The Healthcare of Ontario Pension Plan (HOOPP) is proud to announce it has surpassed 400,000 members, helping to deliver retirement security across a diverse membership of healthcare workers. This includes groups who often don’t have access to affordable retirement savings plans, such as part-time workers.

“HOOPP is proud to serve the healthcare community, especially during these challenging times,” said Steven McCormick, Senior Vice President, Plan Operations. “Our members are on the front lines of the pandemic and we thank them for all they do. We at HOOPP are honoured to play a small part in supporting our healthcare heroes, by continuing to deliver on our pension promise to them.”

HOOPP’s membership growth has accelerated in recent years. In 2003, we crossed the 200,000 mark and saw a steady increase in membership over the next 12 years, surpassing 300,000 members by 2015. And, in just the last five years, our membership grew by an additional 100,000 members due to the growing healthcare sector and more employers in Ontario offering the Plan to their employees. We also made it possible for part-time workers to join the Plan immediately, without a waiting period, and welcomed 12,000 new members following the merger of five plans with HOOPP in 2019.

HOOPP’s membership includes more than 250,000 active members, 115,000 retired members, and 35,000 deferred members. The average new annual pension is $29,700. HOOPP is fully funded, and has the honour of delivering on the pension promise to a membership that is large and diverse:

• 82% of members are women
• 34% of members are part-timers
• Largest cohort of active members is 30-34

Ivana Zanardo, Vice President, Client Services, said: “We know that women, part-time workers and younger adults often don’t have access to good pensions, so we’re pleased to offer a plan that supports Ontario’s healthcare sector and does so among those who too often find themselves without a secure retirement. For all that our members have to worry about these days, they can at least be confident knowing they have a more secure future with a HOOPP pension.”

HOOPP operates efficiently, which benefits its members. The Plan’s operating cost is one of the lowest in the pension industry, representing 0.29% of net assets. This allows HOOPP to ensure the ongoing sustainability of the Plan while also maximizing how much it can offer members, including benefits such as free accrual to disabled members for up to four years.

HOOPP is also pleased to be by members’ sides for a long time. Ninety-five of HOOPP’s retired members are older than 100. These members contributed to their pension, and benefit from HOOPP’s ability to pay pensions for life. This supports them and their families and avoids situations where they might otherwise become dependent on loved ones or government for support.

“So many of our members lead long and selfless lives caring for others, and it’s an honour to be there to support them,” said McCormick. “Times may change, but HOOPP’s mission remains the same. We are here to pay lifetime pensions to our members and deliver on our promise, now and for decades to come.”

About the Healthcare of Ontario Pension Plan

HOOPP serves Ontario’s hospital and community-based healthcare sector, with more than 610 participating employers. Its membership includes nurses, medical technicians , food services staff, housekeeping staff, and many others who provide valued healthcare services. In total, HOOPP has more than 400,000 active, retired and deferred members.

HOOPP operates as a private independent trust, governed by a Board of Trustees with a sole fiduciary duty to deliver on the pension promise. The Board is jointly governed by the Ontario Hospital Association (OHA) and four unions: the Ontario Nurses' Association (ONA), the Canadian Union of Public Employees (CUPE), the Ontario Public Service Employees Union (OPSEU), and the Service Employees International Union (SEIU). The unique governance model provides representation from both management and workers in support of the long-term interests of the Plan.

Earlier today, I had a chance to talk with Ivana Zanardo, Vice President, Client Services at HOOPP.

Let me first thank her for taking the time to talk to me and also thank James Geuzebroek, Senior Manager, Media and Public Affairs for setting the call up.

Ivana is extremely nice, articulate, and very focused on member services. She's exactly the type of person you want as a VP, Client Services as her focus is 100% on servicing HOOPP's members.

In fact, here she is, I asked James to kindly provide a head shot of her:

Ivana told me when the pandemic hit, they shifted seamlessly to working remotely and continued servicing their members, answering all their questions and providing them with assistance whenever needed.

Recall, I already wrote a comment on HOOPP's successful IT journey where I discussed how Reno Bugiardini, HOOPP’s Senior VP, Information Technology and Facilities Services, and his team sprung into action to deal with the pandemic and have everyone work remotely.

Reno talked about investments and member services. Pension plans like HOOPP, Ontario Teachers', OMERS, OPTrust and CAAT Pension have members, retired and active members with lots of questions and they need to be serviced properly. 

That responsibility lies squarely with Steven McCormick, Senior Vice President, Plan Operations, who I spoke with last September when I went over interesting research HOOPP commissioned on Canadian retirement security and the pandemic.

Ivana works with Steven focusing on client services.

She told me they are first and foremost "very proud" to help Ontario's healthcare workers as they are on the front line dealing with the pandemic. "We want to give them reassurance that their pensions are being well managed and that we are there to answer all their questions."

She understands the demographics of the plan very well, and reiterated what was stated in the press release above:

HOOPP’s membership includes more than 250,000 active members, 115,000 retired members, and 35,000 deferred members. The average new annual pension is $29,700. HOOPP is fully funded, and has the honour of delivering on the pension promise to a membership that is large and diverse:

• 82% of members are women
• 34% of members are part-timers
• Largest cohort of active members is 30-34

It's important to note HOOPP is a younger plan than Ontario Teachers' (ratio of active to retired members is higher), its discount rate is a bit higher than Teachers' (they both use very low discount rates, sub 5%) and they both practice liability driven investing (read my interview with HOOPP's new CEO, Jeff Wendling, on LDI 2.0 in a zero bound world). 

The key difference between HOOPP and OTPP and OMERS is the latter two are older and larger plans and are more diversified across public and private markets, including infrastructure which HOOPP is just entering.  

Anyway, Ivana Zanardo talked a lot about the link between retirement security and the overall well-being of its members and other members with a DB plan have.

She referred to the study HOOPP commissioned and noted the following:

• 79% of Canadians would rather their employer make pension contributions than receive that money as salary. Remarkably, this percentage was the same, even for Canadians who said their finances were negatively impacted by COVID-19 “a great deal.”
• 74% would accept a slightly lower salary in exchange for a better (or any) pension plan.

HOOPP's members know all about the Value of a Good Pension, they've been enjoying a solid DB pension managed by a world class organization for years.

In fact, HOOPP's employees and senior managers invest in HOOPP's pension plan as they too get a defined benefit plan, ensuring alignment of interests with their members.

But the important point I want to stress here is that most of HOOPP's members are women, a third of them are working part time, so they are very lucky to enjoy the peace of mind that comes from a defined benefit pension managed by HOOPP.

Also, as stated in the press release, the average new annual pension is $29,700, some are getting more, some less, but this most definitely helps its members plan for their retirement. 

Interestingly, I told Ivana a lot of retired nurses and doctors in Quebec came out of retirement to help hospitals coping with the onslaught of COVID patients (I know of one retired nurse who came out of retirement to do contact tracing and unfortunately got COVID but thankfully, after a brief hospital stay, she is fine now).

Ivana told me the same thing happened in Ontario and they helped answer some of the questions their retired members had before coming out of retirement to help their communities (some had to suspend their pensions temporarily or forgo them for the time they are working part time, but she couldn't give me exact figures as that's between employers like hospitals and employees).

Anyway, I really enjoyed my discussion with Ivana Zanardo, Vice President, Client Services at HOOPP. It reminded me of something I tend to forget and gloss over too often in my blog comments, namely, pension plans aren't just about investing pension contributions, they are first and foremost about servicing members.

Lest we forget, behind every pension, there is a person, and in the case of Ontario's healthcare workers and teachers, both of which I consider front line workers, as well as many municipal employees, they are all lucky to have their pensions managed by world class organizations.

And Ontario's citizens are all lucky these front line workers are working to help address essential services during the pandemic. Let's make sure we are all doing our part to help them (you know what I mean, don't need to lecture you!).

Below, Ivana Zanardo of HOOPP and Alex Mazer of Common Wealth hosted a webinar with panelists Elizabeth Mulholland of Prosper Canada, Eleanor Marshall of Bell Canada and Renée Légaré of The Ottawa Hospital to discuss the financial implications of COVID-19 for Canada’s workforce and how employers can support their employees, while also creating greater long-term business value for their organization. Take the time to watch this, it's very interesting.

U.S. stocks climbed on Friday, wrapping up a strong week on Wall Street as investors hoped a disappointing January jobs report would increase the likelihood of further stimulus.

The Dow Jones Industrial Average rose 92.38 points, or 0.3%, to 31,148.24, led by Nike and Cisco. The S&P 500 climbed 0.4% to a record close of 3,886.83 as 10 of the 11 sectors posted gains. The Nasdaq Composite advanced 0.6% to 13,856.30, also hitting a fresh closing high.

All three major benchmarks notched their best week since November. The blue-chip Dow gained 3.9% for the week, while the S&P 500 and the tech-heavy Nasdaq jumped 4.7% and 6%, respectively. The small-cap Russell 2000 rallied 7.7% for its best weekly performance since June.

The Labor Department said the U.S. added 49,000 jobs in January, slightly below the 50,000 payrolls expected by economists. The unemployment rate fell to 6.3%, better than projections of 6.7%. December’s numbers were revised much lower, with the month posting a loss of 227,000 from the initial reading of 140,000 jobs lost.

“The jobs number was particularly underwhelming as far fewer jobs were expected,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “Ultimately, the stock market is anticipating continuing healing in the economy and has been moving higher because of Federal stimulus, which arguably is the bigger story.”

The Senate passed a budget resolution early Friday, as Democrats move forward with the process to pass a $1.9 trillion coronavirus relief bill without Republican votes. The package includes $1,400 stimulus checks, a supplemental jobless benefit and Covid-19 vaccine and testing funds.

President Joe Biden on Friday warned that Republican efforts to pass a smaller bill would only prolong the economy’s path to recovery.

The Cboe Volatility Index, known as the VIX, has fallen more than 12 points this week to around 21 Friday with a speculative trading frenzy dissipating. Some on Wall Street believe if the fear gauge breaks below 20, it could send a big “risk on” signal as the level would trigger buying from algorithmic traders and other big players.

Wall Street was also in the middle of a solid earnings season. Of the 184 companies in the S&P 500 that have reported earnings to date, 84.2% topped analyst expectations, according to Refinitiv.

“The rally’s three pillars actually got stronger: Q4 earnings continue to dramatically exceed expectations, more stimulus is being poured into the economy, and the vaccination pace is accelerating,” Adam Crisafulli, founder of Vital Knowledge, said in a note.

It was another great week for stock markets with a lot less of the craziness we had last week when everyone was focused on the Reddit-WallStreetBets crowd.

By the way, last week, I told you not to buy into the nonsense that are a group of YOLOers are uniting and taking over Wall Street. 

