensure that the pension plan remains appropriately managed.

“We are confident that ATRF and AIMCo will be able to come to an agreement. Once the parties agree to a final investment management agreement, the ministerial order will no longer be in effect,” she said.

The ATRF said in a statement the order does not impact members’ pension benefits.

‘We call it theft’: unions

Along with the ATRF, the Local Authorities Pension Plan (LAPP), Special Forces Pension Plan (SFPP), and Public Service Pension Plan (PSPP), together representing more than 450,000 individual pensions, received ministerial orders reserving AIMCo’s right to reject amended investment policies from fund managers.

Speaking on behalf of the Alberta Union of Provincial Employees (AUPE), the United Nurses of Alberta (UNA), the Health Sciences Association of Alberta (HSAA), and the Alberta division of the Canadian Union of Public Employees (CUPE), Alberta Federation of Labour (AFL) president Gil McGowan said Thursday unions will be arguing in court that Bill 22 is unconstitutional.

“AIMCo and the finance minister will be the deciders, and the hundreds of employers, and the hundreds of thousands of workers who actually pay into the plan, have to shut up, take what they are given and trust that the government and AIMCo will do what’s best,” said McGowan.

McGowan added that the unions believe the government’s end game is to use the pension funds to prop up oil and gas ventures in the province that have seen difficulty raising money from international investors.

“The finance minister and premier might call this administrative reform. We call it theft,” said McGowan.

The order affecting its fund first became public when the ATRF published a statement Jan. 11.

Normally, the government publishes ministerial orders. Goodwin said in this case, the change applies to a specific group, so the order was given to the affected parties.

Teachers ‘across-the-board livid’

Greg Meeker, a school principal and former board member of the ATRF, said last week that while benefits are defined by law, costs are not, and an increased cost to members was his biggest concern given AIMCo’s performance.

During a debate in the legislature in November 2019, Toews promised that, with larger economies of scale, AIMCo could “deliver with lower costs.”

But the order states that AIMCo’s costs “should be lower” than market standard fees. That’s a red flag for Meeker, since it doesn’t force AIMCo to provide investment services at a lower cost.

By taking unilateral control of the pension fund’s management, Meeker said AIMCo is being given the right to refuse ATRF’s strategy.

“Imagine you have some money with a stock broker, and you picked up the phone and told the stockbroker to sell all the IBM shares that you have, and the stockbroker says ‘I decline to take that order’ — how’s that going to go over with you?” he said.

He said teachers were outraged by Bill 22, but he is hearing even more anger from them now.

“It’s across-the-board livid,” he said.

Alberta Teachers’ Association (ATA) president Jason Schilling is also incensed by the order.

“Now we have an investment agreement with loopholes big enough to fit a bad $2.1 billion volatility bet,” said Schilling in a Wednesday statement, referring to an investment strategy that led to billions in losses by AIMCo in early 2020.

‘Broken promise’: NDP

NDP Labour and Immigration critic Christina Gray called on Toews Wednesday to reverse the ATRF order, calling it a “broken promise.”

Gray said she had no faith the government would negotiate an agreement so that ATRF could direct its investments, noting Toews could have extended the deadline and brought in an arbitrator.

“They used the cover of the pandemic to sign the order, they waited until teachers were swamped with the return of students to online learning and back to school to even mention that they were giving coercive control of the pensions to AIMCo,” said Gray.

Oh boy, more drama in Alberta as teachers are 'livid' over a ministerial order that changes the terms of the Alberta Teachers’ Retirement Fund (ATRF) to allow the Alberta Investment Management Corporation (AIMCo) to reject changes proposed by the pension manager in its investment policy.

First, as the article states, the ATRF said in a statement the order does not impact members’ pension benefits:

Work continues on the transfer of ATRF's asset management function to the Alberta Investment Management Corporation (AIMCo) as required by legislation.

One of the legislated requirements is that ATRF's assets are managed in accordance with an Investment Management Agreement (IMA) between ATRF and AIMCo. The IMA is a foundational document that defines the investment management relationship between the two organizations. The legislation states that if an agreement is not put in place the Minister of Finance can impose the terms under which AIMCo manages ATRF's assets.

Extensive negotiation between ATRF and AIMCo to establish a mutually agreeable IMA occurred throughout much of 2020.  ATRF's single focus during the negotiations was on ensuring terms were established in the IMA that protected the best interests of our plans over the long-term, and that carefully considered and addressed the variety of issues that could arise in managing the assets of our plans.

Through the course of the intensive discussions, we reached agreement with AIMCo on many important matters. However, AIMCo was not willing to agree to certain key terms that we felt appropriately protected ATRF's role and responsibility and the interests of our plans.

On January 4, 2021, ATRF was informed that in accordance with the legislation, the Minister of Finance had issued a Ministerial Order (MO) establishing the terms and conditions of the relationship between ATRF and AIMCo. The MO will remain in force until replaced by an IMA that is the product of mutual negotiations.

This Ministerial Order does not impact member's pension benefits.  Your pension remains secure and ATRF is still managing your pension plan.

The MO includes some terms that had been sought by ATRF during the IMA negotiations.  This includes general recognition that the ATRF Board continues to be responsible for establishing the Investment Policy to inform and direct how our plans' assets are managed.  However, it also includes terms that restrict the full discretion the ATRF Board currently exercises in establishing and executing on its Investment Policy. Specifically, AIMCo is not required to implement ATRF's Investment Policy if, in the sole opinion of AIMCo, it would threaten to compromise AIMCo's economies of scale or operational efficiencies. Such decisions by AIMCo are not subject to appeal or arbitration.

While we were not able to agree to terms of an IMA, the MO allows us to move forward with the significant work that will go into the next steps of the transition process. The ATRF Board is proud of the work done by ATRF staff with AIMCo to ensure everything is planned and in place for a successful transition of asset management. As planned, we will begin the staged transfer of asset management to AIMCo in accordance with our legislated requirements in the coming months, and we will also keep members informed as that transition progresses.

Our primary focus in the course of this work has always been the best interests of our pension plans, and that will continue as we progress within the constraints that have been set out in the Ministerial Order.

The MO contemplates that an investment management agreement between ATRF and AIMCo will be finalized in due course and in that event the MO will no longer be in effect. In addition to ensuring the asset transition is successfully completed, we expect to resume negotiations with AIMCo in the near future and we will continue to be singularly focused on outcomes that are in the best interests of the plans in those negotiations.

Now, I don't know the details, but reading this statement tells me a lot of work has already been done to amalgamate ATRF into AIMCo but there are still some issues that need to be resolved.

When I read "...however, AIMCo was not willing to agree to certain key terms that we felt appropriately protected ATRF's role and responsibility and the interests of our plans," it tells me AIMCo isn't willing to compromise on some issues and maybe rightfully so.

None of this, however, jeopardizes  Alberta teachers' pensions in any significant way and with all due respect to Gil McGowan and Greg Meeker, they are just stirring up a hornet's nest over nothing.

AIMCo lost $2.1 billion in their VOLTS strategy last year. We all know this, I've covered extensively on my blog and openly stated they screwed up. Heads rolled and AIMCo's CEO is resigning in June.

But the losses in VOLTS don't define AIMCo and they don't change my opinion that this amalgamation, once it goes through, will be positive for all parties involved, including ATRF employees, AIMCo, and Alberta's taxpayers.

If Alberta's teachers are livid, it's again due to the UPC Government and their disastrously poor communication skills. 

You don't need to ram ministerial orders through, you need to to first consult with all stakeholders, answer their questions and then proceed.

Sometimes when I look at the way provincial and federal government leaders conduct policy, it's as if I'm watching a bunch of amateurs who don't know how to do things right based on transparency, accountability and results.

What else? I'll tell you what I'm livid about, the cancellation of Keystone XL pipeline.

President Joe Biden just revoked the permit for Calgary-based TC Energy's Keystone XL pipeline via executive action after being sworn in as the 46th U.S. president on Wednesday.

On his first day, the new president issued a sweeping order tackling climate change, which included revoking pipeline permit.

Of course, environmental zealots are relieved, Tom Steyer is relieved, AOC and Bernie Sanders are relieved, the Saudis funding the Clinton and Obama foundations are relieved, but along with many Canadians and Americans, I'm pissed because that pipeline would have sustained many great jobs on both sides of the border and secured oil to the United States for decades.

So cheer up Alberta teachers, your pensions are safe and there are much more important issues to worry about in your province.

Below, the Alberta Teachers’ Association is angry with recent changes the UCP government has made that it says take control away from teachers when it comes to their pensions. Sarah Komadina reports.

You have to watch this clip here as I can't embed it but one thing I can't stand is some teachers who don't know what they're taking about stating "ATRF outperformed AIMCo" over the years.

AIMCo has addressed these concerns and I would ignore them.

Also, Canada's Prime Minister Justin Trudeau says his government is trying to persuade US President Joe Biden not to cancel the Keystone XL pipeline. Good luck with that, it's a done deal.

Lastly, if you missed it earlier, watch President Joe Biden’s inauguration speech that he delivered after he was sworn-in on Capitol Hill. It was actually an excellent speech, let's hope he unites Canada and the US with policies which benefit both nations.

Funding for the 100 largest corporate pension plans in the US declined $50 billion last year as their aggregate funding ratio slipped to 88.2% at the end of the year from 89.8% at the end of 2019, according to consulting firm Milliman.

After sharp investment declines in the first quarter, asset returns rebounded strongly during the rest of the year. That rebound helped offset the funded status deterioration that was a result of the discount rates used to value pension liabilities continuing to fall. The funded status deficit of the 100 plans tracked by the Milliman 100 Pension Funding Index (PFI) was at $234 billion at the end of December, which was the lowest monthly funded status deficit during the year.

The discount rates for the plans in the Milliman 100 fell 74 basis points (bps) to 2.46% at the end of 2020 from 3.2% at the end of 2019, and the discount rate at the end of 2020 was the lowest year-end discount rate and second lowest monthly discount recorded in the 20-year history of the PFI.

Net asset performance for the plans was 11.72% for the year, easily beating the expected annual investment gain of 6.5%. And although this increased plan assets by nearly $125 billion for the year, plan liabilities increased $175 billion due to falling interest rates.

“Year-end discount rates have declined in seven of the last 10 years, hitting a new record low in 2020,” Zorast Wadia, author of the Milliman 100 PFI, said in a statement. “However, asset returns for the Milliman 100 plans have exceeded return expectations in seven of the last 10 years as well and have been limiting funded status erosion.”

Wadia added that with the new year here, plan sponsors will likely be monitoring the new Congress and the Biden administration for corporate tax policy changes that could impact the pension funding environment, such as an extension of interest rate relief under the Pension Protection Act.

Milliman forecast that if the plans in the index were to earn the expected 6.5% median asset return, and if the discount rate of 2.46% holds steady during 2021 and 2022, their funded status would increase to 92.2% by the end of 2021 and 96.5% by the end of 2022. The forecast assumes aggregate annual contributions of $50 billion for 2021 and 2022.

The firm said that under an optimistic forecast with interest rates rising to 3.06% by the end of 2021 and 3.66% by the end of 2022, with 10.5% annual asset gains, the funded ratio would climb to 104% by the end of 2021 and 123% by the end of 2022. However, under a pessimistic forecast with the discount rate falling to 1.86% at the end of 2021 and 1.26% by the end of 2022, with only 2.5% annual returns, the funded ratio would decline to 81% by the end of 2021 and 75% by the end of 2022.

This is an important topic which I'd like to spend some time on today.

First, pensions are all about managing assets and liabilities. What this article highlights is even when asset returns are robust, if rates drop and liabilities explode, the funded status of corporate plans deteriorates.

Why is that? Because the biggest determinant of future liabilities is interest rates and a drop in rates, especially from a record low level, will disproportionately hurt pensions.

In finance parlance, the duration of pension liabilities (they go out 75+ years) is a lot bigger than the duration of assets, so even if asset values rise, if rates drop from record low levels, it will mean liabilities will go up a lot more than assets.

And remember, unlike US public pension funds which use projected returns to discount their future liabilities (anywhere between 6.5% to 8%), US corporate pensions use AA bond yields to discount their pension liabilities as required by GAAP accounting standards.

As GSAM noted back in June 2020, not all liabilities are created equal, "plan sponsors to understand the drivers of funded status change especially during stressed credit environments and know what, if anything, can be done to protect funded status."

What this means in practice is unlike US public pensions, US corporate plans manage their assets and liabilities a lot tighter and they generally do not take the same risks as public plans across public and private markets.

In fact, most of them are looking to de-risk their pension plans and do away with them altogether, a fact which just exacerbates the long term trend of pension poverty in the US.

But it's important to note many large corporate plans, while similar, are vastly different in their approaches. For example, this Russell Investments note from 2015 on asset allocation changes at large US corporate plans notes the following:

[...] discretionary contributions above the mandated minimum at Raytheon and United Technologies, but full advantage of funding relief taken by GE and some others; aggressive adoption of liability-driven investing (LDI) at Ford and GM, but a reduction in fixed income allocation at Lockheed Martin; risk transfer activity (offering lump sum payouts) at United Technologies and Boeing. A clear case of each corporation looking for the strategy that fits.

Some large US corporate plans allocate more aggressively to bonds as part of their LDI approach, others to alternative investments like hedge funds and private equity, it varies depending on the maturity and funded status of the plan.

Still, one thing is for sure, US corporate plans manage risks a lot tighter than US public plans because they need to control the cost of their plans as shareholders scrutinize and penalize them if they don't.

But US public pensions have intrinsic structural advantages over US corporate plans, many of which were outlined in a comment I posted from Ben Meng, CalPERS' former CIO, earlier this week. 

The truth is one can make the case the AA bond yield US corporate plans use to discount future liabilities is too low (a few basis points over long term Treasury bond yields) just like many argue the projected return assumptions US public plans use to discount their future liabilities are too high and unrealistic given where long term Treasury yields are.

The most important point I want to make in this comment, however, is that the drop in long government bond yields impacts the funded status at all pensions, public and private, all over the world.

And if rates go down a lot from record low levels, even if assets rise because the Fed and other central banks are increasing their balance sheets up to wazoo, it spells trouble for pensions.

The perfect storm is when rates drop significantly and assets plunge, that will really clobber pensions as it did back in 2008.