Today, we got confirmation that the GameStop mania may not have been the retail trader rebellion it was perceived to be, and instead was driven by big hedge funds:

The prevailing narrative was that a band of Reddit-inspired small traders rose up against Wall Street by buying GameStop en masse, forcing a short squeeze by professional hedge fund managers, who were forced to cover their negative bets or risk catastrophic losses.

But several signs are pointing to institutional investors as big drivers of the wild price action on the way up.

“Although retail buying was portrayed as the main driver of the extreme price rally experienced by some stocks, the actual picture may be much more nuanced,” JPMorgan global quantitative and derivatives strategy analyst Peng Cheng told clients in a note. JPMorgan’s quant team uses public data from exchanges and applies a proprietary methodology to identify which flows are from retail traders. GameStop was number 15 on the firm’s retail buying list for January.

Anyway, the amount of pumping and dumping and shorting and squeezing going on between big hedge funds is unprecedented, and it's still going on, especially in the well-known meme stocks, many of which are still up huge this year:

And even in GameStop (GME), which got clobbered this week, some big hedge funds made off like bandits:

The Curious Case Of The Hedge Fund That Made $700 Million On GameStop | ZeroHedge https://t.co/NvvPjyiaJR

— Leo Kolivakis (@PensionPulse) February 6, 2021

Interestingly, even though most retail traders got wiped, the GameStop battle continues as even today, big hedge funds were still pumping and dumping this stock:

I was telling a friend of mine early this morning, I wouldn't touch this or AMC Entertainment (AMC) but wouldn't be surprised if GameStock shares bounce off their 50-day moving average and then spike near the 20-day moving average where short sellers will come back in to hit it hard:

I don't blame the short sellers, I would have done the exact same thing but we are witnessing so much of these pump/ dump/ short covering/ short squeezing/ gamma squeezing/ high frequency trading bots/ naked short selling on a lot of stocks, not just meme stocks.

In fact, yesterday, Zero Hedge posted a comment on how biotech micro cap is where the insanity has migrated to, but to my surprise they left out the insane action that took place this week in shares of Anavex Life Sciences (AVXL) and Cassava Sciences (SAVA):

I'm telling you, the amount of pumping and dumping in these two micro cap biotech names alone this week was epic, and sadly, a lot of retail investors got swept into the mania and lost their shirts.

Admittedly, I've been trading biotechs for years, can tell you which big biotech fund owns which small name (scary that I know this off be heart now) as I track them all, and I've never seen such speculative nonsense in my life as I did this week in these two names that moved in tandem.

Not saying they're terrible biotechs, maybe they do have the cure for Alzheimer's and more, but wow, it was sheer nonsense this week (in general, if a biotech pops big any day, sell it, it's headed lower the next day, but these two biotechs were literally levitating this week as big hedge funds pumped them).

Today, it was shares of Ocugen (OCGN) which were massively pumped following a positive commentary from some analyst:

You might be asking where are the SEC and other regulators? They're in bed with large hedge funds which is why Janet Yellen will never investigate all these shenanigans for the simple reason that big hedge funds pay big commissions to big Wall Street banks, end of story. 

These markets are treacherous, there are so many funny games being played in the background on so many stocks, it's no wonder big pensions and sovereign wealth funds are focusing on private equity where they have more control in a company's future.

Let the big hedge funds cannibalize each other, most big investors are just getting turned off and walking away from all this nonsense.

There are tons of mini speculative manias going on in the stock market right now, no thanks to the Fed and other central banks promoting and backstopping this nonsense with a tsunami of liquidity.

Even in the credit markets, however, things are getting wonky when money managers are having such a tough time getting their hands on debt in the $2.8 trillion market for junk bonds and leveraged loans that they’re calling up companies and pressing them to borrow, instead of waiting for bankers to bring new deals to them.

Not surprisingly, US junk bond yields are making another record low today, standing just a hair above 4%, roughly a third of where they were less than a year ago in March:

Insanity rules the day in the stock and credit markets and we are wondering why investors are petrified, these are truly unprecedented times.

And don't kid yourself, Risk on is back on the table as hedge funds add to their long and short positions to make up for losses last month:

Hedge funds, which were forced to retreat furiously last week amid a retail-fueled short squeeze, have since been busy adding stocks on both the long and short side of their book. Their gross trading flow jumped on Tuesday at the fastest pace since the bear market bottom in March, according to data compiled by Goldman Sachs Group Inc.’s prime brokerage unit.

The process was also on display among hedge fund clients at Morgan Stanley and JPMorgan Chase & Co., easing concern that the industry’s latest chaos may spread. As the S&P 500 sets an all-time high, fund managers are starting to chase gains to make up for losses that for some reached double digits in January. They’re tilting bullish more than ever, with the industry’s long-short ratio climbing to the highest since Goldman began tracking the data in 2011.

“There has been an obvious ‘everything up’ trade across themes/factors this week,” Charlie McElligott, a cross-asset strategist at Nomura Securities, wrote in a note to clients. “As everybody shed exposure, the point of pain then became a market move ‘higher.’”

Risk-off attitudes started to subside on Thursday, when a Morgan Stanley index tracking the industry’s most popular versus the least popular stocks not only turned back in hedge funds’ favor, but delivered the best daily return on record. Since then, fund managers have boosted bets particularly on the long side.

It’s hard to tell whether a stabilizing market has encouraged risk taking or the risk-on mode contributed to equity gains. For now, the double blow -- longs were down while shorts were up -- has come to a halt.

A Goldman exchange-traded fund tracking hedge funds’ favorite stocks has jumped 7% this week, reversing the worst weekly decline since October. Meanwhile, heavily-shorted companies such as GameStop Corp. -- the ones inflicting hedge fund pain when Reddit traders joined forces to bid up their prices last week-- have collapsed, easing pressure for short sellers. A basket of the most-shorted shares is down 4.5%, poised for its first weekly slide in five.

The favorable performance, along with a rising market, has allowed money managers to make up some lost ground. By JPMorgan’s estimates, long/short hedge funds suffered losses averaging about 6% to 7% in January. Now, their year-to-date losses have more than halved. While data from Goldman and Morgan Stanley pointed to a less painful January, both showed similar improvement this month.

“The performance rebound likely reduces odds of larger de-risking,” JPMorgan’s prime brokerage unit wrote in a note. “However, that doesn’t mean we couldn’t still see some aftershocks over the next 2-4 weeks given exposure levels (both gross and net) are still quite high, performance is mixed, and the recent events are still very fresh.”

So what's the end game to all this insanity? Typically, as rates creep up, which they've been doing, risk assets will get hurt.

But I doubt we are going to see a massive spike in long bond yields. They first have to pass the massive stimulus package, and then all that stimulus has to work its way into the economy.

With vaccinations going relatively well in the US, I suspect by this summer, the yield on the 10-year US Treasury note will climb above 1.5% and that will cool things down for hyper growth names and speculative micro cap names too, and it should be positive for cyclical stocks, especially financials and energy.

We shall see, a lot of things can happen over the next six months, I am just giving you one scenario and I agree with those who think handicapping the market’s upside from here as stocks run up the score on bonds, stretch valuations.

I'm relatively optimistic on stocks even if some sectors are way overvalued and due for a big correction. 

Below, the best performing S&P sectors this week:

And here are the top performing US large cap and small cap stocks this week:

Again, these stocks don't tell you the full story of the insanity that went on this week in some sectors, especially with meme stocks and some low float biotech stocks that were being pumped and dumped like crazy.

Lastly, here are the top performing stocks year-to-date, most of which nobody has ever heard of:

The game is rigged folks, don't bother going against Wall Street titans, just try to survive knowing the game is rigged and for most people, low cost ETFs is the best way to survive all the nonsense going on below the surface.

Alright, let me wrap it up there. 

Below, CNBC's "Halftime Report" team discusses Big Tech stocks, including software names and valuations.

And CNBC's Brian Sullivan discusses markets with Ernesto Ramos of BMO Global Asset Management and Michelle Meyer, head of U.S. economics at Bank of America Global Research.

Lastly, a great scene from one of the greatest movies of all time. Remember, friends don't leave friends holding the bag, if you need a friend, get a dog!

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Maya Abood grew up in Stockton, California, a historically poor community just far enough outside San Francisco to have only caught the tail end of the 2000s tech boom. For a brief, wild moment in those years, Stockton, which has been called America’s most diverse city, rebranded as a commuter town. “It’s like, a very far exurb,” Abood said — a distant hub for affordable(ish) housing on the far edge of the hottest market in the world.

Of course it didn’t last. Abood was in college when the economy collapsed in 2008. The housing market fell everywhere that year, but in Stockton, it cratered. Prices in some neighbourhoods dropped by as much as 75 per cent. Foreclosures piled up at the fastest rate in the nation. “Most people I knew were losing their homes,” Abood said. In 2012, Reuters called Stockton “the town the housing boom broke.”

The foreclosure crisis had a profound impact on Abood. After college, she took a job organizing tenants in South Los Angeles, the area that used to be known as South-Central. She was working with people who had, in many cases, already lost the homes they owned and were now facing eviction from the ones they rented. “That was the time of Occupy Wall Street and a lot of critical thought about the role of the financial markets in communities and in achieving housing stability,” she said. “They had a very personal connection to that moment in time.” 

Eventually, Abood decided to go back to grad school at MIT. She wanted to find out what had happened to all those foreclosed homes, in Stockton and Los Angeles and all over California. She wanted to know what the long-term impacts of the crisis had been on things like community ownership and wealth creation. What she found, to her surprise, was a whole new industry that had sprouted up to take advantage of the crash.

“Millions of homeowners were stripped of wealth and that wealth was primarily redistributed,” she said, not to other homeowners, but to the same industry that caused the crash in the first place. “Not every foreclosed home ended up in the hands of these Wall Street firms,” Abood said, “but many did.”

More than a decade after the crash, on the other side of the continent, across the border in a business world mired in a pandemic fugue, a Canadian Crown corporation signed a massive partnership with a hedge fund called Pretium Partners. The deal, a joint venture worth $700 million (U.S.), dropped the Public Sector Pension Investment Board, or PSP, into the world Abood had spent all those years studying. If the housing crash made a sound, Pretium’s business is the echo, and now PSP, which manages the pension funds of federal employees, the RCMP and the military, was right in the heart of it.

From the outside, the timing seemed curious. The last year had been something of an annus horribilis for PSP. Before the pandemic, it was not a particularly prominent institution. But COVID-19 had shone a new, less than flattering, light on the fund.

PSP owns one of Canada’s largest for-profit operators of long-term-care homes, a company called Revera. Since last spring, the fund has been inundated with calls to sell the company or even make it public. “We want our pension investments made in the best interest of our members, but also in the public interest as well,” said Chris Aylward, the national president of the Public Service Alliance of Canada, the union that represents most federal employees. “And what Revera is doing is anything but in the public interest.”

The Pretium partnership, announced Jan. 28, represents another jump into another controversial sector, at a time when PSP is already under unprecedented scrutiny. It underlines questions, italicized by Revera, about how exactly a pension fund should behave. For PSP, those questions are existential. They get to the heart of how it operates and why. They raise issues of governance and ethics and what exactly it means to succeed as a public body charged with making gains on the private markets.

For now, for PSP, the main question might be this: Should it be investing for the public good, or just for good returns?

If the housing market collapse was, for most of the world, a calamity of pain and hardship, for some on Wall Street, it was an opportunity. Beginning in the depths of the crash, Wall Street firms began buying up foreclosed or deeply discounted single-family homes, sprucing them up and renting them out on a massive scale. Across the sunbelt, in suburbs outside cities like Dallas, Phoenix, and Atlanta, buyers for these new firms began appearing at courthouse auctions in droves. “They would literally be having these agents and auction participants with duffle bags full of millions of dollars in cashiers’ cheques buying every house that fit their criteria of what they wanted,” said Ryan Dezember, a Wall Street Journal reporter who wrote a book about the industry called “Underwater,” which came out in July.

The new firms developed software to scour listings. They pioneered algorithms to predict revenues vs. costs. Soon, they were selling new securities backed, not by mortgage payments, but by rents. At first, the plan was to hold the assets and flip them when the market rebounded. But soon the business plan evolved. “They realized that there was money to be made,” Abood said — big money, not in selling the homes, but in renting them out for good.

Twelve years ago, the financialized single-family rental business basically didn’t exist in the United States. Today, it’s worth billions. Some of the largest institutional investors in the world have a stake in the industry. Meanwhile, some familiar figures from the crash have become major players in the business.

In 2012, Donald Mullen Jr., a long-time senior partner at Goldman Sachs left the company to found Pretium Partners, a hedge fund dedicated initially to buying up and renting out single-family homes. To close followers of the financial crisis, Mullen was something of a celebrity. He ran the unit at Goldman that had bet heavily against the housing market — the trades that became known as “the big short.” In 2007, as the housing market began to collapse, Mullen wrote to a colleague “sounds like we will make some serious money.”

Mullen’s entry into the new single-family rental market didn’t go unnoticed. “A guy whose most famous trade was a successful bet on the full-scale implosion of the housing market is now swooping in to pick up the pieces on the other end,” Kevin Roose wrote in New York Magazine. “Alas, such is the Wall Street circle of life.”

But the bad press didn’t deter Mullen. Pretium raised an initial $1.2 billion in 2012 to sink into rental homes — which it operates under the name Progress Residential — across the southwestern and southeastern United States. The company raised another $900 million in 2014, according to Dezember’s reporting, and another $1 billion in 2016. By the end of 2020, after swallowing up a rival company, Pretium was billing itself as the second largest owner and operator of single-family residential homes in the entire United States. “A big short,” Dezember wrote in 2016, “is going long on the U.S. housing market.”

The deal signed with PSP in January will allow Pretium to expand even further. The joint venture will invest an initial $700 million into single-family rental homes across the southwestern and southeastern United States, according to a press release. “We can think of no better partner to expand our presence in this increasingly attractive asset class and look forward to working with Pretium to deliver compelling results for our beneficiaries,” Carole Guérin, PSP’s managing director of real estate said in the release.

But if single-family rentals have a history of delivering solid returns, they’ve also proven, from the very beginning, to be incredibly controversial. The industry has been associated with a host of disturbing practices and trends, according to researchers, advocates and academics. “When you have these financial interests driving their strategies it puts a lot of people at harm,” said Nemoy Lewis, the Provost’s Postdoctoral Fellow in the department of geography and planning at the University of Toronto. For Lewis, an investment in the SFR industry is an inherently troubling one. “These types of investments are investments in the displacement of vulnerable people,” he said.

The core criticism of the finance backed SFR industry boils down to this: The companies have to deliver returns to their investors and to do that, they have to endlessly pull out more revenue on the one hand and push for lower costs on the other. “There’s all these kind of disciplining structures in that system to make sure those investors get paid,” Abood said. “They nickel and dime all the time.” That can mean ever-higher rents, escalating fees, delayed maintenance and aggressive eviction policies. “People are actually being kicked out of their homes right now,” said Pilar Sorensen, an investment analyst at the Private Equity Stakeholder Project.

Sorensen and her colleagues released a report in the fall showing that large corporate landlords had filed for almost 10,000 evictions in five states in the weeks after the CDC imposed an eviction moratorium in September. Not all of those are from single-family homes. But according to an updated database Sorensen provided, Progress and Front Yard Residential, a company Pretium acquired in January, have filed for nearly 1,000 evictions between them since the beginning of the pandemic.

In response to questions about the SFR business model and its own practices, a spokesperson for Pretium wrote, in part, “Progress is committed to providing residents with high-quality homes and superior service.” He said the company aims to respond to all work orders with 24 hours of being notified and that Progress is not currently evicting residents “if they file a declaration that meets the CDC’s eviction moratorium criteria.” He added, however, that Progress has a “fiduciary responsibility to take appropriate steps in accordance with the law to try and collect rent owed.”

For Martine August, an associate professor of planning at the University of Waterloo, the idea that a Canadian public pension fund, and a Crown corporation at that, is investing in this kind of financialized, housing is deeply disturbing. “Companies are acquiring this housing because of what they can get from it, not what they can put into it,” she said. “That money is not coming for free. And it’s harming people. And so to me, that’s out of step with what the objectives of public pension funds should be.”

PSP did not respond to questions related to the Pretium investment. A spokesperson did point the Star to a recent joint statement PSP signed saying the organization is committed to strengthening disclosures on environmental, social and governance issues and to “allocating capital to investments best placed to deliver long-term sustainable value creation.”

For PSP, the Pretium investment, like the one in Revera, is fundamentally about balancing value and values. And for pension managers, that isn’t always an easy thing to do. On the one hand, some members of the plan might be uncomfortable investing in a deal with one of the architects of a trade that has become shorthand for how Wall Street always wins. On the other, the fund managers have a fiduciary, legal duty to make money, to grow the fund and to keep the plan solvent.

A move by the government to force PSP to divest itself of Revera or avoid Pretium or any other partner could have dire consequences, some pension-watchers believe. “We are contributing to the best pension funds in the world, precisely because they got the governance right. They operate like investment firms at arm’s length from the government. And they have added tremendous value over public equities and bond benchmarks,” said Leo Kolivakis, the publisher of Pension Pulse and a former senior analyst at PSP and senior economist at the Business Development Bank of Canada. “If they start messing with the governance model, they’re going to destroy Canada’s pensions.”

But Pretium and Revera are far from the only controversial investments by a Canadian pension fund. And the issue of values in investing is one that almost every pension fund of any significant size is grappling with, said Mike Simutin, an associate professor of finance and the associate director of research at the International Centre for Pension Management at the Rotman School of Management at the University of Toronto. “I don’t think there is a hard and fast rule that suggests this is the way we’re supposed to approach these questions,” Simutin said.

“One line of thought, is if I’m a pension manager ... I’m investing on behalf of my investors or shareholders or my future retirees, and I want to deliver the best long-term financial outcome for them. And if that means that I should invest in let’s say, tobacco stocks, then I’m going to invest in tobacco stocks, because otherwise I’m violating my fiduciary duty. Of course the flip side to this argument is that investing in certain assets, like tobacco stocks is not in the long-term benefits of my constituents. And what I should be doing is divesting from them.”

For Toronto lawyer Randy Bauslaugh, who leads McCarthy Tétrault’s pensions and benefits group, the legislation is clear. “The Income Tax Act says that a registered pension plan has to have as its primary purpose the provision of lifetime retirement income,” he said. “So I would argue that is a financial purpose. So anything that’s relevant to that purpose, fiduciaries can take into account.” Beyond that, though, it starts to get fuzzy.

“The notion of fiduciary duty is a bit like Plasticine,” said Benjamin Richardson, a professor of environmental law at the University of Tasmania who has studied the impact of fiduciary laws on environmental investing around the world. “It can be moulded and shaped in response to changing social value. It’s a bit of an empty vessel. It doesn’t say very much. Essentially, what it means is a duty to be loyal to your client or purpose.”

So the question then is, what is PSP’s purpose. Should it be maximizing returns at any cost? If not, where should it draw the line? Who decides, in other words, what values apply? For his part, Lewis thinks PSP members, at the very least, should be disturbed by their pension plan’s decision to get into bed with Pretium and Mullen, thereby helping a man who profited from the foreclosure crisis keep profiting after the crisis too. “I would say no, I don’t think that they should feel good about it,” he said. “They shouldn’t be comfortable about these investments, because in order for their retirement to be secured, they’re displacing others.”

For Abood, who spent years studying the sector, it’s a question of reckoning. At the very least, she believes, anyone who invests in the single-family rental home business, including, PSP, should have to face up to what the industry can be.

“You’re investing in this extreme commodification of housing that is potentially putting tenants and communities at risk,” she said. “It is not a model of housing ownership that is going to, in any way, create more equitable outcomes.”

Let me first thank the public sector union folks in Ottawa for sending me this article.

The reporter, Richard Warnica, was very nice when he contacted me and even though we spoke at length, he never once asked me about this specific deal with Pretium Partners.

If he did, I would have told him that the Blackstone Group, the world's best known private equity firm, exited the single-family rental space in November 2019 after receiving flack from then Democratic presidential candidate Elizabeth Warren:

Blackstone Group Inc. is exiting its post-recession bet on single-family rental homes, selling off an investment in Invitation Homes Inc. that has drawn the fire of Democratic presidential candidate Elizabeth Warren.

The sale of Blackstone’s remaining stake in the single-family landlord is for $30.10 per share, according to a statement, and will bring in roughly $1.7 billion. The firm controlled more than 40% of Invitation Homes before it starting selling shares in March. It made about $7 billion from the stock sales and dividends, more than twice what it invested.

The timing of the sale, coming days after Warren criticized Blackstone, was “merely coincidental,” according to a note from Bloomberg Intelligence analyst Jeffrey Langbaum.

Blackstone and other firms started buying homes in the aftermath of the foreclosure crisis and turned them into rentals at a time when many Americans were struggling financially. The private equity giant took Invitation Homes public in 2017. The same year, Invitation merged with Starwood Waypoint Homes, creating a rental-house behemoth comparable in size to all but the largest apartment landlords.

Prior to private equity’s single-family rental push, institutional investors had shied from that corner of the housing market. Blackstone helped prove the case that the properties could be managed efficiently. These days, there’s little distress in the housing market, meaning investors can no longer build portfolios with cheap homes. Still, a shortage of starter homes for younger buyers has Wall Street firms eyeing new bets on the asset.

“Blackstone has been an exceptional partner, nurturing the growth of our industry,” Dallas Tanner, chief executive officer of Invitation Homes, said in a statement.