Hopefully policymakers are going to succeed in avoiding such a scenario by keeping their focus on monetary and fiscal stimulus, but there are no guarantees.

And many chronically underfunded public plans are one crisis away from passing the point of no return. That is what really worries me. 

Alright, let me wrap it up there, if you have anything to add, feel free to email me at LKolivakis@gmail.com.

Below, Ira Epstein of Linn & Associates explains why he thinks negative rates aren't coming to the US. 

Mr. Epstein makes a lot of excellent points but my fear is in a post-pandemic world with anemic growth, many central banks are in negative territory or are considering it, and the US might not avoid such a scenario either. And if deflation hits the US, all bets are off and negative rates are coming. 

And if US rates go negative, US and global public and private pension liabilities will explode up.

Don't worry, long before that happens, I'm sure the Fed and other central banks will be buying US stock ETFs, especially technology ETFs. We live in very interesting times!

The S&P 500 fell slightly on Friday, retreating from record levels, while the strength in major technology names pushed the Nasdaq Composite to another all-time high.

The broad equity benchmark dipped 0.3% to 3,841.47 after closing at a record in the previous session. The Nasdaq rose 0.1% to another record close of 13,543.06, supported by Big Tech. The Dow Jones Industrial Average slid 179.03 points, or 0.6%, to 30,996.98.

Dow-component IBM dropped 9.9% after the company reported fourth-quarter sales below analysts’ expectations. Revenue fell 6% on an annualized basis, the fourth consecutive quarter of declines. Intel shares retreated 9.3% following a 6% pop on Thursday after it released better-than-expected earnings.

Hopes for a robust earnings season from the largest communications and tech companies sparked a rally in mega-cap stocks during the holiday-shortened week, pushing the broader market higher. The Nasdaq climbed 4.2% this week, while the S&P 500 and the Dow gained 1.9% and 0.6%, respectively.

Apple rose another 1.6% Friday, bringing its weekly gain to 9.4%. Facebook and Microsoft also rallied 9.2% and 6.3%, respectively, this week. These big tech companies are scheduled to report earnings next week.

“Unlike earlier this month, this week’s rally has been led by growth stocks and mega-cap tech names,” Mark Haefele, chief investment officer at UBS, said in a note. Netflix’s “strong results and plans to return cash to shareholders supported a rally in the other FAAMNGs ahead of their forthcoming earnings releases.”

Stimulus watch

Investors reassessed the outlook for President Joe Biden’s ambitious Covid stimulus plan. A growing number of Republicans have expressed doubts over the need for another stimulus bill, especially one with a price tag of $1.9 trillion proposed by Biden. Meanwhile, Democratic Sen. Joe Manchin has criticized the size of the latest round of proposed stimulus checks. Dissent from either party carries weight for Biden, who took office with a slim majority in Congress.

“The political reality of Washington is starting to impact markets, and it’s becoming more unclear when Democrats’ ambitious stimulus goals will become law,” said Tom Essaye, founder of Sevens Report.

Cyclical sectors, or those that would benefit most from additional stimulus, have put pressure on the broader market this week. Energy, financial, and materials were the biggest laggards, losing at least 1% each this week.

Meanwhile, with the S&P 500 up another 2.3% this year, some investors believe the market may be getting ahead of itself as hiccups with the vaccine rollout and economic reopening remain likely going forward.

“The Covid pendulum, which normally emphasizes vaccine optimism over the harsh near-term reality, is swinging back towards the latter (for now) as epicenter stocks get hit hard in Europe,” Adam Crisafulli, founder of Vital Knowledge, said in a note Friday.

Meanwhile, a Senate committee on Friday overwhelmingly supported former Fed Chair Janet Yellen as Biden’s Treasury secretary. If confirmed, she would be the first woman to lead the department.

Alright, it's Friday, let me dive into it.

This week, President Biden was sworn in to office but more importantly, the Senate Finance Committee on Friday unanimously approved Janet Yellen’s nomination as Treasury secretary and she will be confirmed by the full Senate later today.

Yellen is good for risk assets, she's ultra dovish and that spells good news for stocks going forward.

This week, the S&P 500 gained 1.3% led by big gains in Communication Services (XLC) and Technology (XLK):

But all the FAANG stocks and technology stocks in general performed well this week and I expect this to continue as Big Tech gets ready to report earnings.

In fact, check out this 5-year weekly chart of the QQQs, it clearly shows you technology stocks are on a tear here and momentum is in their favor:

How is this possible? There's simply tons of liquidity, big hedge funds are ramping up all sorts of stocks, including GameStop (GME) which soared nearly 70% as trading was briefly halted amid epic short squeeze:

And this stock was already on fire prior to today:

I'm telling you, I haven't seen moves likes this since the heyday of 1999!

Hedge funds are having fun trading stocks like Palantir Technologies (PLTR) and Jumia Technologies (JMIA):

Good luck shorting any of these high flyers, you're going to get your head handed to you!

If it feels like there's some herding going on in a few select tech names, it's because there is.

And it's not just tech stocks. Solar stocks like SunPower (SPWR) are melting up this week:

In fact, earlier this week, Jim Bianco tweeted this image of the Goldman Sachs non-profitable tech basket, stating "a chart that says it all about today's market":

But nowhere is the euphoria more palpable than in penny stocks.

In fact, Martin Roberge of Canaccord Genuity notes this in his weekly comment, Is Euphoria Here?:

This week was quite unusual in the sense that we have seen many low-priced stocks exploding higher. Interestingly, our Chart of the Week shows that stocks whose price is below $1 are the top performing stocks YTD with an average return of 16%. In fact, our chart shows that the lower the stock price, the stronger the YTD performance. Undoubtedly, there are signs of speculative mindset in the market. This is what could be called the stage of euphoria in the cycle of investor emotions. Russel Investments defines this stage as the following: “As markets reach the top of the cycle, investors may experience euphoria. We start to think that we made a smart move to invest when we did, and we believe that the good times will continue unchecked. We may even fool ourselves into believing we can tolerate higher levels of risk—and may begin to trade more frequently or invest in riskier asset classes”. Now the 64K question: are we early, at the mid point or late in the euphoria stage? Hard to tell but looking at the strong performance of many hyper-growth stocks today, we may not be in the late stage yet.

Did you get this part: "Now the 64K question: are we early, at the mid point or late in the euphoria stage? Hard to tell but looking at the strong performance of many hyper-growth stocks today, we may not be in the late stage yet."

You already know my thoughts, central banks are backstopping madness,  promoting excessive risk-taking, we shouldn't be surprised to see this market euphoria.

Of course, some well known money managers are sounding the alarm:

"The biggest problem with these unprecedented and sustained government and central bank interventions is that risks to capital become masked even as they mount."https://t.co/pHD4GWO9mm

— Jesse Felder (@jessefelder) January 21, 2021

Truth is Seth Klarman, Jeremy Grantham, Leon Cooperman and many other skeptics will eventually be right but this nonsense can go on for a lot longer than anyone thinks. 

So what will bring this euphoria to an end? I personally think the Fed is going to start tapering and raising rates a lot sooner than the market currently expects.

To wit, ECRI’s US Weekly Leading Index (WLI) increased to 150.4. The growth rate rose to 17.7%, a 571-week high! 

Still, the chart above is why rates will back up a little more, the US dollar will come roaring back, and stocks will taper off a bit after running up more.

Don't forget, next week is month end, big funds will rebalance, euphoria in penny stocks will continue but I expect there will be some profit taking in big tech over the next two weeks. We shall see.

Let me wrap it up with my stocks of the week, General Motors (GM) and Ford (F) (last week it was Blackberry (BB) which soared this week):

Lastly, here are this week's top performing stocks:

The full list is available here.

Alright, let me end it there. I remind all of you that this blog runs on donations, so I do appreciate those of you who take the time to donate.

Below, the stock market may avoid a major near-term correction, according to economic forecaster Lakshman Achuthan.

Achuthan, co-founder of the Economic Cycle Research Institute, told CNBC’s “Trading Nation” on Thursday that the risk a pullback of at least 10% is “really low” because the U.S. is in expansion mode.

“The cycle is on the side of the bulls for the time being,” he said. “At some point, our forward-looking indictors, which have nailed this upturn, will peak and turn down. Today, they haven’t done that. They are still heading to the upside.”

Let's hope he's right but if you continue seeing too much euphoria, you'd better hedge your risk.

The Ontario Teachers’ Pension Plan committed to reaching net-zero emissions across its investment portfolio within three decades.

Ontario Teachers’ will increase investments in climate-friendly projects, ensure companies in its portfolio manage and report their emissions every year and work with them to reach carbon neutrality by 2050, said its chief investment officer. The fund manages C$205 billion ($161 billion) of retirement savings for educators in Canada’s most populous province.

“This entails a sustained effort from our end, first in growing our investments in smart climate and energy solutions,” CIO Ziad Hindo said in an interview. “We have already been expanding our capabilities to identify, evaluate more and more opportunities on the green side.”

The pledge comes about two months after the heads of eight leading Canadian pension plan managers called on companies and investors to provide “consistent and complete” environmental, social and governance information to strengthen investment-decision making. The group, which included Ontario Teachers’, collectively manages C$1.6 trillion in assets.

The Teachers’ fund also plans to issue more green bonds, using the proceeds for climate opportunities. The Toronto-based fund manager issued its first green bond last year, which Hindo said was “very well-received” by market participants.

“It was a signal that the market is really trusting our commitment to deploy more and more capital into greener assets,” he said. “You’re going to see more and more investors willing to participate in investing in green bonds, because it is aligned with their responsible investing practices.”

Commitment Credibility

Advocacy group Shift Action for Pension Wealth & Planet Health said that while it was “pleased” with Ontario Teachers’ “critical first step” on dealing with climate-change risks, a commitment to net-zero emissions has little credibility on its own without concrete steps to achieve the goal.

“Without a plan for major changes to the way the pension fund makes investment decisions, a net-zero commitment runs the risk of becoming a cynical example of greenwashing,” the group said in a statement.

Ontario Teachers’ will release concrete targets and potentially five and 10-year plans in the coming months to help get to net zero emissions by its deadline, Hindo said.

“This is a journey, it has a lot of complexity, but we are absolutely committed to playing our part in helping the world transition,” he said.

Ontario Teachers' Pension Plan put out a press release announcing its commitment to net-zero emissions by 2050:

Building on over a decade of climate change efforts, Ontario Teachers’ Pension Plan Board (Ontario Teachers’) today announced its commitment to achieve net-zero greenhouse gas emissions by 2050. This is a meaningful decision that advances Ontario Teachers’ mission to deliver retirement security for its members, while creating a positive impact for its partners and the communities where it operates.

“As a global pension plan, we will leverage our scale and influence to transition to a low-carbon economy and create a sustainable climate future,” said Jo Taylor, President and CEO. “With coordinated action net zero by 2050 is an ambitious but achievable goal. We are committed to playing our part alongside other organizations and governments around the world to effect significant, positive change.”

Climate change is one of the greatest challenges faced by society and businesses today. The effects of global warming, from rising sea levels and devastating floods to disrupted weather patterns and destructive storms, are clear and wide-ranging.

“While the transition to the low-carbon economy presents many challenges, it also presents many opportunities to earn the returns we need to pay our members’ pensions while more broadly benefiting society and the environment,” said Ziad Hindo, Chief Investment Officer.

Over the coming months, Ontario Teachers’ will hold itself accountable by establishing concrete targets for portfolio emissions and our investments in climate solutions and will report on its progress annually. Key elements of Ontario Teachers’ net-zero approach will include:

• Increasing investments in climate-friendly investments and solutions;
• Ensuring portfolio companies manage and report their emissions annually;
• Working with portfolio companies to achieve net zero emissions by 2050;
• Use the proceeds from our green bond offering to invest in climate friendly opportunities;
• Increasing the resiliency of our assets with physical risk assessments of our direct holdings; and
• Advocating for clear climate policies and partnering with global organizations to effect change.

“This is a long-term journey and the actions we take now will be a defining feature of the resiliency of our business and the value we create over time for our members, partners and communities where we operate and invest,” concluded Taylor.

Additional Resources

• Ontario Teachers’ Climate Change Q&A (PDF)
• Ontario Teachers’ Green Bond Framework (PDF)
• 2019 Climate Change Report (PDF)

About Ontario Teachers’
The Ontario Teachers' Pension Plan Board (Ontario Teachers') is the administrator of Canada's largest single-profession pension plan, with $204.7 billion in net assets (all figures at June 30, 2020 unless noted). It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annual total-fund net return of 9.5% since the plan's founding in 1990. Ontario Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific regional offices are in Hong Kong and Singapore, and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded as at January 1, 2020, invests and administers the pensions of the province of Ontario's 329,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.

Alright, so Ontario Teachers' is setting an ambitious target of achieving net-zero greenhouse gas emissions by 2050. 

It's part of a group of investors committing to this goal. Last September, I discussed how in one of the boldest actions yet by the world’s largest investors to decarbonize the global economy, an alliance of the world’s largest pension funds and insurers – responsible for directing more than US$ 2.4 trillion in investments – committed to carbon-neutral investment portfolios by 2050.

There are a lot of reasons as to why large pensions and other large institutional investors are committing to decarbonize the global economy.

First, climate change represents a big risk to their portfolio over the long run (defense). Second, it offers unique opportunities to invest in new technologies addressing climate change (offense).

But the major reason, and I'm going to be totally honest here, is Big Tech is taking the lead on decarbonizing the global economy and whenever Amazon and other tech giants set ambitious goals to decarbonize by a certain date, large global investors have no choice but to pay attention and follow suit.

As a friend of mine put it: "The world is headed here. You're either going to be there or you're not but it's a huge risk fighting this trend, it's much easier embracing it."

Anyway, on Friday, I did get to briefly chat with Ziad Hindo, OTPP's CIO. 

Let me thank him and thank Dan Madge, Senior Manager, External Communications at OTPP for setting this call up on brief notice.

Ziad told me OTPP takes responsible investing very seriously.  In fact, their website states:

At Ontario Teachers’, our approach to responsible investing is rooted in sustainability and is embedded in the way we do business.