Warren accused Blackstone and other firms on Nov. 18 of “shamelessly” profiting from the housing crisis, arguing that Wall Street’s investment in single-family homes was a “huge loss for America’s renters.”

Blackstone countered that its investment in rental homes helped stabilize housing markets, creating better options for families who needed to rent. The $10 billion spent acquiring homes and $2 billion more for repairs spurred economic growth and created jobs, it said in response.

“We are proud that our investment provided a high quality rental housing option, helped stabilize local housing markets, spurred economic growth, and built a $25 billion company, while delivering value to our investors, which include retirement systems for millions of teachers, firefighters and other pensioners,” Ken Caplan, Global Co-Head of Blackstone Real Estate, said in a statement.

Let me state off the bat, I agree with Blackstone, not Elizabeth Warren, their investment in single-family homes helped stabilize the housing markets, and it also helped create jobs in these disadvantaged communities because they hired locally to renovate and manage these properties.

Did Blackstone make a killing in the process? You bet it did and many US, Canadian and global public pensions investing with Blackstone's funds (they all do) also enjoyed the gains from these properties.

I didn't hear any US public pension fund raise a peep back then as long as Blackstone was printing money. And most reporters didn't cover it, or if they did, it was from a totally biased leftist perspective which goes like this: Blackstone = evil capitalist profiting off human misery, not Blackstone = good capitalist making profits by stabilizing housing market and creating jobs in communities that need them.

Whenever you read these articles, always look at a few things: who is the reporter, what is their angle, what is the target audience?

Newspapers across North America are honing into the anger and outrage of growing wealth inequality out there and they're delivering content which panders to the growing discontent and disenchantment.

The problem? Reporters typically present one side of the story, not both sides, and they taint their articles to appeal to a certain demographic (young, disenchanted, socialist environmentalists, etc.).

I'm not being cynical or facetious, when is the last time you read an article praising capitalists? 

And now they're going after "pension fund capitalism", the new target is public pension funds which invest in  private equity funds which make huge profits and allow these pensions to remain solvent, at least in the case of Canadian public pensions (US public pensions are hopelessly underfunded).

Truth be told, I'm a little irritated when I read these articles but hardly surprised. 

I told Richard (the reporter) that I'm against all these political groups with their own axe to grind and agenda putting pressure on Canada's public pensions. 

I specifically told him I like Big Oil as an investment and I don't like when environmental zealots force their agenda on Canada's large pensions. 

In fact, it really irks me. As long as CDPQ and CPP Investments invest in renewable energy, the environmental cheerleaders come out, but the minute they or others strike a pipeline deal, they're heavily criticized.

The politicization of our public pensions is something I'm dead set against.

And unfortunately, I see it every day and it's a function of social media and how everyone now thinks they're an expert on pension investments.

They're not, apart from tobacco, there's really no strong case to divest from any investment, especially oil and gas. 

If you don't believe me, listen to CalSTRS which put out a report stating:

“We believe divestment is a last resort action that can have a lasting negative impact on the health of the fund,” the report said, “while severely limiting our ability to shape corporate behavior for long-term sustainable growth.”  

CalSTRS says it “is imperative” to continue to actively engage companies on climate change issues, both fossil fuel and non-fossil fuel companies.

“We are focused on understanding and responding to the risks that climate change presents to our portfolio and to sustainable economic growth,” the report said. 

In other words, divesting sounds cool but it's counterproductive and could really jeopardize the overall health of your plan.

Now, getting back to PSP Investments and this deal with Pretium, it was covered in Benefits Canada along with another deal CDPQ engaged in:  

The Public Sector Pension Investment Board is entering a $700-million joint venture investing in single-family rentals in the U.S.

The new venture with Pretium Partners will initially fund units across major markets in the southeastern and southwestern U.S., according to a press release.

“Pretium has a proven track record of generating robust, uncorrelated returns by applying its specialized, resident-centric and scalable approach to its large and growing portfolio of homes,” said Carole Guérin, managing director of real estate at the PSP, in the release. “We can think of no better partner to expand our presence in this increasingly attractive asset class and look forward to working with Pretium to deliver compelling results for our beneficiaries.”

In a separate transaction, the PSP is investing in a new 17-storey mixed-use office building in Boston. The building’s main tenant is Amazon.com Inc., which will occupy 630,000 square feet of office space, according to a press release. The building, part of the 33-acre Boston Seaport project, is expected to be completed in 2024 and is Amazon’s second full-building lease within the 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 of real estate at the PSP, in the release. “Amazon’s expansion will further enhance the innovation ecosystem and creative economy in this powerful technology and life-sciences cluster.”

And the Caisse de dépôt et placement du Québec is investing $60 million in a Quebec-based manufacturer of accessibility solutions. The investment in Savaria Corp. will go toward funding its acquisition of Handicare Group, a Sweden-based manufacturer of stairlifts, vehicle adaptations and repositioning aids, according to a press release.

“We’re delighted to support the international expansion strategy of Savaria, a Quebec manufacturer that has recorded significant growth over the years,” said Kim Thomassin, executive vice-president and head of investments in Quebec and stewardship investing at the Caisse, in the release. “With the acquisition announced today, the company joins the ranks of global leaders in its industry, with significant market share in North America and Europe and a wide range of products.”

You can read PSP Investments press release here and CDPQ's press release here.

I honestly like both deals, especially the Savaria one because it helps people with disabilities:

Handicare provides mobility solutions to increase the independence of physically challenged or elderly people. The company manufactures and sells curved and straight stairlifts, transfer, lifting and repositioning aids, and vehicle accessibility products. Handicare is a global company with sales in approximately 40 countries and has primary manufacturing locations in the United Kingdom, the Netherlands, the United States, and China. For the fiscal year ended December 31, 2020, Handicare reported preliminary sales of EUR205 million (CAD317 million) and adjusted EBITDA⁽²⁾ of EUR24 million (CAD37 million). The successful completion in 2020 of the structural cost reduction initiatives as part of Handicare’s “Lift Up” program contributed to the overall improvement in profitability.

Of course, no reporter cites all the good things our public pensions invest in, that doesn't sell newspapers, but PSP teaming up with the guy who was the  'architect of the big short' to invest in single-family housing, that's predatory capitalism and that sells papers!!

I'm right of center in my economic views and proud of it. Whenever I read the CBC or any Canadian newspaper, I filter out all the BS and remain very objective and I'm extremely troubled by what I've been reading over the last few years.

In fact, it's time for PSP Investments, CPP Investments and others to go on the offense and state very clearly what your objective is (balancing assets and liabilities by maximizing returns without taking undue risks), how independent governance is critical in obtaining this objective and why you essentially run a huge conglomerate of businesses and while ESG permeates all these businesses, it is done to enhance returns, not detract from them.

The prime purpose of every pension is to have enough assets to meet future obligations.

To all the public-sector unions that have an axe to grind with their own pension, please do your due diligence, and realize how lucky you are to be part of great pensions that are the envy of the world.

Can they improve? Sure, PSP needs to beef up its communications and be more transparent and tackle all issues, even thorny ones, head on. 

But to be honest, whenever you speak to a reporter, it's a double-edged sword.

Why? Because they already have their story angle worked out to target their audience to sell newspapers, and they can use and misuse your quotes to make their case.

At least, Richard Warnica quoted me right:

A move by the government to force PSP to divest itself of Revera or avoid Pretium or any other partner could have dire consequences, some pension-watchers believe. “We are contributing to the best pension funds in the world, precisely because they got the governance right. They operate like investment firms at arm’s length from the government. And they have added tremendous value over public equities and bond benchmarks,” said Leo Kolivakis, the publisher of Pension Pulse and a former senior analyst at PSP and senior economist at the Business Development Bank of Canada. “If they start messing with the governance model, they’re going to destroy Canada’s pensions.”

No matter your political ideology, keep your grubby political hands off our pensions!

Lastly, I do feel bad for Maya Abood who grew up in Stockton, California, which has been called America’s most diverse city, rebranded as a commuter town.

America has a serious inequality problem which is more prevalent among blacks and Latinos. 

The question is how can we best address long historical injustices and make a long lasting difference?

It's not by pointing the finger at private equity and hedge funds investing in single-family homes, it's by creating jobs, meaningful jobs with good wages and benefits (like a DB pension).

The foreclosure crisis that hit many US cities after the Great Financial Crisis was terrible, it exacerbated inequality, just like this pandemic has exacerbated inequality once again.

At one point, Wall Street has to be part of the solution as we can't just rely on governments to help bridge the gap. It's up to the private sector to do all the heavy lifting here, at least that's what I fundamentally believe.

Alright, let me wrap it up there, if you have any comments, just reach out: LKolivakis@gmail.com.

Below, an older (2013) clip looking at the facts Invitations Homes and Blackstone. 

It's a biased clip with some ominous voice that pops up from time to time and it's meant to portray Blackstone and its partners as evil capitalists. Total nonsense but still worth watching to see all the good they did back then.

And by the way, Invitation Homes is a publicly listed company (INVH) which continues to thrive, renting single-family homes to millennials.

Lastly, Blackstone has been making some noise in the single-family housing market again, announcing  back in the third quarter of 2020, that it was going to lead a $300 million syndicate to invest in Tricon Residential, an owner-operator of over 30,000 single-family and multifamily properties.

More recently, Blackstone announced it is acquiring Interior Logic Group Holdings, LLC (ILG) for $1.6 billion.

It certainly looks like Blackstone is getting back into the single-family game. It also seems as if the firm just unloaded Invitation Homes so it could have some dry powder to get back to what it was doing in 2012.

Tiger Global Management placed first in a world hedge-fund ranking and quant powerhouse Renaissance Technologies was ousted, another sign that trading conditions favored human stock-pickers over algorithms.

The industry reaped $127 billion last year, with some of the biggest firms dominated by human traders racking up record profits, according to estimates disclosed Monday by LCH Investments, a fund of hedge funds. Chase Coleman’s Tiger Global generated $10.4 billion for clients, after fees, and Izzy Englander’s Millennium Management was a close second, with $10.2 billion.

Renaissance, founded by billionaire mathematician Jim Simons, fell from the ranking of 20 firms after some of its public funds lost more than 30% last year. In 2019, it placed third on LCH’s list, which focuses on managers with most total profit since inception and is designed to favor the largest and oldest hedge funds.

The ranking reflects the most-prominent theme of a tumultuous year, with hedge funds making or losing huge sums of money as the Covid-19 pandemic ravaged the globe and central banks unleashed unprecedented stimulus to contain the economic carnage. The biggest of them all, Ray Dalio’s Bridgewater Associates, incurred $12.1 billion of losses.

“In navigating the especially volatile markets of 2020, talented individual managers with vision and flexibility performed better than programmed machines,” LCH Chairman Rick Sopher said in a statement.

His firm’s annual survey is just one way to look at the industry’s profitability, as it may exclude newer or smaller hedge funds that outperformed everyone in the top 20 on a percentage basis.

The 20 managers in the ranking oversaw about 17% of global hedge funds assets and produced roughly 43% of the $1.4 trillion in profit the industry has generated since inception, according to LCH. 

NOTE: Gains are in billions of dollars; *Through June 30, 2020; **Through Dec. 31, 2017; ***Through Dec. 31, 2019. Source: LCH Investments

Svea Herbst-Bayliss of Reuters also reports top hedge funds earn $63.5 billion in 2020, highest in a decade according to LCH data:

The world’s 20 best-performing hedge funds earned $63.5 billion for clients in 2020, setting a record for the last 10 years during a chaotic time when technology oriented stocks led a dramatic rebound from a pandemic induced sell-off, LCH Investments data show.

As a group, the most successful managers earned half of the $127 billion that all hedge funds made last year, LCH Investments, a fund of funds firm that tracks returns and is part of the Edmond de Rothschild group, reported.

Despite the pandemic that triggered a historic stock market sell-off in March, shut down large sectors of the economy and swallowed up millions of jobs, the 20 best hedge funds topped their 2019 returns of $59.3 billion. That was despite 2020 not being as profitable as the previous year for hedge funds as a whole, which saw earnings fall from $178 billion in 2019.

The average hedge fund returned 11.6% in 2020, according to Hedge Fund Research data, lagging behind the S&P 500 index’ 16% gain.

“The net gains generated by the top 20 managers for their investors of $63.5 billion were the highest in a decade. In that sense, 2020 was the year of the hedge fund,” Rick Sopher, LCH’s chairman, said in a statement.

Last year’s biggest earners include Chase Coleman’s Tiger Global, which earned $10.4 billion, Israel Englander’s Millennium, which earned $10.2 billion and Steve Mandel’s Lone Pine with $9.1 billion. Andreas Halvorsen’s Viking Global Investors earned $7.0 billion and Ken Griffin’s Citadel earned $6.2 billion, according to LCH data.

Ray Dalio’s Bridgewater Associates, founded in 1975, held on to the No.1 ranking since inception, with $46.5 billion earned, even after a terrible 2020 during which LCH data show Dalio lost $12.1 billion.

George Soros’ Soros Fund Management, which no longer manages money for outside clients, held on to the No. 2 spot followed by Mandel, Griffin and managers at D.E. Shaw who rounded out the top five performers of all time.

In 2020 only Dalio and John Paulson’s Paulson & Co., which earned billions from housing market bets during the financial crisis, lost money, the data show.

Jim Simons’ Renaissance Technologies, often ranked among the world’s most successful funds because of its Medallion portfolio returns, dropped out of the top 20 performers after the funds it offers to outsiders fell between 20% and 30% last year.

“Conditions favored man over machine and it was notable that Renaissance Technologies, a machine-driven manager, has dropped out of the top 20,” Sopher said.

And Amy Whyte of Institutional Investor reports on the best-performing hedge fund strategies of 2020:

In a volatile year featuring a historic stock rally, hedge fund strategies posted near-universal positive returns — but there was one obvious winner.

Equity hedge funds returned 17.49 percent in 2020, according to new data from research firm HFR. This puts stock fund managers well ahead of the larger hedge fund industry, with HFR’s fund-weighted composite index delivering an 11.61 percent return for the year.

Within the equities category, some strategies were stand-outs: Technology-focused hedge funds earned nearly 28 percent, while health care funds gained almost 26 percent. But the best performers in 2020 were hedge funds investing in the energy and basic materials sector. According to HFR, this strategy gained 33 percent in 2020.

The Standard & Poor’s 500 stock index, by comparison, gained 18.4 percent with dividends re-invested.

But not all equity hedge funds outperformed relative to the stock market. HFR’s fundamental value index ended the year up 14 percent, while the research firm’s quantitative index gained 15.32 percent.

The success of equity hedge funds focusing on sectors like energy, healthcare, or technology this year has been accompanied by a surge of new hedge funds targeting these strategies. According to a December report from hedge fund research firm PivotalPath, equity-sector hedge funds made up 45 percent of funds introduced during the first 11 months of 2020. These strategies had accounted for 32 percent of fund launches over the same period last year.

Outside of equities, the highest-returning hedge fund strategies in 2020 were event-driven funds, which gained 9.3 percent for the year, according to HFR. Macro hedge funds returned 5.22 percent for the year, while HFR’s relative value index ended 2020 up 3.28 percent. 

Highlights within these other categories included event-driven multistrategy funds, which rose 14.55 percent for the year, and fixed-income convertible arbitrage funds, which gained 12.05 percent.

So, last year was a great year for hedge funds run by humans, for a change.

And it was particularly good for technology focused L/S Equity funds which is why Chase Coleman's Tiger Global led the top 20 hedge funds of the world in terms of profitability.

Coleman, 45, has been winning for years. He started his career as a technology analyst at Julian Robertson’s Tiger Management, and his Tiger Global Investments has leaned heavily on tech, especially emerging giants in Asia.

Not surprisingly,  he led the top earners in a $23 billion payday for the top 15 hedge fund managers last year, a list which included Gabe Plotkin of Melvin Capital who got clobbered shorting GameStop:

The 20 managers in the ranking oversaw about 17% of global hedge funds assets and produced roughly 43% of the $1.4 trillion in profit the industry has generated since inception, according to LCH. 

In other words, the top 20 managers have almost 20% of the industry's assets but they generate almost half of the profits. That shows you the top funds really generate most of the returns.

What else strikes me? Most of the top funds have been in existence since the mid 90s/ early 2000s (a few a lot earlier), and they've been gathering assets like crazy over the years.

In fact, it's been almost 20 years since I left my role as a senior portfolio manager overlooking directional hedge funds at CDPQ, and it's still the same names dominating the top spots, except they're much bigger and a lot more powerful nowadays.

Every quarter, I go over what top funds bought and sold last quarter. You can read my Q3 2020 comment here.

Q4 2020 data is going to be made available next week but Nasdaq has transformed its site so I need to literally find all the new links for hundreds of top funds I track and make sure they are operational (fun, fun, stick a fork in my eye!).

But I can pretty much tell you what Chase Coleman and his hedge fund buddies were buying last quarter and this quarter, tech stocks like Jumia Technologies (JMIA), Palatir (PLTR), Crowdstrike (CRWD), PayPal (PYPL), Square (SQ) and a bunch of other growth stocks.

In this environment, it's all about growth and disruptive technologies. Nobody cares about profits, it's about which hot tech company is growing its revenues quarter over quarter.

But what is most telling about last year is the Fed and other central banks pumped trillions into the global financial system, and governments spent trillions combating the pandemic.

All those trillions led to massive speculation in the stock market, rewarding billionaire speculators.

So, we shouldn't be surprised tech and healthcare L/S Equity funds shot the lights out (lots of biotech in healthcare sector), as these are the riskiest parts of the market and that's where speculators focused their attention last year.

It's pretty much the same story this year, monetary and fiscal policy are favoring extreme risk-taking.

Except this year, we also had the whole Reddit-WSB-GameStop saga and some well-known hedge funds got burned very badly, exposing public pensions, while others made off like bandits.

All we know now is Renaissance Technologies and Pershing Square, titans of the hedge fund investment world, have had a tumultuous start to the year according to an HSBC industry report, as some managers have scrambled to reposition amid a spike in market volatility.

There are plenty of others but the year is young, so we will have to wait to see who is going to come out on top this year.

I foresee rates rising going into the second half of the year and that's going to present all sorts of challenges for hedge funds betting on tech stocks. Who knows, we shall see.

All I know is there were a lot of hedge fund winners last year that deserve recognition:

• Pierre Andurand’s oil hedge funds stormed back in 2020 to post their biggest-ever gains as the global pandemic roiled energy markets. His main Andurand Commodities Fund, which mostly bets on rises and falls in oil prices, was up 68.6% for the year, according to a person with knowledge of the matter. The Discretionary Enhanced Fund, a vehicle he started in 2019 that has no set risk limits, surged 154%, said the person, who asked not to be identified because the information is private. That made it one of the year’s best-performing hedge funds.
• Chris Rokos’s hedge fund racked up its best year since the billionaire investor started his own macro trading firm more than five years ago, joining a string of peers who posted record gains in 2020.His $14.5 billion macro fund soared 44% as the pandemic upended markets, according to people with knowledge of the matter who asked not to be identified because the information is private. 
• Alan Howard’s Brevan Howard Asset Management LLP gained more than 27% last year for its best performance ever, while other macro funds struggled.

Clearly, those who bet the right way and used big leverage made great returns last year.

Will this year turn out to be the same? I doubt it but who knows.

Below, an interview with one of the greatest money managers of all time. In this episode of Talks at GS, investor Stanley Druckenmiller discusses his current outlook on the market, his approach to risk management throughout his career, and his perspective on the conversation surrounding the role of capitalism in American society. Great insights, listen carefully to Druckenmiller.

As Ontario teachers, we work hard to prepare young people for the challenges of the future. In a world ravaged by the climate crisis, that can’t mean only teaching, mentoring and coaching. It also means doing our part to ensure that students will graduate into a world with a livable climate.

Unfortunately, our pension savings are working against the clean energy future our students need.

Our $205 billion Ontario Teachers’ Pension Plan (OTPP) continues to invest billions of our savings in climate-polluting fossil fuels, and only a small percentage in climate solutions.

Investments that accelerate the climate crisis are immoral and jeopardize the future of our students. They’re also a risky financial decision, with oil companies writing down assets and losing billions of dollars in value.

As the climate crisis worsens, pressure is building to ensure that fossil fuels stay safely in the ground.

Science shows that if we have any hope of stabilizing the climate at levels that are safe for our students, we must phase out the extraction and combustion of oil, gas and coal by mid-century. That means an immediate end to the expansion of fossil fuel infrastructure.

Ensuring a bright future also requires massive new investments in zero-carbon technologies and infrastructure. Climate solutions are expanding exponentially, creating a valuable opportunity to grow our pensions in the long-term.

To its credit, OTPP has taken steps to increase its expertise in climate science and understand climate-related financial risks. Small but smart investments in renewables, energy storage, and green real estate have helped reduce our pension’s carbon footprint by 15 per cent between 2018 and 2019. 

However, OTPP’s investments in climate solutions make up a tiny portion of our portfolio, while we estimate more than $8 billion is invested in companies and infrastructure that fuel the climate crisis.

It’s unacceptable to us that our pension finances companies and infrastructure that directly undermine the future of the young people we teach. This bet on a dying industry runs counter to the fund’s fiduciary duty to invest in our best interests. 

It’s time for OTPP to align its investments with a safe climate. That means committing to a plan that includes: a screen on new oil, gas and coal investments; phasing out all fossil fuel investments by 2025; decarbonizing our portfolio by 2030; establishing ambitious targets for increased investments in profitable climate solutions; and engaging companies we own to refrain from lobbying activities that undermine ambitious climate policy.