To achieve stable returns to meet our pension promise, our long-term strategy includes taking a systematic approach to identifying, assessing and managing environmental, social and governance (ESG) risks and opportunities. For that, we use four responsible investing principles:

• Integrate: We integrate ESG considerations into our investment process to manage risk and add value.
• Engage: We engage with companies we invest in to promote change and nurture success.
• Influence: We use our influence as a global investor to create a supportive and sustainable business.
• Evolve: We evolve to build our institutional knowledge and to keep ahead of the curve.

Ziad reminded me that back in 2017, OTPP introduced its Low Carbon Economy (LCE) Transition Framework in 2017 to help them visualize the potential impacts of climate change under a range of future scenarios, and to identify the catalysts driving the scenarios and provide insights that help them make better investment decisions as they navigate the uncertain path to a low-carbon economy.

[See their case study "Using our Low Carbon Economy Transition Framework to understand the impacts of large-scale drought".]

In a nutshell, climate change represents a real risk to OTPP's portfolio across public and private markets, and they want to commit to decarbonize it to play defense and offense by investing in new disruptive technologies along with their investment sin renewable investments.

On the investment side, Ziad gave me specific examples:

• OTPP partnered up with Abu Dhabi Investment Authority and the Equis management team to invest US$1.25 billion in EDL.
• Joining Alphabet Inc. (Google’s parent company) and Sidewalk Labs to launch Sidewalk Infrastructure Partners (SIP), a new company focused on delivering next-generation infrastructure in North America (see details here).  
• Along with PSP Investments, investing in Cubico Sustainable Investments, a world leader in providing renewable energy, the fastest-growth energy source, across the Americas, Europe and Oceania. 
• Along with Partners Group and CDPQ, acquiring  Techem, a global market leader in the provision of heat and water sub-metering services.
• Investing in Pony.ai, an autonomous driving company, in a new investment round led by  Teachers’ Innovation Platform (TIP), bringing that company's valuation to US $5.3 billion.

There are more deals in the pipeline and Ziad told me the issuance of a €750 million 10-year inaugural Green Bond last November went very well and they plan to issue more.

Recall what Ziad said back then:

“We believe a transition to a net zero economy is underway. This is expected to bring a host of attractive investments to Ontario Teachers’ that enable and support this transition, with the objective of earning strong risk-adjusted returns while also having a positive impact. OTFT’s green bond issuance allows us to access capital to support the much-needed investments to transition towards a sustainable future.”

The future has already begun. Ziad told me he works with Stephen McLennan who leads the newly-created Total Fund Management department, which integrates Ontario Teachers' portfolio construction approach with their treasury and funding capabilities.   

He was very clear, however, in stating this: "We will issue more Green Bonds when we ascertain there are excellent opportunities to deploy that capital to obtain an excellent risk-adjusted return." 

I did interject at one point in our conversation to state I believe there's a bubble going on in ESG investments in public markets and that I separate responsible investing which is here to stay from ESG investing which is prone to bubbles.

Also, unlike tobacco, I firmly do not believe that pensions should divest from oil & gas.

Ziad was careful to state this: "You cannot achieve carbon neutrality without investing in new technologies" and that the path to decarbonize isn't about divesting from traditional energy sources.

Truth be told, I'm a little bit concerned about ESG manias and other manias in public markets where euphoria is rampant these days, no thanks to central banks running amok.

But that's a topic I'll cover again on Friday when I go over markets.

Let me once again thank Ziad Hindo, OTPP's CIO, and Dan Madge for taking some time to chat with me on Friday, I always enjoy my conversations with them.

Below, climate change is the largest systemic risk in the view of many long-term investors, and investors are pioneering ways to address this risk, including work to apply existing risk statistics specifically to climate projection and to pioneer new estimates. Projections like these about the impact of climate change on investment performance would represent enormous progress because they would advance beyond general uncertainty and instead make climate change a specific component of risk management. 

This FCLT Global session featured Kim Chong, Head of Risk Management at the Hong Kong Monetary Authority, Chris Goolgasian, a portfolio manager and Director of Climate Research at Wellington, and Deborah Ng, Head of Responsible Investing and Director of Total Fund Management at the Ontario Teachers’ Pension Plan (Deborah speaks at minute 5).

First Solar has entered into a purchase and sale agreement with Leeward Renewable Energy Development, in which Leeward will acquire First Solar’s utility-scale project platform of approximately 10 GW_AC. The transaction is expected to close in the first quarter of 2021.

Headquartered in Texas, Leeward is a portfolio company of OMERS Infrastructure, an investment arm of OMERS, one of Canada’s largest defined benefit pension plans.Upon closing of the transaction, Leeward will acquire the U.S. project platform, which includes the Rabbitbrush, Madison, Oak Trail, Horizon, and Ridgely projects that are expected to commence construction in the next two years, as well as the 30-MW_AC Barilla Solar project, which is operational. First Solar will retain 1.1 GW_AC of projects in the United States that are expected to be sold separately. Key members of the First Solar project development team are also expected to join Leeward upon closing.

Subject to closing of the acquisition, Leeward will purchase 650 MW_DC of First Solar’s Series 6 solar modules for its additional development opportunities. Leeward’s acquisition of the project platform also includes purchase orders for 888 MW_DC of Series 6 modules for the five development projects referenced above. Additionally, Leeward’s acquisition of the project platform will include 242 MW_DC of Series 4 modules safe-harbored under the solar ITC program, 148 MW_DC of which has previously been booked. In total, upon closing, Leeward’s acquisition of the project platform will comprise the acquisition of projects with module purchase orders, together with the entry into additional purchase orders, of approximately 1.8 GW_DC of First Solar PV modules, of which 744 MW_DC represent new bookings as of closing.

“This acquisition will support our aggressive growth strategy as a leading independent power producer and elevate Leeward’s prominent position in today’s energy market,” said Jason Allen, chief executive officer, Leeward Renewable Energy. “The public recognizes that renewable energy is a key driver in combating the global issue of climate change. Solar and renewable technologies continue to advance and now provide economically viable solutions in virtually every market in the US. We will continue to grow our wind, solar, and storage presence so we can continue to provide clean energy to our existing and future customers as they pursue their net-zero emission goals.”

“The sale of the platform is a result of the strategic review we announced in 2020 and we’re pleased that it will be acquired by Leeward, a company that shares our values and vision for a sustainable energy future,” said Mark Widmar, chief executive officer, First Solar. “Enabled by our Series 6 module’s seamless compatibility with industry systems and processes, the sale is part of a transition that allows us to focus on doing what we do best, which is scaling, developing, and selling our world-class module technology.”

First Solar announced last year it would get out of the installation game to instead focus on manufacturing its brand of thin-film solar modules.

Business Wire also reports on this deal:

Leeward Renewable Energy, LLC (“Leeward”), a growth-oriented renewable energy company and portfolio company of OMERS Infrastructure, today announced that it has entered into a Purchase and Sale Agreement (the “Agreement”) with First Solar, Inc. (NASDAQ: FSLR), through which Leeward will acquire from First Solar a utility-scale solar project platform of approximately 10-gigawatts (GW)_AC.

Upon closing of the transaction, Leeward will acquire the project development platform, which includes 773 megawatts (MW)_AC of projects that are expected to commence construction in the next two years, as well as the 30-MW_AC Barilla Solar Project, which is operational. The pipeline includes projects in the California, Southwest and Southeast markets, which are geographically complementary to Leeward’s portfolio. The transaction will enable Leeward to expand its geographic footprint, furthering Leeward’s position in the U.S. renewable energy space. Key members of the First Solar development team are also expected to join Leeward upon closing.

Jason Allen, Chief Executive Officer of Leeward, said, “We look forward to welcoming the new team members who will join Leeward in connection with this transaction. The acquisition of this development platform from First Solar will support our aggressive growth strategy as a leading independent power producer and elevate Leeward’s prominent position in today’s energy market. The public recognizes that renewable energy is a key driver in combating the global issue of climate change. Solar and renewable technologies continue to advance and now provide economically viable solutions in virtually every market in the U.S. We will continue to grow our wind, solar, and storage presence so we can continue to provide clean energy to our existing and future customers as they pursue their net-zero emission goals.”

Tom Frazier, Managing Director, OMERS Infrastructure, said, “We are delighted to support today’s announcement as a key milestone for Leeward, and look forward to continuing to support Leeward’s growth. This news represents an integral next step for Leeward as a leading renewable energy platform in North America as it plays an important role in the broader energy transition.”

Michael Ryder, Head of Americas, OMERS Infrastructure, said, “We are proud to have Leeward in our global portfolio of high-quality infrastructure assets. Further expanding our investment in clean energy is a priority for us as a key component of our broader commitment to environmentally sustainable investing. Supporting this acquisition and future growth at Leeward is an important part of that strategy.”

Strategic Benefits

• Furthers Leeward’s aggressive market growth strategy across wind, solar and storage technologies: This acquisition accelerates Leeward’s aggressive growth plan, and will make Leeward one of the top renewable energy companies in the U.S. market. Leeward will have streamlined and enhanced capabilities across key functions, such as origination and power marketing, and continue to offer its customers renewable energy solutions across the technology spectrum.

• Accelerates the growth of solar development portfolio: With the transaction, Leeward’s solar development pipeline will reach 14 GW and be located in key markets across the U.S.

• Provides geographic diversity and opportunity to expand into new markets: First Solar’s [pipeline] of development projects, with a strong presence in California, the Southwest, and the Southeast, is an ideal complement to Leeward’s existing portfolio of renewable energy assets, focused on the Midwest, West and Texas markets.

The transaction is expected to close in the first quarter of 2021, following receipt of customary regulatory approvals and satisfaction of customary closing conditions. 

For its part, First Solar put out this press release:

First Solar, Inc. (Nasdaq: FSLR), today announced that it has entered into a Purchase and Sale Agreement (the “Agreement”) with Leeward Renewable Energy Development, LLC (“Leeward”), pursuant to which Leeward will acquire from First Solar a utility-scale solar project platform of approximately 10 gigawatts (GW)_AC. The transaction is expected to close in the first quarter of 2021, after obtaining regulatory approvals and satisfying customary closing conditions.

Headquartered in Dallas, Texas, Leeward is a portfolio company of OMERS Infrastructure, an investment arm of OMERS, one of Canada’s largest defined benefit pension plans. Upon closing of the transaction, Leeward will acquire the US project platform, which includes the Rabbitbrush, Madison, Oak Trail, Horizon, and Ridgely projects that are expected to commence construction in the next two years, as well as the 30 MW_AC Barilla Solar project, which is operational. First Solar will retain 1.1 GW_AC of projects in the US that are expected to be sold separately. Key members of the First Solar project development team are also expected to join Leeward upon closing.

Subject to closing of the acquisition, Leeward will purchase 650 MW_DC of First Solar’s high-performance Series 6 photovoltaic (PV) solar modules for its additional development opportunities. Leeward’s acquisition of the project platform also includes purchase orders for 888 MW_DC of Series 6 modules for the five development projects referenced above. Additionally, Leeward’s acquisition of the project platform will include 242 MW_DC of Series 4 modules safe-harbored under the solar Investment Tax Credit (ITC) program, 148 MW_DC of which has previously been booked. In total, upon closing, Leeward’s acquisition of the project platform will comprise the acquisition of projects with module purchase orders, together with the entry into additional purchase orders, of approximately 1.8 GW_DC of First Solar PV modules, of which 744 MW_DC represent new bookings as of closing.

“This acquisition will support our aggressive growth strategy as a leading independent power producer and elevate Leeward’s prominent position in today’s energy market,” said Jason Allen, chief executive officer, Leeward Renewable Energy. “The public recognizes that renewable energy is a key driver in combating the global issue of climate change. Solar and renewable technologies continue to advance and now provide economically viable solutions in virtually every market in the US. We will continue to grow our wind, solar, and storage presence so we can continue to provide clean energy to our existing and future customers as they pursue their net-zero emission goals.”

“The sale of the platform is a result of the strategic review we announced in 2020 and we’re pleased that it will be acquired by Leeward, a company that shares our values and vision for a sustainable energy future,” said Mark Widmar, chief executive officer, First Solar. “Enabled by our Series 6 module’s seamless compatibility with industry systems and processes, the sale is part of a transition that allows us to focus on doing what we do best, which is scaling, developing, and selling our world-class module technology.”

The completion of the transaction is subject to a number of closing conditions, including the receipt of regulatory approval from the US Federal Energy Regulatory Commission (FERC), the expiration of the waiting period under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976, and review by the Committee on Foreign Investment in the United States (CFIUS).

First Solar is the only US-headquartered company among the world’s largest solar manufacturers. With 1.9 GW_DC of annualized manufacturing capacity in Ohio, First Solar is the Western Hemisphere’s largest solar manufacturer. The Company also operates manufacturing facilities in Vietnam and Malaysia, and produced 5.9 GW_DC of Series 6 globally in 2020.

About First Solar, Inc.
First Solar is a leading global provider of comprehensive photovoltaic (PV) solar solutions, which use its advanced module and system technology. The company’s integrated power plant solutions deliver an economically attractive alternative to fossil-fuel electricity generation today. From raw material sourcing through end-of-life module recycling, First Solar’s renewable energy solutions protect and enhance the environment. For more information about First Solar, please visit www.firstsolar.com.

About Leeward Renewable Energy, LLC
Leeward Renewable Energy is a growth-oriented renewable energy company that owns and operates a portfolio of 21 wind farms across nine states totaling approximately 2,000 megawatts of generating capacity. Leeward is actively developing new wind, solar, and energy storage projects in energy markets across the U.S. Leeward is a portfolio company of OMERS Infrastructure, an investment arm of OMERS, one of Canada’s largest defined benefit pension plans with C$109 billion in net assets (as at December 31, 2019). For more information, visit www.leewardenergy.com.

Let me begin by thanking Neil Hrab, Manager Media Relations, Communications and Public Affairs at OMERS for sending me those two last press releases and making me aware of this deal.

Leeward is a portfolio company of OMERS Infrastructure so by extension, when it enters into a deal of this magnitude, it's good news for OMERS and its members.

What can I share with you? Having invested in solar stocks in the past and present, I can tell you they're melting up in these markets and First Solar (FSLR) is the leading solar company in the world.

The funniest thing I read on the Yahoo Finance message boards on First Solar is this:

"The maker of solar power systems received a double downgrade at Goldman Sachs, which cut its rating on First Solar to “sell” from “buy.” Goldman feels that First Solar’s earnings and margins are peaking and that more cyclical headwinds to its business are emerging."