There is nothing radical about these expectations. In fact, numerous large pension funds are already doing this in Quebec, Europe, Australia and the U.S.

We expect OTPP to take immediate action to protect our pension savings and ensure a livable climate for all teachers and our students.

Let me begin my comment by stating what you will read below are my and solely my opinions and I have not contacted anyone at OTPP about this particular article as I read it tonight.

Also, I will be nice given my wife is a teacher and I respect teachers tremendously, especially during the pandemic as they're front line workers that deserve our praise and I'm actually shocked that teachers are not getting vaccinated after our seniors and healthcare workers (along with police officers and firefighters, they should be next in line once we get more vaccines, whenever that is).

I actually spoke to my wife about this op-ed over dinner and even though she doesn't agree that pensions should divest from fossil fuels, she told me bluntly: "Teachers have a right to voice their opinion, and many do find it hard to teach one thing in the classroom and see their hard earned pension monies being invested in something we know is destructive for the climate. Remember, it's our pension monies and that of other public servants supporting all these suits getting millions at CDPQ, OTPP, and elsewhere. They need us just as much if not more than we need them."

Yes mam! I hear you and she does make a good point about teachers and other public servants being captive clients of these large Canadian pensions.

She also warned me "don't write about this topic, it's contentious," to which I replied "contentious" is my middle name (and she just rolled her eyes).

Seriously, I don't like writing about this and other contentious issues but I feel like there has been an increasing political encroachment on our large, well governed public pensions and it's starting to worry me a little.

I wrote about it on Monday night when I went over whether PSP Investments is putting profits over people stating this:

[..] it's time for PSP Investments, CPP Investments and others to go on the offense and state very clearly what your objective is (balancing assets and liabilities by maximizing returns without taking undue risks), how independent governance is critical in obtaining this objective and why you essentially run a huge conglomerate of businesses and while ESG permeates all these businesses, it is done to enhance returns, not detract from them.

The prime purpose of every pension is to have enough assets to meet future obligations.

To all the public-sector unions that have an axe to grind with their own pension, please do your due diligence, and realize how lucky you are to be part of great pensions that are the envy of the world.

I don't know whether it's Twitter, Facebook or Linkedin, but there are increasingly political groups who want to have a say as to how our large public pensions invest.

The problem? Apart from the fact that many spread misinformation to advance their cause, or just blatantly lie, there's a bigger concern that what they are arguing for is actually counterproductive to the goals they aspire to.

Again, from Monday's long comment:

The politicization of our public pensions is something I'm dead set against.

And unfortunately, I see it every day and it's a function of social media and how everyone now thinks they're an expert on pension investments.

They're not, apart from tobacco, there's really no strong case to divest from any investment, especially oil and gas. 

If you don't believe me, listen to CalSTRS which put out a report stating:

“We believe divestment is a last resort action that can have a lasting negative impact on the health of the fund,” the report said, “while severely limiting our ability to shape corporate behavior for long-term sustainable growth.”  

CalSTRS says it “is imperative” to continue to actively engage companies on climate change issues, both fossil fuel and non-fossil fuel companies.

“We are focused on understanding and responding to the risks that climate change presents to our portfolio and to sustainable economic growth,” the report said. 

In other words, divesting sounds cool but it's counterproductive and could really jeopardize the overall health of your plan.

CalSTRS manages billions on behalf of California's teachers and it has had huge pressure to divest from fossil fuels, and is rightly pushing back.

Why not divest from fossil fuels? For me, the biggest argument is diversification. Traditional energy may seem like a dying industry, and to be sure, it will one day be extinct, but the reality is we need oil, coal and natural gas to power our world and we will continue to need these sources for another 100 years. And these investments will produce great yields and returns for a very long time.

I had a chat with a buddy of mine recently on how billionaire hedge fund manager Paul Singer (Elliot Management) is heavily invested in some coal stocks.

My buddy replied: "Smart man, you need coal to power all these electric vehicles everyone is supposedly going to be driving by the end of the decade. We simply won't get enough electricity from wind, solar and other renewable energy sources."

I said: "But what about the Biden administration closing coal plants?" He replied: "Leo, once you start getting major power outages, nobody is going to complain about coal plants, people are delusional and way too ideological, when it comes to climate change, you need to be practical and realistic."

Now, my friend is an engineer/ MBA who has worked on major hydroelectric projects and he definitely knows what he's talking about. He tells me all the time: "If our large pensions really wanted to make a difference in fighting climate change, they'd band together to invest in more nuclear reactor plants but it's never going to happen for a lot of reasons. All those solar and wind farms don't add up to anything compared to nuclear power but they get nice press releases."

He's right, in fact, the World Nuclear Association states flat out:

To combat climate change, the world must rapidly reduce its dependency on fossil fuels to reduce greenhouse gas emissions. Nuclear energy is low-carbon and can be deployed on a large scale in the time frame required, supplying the world with clean and affordable electricity.

But in Canada, only one pension plan, OMERS, has a nuclear power company (Bruce Power) as part of its portfolio.  

Anyway, getting back to Ontario Teachers' Pension Plan and the points these teachers raise above.

I recently spoke with Teachers' CIO, Ziad Hindo, on how the pension plan will achieve net zero emissions by 2050.

OTPP, and all of Canada's large public pensions, take responsible investing very seriously and are always gauging the long-term risks of their investments. They know climate change represents a real risk to their portfolio investments and are committed to reducing their carbon footprint for the good of their pensions, not for political reasons.

They are investing in new clean technologies and are looking to reduce their carbon footprint across their public and private portfolio because it makes good business sense and enhances returns over the long run.

But they are not divesting out of fossil fuels because they need that extra diversification to enhance returns and it represents good, solid dividend income for them.

It's like when a retiree with no defined-benefit pension comes to me to ask me where to invest their savings as bond yields are too low.

I don't tell them "biotech, pot stocks or solar stocks" even if they are the flavor of the day, I tell them: "BCE, Telus, Royal Bank, Sun Life Financial, Manulife, and Enbridge, most definitely Enbridge."

Nobody tells me "a pipeline, really?" People need yield, period and even though these stocks are not a substitute for bonds (far from it), when you need safe yield in a low bond yield world, you'll go wherever you find it."

Anyway, I highly suggest Ontario's teachers read my recent comment on how OTPP is committed to going net zero by 2050.

Ontario's teachers are very lucky to have their pensions managed by one of the best pension plans in the world. I know Teachers' CEO, Jo Taylor, is very committed to sustainable investing, stating this:

“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.”

But I also think teachers have a right to voice their concerns. I just would tell them it's much better engaging privately with representatives of their pension plan than writing these op-eds in the Toronto Star or other newspapers.

And if you really want to get into it with me, just email me at LKolivakis@gmail.com and I'll be glad to answer your concerns and questions.

Lastly, my wife the teacher reminded me of something else, "it's a very slippery slope" when you start divesting from industries based on political, ideological or religious grounds. 

She makes a good point, one I've raised before on my blog. As an example (just an example), what if Ontario's Muslim teachers banned together to oppose investments in casinos, alcohol beverage companies, tobacco (actually OTPP did divest from cigarettes), pot stocks, etc." based on their religious beliefs?

They certainly are entitled to their beliefs and are well within their rights to voice their concerns but where do we draw the line? 

Yes, climate change is a lot bigger, poses huge problems for current and future generations, but we need to be very smart about what we advocate for and when it comes to our pensions, we really need to trust their governance model and that they have the best interests of their members at heart.

Below, CNBC's Bob Pisani looked ahead to the day's market action earlier today discussing the performance of various sectors.

Also, earlier this year, Inclusive Capital Partners founder Jeff Ubben left ValueAct and to move into social investing. CNBC's Leslie Picker joined 'Closing Bell' to discuss his parting remarks to the finance industry.

Interestingly, Ubben is now being considered for a board seat at ExxonMobil as shareholders are pushing the company to go more green. 

The best way to change Big Oil for the better is to engage with it, not divest from it, so I hope he does get a seat on that board. 

The Canada Pension Plan Investment Board (CPPIB) said on Thursday it ended the third quarter with net assets of C$475.7 billion ($375.63 billion), compared with C$456.7 billion at the end of the previous quarter.

Net income for the quarter ended Dec. 31 rose to C$23.00 billion, from C$14.55 billion a year ago.

The CPPIB, which manages Canada’s national pension fund and invests on behalf of 20 million Canadians, has diversified to become one of the world’s biggest investors in infrastructure, real estate and private equity to reduce its reliance on volatile global stock markets and low-yielding government bonds.

Investment in private equities stood at 25.1% of the total in the quarter, up from 24.9% a year ago. Spending on public equities was up to 31.3% from 30.7% a year ago. 

Spending on government bonds rose to 21.5% of the total, the statement said.

Last month, Brazilian sanitation company Igua Saneamento SA said CPPIB had delivered a non-binding offer to buy stake in the company. No more details on the potential deal were disclosed.

Canada Pension Plan Investment Board (CPP Investments) put out a press release stating it ended its third quarter of fiscal 2021 on December 31, 2020, with net assets of $475.7 billion, compared to $456.7 billion at the end of the previous quarter:

Third-Quarter Highlights:

• $23.0 billion in net income generated for the Fund
• 10-year annualized net return of 10.8%

TORONTO, ON (February 11, 2021): Canada Pension Plan Investment Board (CPP Investments) ended its third quarter of fiscal 2021 on December 31, 2020, with net assets of $475.7 billion, compared to $456.7 billion at the end of the previous quarter.

The $19.0 billion increase in net assets for the quarter consisted of $23.0 billion in net income after all CPP Investments costs less $4.0 billion in net Canada Pension Plan (CPP) outflows. CPP Investments routinely receives more CPP contributions than required to pay benefits during the first part of the calendar year, partially offset by benefit payments exceeding contributions in the final months of the year.

The Fund, which includes the combination of the base CPP and additional CPP accounts, achieved 10-year and five-year annualized net nominal returns of 10.8% and 9.7%, respectively. For the quarter, the Fund returned 5.1% net of all CPP Investments costs.

For the nine-month fiscal year-to-date period, the Fund increased by $66.1 billion consisting of $67.5 billion in net income after all CPP Investments costs, less $1.4 billion in net CPP outflows. For the period, the Fund returned 16.4% net of all CPP Investments costs.

“A number of factors lifted the Fund’s overall strong performance during the quarter with soaring equity markets as the leading contributor,” said Mark Machin, President & Chief Executive Officer, CPP Investments. “Despite the ongoing challenges caused by the global pandemic, all of our teams continue to collaborate seamlessly across the enterprise to achieve strong results. The commitment to operational excellence among all our employees is critical in seizing opportunities to create long-term value for the Fund. The long-term results are the most important for the Fund and we are pleased to be sustaining double-digit 10-year returns.”