Really? We are about to embark on a decade+ of decarbonization of the grid and GS characterizes this as "cyclical headwinds"? As others noted, they must have an agenda here. With institutional shares at 98%, they must be trying to free up a few shares.

I just finished writing a comment last night on how Ontario Teachers' is looking to achieve net zero emissions by 2050.

There is no doubt the secular trend on solar and wind remains intact. I'm not recommending to buy solar stocks but many of these companies are run extremely well and that is especially true of First Solar.

Leeward Renewable Energy (Leeward) is a private company and it too is run extremely well. This acquisition, once completed, will allow it grow its operations.

In fact, Leeward's CEO states that's exactly why Leeward entered into this agreement:

“This acquisition will support our aggressive growth strategy as a leading independent power producer and elevate Leeward’s prominent position in today’s energy market,” said Jason Allen, chief executive officer, Leeward Renewable Energy. “The public recognizes that renewable energy is a key driver in combating the global issue of climate change. Solar and renewable technologies continue to advance and now provide economically viable solutions in virtually every market in the US. We will continue to grow our wind, solar, and storage presence so we can continue to provide clean energy to our existing and future customers as they pursue their net-zero emission goals.”

And here is what OMERS has to say about this deal:

Tom Frazier, Managing Director, OMERS Infrastructure, said, “We are delighted to support today’s announcement as a key milestone for Leeward, and look forward to continuing to support Leeward’s growth. This news represents an integral next step for Leeward as a leading renewable energy platform in North America as it plays an important role in the broader energy transition.”

Michael Ryder, Head of Americas, OMERS Infrastructure, said, “We are proud to have Leeward in our global portfolio of high-quality infrastructure assets. Further expanding our investment in clean energy is a priority for us as a key component of our broader commitment to environmentally sustainable investing. Supporting this acquisition and future growth at Leeward is an important part of that strategy.” 

What about First Solar?:

“The sale of the platform is a result of the strategic review we announced in 2020 and we’re pleased that it will be acquired by Leeward, a company that shares our values and vision for a sustainable energy future,” said Mark Widmar, chief executive officer, First Solar. “Enabled by our Series 6 module’s seamless compatibility with industry systems and processes, the sale is part of a transition that allows us to focus on doing what we do best, which is scaling, developing, and selling our world-class module technology.”

There's not much more I can add here, this deal makes perfect sense for all parties even if financial details aren't disclosed.

Let me end, however, on this note.

While I'm happy to see Canada's large pensions investing in solar and wind, I'd prefer to see them team up  with large engineering/ construction companies to build more nuclear power plants.

If we really want to make a difference in terms of climate change, nuclear is the real way forward.

Luckily, OMERS owns Bruce Power, arguably the best portfolio company in its great infrastructure portfolio. I'd like to see others acquire a nuclear power company or band together to build one or many from scratch.

Alright, let me wrap it up there.

Below, what comes to mind when we think about renewables? Wind turbines spinning in a field, solar panels on a rooftop. But there’s much more to a cleaner energy future than these images in our mind. Creating a renewables-based energy future will take a lot of time, resources, and commitment. This episode highlights the benefits and challenges facing a renewable energy system and explores how we can achieve it.

And in a provocative talk, Time Magazine “Hero of the Environment” and energy expert, Michael Shellenberger explains why solar and wind farms require so much land for mining and energy production, and an alternative path to saving both the climate and the natural environment. 

Shellenberger is a Time Magazine Hero of the Environment and President of Environmental Progress, a research and policy organization. A lifelong environmentalist, he changed his mind about nuclear energy and has helped save enough nuclear reactors to prevent an increase in carbon emissions equivalent to adding more than 10 million cars to the road. Take the time to watch both clips.

Nathalie Wong of Bloomberg News reports Amazon extends Boston footprint with seaport office lease:

Amazon.com Inc. is taking more office space in Boston’s Seaport district.

The e-commerce giant signed a lease for 630,000 square feet (58,500 square meters) at One Boston Wharf Road, a 17-story mixed-use building, according to a statement Tuesday.

The deal follows Amazon’s agreement in 2018 to rent 430,000 square feet of offices at 111 Harbor Way, which is under construction nearby and set to be ready this year.

The leases are part of the company’s plan to add more than 5,000 jobs in Boston over the next few years -- most across the two new buildings. The positions it plans to create include jobs in software development, artificial intelligence and machine learning, Amazon said in its own statement Tuesday.

The tech titan has been expanding its workforce beyond Seattle, setting up major office centers and satellite locations in other localities including New York, Vancouver, and Los Angeles.

Construction of One Boston Wharf Road will start later this year, with completion scheduled for 2024, according to the statement. Massachusetts-based WS Development and Canada’s Public Sector Pension Investment Board are developing the building, which will also have ground-floor retail space and a performing arts center.

“Boston is full of world-class universities and colleges,” Jeremy Sclar, chairman and chief executive officer of WS Development, said by phone. “More people are staying and companies are realizing if they come here, they can hire this talent.”

WS is the lead developer of both properties Amazon is leasing. They’re part of a 33-acre (13-hectare) project that also will include housing and open public spaces.

One Boston Wharf Road will be connected to 1.5 acres of parkland that’s set to open later this year and was designed by the landscape architect behind New York’s High Line.

Annie Palmer of CNBC reports Amazon plans to create 3,000 jobs in Boston with new office expansion:

Amazon plans to create 3,000 jobs and open a new office in Boston, the company announced Tuesday. 

The new hires — expected to be focused on software development, artificial intelligence, machine learning, management, HR and finance — will support its Amazon Web Services, robotics, Alexa and nascent Amazon Pharmacy teams. Amazon expects to add the jobs over the next several years.

Amazon said it leased a 17-story office tower in Boston’s Seaport district to accommodate the new hires. The 630,000-square-foot office, which is set to be completed in 2024, will include working space, innovation labs and mixed-use common areas for employees, as well as two theaters and other spaces for the public.

The expansion builds on Amazon’s growing presence in Boston. In 2018, Amazon said it would create 2,000 jobs in Boston and announced it would lease a separate 17-story mixed-use building in the Seaport district. Construction on the tower is expected to be completed this year.

Amazon has been hiring at unprecedented levels during the pandemic, buoyed by a surge in e-commerce demand, as stuck-at-home shoppers turned to online retailers for both essential and nonessential goods.

The company added more than 400,000 employees in 2020, which pushed its global workforce to more than 1 million. Last year, Amazon announced it will add thousands of jobs at tech hubs in major cities, including New York, Detroit and San Diego.

Tatiana Walk-Morris of Retail Dive also reports Amazon to grow its Boston tech hub, add 3K jobs:

• Amazon is expanding its Boston Tech Hub and adding more than 3,000 tech and corporate roles over the next few years supporting Amazon Pharmacy, Amazon Web Services, Amazon Robotics, Alexa and other divisions, the e-commerce retailer announced on Tuesday. 

• The company plans to hire for positions in software development, artificial intelligence and machine learning, as well as back-office roles like human resources and finance, per the company announcement. 

• The company rented a 17-story office tower for its expanding Boston staff. The company will be leasing another office space, which is under construction and is expected to be completed later this year, to house 2,000 Amazon workers.

 Dive Insight:

Amazon's Boston team plays a critical role in multiple areas, including Alexa, Amazon Pharmacy and Amazon Web Services, Rohit Prasad, vice president and head scientist for Alexa at Amazon, said in a statement. The company noted that it currently has more than 3,700 employees in its Boston Tech Hub. 

"Much of the technology that makes Alexa smarter every day is invented in Boston," Prasad said. "Our teams here play a key role in driving Amazon's innovations ... and help us keep delighting customers around the world."

The e-commerce giant has been building up its Boston presence for the past few years. The company reportedly began seeking out space in the city back in 2018 as it scaled up its Boston-Cambridge area workforce. Meanwhile, the retailer has been opening up tech hubs in other cities, such as Chicago, New York, Denver, Dallas, Detroit, Phoenix and San Diego. The company's Chicago-area teams support Amazon Web Services, Amazon Advertising, and its transportation and operations units. The company's workforces in New York and other cities contribute to Alexa, Amazon Advertising, OpsTech, Amazon Fashion, Amazon Fresh, Amazon Web Services and other subsidiaries.

Over the years, multiple other retailers, including Yoox Net-a-Porter and Lowe's, have also created their own tech hubs. Lowe's in 2019 announced plans to hire up to 2,000 tech workers in the Charlotte, North Carolina, area. The move was part of the home improvement retailer's effort to revamp its technological infrastructure by 2021. 

Lastly, Nick Kolakowski of Insights Dice reports Amazon adding technologists to Boston technology hub:

Amazon is adding 3,000 more employees to its Boston Tech Hub, where they’ll join 3,700 technologists already at work on a number of technology initiatives, including Amazon Web Services (AWS), Amazon Robotics, Alexa, and Amazon Pharmacy. 

Many of those new hires will need artificial intelligence (A.I.), machine learning, and software development skills. In addition to those specialists, Amazon is also seeking project managers.  

Boston boasts a number of features that make it exceptionally attractive to tech employers of all sizes. Thanks to its cluster of local universities (including Harvard and MIT), it can offer a robust pipeline of young, hungry talent. As with other prominent tech hubs across the country, there’s also all the infrastructure you need to support growing businesses, including access to major airports, office space, and venture capital. 

The growing presence of companies like Amazon could help maintain Boston’s reputation as a major research and development hub, even as smaller tech hubs such as Raleigh and Houston compete more aggressively for tech companies’ dollars and attention. According to CompTIA’s Cyberstates 2020 report, net technology employment in Massachusetts grew by 11,500 net new jobs in 2019. “capping a decade in which the commonwealth’s tech-related labor force expanded by 86,000 workers.”  

Nationwide, Amazon hired 427,300 employees between January and October 2020, bringing its total workforce to 1.2 million. Although 85 percent of the company’s employees work in its warehouses (which it terms ‘fulfillment centers’), it’s also hired a number of technologists, including many with highly specialized skills.

According to Burning Glass, which collects and analyzes millions of job postings from across the country, Amazon was particularly interested in hiring technologists with the following skills: 

As you might expect, mastery of AWS is key to many Amazon technology jobs (and fortunately, there are lots of options when it comes to AWS training and certifications). And like other tech giants, Amazon also wants many of its technologists to have working knowledge of the world’s most programming languages, including Java, Python, and C++. That’s good news for those who don’t necessarily have skill-sets in cutting-edge areas such as machine learning and A.I.; although as you know, that sort of highly specialized knowledge can land you a job pretty much anywhere. 

In geographic terms, Amazon has focused much of its hiring on Seattle, New York City, Silicon Valley, and Washington, D.C./Northern Virginia (where it’s also building its massive HQ2 headquarters). As you can see from the following chart, though, there’s been strong hiring in Boston, even before the latest announcement: 

If you’re a technologist in Boston, there might be a role for you at Amazon—especially if you have a background in artificial intelligence (A.I.) and machine learning.

So why is Amazon expanding its hiring in Boston?

Very simple. As Mr. Prasad who is head scientist for Amazon’s Alexa virtual assistanttold Beta Boston: “Boston is one of the seats of learning in the United States, you have some of the world’s best universities and just this natural flow of talent into Amazon and other tech companies.”

Harvard, MIT, top tech companies all there, need I say more? It's a tech giant's dream location to attract top talent.

Interestingly, when I look at the second chart right above, Boston is still very under-represented in terms of Amazon's total workforce but that's to be expected as Amazon mostly hires people to work at its plants, not to write code.

Still, Amazon is primarily a technology company and many of those new hires will need artificial intelligence (A.I.), machine learning, and software development skills. 

So why am I discussing this deal? Because PSP Investments is part of the deal, releasing this press release yesterday: 

WS Development, in partnership with the Public Sector Pension Investment Board (PSP Investments), today joined Amazon, Boston Mayor Martin J. Walsh, and Massachusetts Governor Charlie Baker in announcing that a lease for 630,000 square feet of office space at the company’s 33-acre Boston Seaport development has been signed with Amazon.

“We are proud to continue our partnership with Amazon in Boston’s Seaport, a neighborhood that has grown to serve forward-thinking employers, residents, and retailers and that is now a global hub of innovation and talent,” said Jeremy Sclar, Chairman and CEO of WS Development.

“PSP Investments is pleased to join our partner WS Development in expanding Amazon’s presence in Boston’s Seaport,” said Kristopher Wojtecki, Managing Director, Real Estate, PSP Investments. “Amazon’s expansion will further enhance the innovation ecosystem and creative economy in this powerful technology and life sciences cluster.”

With this expansion, Amazon will be able to continue growing its job creation efforts in Boston and create 3,000 tech and corporate jobs over the next several years. The development, to be constructed at One Boston Wharf Road, Block L5 of the Boston Seaport development, is a 17-story, 707,000 square foot, mixed-use building designed by world-renowned Henning Larsen architects of Copenhagen, Denmark.

This is Amazon’s second full-building lease in the Seaport, the first being at 111 Harbor Way, a 525,000-square foot building now under construction by WS Development, which will be completed later this year and will bring 2,000 new technology jobs to Boston.

One Boston Wharf Road will also contain ground floor retail space and new performing arts center, comprising two live performance venues consisting of a 500-seat theater and a 100-seat black box theater, which together will add significant state-of-the-art capacity for the performing arts in Boston.  The building will front on Harbor Square park, a 1.5-acre signature green space that will open later this year, designed by James Corner Field Operations, the landscape architect behind New York’s High Line. 

The project will also fund approximately $5.5 million dedicated to the creation of affordable housing in Boston, as well as nearly $1.1 million of funding for job training in the City of Boston, providing opportunities for Amazon to work with the city’s Workforce Development team to prepare local residents for jobs in the technology industry.

Construction is scheduled to commence later this year with completion in 2024. 

About Boston Seaport

Culture, industry, and community converge in Boston’s Seaport district, a dynamic and vibrant neighborhood that has become synonymous with innovation and is redefining the City of Boston. Unlocked after a decade of development and $22 billion of public investment, Seaport is now home to an ecosystem of more than 350 companies, from global leaders in technology and biotech, to groundbreaking startups. In the heart of the neighborhood, WS development is transforming 33 acres of land, composed of 7.6 million square feet of residential, hotel, office, retail, entertainment, civic and cultural uses, as well as signature public open spaces. Currently, the project represents Boston’s single largest development under construction.

Combining the best of historic and modern-day Boston, Seaport has become a national destination for technology and life sciences employers, fashion, culture, dining and entertainment, and the arts, enhancing Boston’s position as one of the top cities in the world. For more information visit www.bostonseaport.xyz, follow Boston Seaport on Facebook, and @SeaportBos on Instagram and Twitter.

About WS Development

WS Development is a Massachusetts-based property developer and owner dedicated to the creation of places where people want to be.  With more than 20 million square feet of existing space and an additional five million square feet under development, it is one of the largest privately-owned development firms in the country. In business since 1990, WS is a vertically-integrated company that develops, owns, operates, and leases over 90 properties, including urban buildings, lifestyle centers, community centers, and mixed-use developments. Its goal is to be a contributing member of each community it serves. For more information, visit www.wsdevelopment.com or follow WS Development on LinkedIn.

About PSP Investments

PSP Investments is one of Canada’s largest pension investment managers with approximately $169.8 billion of net assets as of March 31, 2020. It manages a diversified global portfolio of investments in public financial markets, private equity, real estate, infrastructure, natural resources and private debt. Established in 1999, PSP Investments manages net contributions to the pension funds of the federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force. Headquartered in Ottawa, PSP Investments has its principal business office in Montreal and offices in New York, London and Hong Kong. For more information, visit investpsp.com or follow PSP Investments on Twitter and LinkedIn.

Canada’s second largest long term care home operator, Revera, appears to use aggressive tax avoidance schemes in the UK, according to a new report, Tax Dodging by a Canadian Crown Corporation: Revera Living Making a Killing, from the Centre for International Corporate Tax Accountability and Research (CICTAR). High numbers of COVID-related deaths in for-profit homes have exposed longstanding systemic problems across the long-term care sector, including chronic understaffing and low pay. The report shows how Revera’s UK care homes generate large revenues, but appear to shift profits offshore, raising major concerns in the UK and Canada that Revera-owned homes prioritize profit over people.

Revera is entirely owned by the C$170 billion Public Sector Pension Investment Board (PSP). Tax dodging in the UK would violate PSP-endorsed responsible investment principles and raises critical questions about Revera’s business model.

Jason Ward, the author of the report, said, “We found that Revera CEO and executives are directors of shell companies in several tax havens, which are part of a complex corporate web. Revera-controlled operating companies report losses in the UK to eliminate income tax payments and generate tax credits.”

In response to the report, Christina McAnea, general secretary of UNISON, the UK’s largest union and the union for care sector workers, said, "All companies and organisations providing public services must pay their fair share of taxes. All governments need to ensure all money due to the public purse is collected, without exception."

With high numbers of COVID-19 deaths occurring in Canada’s long term care homes, public pressure from health care advocates and members of the Public Service Alliance of Canada (PSAC) – who own Revera through their pension fund - is mounting to “Make Revera Public”, and to eliminate profit from Canada’s long term care sector entirely.

The Centre for International Corporate Tax Accountability and Research (CICTAR) put out this press release: 

Revera, a private corporation, is the second largest care home operator in Canada. An in-depth analysis of Revera’s UK care homes indicates a pattern of aggressive corporate tax avoidance and may provide insights into Revera’s corporate conduct and culture in Canada, where limited information is publicly available.

Revera is directly owned by the Public Sector Pension Investment Board (PSP), a Canadian Crown corporation and one of Canada’s largest public sector pension funds. Excessive and preventable COVID-19 deaths at Revera’s Canadian facilities, apparent aggressive tax avoidance strategies in the UK, and lack of transparency, all raise serious doubts about PSP’s claims to be a responsible investor.

Read the full report or download it here.

Alright, someone in Ottawa gave me a heads up and sent me the report, and I thank them for doing so.

I read the full report here and will provide you with the Executive Summary:

The percentage of COVID-19 deaths in long-term care homes in Canada – higher than in any other country – has exposed the long-standing concern that profit is prioritised over care. Revera, a private corporation, is the second largest care home operator in Canada. An in-depth analysis of Revera’s UK care homes indicates a pattern of aggressive corporate tax avoidance and may provide insights into Revera’s corporate conduct and culture in Canada, where limited information is publicly available.

Revera is directly owned by the Public Sector Pension Investment Board (PSP), a Canadian Crown corporation and one of Canada’s largest public sector pension funds. Excessive and preventable COVID-19 deaths at Revera’s Canadian facilities, apparent aggressive tax avoidance strategies in the UK, and lack of transparency, all raise serious doubts about PSP’s claims to be a responsible investor.

Revera’s CEO, and other top executives, are directors of dozens of tax haven subsidiaries – in Jersey, Guernsey and Luxembourg – which own 60 UK care homes as part of complex corporate structures. Welltower, Revera’s joint venture partner in the UK and one of the largest Real Estate Investment Trusts (REITs) in the US, discloses substantial UK profits. However, Revera-controlled UK care home operating companies report little or no profit in the UK in what appears to be a highly aggressive tax avoidance scheme. In 2019, its UK care homes charged residents more than £225 million in fees but were able to claim multiple UK tax credits. 

Revera and Welltower operate UK care homes under 3 brands: Sunrise, Gracewell, and Signature. Sunrise – also one of the largest US senior housing operators – is 65% owned by Revera and 34% owned by Welltower. Although separately owned, Sunrise also operates Gracewell properties. Signature, a separate company, is owned by Revera via Guernsey holding companies, but most of its care homes are jointly owned with Welltower.

According to UK filings, the three Revera-controlled care home companies reported combined losses of US$12.6 million in the most recent year. In contrast, Welltower’s 2019 global reporting indicates an estimated US$333.7 million in revenue and US$84.8 million in net operating income from its share of UK investments with Revera. The discrepancy between the UK filings of Revera-controlled companies and Welltower’s global reporting may indicate profit shifting. It appears that Revera uses tax havens and complex related party transactions to avoid UK income tax on profitable businesses.

Are deferred wages of federal government workers invested in corporations using aggressive tax avoidance schemes? Or is Revera’s relationship with Welltower, its largest global investment partner, on highly unfavourable terms? Neither scenario is acceptable conduct for a Canadian Crown corporation charged with the responsible stewardship of retirement assets of federal workers whose current income relies on income tax payments by other corporations and individuals.The case study of Revera’s UK care homes demonstrates the need to address the use of tax havens and contrived corporate structures specifically designed to reduce or eliminate tax liabilities where profits are generated. The lack of publicly available information on 

Revera’s Canadian operations highlights a lack of transparency on both quality of care and finances in the long-term care sector. Canada’s requirements for financial reporting are far below existing standards in the UK, Luxembourg and many other jurisdictions. Reforms are urgently needed in Canada to increase transparency and ensure that care is not sacrificed for profit. PSP must also ensure that Canadian and international businesses which it controls – Revera included – act responsibly and within the letter and spirit of the law. Aggressive tax avoidance schemes should not be acceptable conduct for any responsible business, particularly not a Canadian Crown corporation.

What can I say? PSP's Revera disaster is the gift that keeps on giving, at least from a public relations perspective.

I typically ignore these reports but this one isn't some shoddy report, it's methodical, goes into details especially on the tax and corporate structure front, but it's also very biased and confounds two separate issues.

There are a few issues here:

1. Did Revera engage in aggressive tax avoidance? 
2. Did PSP and Revera knowingly violate the spirit of the law? 
   
3. Did Revera neglect its duty to put the health and welfare of its patients first?
4. Is PSP Investments neglecting its duty to be a responsible investor?
   

On the first issue, there definitely is tax avoidance going on and the report highlights a very complex corporate structure between Revera and Welltower:

Is it "aggressive" tax avoidance? I'm not an accountant but it sure looks aggressive to me.

But is it illegal in any way? Absolutely not, it's done within the parameters of the law and if countries allow such tax schemes to exist, then it's legal for an corporate entity to do it to minimize its tax bill.

Remember, corporations are there to make profits. Revera doesn't have shareholders but it is a wholly owned by PSP Investments and it has to meet its financial targets.

We can debate whether this tax schemes "violate the spirit of the law" but that really doesn't tell me much, if you look into how a lot of public and private corporations use tax loopholes and structure their corporation to minimize taxes, I reckon every major corporation out there is "violating the spirit of the law". 

Recall, back in 2014, PSP Investments was embroiled in another embarrassing story where it was accused of skirting foreign taxes in Germany. 

I'll say the exact same thing I said back then, if these countries allow for such activities, then it is not illegal. It's up to that country's tax authorities to close these loopholes.

Of course, tax policy has to also promote foreign investment. If they start closing all tax loopholes, good luck attracting capital (it's a competitive market).

Alright, what about PSP and Revera neglecting their duties to act responsibly and jeopardizing the health and well-being of the patients they take care of?

Well, earlier today, I reached out to PSP and Revera and to my surprise, got a response from both.

First, on the tax avoidance claim, Susan Schutta, VP Corporate Affairs at Revera, said this: "We can confirm that Revera structures our affairs in a manner that abides by all laws in the jurisdictions where we operate." 

Second, and more importantly,  Verena Garofalo of PSP shared this with me:

Thank you for reaching out.

As a wholly owned subsidiary of PSP Investments, a Crown corporation, Revera is considered a crown immune corporation in the United Kingdom and therefore is typically not subject to income or capital gain tax in the UK. You can learn more about PSP’s tax strategy here.

Revera’s legal structure regarding its UK care homes is consistent with PSP’s responsible investing policy and was either inherited at acquisition or put in place for other corporate purposes.

Revera operates at arm’s length from PSP Investments with an independent Board of Directors and management. Our confidence in Revera’s dedicated management and staff is unwavering as they continue to comply with public health authorities’ pandemic response guidelines. Revera is committed to working with all levels of the Canadian government to find the right solutions for the long-term care industry and discuss lessons learned from the ongoing pandemic. Health and safety has always been, and continues to be, a priority for PSP Investments and Revera.

In June 2020, Revera engaged a panel of independent experts from diverse fields in health care to explore what happened in homes during the first wave, and to inform our operations going forward. We invite you to learn more about Revera’s Expert Advisory Report here and their Pandemic Response Plan here.

Thank you, PSP Investments

I like that "Thank you, PSP Investments," made me chuckle.

But in all seriousness, they address a lot of the issues this report raises head on and even provide links to make their case.

I'm on record stating this pandemic has exposed serious weaknesses at Canada's (and other countries) long term care facilities, both public and private. (read my Revera comment here)

Is Revera perfect? Hell no! But find me one perfect long term care facility in this country, it simply doesn't exist.

Do I have any doubts that Revera puts its patients' interests first? No, I don't, it has received a lot of bad press, all part of an orchestrated attempt to shut down private LTC facilities in this country (so unions can gain more power).

Again, don't get me wrong, Revera isn't perfect, it can improve a lot and learn from this pandemic, and if you look at its Expert Advisory Report here and their Pandemic Response Plan here, it shows you they are taking serious measures to address any concerns and are trying to improve.

I'm sick and tired of the media (mostly CBC and CTV) singling out Revera as the poster child of an evil long term care operator.

Always ask yourselves, who is writing these articles, who is reporting and what's their beef and angle?

Let me end by stating this, however, it might be time for Revera to mix up its board of directors and more specifically ask its Chair, Michael Mueller, to step down.

Mr. Mueller was the former Chairman of PSP Investments and I've heard mixed reviews on him. Maybe it's time he steps down from Revera's board, especially after a tumultuous year, and let someone else take over as the Chair.

Alright, let me end it there before I say something I'll regret.

Below, CBC News reports one of Canada’s biggest long-term care operators says government and public-health officials left them poorly prepared during the first wave of the COVID-19 pandemic. More than 280 people at Revera's retirement residences and long-term care homes died during the pandemic's first wave, prompting a company review.

Like I've said before, there's plenty of blame to go around, we as a country need to learn the hard lessons of this pandemic to make sure we never repeat the same mistakes again.

U.S. stocks fell sharply on Friday, wrapping up a roller-coaster week on Wall Street as heightened speculative trading by retail investors continued to unnerve the market.

The Dow Jones Industrial average lost 620.74 points, or 2%, to 29,982.62, the first time the 30-stock gauge has closed below the 30,000 mark since Dec. 14. The S&P 500 fell 1.9% to 3,714.24 as 10 sectors registered losses. The Nasdaq Composite slid 2% to 13,070.69 as Apple dropped 3.7% and other major tech names slipped.

All three major averages dropped more than 3% this week, posting their worst week since October. For January, the blue-chip Dow and the S&P 500 fell 2% and 1.1%, respectively, suffering their first negative month in four. The tech-heavy Nasdaq eked out a 1.4% gain on the month.

Shares of GameStop jumped 67.9% after Robinhood said it would allow limited buying of the stock and other heavily shorted names after restricting access the day before.

Robinhood raised more than $1 billion from its existing investors overnight, in addition to tapping bank credit lines, to ensure it had the capital required to allow some trading again in volatile stocks like GameStop.

Investors are concerned that if GameStop continues to rise in such a volatile fashion, it may ripple through the financial markets, causing losses at brokers like Robinhood and forcing hedge funds who bet against the stock to sell other securities to raise cash.

There are also fears that the GameStop mania is a sign of a larger bubble in the market and that its unraveling could also cause turbulence and hit retail investors hard. A number of lawmakers also called for an investigation into the chaotic trading. The Securities and Exchange Commission said Friday it will look into regulated body’s actions to uncover if the decisions made disadvantaged investors.

“There’s way too much leverage in the system, and we’re starting to see signs that this excess leverage is going to be unwound in a way that will create headwinds for the stock market and other risk assets for more than just a few days,” said Matt Maley, chief market strategist at Miller Tabak.

Meanwhile, new trial results from Johnson & Johnson’s coronavirus vaccine disappointed some investors because it was less effective on some variants, also hurting market sentiment.

J&J said its one-dose vaccine demonstrated 66% effectiveness overall in protecting against Covid-19. The vaccine was 72% effective in the United States, 66% in Latin America and 57% in South Africa after four weeks, the company said. The vaccine however offered complete protection against Covid-related hospitalizations. Shares of JNJ dropped 3.6%.