The Fund’s solid results in the third quarter were driven by strong returns in both public and private equity assets. Global public equity markets were propelled higher by a series of vaccine breakthroughs during the quarter, as well as the prospect of a recovery in the global economy. While all investment departments reported positive quarterly results before foreign exchange impact, the weakening of the U.S. dollar against the Canadian dollar tempered some of the Fund’s gains.

CPP Investments continues to build a portfolio designed to achieve a maximum rate of return without undue risk of loss, taking into account the factors that may affect the funding of the CPP and the CPP’s ability to meet its financial obligations. The CPP is designed to serve today’s contributors and beneficiaries while looking ahead to future decades and across multiple generations. Accordingly, long-term results are a more appropriate measure of CPP Investments’ performance compared to quarterly or annual cycles.

Fund 10- and Five-Year Returns^{1, 2, 3}

(For the period ending December 31, 2020)

Performance of the Base and Additional CPP Accounts

The base CPP account ended its third quarter of fiscal 2021 on December 31, 2020, with net assets of $471.0 billion, compared to $452.6 billion at the end of the previous quarter. The $18.4 billion increase in assets consisted of $22.9 billion in net income after all costs, less $4.5 billion in net base CPP outflows. The base CPP account achieved a 5.1% net return for the quarter.

The additional CPP account ended its third quarter of fiscal 2021 on December 31, 2020, with net assets of $4.7 billion, compared to $4.1 billion at the end of the previous quarter. The $0.6 billion increase in assets consisted of $0.1 billion in net income after all costs and $0.5 billion in net additional CPP contributions. The additional CPP account achieved a 3.1% net return for the quarter.

The base and additional CPP differ in contributions, investment incomes and risk targets. We expect the investment performance of each account to be different.

Long-Term Sustainability

Every three years, the Office of the Chief Actuary of Canada conducts an independent review of the sustainability of the CPP over the next 75 years. In the most recent triennial review published in December 2019, the Chief Actuary reaffirmed that, as at December 31, 2018, both the base and additional CPP continue to be sustainable over the 75-year projection period at the legislated contribution rates.

The Chief Actuary’s projections are based on the assumption that, over the 75 years following 2018, the base CPP account will earn an average annual rate of return of 3.95% above the rate of Canadian consumer price inflation, after all costs. The corresponding assumption is that the additional CPP account will earn an average annual real rate of return of 3.38%.

The Fund, combining both the base CPP and additional CPP accounts, achieved 10-year and five-year annualized net real returns of 9.0% and 7.9%, respectively.

Diversified Asset Mix

Operational Highlights:

Corporate developments

• Mark Machin, together with the CEOs of Canada’s leading pension plan investment managers, signed a joint statement calling on companies and investors to provide consistent and comprehensive environmental, social, and governance (ESG) information to strengthen investment decision-making and better assess and manage their collective ESG risk exposures.

• Thinking Ahead, a signature platform at CPP Investments, issued two reports in the quarter: Our 2021 Economic and Financial Outlook highlights the continuing ripple effects of COVID-19 and considers possible long-term outcomes; and Women, COVID-19 – and the threat to gender equity and diversity explores the potential for the pandemic to reverse the progress corporate Canada has made in diversity and inclusion, identifying seven steps companies and policy makers can take to protect the gains to date and assure future progress.

Executive announcement

• Appointed Frank Ieraci as Senior Managing Director & Global Head of Active Equities. In this role, Frank leads the Active Equities department, which invests globally in public and soon-to be public companies, as well as securities focused on long-horizon structural changes, which can include earlier-stage private companies. The department also includes CPP Investments’ Sustainable Investing group. Frank was most recently Managing Director, Head of Research and Portfolio Strategy at CPP Investments.

Third-Quarter Investment Highlights:

Active Equities

• Entered into an agreement to vote in favour of the planned strategic combination of TORC Oil & Gas and Whitecap Resources valued at approximately C$900 million. Our first investment in TORC was made in 2013 and grew to a 29.3% equity ownership position. We will continue to have an approximate 6.3% ownership stake in the combined company.

• Closed a US$100 million investment in Hutchison China MediTech Limited (Chi-Med) through a private placement. Chi-Med is an innovative biopharmaceutical company with a portfolio of nine cancer drug candidates currently in clinical studies or early stages of commercialization around the world.

• Entered into an agreement to invest C$1.2 billion in Intact Financial Corporation (Intact) to support Intact’s potential offer for RSA Insurance Group plc. Intact is one of the largest providers of property and casualty insurance in Canada.

• Invested an additional C$58 million, through a private placement of common shares, in Premium Brands Holdings Corporation, a Canadian specialty food manufacturing and differentiated food distribution business, to support its joint acquisition of Clearwater Seafoods Incorporated with a Mi’kmaq First Nations coalition.

• Invested US$315 million for an approximate 5% ownership stake in SolarWinds Corporation through a secondary transaction. SolarWinds is a provider of IT infrastructure management software.

• Invested an additional US$350 million in Viking Holdings Ltd, the parent company of Viking Cruises, alongside TPG Capital. Viking Cruises is a leading provider of worldwide river and ocean cruises and this investment will support its continued development. The transaction is subject to customary closing conditions, including regulatory approvals.

• Invested in a combination of secondary offerings and market purchases of Avantor Inc., a leading global provider of products and services to customers in the biopharma, healthcare, education and government, and advanced technologies and applied materials industries, holding total ownership in the company at 2.0% with a combined investment of US$285 million.

• Invested €200 million in Embracer Group, a Sweden-listed developer and publisher active in the global video game industry, for a 3% stake.

Credit Investments

• Acquired the ownership of a prime shopping centre, the Trafford Centre in Manchester, United Kingdom, as the principal secured creditor after the previous owner was placed into administration.

• Committed US$125 million as a cornerstone investor to Baring Private Equity Asia’s India Credit Fund III, and US$125 million to a Fund III overflow vehicle. The fund strategy is focused on Indian Rupee-denominated secured lending to performing mid-market Indian companies.

• Committed INR 7,250,000,000 (US$98 million) to a bilateral financing transaction to support a strategic investment in BMM Ispat Ltd., the second largest iron ore pellets producer in southern India, by India-based JSW Projects Ltd., part of the diversified JSW Group.

Private Equity

• Committed to invest approximately US$160 million in CITIC aiBank, an internet-based consumer finance bank in China, representing an approximate 8.3% equity stake in the company.

Real Assets

• Formed a new joint venture with Greystar Real Estate Partners to pursue multifamily real estate development opportunities in target markets in the United States, with an equity allocation of US$350 million for a 90% stake in the joint venture. Greystar has allocated US$39 million for the remaining 10% and will manage and operate the portfolio on behalf of the joint venture.

• Established a new Indonesia venture to invest US$200 million to acquire and develop a portfolio of institutional-grade facilities with logistics real estate specialist LOGOS.

• Signed an agreement to acquire a 15% interest in Transurban Chesapeake for US$624 million, a toll-road business comprising the 495, 95 and 395 Express Lanes located in the Greater Washington Area in the U.S., alongside other investors collectively acquiring a 50% interest. The transaction is subject to customary closing conditions and regulatory approvals.

• Established a new, U.K.-based platform, Renewable Power Capital Limited (RPC) to invest in solar, onshore wind and battery storage, among other technologies, across Europe. The business is a majority-owned, but independently operated portfolio company. RPC announced its first investment in January 2021, for which we committed €245 million to support RPC’s acquisition of a portfolio of onshore wind projects in Finland.

• Acquired 1918 8^th Avenue, a 668,000-square-foot office tower in Seattle, Washington, for US$625 million, through a 45%/55% joint venture with Hudson Pacific Properties, Inc.

• Allocated an additional £300 million of equity to investment vehicles in the U.K. targeting the logistics sector, alongside Goodman Group and APG Asset Management N.V. The expansion follows the success of the Goodman UK Partnership established in 2015.

Asset Dispositions:

• Sold our 12.5% ownership interest in Grosvenor Place, an office tower in Sydney, Australia, held through the Dexus Office Partnership. Net proceeds from the sale are expected to be approximately A$230 million, with completion in early 2021 subject to regulatory approval. Our ownership interest was initially acquired in 2014.

• Exited our 18% ownership stake in Advanced Disposal Services Inc., a solid waste services company in the U.S., through its acquisition by Waste Management Inc. Net proceeds from the sale were US$502 million. Our ownership stake was originally acquired in 2016.

• Converted and sold our convertible debt position in Bloom Energy, a manufacturer of solid oxide fuel cells in the U.S. Net proceeds from the sales and an April 2020 partial repayment from the company were approximately US$452 million. Our position was initially acquired in 2015, followed by two further investments in 2016 and 2017.

• Sold our 50% interest in Phase One of Nova, an office-led mixed-use development in London Victoria, U.K. Net proceeds from the sale are expected to be approximately C$720 million. Our ownership interest was initially acquired in 2012.

Transaction Highlights Following the Quarter:

• Sold our 45% interest in the Bayonne Property, a logistics project consisting of two warehouses in New Jersey, U.S. Net proceeds from the sale were approximately C$34 million. Our ownership interest was initially acquired in 2019.

• Committed US$110 million of equity as the lead investor to Harbor Group International’s multifamily whole loan platform, which provides senior mortgage bridge financing on multifamily assets throughout the U.S.

About Canada Pension Plan Investment Board

Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that manages the Fund in the best interest of the more than 20 million contributors and beneficiaries of the Canada Pension Plan. In order to build diversified portfolios of assets, investments are made around the world in public equities, private equities, real estate, infrastructure and fixed income. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At December 31, 2020, the Fund totalled $475.7 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedIn, Facebook or Twitter.

As you can read, the people at CPP Investments were very busy in Q3 of fiscal 2021.

I don't typically cover these quarterly results but I am amazed at the volume of transactions and the complexity, all in the midst of a global pandemic.

In particular, the activity in Real Assets is what I find noteworthy, but everywhere, all departments are firing on all cylinders.

CPP Investments put out a quarterly results presentation which I encourage you to read here.

Below, the first few slides of the presentation which are critical:

I suspect the weak US dollar last year will detract from the results of all of Canada's large pensions because the really big ones do not hedge currency risk (I believe only HOOPP fully hedges F/X now).

Still, the performance last quarter was phenomenal, the highest quarterly net income since inception, and the returns came from both public and private equity assets.

It s also worth noting an executive appointment. Frank Ieraci was appointed to the role of Senior Managing Director & Global Head of Active Equities. In this role, Frank leads the Active Equities department, which invests globally in public and soon-to be public companies, as well as securities focused on long-horizon structural changes, which can include earlier-stage private companies. The department also includes CPP Investments’ Sustainable Investing group. 