Stocks had rallied to record highs on the hope that vaccines would be effective against Covid to allow a smooth economic reopening before the end of the year. New mutations more resilient to vaccines could upend that rosy outlook for invesors.

Volatility spiked this week as the retail trading frenzy kept Wall Street on edge. The Dow lost more than 600 points on Wednesday, suffering its worst sell-off in three months. Then the blue-chip benchmark rebounded by 300 points on Thursday amid a broad market rally. The Cboe Volatility Index, known as the VIX, jumped above 33 Friday.

The market also experienced the highest trading volume in years as the mania heated up. On Wednesday, total market volume hit more than 23.7 billion shares, surpassing the level during the height of the financial crisis in 2008. Thursday also saw extremely heavy trading with more than 19 billion shares changing hands.

A wave of retail traders have been motivating each other on the red-hot WallStreetBets Reddit forum to pile into the most hated names by hedge funds, creating massive short squeezes in the stocks. GameStop has soared more than 1,600% in January, while AMC Entertainment has rallied over 500% this month.

Billionaire bond investor Bill Gross sounded alarms on this week’s intensifying speculative mania in his investment outlook released Friday.

“This apparent budding crisis needs regulatory warnings and mainstream media alerts as to the dangers this week, both to overall markets and individual investors,” Gross wrote.

Still, some believe since the retail crowd is concentrating on just a handful of names, the influence on the overall market should be limited for the time being.

“While we believe there is more pain to come we remain optimistic that it is likely to remain localized,” said Maneesh Deshpande, head of equity derivatives strategy at Barclays. “Market exposure of long-short hedge funds is relatively small, indicating little impact to the overall market due to deleveraging.”

What a week, what a week, there's a lot to cover starting with the mania and hype surrounding Reddit's WallStreetBets.

I must admit, even I got caught up in the frenzy, believing there's an army of neophyte traders mobilizing on social media platforms and using WSB to squeeze short sellers and "evil" hedge funds.

But today, I took a cold shower in the morning, watched an older clip from the late great George Carlin on The American Dream, and reminded myself of who really runs the show on Wall Street, and it ain't the 19-year-old YOLOs day-trading using WallStreetBets recommendations (for those of you who may not be up to snuff with the acronyms, YOLO = you only live once).

Remember that book I keep touting on my blog, The Power Elite, written by C. Wright Mills in the mid 50s?

I suggest a lot of the YOLOs day-trading, putting all their money in GameStop, AMC, bitcoin, and whatever else "everyone else is doing" take the time to read this book, after they watch George Carlin's clip.

Let me explain. This week was nothing more than mass hysteria, even the media, AOC and Donald Trump got caught up in the craze. 

Sure, it made for a lot of entertainment, we even witnessed a Twitter rumble between hedge fund billionaire Steve Cohen and day-trading poster boy Dave Portnoy over GameStop. 

Portnoy has been very active on Twitter going after Cohen, Citadel's Ken Griffin, Melvin Capital's Gabriel Plotkin and many others. Most of the things he says are nonsense but he does raise good points here and there, like how Robinhood and a few other trading platforms were pressured to restrict trading on a few stocks the WSB crowd were touting.

Anyway, by Friday afternoon, Steve Cohen had enough and tweeted this:

Anyway back to the Mets

— Steven Cohen (@StevenACohen2) January 29, 2021

BOOM! Mic drop! It was Cohen's way of saying he had enough sparring with the day-trading plebes on Twitter, they will all learn the hard way who really runs the show on Wall Street.

And that ladies and gentlemen, brings me to an important point, power on Wall Street in concentrated in a few large asset management firms (BlackRock, Fidelity, Vanguard, etc.) and a few elite hedge funds (Citadel, Point72, D.E. Shaw, Two Sigma, Renaissance Technologies, etc.). 

And it's they who run the show, the rest of the plebes, including the WallStreetBets crowd are just enjoying the YOLO ride of their life, and admittedly, it's a hell of a ride!

But sooner or later, this nonsense will come to an end and let me explain why.

Wall Street power firms will tolerate mini manias, WallStreetBets and YOLOers as long as they profit from them but the minute they threaten their power and represent an existential risk, it's game over and these powerful firms will quash any insurrection. 

There's something else that I'd like everyone to really think of, do you really believe "an army of day-traders" following advice n WallStreetBets was behind the insane volume in the markets this week?

Maybe at the margin but the real movers were large quant funds pumping and dumping stocks that WallStreetBets and others were touting.

Don't get me wrong, GameStop and other stocks were being squeezed but most of the squeezing came from large hedge funds cannibalizing each other, using day-traders as their cover.  

Can I prove any of this? No because I don't have access to their books and they're very sophisticated into how they engage in their activity (using derivatives to gamma squeeze, after-hour trading, etc) but there's no way in hell that an army of neophyte traders are taking down Wall Street sharks, get that out of your mind.

And while many are right to point how unfair the system is, it's high time the younger generation wakes up and realizes, the game is rigged, it's always been rigged so the powerful few get a lot wealthier and gain ever more power.

Why am I so cynical? Look at the events over the last year, we had our first global pandemic in over 100 years, the Fed and other central banks pumped trillions into the global financial system, and Wall Street used that money to speculate on risk assets while Main Street sank.

If you want to blame anyone for all these mini manias, blame the Fed, it unleashed this liquidity orgy and it and other central banks around the world are backstopping and promoting this madness. 

Whatever you do, please, stop believing the media hype, that an army of neophyte day-traders are taking on the Wall Street machine and winning, that's just nonsense, the financial machine is thriving and gaining power, no thanks to the Fed and other central banks.

Are there abusive trading practices going on? You bet. Hedge funds and other funds shorting and over-shorting stocks, driving companies into oblivion should be fined and stripped of their license but regulators (SEC) turn a blind eye because they're part of the machine.

All this to say, while Rabobank asks whether the Redd-olution is finally over, I'm telling you it never started and everyone who has fallen for the myth that the YOLOs of the world are uniting and sending a chill down the spine of Wall Street's elite, are only deluding themselves.

Powerful hedge funds with an army of coders have already infiltrated the message boards, they are paying for the order flow from Robinhood and care front-running all these trades, shorting stocks that the masses are buying ones which the masses ignore or are too scared to touch.

And keep this in mind, large global pensions and sovereign wealth funds invest in these big hedge funds precisely because they know the game is rigged in their favor. 

So, YOLOs of the world, unite, but if you think you're running the show, you're in for a nasty surprise when these elite hedge funds cannibalizing each other pull the plug. 

Remember what I said in my Outlook 2021, manage your risk very tightly in these markets or you will get your head handed to you!

Lastly, for all you Robinhoodies who were trading using this App, you've been scammed, it's a platform that steals from the poor and gives to the rich (it's free for a reason!). 

Below, CNBC's "Halftime Report" team is joined by Chamath Palihapitiya, CEO of Social Capital, to discuss how he traded GameStop and what he thinks this means for the investment landscape going forward.

Chamath is drinking the Koolaid, perpetuating this myth that the WallStreetBets crowd is a force to be reckoned with.

Next, William Galvin, Massachusetts secretary of state, and Kevin O’Leary, chairman of O’Shares ETFs and co-host of “Shark Tank," joined "Squawk Box" on Friday to debate whether Robinhood was right to take that move.

I agree with Galvin, there's needs to be a lot better regulations on shorting and "gamma squeezing" using derivatives but I don't think there will be a spillover into the broader market unless hedge funds bring the entire market down to kill the WallStreetBets speculators.

Kevin O'Leary is right, these kids trading are going to learn the hard way what speculation is all about, you cannot restrict their trading, let them trade and let them learn by making their won mistakes. 

The problem, which O'Leary doesn't address, is that big hedge funds are running the show and a lot of these neophyte traders are being misled thinking they're in control. 

Third, CNBC's Brian Sullivan and the Fast Money traders, Steve Grasso, Bonawyn Eison and Barbara Ann Bernard, discuss the market plunge as speculative names get continually bid higher.

Like I said, I don't think this will spill over into the broader market, and if it does, Uncle Powell and the Fed will step in to cool things down. That's the only "revolution" you can count on!

Lastly, it's Friday, the younger generation needs to watch George Carlin to understand the game is rigged, it's always been rigged, the house wins, gamblers lose, and the game will remain rigged as long as the big speculators who own the politicians and the regulators control the purse strings and the game.

The nation has been captivated by revelations of millions of amateur traders collectively through social media and online trading platforms taking on Wall Street’s highest cost, highest risk, most secretive money managers and winning—at least in the short term. These individual investors have piled into a David-versus-Goliath trade around the stock of GameStop, a troubled video game retailer. Hedge funds and other professional money managers were shorting GameStop’s shares, betting that its stock would fall in value while retail investors were banding together to buy shares and options betting the stock would go up. 

The consensus seems to be that retail investors should not be banding together and gambling their hard-earned savings in this way and the SEC has said it is “actively monitoring the ongoing market volatility.”

If you’re a taxpayer or a government worker depending upon a state pension fund for your retirement security, you may be alarmed to learn that nearly all state pensions engage in high-risk strategies, including shorting stocks like Gamestop all the time. Paying lavish fees to hedge fund and other alternative investment managers to recklessly gamble workers’ retirement savings is bad enough. Worse still, the officials that oversee state pensions have no idea which stocks are being shorted by which external managers at any given time (perhaps even acting in concert) or the total amount of pension assets at risk. 

That’s because state pensions routinely agree to be kept in the dark about alternative investment portfolio holdings and strategies. For reasons that have always been incomprehensible at least to me, state pensions demand transparency regarding their most liquid (publicly-traded) investments but readily consent to a complete lack of transparency regarding their riskiest, blithely accepting assurances by Wall Street that secrecy is required to achieve market-beating returns. This complicity between state pensions and Wall Street eviscerates state access to public records laws since the pensions conveniently have no information regarding their riskiest investments to disclose in response to pesky public records requests.

With state pensions already severely underfunded, allocating 26 percent to as much as 50 percent of their assets to alternative investment strategies including long-short equity poses enormous risk. Bear in mind, the ability to engage in short selling is not limited to hedge funds. Most other alternative investment managers are largely unconstrained in their investment strategies—they can invest in almost anything at any time. As a result, on any given day a private equity fund may be 100 percent invested in gold, the next 100 percent in silver, the next, 100 percent shorting GameStop.

For over a decade I have implored the SEC to examine alternative investment secrecy demands and questionable investment practices in connection with public pensions. Unlike the GameStop speculators today who at least know what they’re buying and selling, massive public pensions—supposedly sophisticated institutional investors handling trillions in retirement savings—have agreed to be kept clueless in the dark.

Let me state off the bat, this is a terrible article, one of Ed Siedle's worst comments, it demonstrates a total ignorance on how and why pensions invest in hedge funds.

First, most sophisticated pensions use portable alpha strategies to enhance their returns:

In a portable alpha strategy, market exposure (beta) is obtained synthetically through derivatives. Market investments are associated with passive fund strategies, which aim to track the performance of benchmark indices.

Alpha, meanwhile, refers to excess returns above what the market offers, and measures the value added by active fund management or superior strategies.

One of the major risks of portable alpha strategies is that they rely heavily on derivatives and borrowed funds, which means they can bring on hefty losses if markets make sudden downward turns. This risk is partly mitigated by the fact that portable alpha strategies add diversification to overall portfolios, since the alpha component is separate from the market fund.

Another restriction on the success of portable alpha strategies is that sources of alpha seem increasingly hard to come by. And alpha sources are quickly taken advantage of when they do appear, as fund managers race to exploit them.

Additionally, fund managers tend to charge high fees for portable alpha strategies.

So, how does portable alpha work in practice? A pension will swap into a bond index which literally costs a few basis points to track the "beta" of the bond index and then invest in hedge funds to add "alpha" over the index.

Back in the day when Ron Mock was in charge of investing Ontario Teachers'  massive hedge fund portfolio, he explained it to me like this:

"...beta is cheap, you can swap into any index for a few basis points. Real alpha is worth paying for. At Teachers', we look to add T-bills + 500 basis points over he index we swap into, year in year out."

Now, since Teacher's invested roughly 10% of its portfolio in hedge funds back then (2000), that T-bills + 500 basis points target translated into 50 basis points of alpha (0.5%) that Ron's group consistently added over the index every year. And over many years, that 50 basis points really adds up (because it is compounded).

In a portable alpha strategy, the trick is to deliver that alpha over the benchmark consistently. And to do this, Teachers' focused mostly on market neutral strategies back then (arbitrage, multi-strategy, market neutral stock investing, etc.).

Ron Mock was also petrified of hedge fund blowups, so he invested  in over 100 hedge funds at the time to limit operational risk.

Now, without going into too many details, I agreed with some but not everything Ron was doing back then. At the time, I was in charge of overseeing the directional portfolio of hedge funds at the Caisse, which consisted of global macros, L/S Equity, CTAs and a few short sellers. 

So, I love directional risk, still do, especially when it generates great returns. I remember telling Ron to look into investing in Bridgewater back then and forget about all the market neutral stuff (they did invest in Bridgewater, everyone did).

Long story short, Ontario Teachers' hedge fund portfolio has evolved over the years. They don't invest as much in hedge funds as they used to but along with CPPIB, they're still considered the top hedge fund investor in Canada (back in 2000, Desjardins had the biggest portfolio of external hedge funds run by Jacques Lussier but it blew up in 2008 and Monique Leroux put an end to it, which was foreseeable but not wise longer term...they needed to have the right people manage that portfolio and Lussier is brilliant but not the best manager of hedge funds!!).

Anyway, fast forward to 2021, Ontario Teachers', CPPIB, CDPQ invest in hedge funds using a managed account platform called Innocap based here in Montreal. 

Through non disclosure agreements, hedge funds provide Innocap with their positions at the end of the day, and the folks at Innocap load it all up and make sure everything adds up. 

It's an extra layer of risk transparency, but there most definitely is transparency, and some US state pensions are also using this managed account platform (or Lyxor, their larger competitor).

Now, to be sure, transparency without liquidity is useless, which is another reason why I love directional hedge fund strategies because they typically invest in liquid instruments (large and mid cap stocks, futures, etc).

Still, after many years of being clobbered by the stock market and because there is so much competition in the hedge fund space, returns have been lackluster in the hedge fund industry, and many pensions (like CalPERS) have bailed, preferring private equity funds where they get a better alignment of interest even if returns have been coming down there too (co-investments have helped reduce fee drag and that is the approach Canada's large pensions have mastered).

But Ed Siedle stating "on any given day a private equity fund may be 100 percent invested in gold, the next 100 percent in silver, the next, 100 percent shorting GameStop," well that's just rubbish!!

I can assure you the top private equity funds large pensions and sovereign wealth funds are investing in NEVER engage in such activities and for Siedle to state this in Forbes, well, it's a crock of horse manure!

The big story last week was Melvin Capital blew up losing more than 50% shorting GameStop.

It's not the only one, others got clobbered too shorting GameStop, and the big worry now is many private and public pensions investing in hedge funds are going to feel the sting from these hedge fund losses.

It wouldn't surprise me if a few large and sophisticated pensions invested with Gabriel Plotkin, an SAC alumni who was indicted for fraud back in 2013.

But don't be fooled, before this GameStop blowup, Plotkin was considered a "god", a star money manager who was posting double-digit returns every year. 

It's easy to get bamboozled by these hedge fund sharks, and truth be told, I might have even invested in Melvin Capital if I was at the Caisse, but I would have also ripped him a new one for total lack of risk management on this short position, redeemed and never looked back again. 

Yes, he has a high water mark, can eventually recoup these losses, but it's a matter of principle, you're a bloody hedge fund for Pete's sake, a well-known one, how the hell did you not manage your risk accordingly???

I guarantee you nobody at Millennium was shorting GameStock, and if they did, Izzy Englander has already fired them (lose 2%, you're on notice, lose 5%, you're fired!!).

There is always going to be hedge fund blowups. Back in my time, it was Amaranth, a muti-strategy fund that lost more than $6 billion betting the wrong way on natural gas. 

There were plenty of others, and everyone remembers LTCM chronicled in the book When Genius Failed (God I love that book!).

Will the GameStock fallout impact more hedge funds and spill over into pensions? 

Maybe and maybe not, the media loves sensationalizing these things (read my last comment, YOLOers of the world, unite).

I can tell you the Reddit-WallStreetBets crowd helped Ontario Teachers Pension Plan as it sold its 16.4-per-cent stake in US mall owner Macerich for US$500 million (C$638 million) after the company’s shares soared, according to regulatory filings obtained by Bloomberg News.

Good move, Teachers' large stake in Macerich (MAC) was dragging down its portfolio returns for years and it needed to dump it.

Did Teachers' invest in Melvin Capital? I don't know, just like I don't know if CDPQ or CPPIB did, and to be honest, I don't really care. If they lost money there, it will string but in terms of their overall hedge fund portfolio, it's meaningless over the long run.

One thing I would like is for Canada's large, sophisticated pensions to engage with the Securities and Exchange Commission (SEC) to advise them on drafting better regulations to make sure that hedge funds or bank prop trading desks are not engaging in questionable activities like over-shorting a stocks with low float, or gamma squeezing stocks so they melt up.

If anything, the GameStop saga has exposed the nonsense going on in the stock market, and that stuff not only turns small and large investors off, it scares them. The SEC needs to make sure everyone follows the rules and that everything is kosher (don't hold your breath)

Lastly, let's stop fueling myths that all short sellers are evil criminals. That's just rubbish!!

The best short sellers add value and liquidity into the stock market, but unfortunately, most of them have been infected with monetary coronavirus and are in hiding after this GameStock fiasco:

Coincidence? Stocks with the highest #shortinterest have pulverized stock market darlings ever since the #Covid19 crisis erupted and central banks stepped in with unprecedented amounts of #stimulus. via @zerohedgepic.twitter.com/cE8hSyBP2J

— jeroen blokland (@jsblokland) February 1, 2021

So, stop cursing "evil short sellers", most of them are getting clobbered in these liquidity-driven markets dominated by mini manias (not all, some are posting great returns).

Also, take it from me, most Long/Short Equity funds suck at shorting stocks, really badly!!

Alright, let me wrap it up there, you're going to read a lot of stuff in the media about pensions getting hurt from the GameStop debacle, take it with a grain of salt. Wait for the dust to settle.

Below, Bianco Research president Jim Bianco weighs in on the battle between the individual investors and hedge funds, arguing that business practices on Wall Street 'have to start to change.

I agree with Jim on the need for better regulations, not so much on hedge fund collusion.

No doubt, there is a lot of collusion in the hedge fund industry but trust me, most of them are still cannibalizing each other and if they smell blood in the water, they'll go for the jugular.  

Also, take the time to watch today's CNBC Half Time Report and listen to Stephen Weiss (around minute 12) speak about L/S hedge funds and hw most of them are terrible at shorting (I concur!).

An offshore wind farm project in Taiwan has received a USD 2.7 billion investment from Canadian institutional investor Caisse de dépôt et placement du Québec (CDPQ).

CDPQ’s co-investment into the 605MW Greater Changhua 1 Offshore Wind Farm (Greater Changhua 1) alongside local investor Cathay PE, will result in their acquisition of a 50% stake in the wind farm.

Greater Changhua 1 is being developed and constructed by Ørsted. Ørsted recently secured consent from the United Kingdom’s secretary of state for business, energy, and industrial strategy, Alok Sharma, for one of the world's largest wind farms located off the North Norfolk coast.

The equal share partnership is the first of its kind in the Asia Pacific offshore wind sector. It is hoped that the investment will help drive the creation of further opportunities in the Taiwanese market.

For CDPQ, this is its first direct investment in Taiwan, made via its infrastructure team which has maintained an strong track record for investments in the renewable energy industry.

Greater Changhua 1, which will be located off the coast of Changhua County, will generate a capacity of approximately 605 Megawatts (MW), supplying clean energy to more than 650,000 Taiwanese households.

The project’s construction has already begun and is expected to be completed in 2022.

Head of infrastructure and executive vice president at CDPQ, Emmanuel Jaclot, said in a statement that the investment will enable CDPQ “to further diversify [its] presence in Asia”, adding that the company seeks “this kind of greenfield opportunity to contribute to the transition towards a low carbon economy”.

Ørsted head of partnerships and structured solutions and vice president, Kunal Patel, also stated: “With a long term agenda in Taiwan, we remain committed to the Greater Changhua 1 project and will also reutilise the capital into further developing new offshore wind projects to assist Taiwan in achieving its energy transition goals.”

Magic Circle law firm Clifford Chance acted as legal counsel to CDPQ and the special purpose vehicle purchaser on the tender and acquisition process, as well as the negotiation for the construction, operation and related commercial arrangement for the wind farm, and the financing of the purchase price.

Clifford Chance Singapore partner and advisory team leader Ross Howard said in a separate statement that the transaction “mobilises global capital to support Taiwan's transition to a low carbon economy”.

Howard was assisted by Singapore and Perth lead associates Jordan Knowles and Dominik Kepinski, respectively.

An Amsterdam-based team of lawyers from Clifford Chance advised Rabobank, as lender, on the EUR 500 million financing and development of the Netherland's largest onshore wind farm, Windpark Zeewolde, in July last year.

I don't know why this is making headlines now as CDPQ announced this deal at the end of last year (December 28, bad time to make a big announcement) and posted this press release:

• Global institutional investor CDPQ and experienced local investor Cathay PE will co-invest 50% of the 605MW Greater Changhua 1 Offshore Wind Farm.

• Ørsted will retain a 50% share ownership in the Greater Changhua 1 Offshore Wind Farm, as well as deliver the full construction and long-term O&M services for the project, which is expected to be completed by 2022.

• The partnership is based on a financing model for offshore wind projects that is unique in the Asia-Pacific Region.

• This is CDPQ’s first direct investment in Taiwan through its Infrastructure team, which has a long track-record in the renewable energy sector.

Ørsted announced today that it has signed an agreement with a consortium of world-leading investors, which consists of global institutional investor Caisse de dépôt et placement du Québec (CDPQ) and established local investor Cathay PE, to co-invest in the 605MW Greater Changhua 1 Offshore Wind Farm (Greater Changhua 1). CDPQ and Cathay PE will jointly own 50% of the Greater Changhua 1 and Ørsted will retain a 50% share. The majority of the deal amount of approximately TWD 75 billion (approximately DKK 16 billion, or 3.4 billion CAD) will be used to pay for the EPC services for Greater Changhua 1.  

The transaction is still subject to all customary and regulatory approvals by Taiwanese authorities.

Matthias Bausenwein, President of Ørsted Asia-Pacific, says:“It has been our commitment to share our vast offshore wind financing experience with Taiwan's financial community since the early stages of developing the Greater Changhua projects. We are glad to successfully achieve this important milestone by bringing our reliable and experienced partner CDPQ to Taiwan for the first time. We are equally thrilled to collaborate with our local partner Cathay PE, so that the Greater Changhua 1 will also be locally owned.”

Kunal Patel, Vice President and Ørsted Head of Partnerships & Structured Solutions, says:“This transaction marks the evolution of our partnership model into Taiwan, leveraging our extensive track record of development, construction and operation of large offshore wind farms. With a long term agenda in Taiwan, we remain committed to the Greater Changhua 1 project and will also reutilize the capital into further developing new offshore wind projects to assist Taiwan in achieving its energy transition goals.”

Emmanuel Jaclot, Executive Vice-President and Head of Infrastructure, CDPQ, says:“This investment in Taiwan, which represents an attractive market for CDPQ, allows us to further diversify our presence in Asia. As an investor with vast experience in renewable energy, we seek this kind of greenfield opportunity to contribute to the transition towards a low carbon economy. Working alongside our long-term partner Ørsted, and experienced local investor Cathay PE, we are proud to support the Greater Changhua 1 Offshore Wind Farm, which will supply clean power to over 650,000 Taiwanese families.” 

Cyril Cabanes, Managing Director, Infrastructure, Asia Pacific, CDPQ, adds: "We are excited to take this first step in Taiwan’s renewable energy market, where we see many prospects and opportunities to collaborate with esteemed international and local partners who share our interest in developing high-quality infrastructure. We are also committed to further expand our renewables and energy footprint in Asia Pacific, building upon this investment and other successful platforms that we have developed in India and Australia over the past few years.”

This investment in Greater Changhua 1 is an important step for CDPQ’s CAD 28-billion infrastructure portfolio. Indeed, this marks the first time that CDPQ is investing in an offshore wind farm in Asia Pacific, which reflects CDPQ’s confidence in Ørsted’s track record and adds the asset to the institutional investor’s long list of investments in solar and wind energy across the Americas, Europe and India. 

Jeff Chang, Chairman, Cathay PE, says:“We are delighted to team up with CDPQ to invest alongside Ørsted in the Greater Changhua 1 Offshore Wind Farm project. This landmark transaction represents an important milestone in Taiwan’s energy transition towards a low-carbon future and fits perfectly with Cathay PE’s investment mandate to invest in high quality energy infrastructure projects alongside world class partners.”

The 50-50 partnership is the first of its kind in the APAC offshore wind sector and will help stimulate further opportunities in the Taiwanese market for offshore wind. Ørsted will retain 50% share of the Greater Changhua 1, which will be financed by its corporate balance sheet and will deliver the long-term operations and maintenance (O&M) services to the project. Greater Changhua 1 is part of the 900MW Greater Changhua 1 & 2a Offshore Wind Farms, which Ørsted is currently constructing and expects to be completed in 2022.

CDPQ and Cathay PE will acquire a 50% share of the Greater Changhua 1 via a multi-tranche financing package from 15 international and local banks and two local life insurance companies: Cathay United Bank, CTBC Bank, E-SUN Bank, Taipei Fubon Bank, Cathay Life Insurance Co., Taiwan Life Insurance Co., BNP Paribas, Crédit Agricole, Deutsche Bank, DZ Bank, HSBC, Oversea-Chinese Banking Corporation, Korea Development Bank, Siemens Bank, Société Générale, Standard Chartered and Sumitomo Mitsui Banking Corporation.

The financing package, which was structured and led by Ørsted, will be partially supported by guarantees and/or loans from five international export credit agencies (ECAs); Eksport Kredit Fonden (EKF) of Denmark, UK Export Finance (UKEF), Atradius of the Netherlands, Korea Trade Insurance Corporation (KSURE), and Export Development Canada (EDC), which participates for the first time in an offshore wind farm deal in Taiwan. 

About Ørsted in Taiwan

• The Greater Changhua 1 & 2a Offshore Wind Farm will be located 35-60 kilometers off the coast of Changhua County and have a capacity of approx. 900MW. The construction of the offshore wind farm will be finalized in 2022. 

• In June 2018, Ørsted was awarded the right to build another 920MW offshore wind farm in Taiwan through its Greater Changhua 2b & 4 sites. Changhua 2b & 4 are to be built in 2025, subject to grid availability and Ørsted’s final investment decision in 2023.

• Ørsted is also the biggest shareholder and co-owner of Taiwan’s first commercial-scale offshore wind project, Formosa 1, which was extended from a capacity of 8MW to 128MW in 2019.

• As the world leader in offshore wind, Ørsted has installed more than 1,500 offshore wind turbines, with an installed offshore wind capacity accounting for one third of the world’s total. Ørsted has installed approx. 7.6GW offshore wind capacity and has a further 2.3GW under construction, including Changhua 1 &2a. In addition, Ørsted has secured the rights to build approx. 2.9GW offshore wind in the US, approx. 1.1GW in Germany, and approx. 0.9GW in Taiwan. It is Ørsted’s ambition to install a total of 15GW offshore wind capacity worldwide by 2025.

About Ørsted

The Ørsted vision is a world that runs entirely on green energy. Ørsted develops, constructs and operates offshore and onshore wind farms, solar farms, energy storage facilities, and bioenergy plants, and provides energy products to its customers. Ørsted ranks #1 in Corporate Knights' 2020 index of the Global 100 most sustainable corporations in the world and is recognized on the CDP Climate Change A List as a global leader on climate action. Headquartered in Denmark, Ørsted employs 6,120 people. Ørsted's shares are listed on Nasdaq Copenhagen (Orsted). In 2019, the group's revenue was DKK 67.8 billion (EUR 9.1 billion). Visit orsted.com or follow us on Facebook, LinkedIn, Instagram and Twitter.

CDPQ is co-investing alongside local partner Cathay PE and Ørsted which is the world leader in offshore wind. 

According to the press release, CDPQ and Cathay PE will jointly own 50% of the Greater Changhua 1 and Ørsted will retain a 50% share. 

Also, the majority of the deal amount of approximately TWD 75 billion (approximately DKK 16 billion, or 3.4 billion CAD) will be used to pay for the EPC services for Greater Changhua 1.  

I believe the article above misquoted stating CDPQ is ponying up the entire USD $2.7 billion (CAD $3.4 billion).

In any case, it's a sizable transaction and the financing of deal is interesting:

CDPQ and Cathay PE will acquire a 50% share of the Greater Changhua 1 via a multi-tranche financing package from 15 international and local banks and two local life insurance companies: Cathay United Bank, CTBC Bank, E-SUN Bank, Taipei Fubon Bank, Cathay Life Insurance Co., Taiwan Life Insurance Co., BNP Paribas, Crédit Agricole, Deutsche Bank, DZ Bank, HSBC, Oversea-Chinese Banking Corporation, Korea Development Bank, Siemens Bank, Société Générale, Standard Chartered and Sumitomo Mitsui Banking Corporation.

The financing package, which was structured and led by Ørsted, will be partially supported by guarantees and/or loans from five international export credit agencies (ECAs); Eksport Kredit Fonden (EKF) of Denmark, UK Export Finance (UKEF), Atradius of the Netherlands, Korea Trade Insurance Corporation (KSURE), and Export Development Canada (EDC), which participates for the first time in an offshore wind farm deal in Taiwan. 

You have a lot of banks and international export credit agencies (including Canada's EDC) financing this mammoth deal.

They are all sharing the risk of financing the deal and I believe this will be the first of many more deals for CDPQ's Infrastructure team in Asia Pacific, a very competitive growth market for renewable energy.

Taiwan, like most other developed nations, is looking to lower its carbon footprint and wind farms will play a critical role in its long term renewable energy strategy. 

A friend of mine who is a bit skeptical on wind farms recently told me: "They're immensely profitable because of all the subsidies, that's why Canada's big pensions are doing these deals, but in terms of climate change, nothing beats nuclear reactor plants. The problem is no Canadian pension is going to build any nuclear reactor plant, only OMERS owns one (Bruce Power)."

He also thinks wind farms kill tons of birds and are bad for the ecosystem, which I cannot confirm (mixed messaging here from environmentalists).

Anyway, regardless of what you think of wind farms, this is a good long term deal for CDPQ and its members, one they will build on for many more deals in the region.

Below, Ørsted develops, constructs and operates offshore wind farms that provide power to 11.3 million people, roughly a quarter of the world’s offshore wind market. The wind farms are part of the global leader’s shift away from fossil fuels and toward renewable energy. It plans to fully phase out coal by 2023 and wants to increase its offshore wind capacity to 15 gigawatts by 2025 – enough to power more than 30 million people.

To reach its goals, Ørsted relies on a digital strategy that includes advanced analytics and artificial intelligence (AI) with Microsoft technology. The software helps the company transform data from its 1,300 offshore wind turbines into insights for predictive maintenance that saves time and resources.

The C$456.7 billion ($359.2 billion) Canada Pension Plan Investment Board (CPPIB) has committed up to a total of $650 million for multifamily real estate development deals in the United States and European renewable energy investments.

CPPIB has formed a joint venture with South Carolina-based real estate developer Greystar Real Estate Partners to pursue multifamily real estate development investments in certain US markets. The Canadian pension giant will pony up $350 million in equity toward the joint venture for a 90% stake, while Greystar has invested $39 million for the remaining 10%. Under the terms of the joint venture, Greystar will manage and operate the portfolio.

“There is a significant undersupply of rental housing in the US,” Hilary Spann, CPPIB’s head of real estate Americas, said in a statement. “Despite the global pandemic and short-term economic uncertainty, there continues to be an opportunity for long-term investors to develop high-quality multifamily properties in growth markets.”

The joint venture will develop class A, mid-, and high-rise multifamily properties in urban and inner-ring suburban communities in major American markets, including coastal markets and other regions that have a high population and strong job growth.

CPPIB also committed up to €245 million ($300 million) to its UK-based platform Renewable Power Capital Limited (RPC), which it launched last month, to support its first investment in European renewable energy.  

RPC will acquire a 100% interest in a portfolio of three wind farms in Finland from Swedish renewable power generation company OX2, which will build the wind farms under an engineering, procurement, and construction contract. OX2 will also be responsible for the technical and commercial management of the wind farms. The three wind farms are expected to be operational in 2022, at which point the portfolio is expected to produce nearly 590 GWh per year, which is equal to the amount of electricity consumed by approximately 118,000 households.

“Our new commitment to support RPC’s initial investment in Finland is fully aligned with our goal of deploying long-term, flexible capital in an attractive renewables market,” said Bruce Hogg, CPPIB’s head of power and renewables. “We continue to see a strong pipeline of other renewable opportunities in RPC’s high priority markets.”

RPC will invest in solar, onshore wind, and battery storage, among other technologies in Europe. CPPIB has made approximately C$9 billion of equity commitments to renewable energy globally as of Sept. 30, with investments in onshore wind, offshore wind, solar, hydro, and associated storage and distribution assets.

CPP Investments is expanding its deals with its partners, Greystar Real Estate and Renewable Power Capital Limited (RPC), a pan-European renewable energy investment platform established in 2020, which it backed.

In the joint venture deal with Greystar, CPP Investments will pony up $350 million in equity toward the for a 90% stake, while Greystar invested $39 million for the remaining 10%. Under the terms of the joint venture, Greystar will manage and operate the portfolio.

The joint venture will invest in multifamily properties in urban and inner-ring suburban communities in major American markets, including coastal markets and other regions that have a high population and strong job growth.

Basically, pandemic or no pandemic, people need to live somewhere and Greystar has a long and successful track record of developing and managing US apartment properties in major cities (see a recent blog comment of theirs on living in a Greystar community). 

For its part, Renewable Power Capital Limited (RPC) is ramping up quickly, as I expected when I covered this new platform back in December.

It is run by a very experienced team which Bruce Hogg, CPPIB’s head of power and renewables, relies on to put capital to work in renewable energy projects in Europe.  

Remember, when you're the size of CPPIB, the name of the game is scale, you need to scale up these investments quickly, efficiently, capitalizing on any opportunities. 

The same goes for CDPQ which made its first inroads into Taiwan's renewable energy market co-investing alongside Ørsted and local partner Cathay PE in Greater Changhua 1 Offshore Wind Farm.

CPP Investments committed up to €245 million ($300 million) to RPC to support its first investment in European renewable energy.  

RPC will acquire a 100% interest in a portfolio of three wind farms in Finland from Swedish renewable power generation company OX2, which will build the wind farms under an engineering, procurement, and construction contract. OX2 will also be responsible for the technical and commercial management of the wind farms. The three wind farms are expected to be operational in 2022, at which point the portfolio is expected to produce nearly 590 GWh per year, which is equal to the amount of electricity consumed by approximately 118,000 households.

Again, investing in wind farms is very profitable when you have the right partner and are investing in the right projects. 

RPC knows the European renewable energy market extremely well, it will be investing large sums over the next decade to ramp up CPP Investments' renewable energy investments in Europe.

In other related news, CPP Investments recently invested $200 million into a second joint venture with logistics real estate firm LOGOS to develop assets in Indonesia.

A portfolio of third-party logistics services, data centers, and industrial warehouses will be funded by the allocator-operator partnership in the greater Jakarta area, CPPIB said this week. 

“One of the key investment themes for CPP Investments has been Asia’s growing middle class and domestic consumption,” Jimmy Phua, managing director and head of Asian real estate investments at CPPIB, said in a statement. “We are pleased to be furthering our partnership with LOGOS and strengthening our position in Indonesia’s logistics market.”

CPPIB is expanding further into warehouses to meet growing demand for deliveries for online shoppers. The Canadian pension fund previously invested with LOGOS in 2017, when it also sought to acquire and develop logistics assets in the market.

Several logistics properties were also included in the initial venture, including Cibitung Logistics Hub, Cikarang Logistics Park, Cileungsi Distribution Centre, and Metrolink Logistics Hub. 

LOGOS, which has about $10.2 billion in assets in its Asia Pacific portfolio, said it already has several assets in mind for its newest venture that it will build and acquire over the next year. Through both ventures, it will develop up to $1 billion logistics assets over the coming years, it said. 

Logistics properties remain a hot area for all global pensions looking to capitalize on the rise of e-commerce at home and abroad, especially abroad where a growing middle class is supporting the growth of logistics properties.

What else? CPP Investments has run into some snags, losing $113 million a day after buying a 5% stake in Texas-based software company SolarWinds:

On Dec. 9, SolarWinds reported in press release that CPPIB had acquired an approximate 5% stake in the company for $315 million from private equity firm shareholders Silver Lake and Thoma Bravo. According to a US Securities and Exchange Commission (SEC) filing, the stake was acquired at a price of $21.97 per share of SolarWinds stock.

But just over a week later, on Dec. 17, SolarWinds revealed that it had been the victim of a “very sophisticated cyberattack” in which hackers compromised the firm’s Orion monitoring and management software. US intelligence blamed the hack on Russian government-backed operatives. As a result of the announcement, SolarWinds’ stock fell to an intra-day low of $13.98, or 36% below what CPPIB paid for its stake.

Although Silver Lake and Thoma Bravo said they didn’t know about the hack until after the sale, legal experts say the deal will likely be investigated by the SEC to determine if information was withheld about the possibility of a hack, according to a Washington Post report. The report said CPPIB will also likely look into whether the private equity companies breached their contract by failing to disclose any known cybersecurity risks.

“To the best of our knowledge, no one was aware of the hack leading to our capital commitment,” Michel Leduc, CPPIB’s senior managing director, said in a statement to the Post. However, he also said that CPPIB is “always focused on the very best interests of the fund and we will continue to assess the circumstances for optimal certainty.”

Complicating the matter as to what SolarWinds and its owners knew and when they knew it is a report from Bloomberg that a SolarWinds security adviser had warned company executives of cybersecurity risks three years ago. Ian Thornton-Trump reportedly gave a presentation to three SolarWinds executives in 2017 urging them to hire a cybersecurity senior director because he believed a major cybersecurity breach was inevitable.

Silver Lake and Thoma Bravo partnered to buy out SolarWinds in 2014 and then took the company public in 2018. According to CPPIB’s website, it has invested $3 billion in Silver Lake funds and $1.1 billion in Thoma Bravo funds since 2004.

Silver lake and Thoma Bravo are top private equity funds, I wouldn't worry too much about CPP Investments' stake in SolarWinds, I'm sure they will find a way to work things out.

Lastly, Peter Bill wrote a somewhat nasty article for Property Week on SEGRO, CPPIB and boxing clever:   

Word has it SEGRO is seeking a plot in or around the Square Mile on which to dig a ruddy great big hole.

A cavern capable of containing a ‘subterranean city logistics hub’. A hole big lorries rumble into and little vans scurry out of. With the possibility of a cherry on top in the shape of over-ground development.

This is not surprising. Last September, David Sleath’s merry band signed a deal with SNCF and French developer Icade to insert an 800,000 sq ft underground logistics hub beneath the over-ground redevelopment of the Gobelins station in Paris, not far south of Notre Dame Cathedral.

Where SEGRO’s agent Savills is looking in London is a mystery. There are 1960s underground car parks with complex ownerships that might be converted, with difficulty. But can I suggest a freehold on which a valuable commercial cherry could be sat?

Cushman & Wakefield is selling 41 Tower Hill, a traffic-marooned nine-floor block adjacent to Tower Gateway DLR, hard against the main line into Fenchurch Street. To the rear sits the Minories car park. The freehold of these 1.7 acres was bought by now-troubled Chinese property company SRE in 2016 for £84m.

Also marooned in this unedifying architectural triangle lies 40 Tower Hill, a smaller block owned by an unknown Middle East investor and leased out as a seat of learning for overseas students as the Tower Hill Study Centre.

The Chinese government might want to bag either block as temporary space, if it ever gets to start work on its new embassy in nearby Royal Mint Court. But bag that as well and SEGRO would have acres of underground space. We will leave it to the imagination of developers (and C&W) as to what might work. Someone is probably already on the job.

Clunker or runner?

When the Canadian Pension Plan Investment Board (CPPIB) pulled its £250m block of debt at the 11th hour from the Jenga tower of rescheduled intu loans last June, the owner of Lakeside and the Trafford Centre collapsed. The Canadians evidently did not share the faith of the other debt holders that things would take a turn for the better.

CPPIB’s loan was secured against the Trafford Centre, which fell into its hands along with responsibility for paying high interest to holders of some £675m of bonds.

You can imagine how the intu board felt at this last-minute betrayal, or, indeed, the other debtors who had agreed the standstill. Note: Canadian pension funds tend to have more wolf than Labrador in their DNA than Brits might imagine. British-born boss Mark Machin, 54, trained to be a surgeon before moving on to Goldman Sachs to operate in a world where the scalpel is just another tool in the box. In 2015, Machin joined CPPIB – effectively a $460bn sovereign wealth fund whose beneficiaries are pensioners rather than despots.

Has CPPIB repossessed a clunker – or maybe a long-term runner? Last year, it failed to flip the 1.97 million sq ft centre, which stands in an ocean of car parks and has a five-mile light rail connection into Manchester city centre.

Word is CPPIB wanted £1.2bn, as the mark-to-market value of £675m bonds paying 6% to 8% interest is close to £1bn (meaning sellers are going to want a lot more than the face value for surrendering bonds paying high interest rates.) The highest bid is rumoured to have been £800m, horribly low for a centre once valued at over £2bn.

Just before intu went under, it published figures showed rents had dived from £105m in 2019 to an estimated £66m in 2020. This year? £50m? Who knows?

The problem CPPIB has is that the interest on the bonds must be around £50m as well. Never mind. Machin said last month: “We are increasingly focused on creating added value to our assets.” Any developer fancy a long-haul JV with scary but clever CPPIB?

Geez, who pissed in Mr. Bill's Cheerios? Remind me to talk to Mark Machin about this deal but it seems to me that CPP Investments is defending its best interests and is rightly holding out for a better offer.

Alright, let me wrap it up there.

Below, listen to an interview with Robert Gammon who runs Salesforce at Greystar. Great interview even if the focus is integrating technology in real estate. Take the time to watch it.