Frank was most recently Managing Director, Head of Research and Portfolio Strategy at CPP Investments and I congratulate him on this well deserved nomination.

Alright, let me wrap it up there.

Below, CPP Investments President and CEO Mark Machin talks about how to ensure we don't regress on gender equity. This is a really important issue, listen to Mark's comments.

And CPP Investments held a series of public meetings throughout Canada, I embedded the one from Ontario and recommend you take the time to listen to the Chair, Dr. Heather Munroe-Blum, Mark Machin and a Q&A featuring Michel Leduc and Tara Perkins of CPP Investments' Communications. 

Around minute 25, Tara and Michel tackle the thorny issue of divesting from fossil fuels, listen to Michel's insights. They answer a lot of other important questions.

U.S. stocks finished marginally higher on Friday to set another round of record closes.

The Dow Jones Industrial Average added 27.7 points, or 0.1%, for a new all-time high. The S&P 500 and the Nasdaq Composite both rose 0.5%.

The major averages finished with modest gains for the week, as the strong rally to begin February has taken a slight breather. The blue-chip Dow posted two little changed days this week, while the S&P 500 fluctuated within 0.2% for three days in a row.

The S&P 500 finished the week with a gain of 1.2%, while the Dow added 1%. The tech-heavy Nasdaq rose 1.7%.

“Is the path to much higher equities becoming smaller ... to put it differently, are the bulls attempting to thread a needle? Seems that way near term,” Dennis De Busschere, macro research analyst at Evercore ISI, said in a note.

Shares of Disney erased earlier gains and closed 1.7% lower even after the company reported strong growth in paid streaming subscribers and crushed expectations in its earnings report for its fiscal first quarter of 2021. Disney said it now has almost 95 million paid subscribers on its Disney+ streaming service.

The market ground higher to notch records this month as investors remained hopeful for a smooth economic reopening as well as additional Covid stimulus. The Dow has gained 4.9% in February, while the S&P 500 and the Nasdaq have rallied 5.9% and 7.8%, respectively. The S&P 500 has raked in ten record closes in 2021.

Cyclical sectors, those most sensitive to an economic rebound, led the rally in February. Energy is up more than 13% month to date, with financials and materials also among the leading sectors.

President Joe Biden said Thursday his administration has secured deals for another 200 million doses of Covid-19 vaccine from Moderna and Pfizer, bringing the U.S. total to 600 million. He added the U.S. will have enough supply for 300 million Americans by end of July.

“Between the ongoing medical and economic improvements, markets continue to expect a much better 2021 and that has supported prices,” Brad McMillan, chief investment officer at Commonwealth Financial Network, said in a note. “Fourth-quarter earnings are coming in well ahead of expectations, and analysts are now adjusting their 2021 earnings estimates upwards.”

It was another very busy week and there is a lot to cover.

First, late Friday afternoon, CNBC reports that the House advances $1,400 payments, unemployment boost as part of Covid relief plan

• House Democrats advanced the portion of their coronavirus relief bill that includes $1,400 direct payments, an extension of unemployment programs and payments to families with children.
• Several committees have now advanced parts of the proposal, which the House hopes to combine into one bill and pass before the end of the month.
• Democrats still need to overcome hurdles to get the legislation through the Senate, as budget reconciliation rules and skepticism about some provisions pose challenges.

I'm pretty sure this bill will pass over the next month, perhaps a lot earlier.

This will provide much needed relief to many Americans struggling but to be honest, many Americans who do not need relief will use that money to day trade in the stock market.

What else happened today? Treasury Secretary Janet Yellen stressed the need for the Group of Seven countries to “go big” with fiscal stimulus to support economic recovery from the global pandemic:

In her first call with foreign counterparts and central bankers from the G7, Yellen said that “the time to go big is now” and that the group should focus on how to help the economy, the U.S. Treasury Department said in a statement after the virtual meeting held on Friday.

The online gathering of finance chiefs from the world’s top industrial economies addressed a proposed expansion in the International Monetary Fund’s lending firepower along with digital taxation and climate change.

The U.S. is leaning toward backing an increase in the IMF’s special drawing rights, or SDRs, by as much as $500 billion, Bloomberg News reported earlier this month. The fund has been lobbying for more help to support developing nations against the COVID-19 crisis.

The G7 discussed increasing the IMF’s resources during Friday’s call, and the group expects a decision to be announced later this month on the back of a Group of 20 discussion, according to one person familiar with the matter. The finance ministers’ goal in Friday’s talks was to build momentum around helping developing nations, the person said on the condition of anonymity.

Change in Washington

U.K. Chancellor of the Exchequer Rishi Sunak, who hosted the virtual meeting, also stressed the importance of the G7 “shaping support for vulnerable countries,” according to a statement from his office.

The U.S. has a de-facto veto in the IMF on the decision, and former Treasury Secretary Steven Mnuchin had previously blocked the fund’s requests to boost its special drawing rights.

Yellen highlighted in the call that there’s a new tone out of Washington. The U.S. “places a high priority on deepening our international engagement and strengthening our alliances,” she said, according to the Treasury’s statement.

On fiscal policy, the U.S. is among the most aggressive, with the Biden administration pursuing a $1.9 trillion package in Congress. French Finance Minister Bruno Le Maire said the world’s biggest economies must coordinate stimulus plans and policies in an effort to reduce key risks including trade tensions and inequality.

While the Biden administration doesn’t need Congressional approval to support a $500 billion boost to the IMF’s resources, GOP lawmakers have been vocal about their opposition.

French Hill, an Arkansas Republican on the House Financial Services Committee, has called it a “giveaway to wealthy countries and rogue regimes” such as China, Russia and Iran.

There is no doubt in my mind the Biden administration will get the approval to support a $500 billion boost to the IMF’s resources.

All this fiscal stimulus has the inflationistas thumping their chest, and the truth is the bond market is taking notice:

Breaking! The 30-year US Treasury #yield just hit 2%. pic.twitter.com/sSCWCW3BYZ

— jeroen blokland (@jsblokland) February 12, 2021

But as I keep warning my readers, don't confuse cyclical inflation pressure which comes from a drop in the US dollar and rising oil prices with secular inflation pressure which can only happen when real wages are rising over many years.

The yield on the 10-year US Treasury note stands at 1.2%, still well off the 5-year high but also well above the low of July of last year when it hit 0.398%:

The back up in long bond yields is due to a few things:

• Vaccination rollout in the US is going well, with the country breaching 1.6 million shots a day:
  
• At 1.6 million shots a day, the US would reach herd immunity by mid-December.
• At 2 million shots a day, the US would reach herd immunity by mid-October.
• At 3 million shots a day, the US would reach herd immunity by the end of July.
• Global growth is picking up and it remains strong in Asia where the Chinese economy expanded by 2.3% in 2020, roaring back from a historic contraction in the early months of the year to become the only major world economy to grow in what was a pandemic-ravaged year. 
• The next major catalyst that could push yields above their recent highs will be US fiscal stimulus.

But here is the thing, the fiscal stimulus isn't a permanent change to wealth, it's a one time change which will take time to work its way into the economy.

That tells me long bond yields will slowly creep up to 1.5%-1.6% by the summer if they pass the fiscal stimulus soon and if the vaccine rollout keeps picking up its pace.

For all these reasons, cyclical stocks -- Energy (XLE), Industrials (XLI), Financials (XLF) and Materials (XME) -- have been doing a lot better recently, registering solid gains this week: 

Interestingly, after getting clobbered over the last two years, Energy (XLE) is leading the pack this year, up over 17% (price not total return), trouncing the rest of the sectors:

Will energy stocks continue to post big gains going forward? I doubt it, they need to consolidate and digest global economic news before continuing to head higher:

Notice how the XLE is on its 100-week moving average? Don't get me wrong, the weekly chart is bullish but we might see consolidation here (around the 100-week moving average) before we reach the 200-week moving average (a breakout above this level would be extremely bullish for energy stocks).

Will oil prices continue to climb higher? It sure looks that way. Interestingly, JPMorgan thinks commodities may have just begun a new supercycle:

With agricultural prices soaring, metal prices hitting the highest in years and oil well above $50 a barrel, JPMorgan Chase & Co. is calling it: Commodities appear to have begun a new supercycle of years-long gains. 

A long-term boom across the commodities complex appears likely with Wall Street betting on a strong economic recovery from the pandemic and hedging against inflation, JPMorgan analysts led by Marko Kolanovic said in a report on Wednesday. Prices may also jump as an “unintended consequence” of the fight against climate change, which threatens to constrain oil supplies while boosting demand for metals needed to build renewable energy infrastructure, batteries and electric vehicles, the bank said.

Everyone from Goldman Sachs Group Inc. to Bank of America Corp. to Ospraie Management LLC are calling for a commodities bull market as government stimulus kicks in and vaccines are deployed around the world to fight the coronavirus. The optimism has already driven hedge funds’ bullish wagers on commodities to the highest in a decade, representing a dramatic turnaround from last year when oil fell below zero for the first time ever and farmers were dumping produce amid snarled supply chains and plummeting demand.

“We believe that the new commodity upswing, and in particular oil up cycle, has started,” the JPMorgan analysts said in their note. “The tide on yields and inflation is turning.” Commodities have seen four supercycles over the past 100 years -- with the last one peaking in 2008 after 12 years of expansion.

Commodities have seen four supercycles over the past 100 years -- with the last one peaking in 2008 after 12 years of expansion.

While that one was driven by the economic rise of China, JPMorgan attributed the latest cycle to several drivers including a post-pandemic recovery, “ultra-loose” monetary and fiscal policies, a weak U.S. dollar, stronger inflation and more aggressive environmental policies around the world.

Hedge funds similarly haven’t been this bullish on commodities since the mid-2000s, when China was stockpiling everything from copper to cotton while crop failures and export bans around the world boosted food prices, eventually toppling governments during the Arab Spring. The backdrop is now starting to look similar, with a broad gauge of commodity prices hitting its highest in six years.

Corn and soybean prices have soared as China loads up on American crops. Copper hit an eight-year high amid growing optimism over a broader economic recovery. And oil has staged a strong recovery from the depths of the Covid-19 pandemic as a worldwide supply glut eases.

So, are we on the cusp of another commodities supercycle? I remain skeptical for now, and unless I see massive infrastructure spending across the world, I strongly doubt this is a "supercycle".

Also, too many USD bears out there for my taste and as I keep warning people, the US dollar will snap back this year as US growth picks up and wanes around the world.

Having said this, Materials (XME) came back very strong after hitting a low last March and the weekly chart remains very bullish:

I'm just not buying the bullishness yet, I prefer to wait and see if this is a solid breakout.

The same thing with Industrials (XLI), they are making new highs on the weekly chart and look great, but I remain somewhat unconvinced:

Who knows, all these deep cyclical plays are reliant on emerging markets (EEM) which are clearly in a solid bull market:

But emerging markets make me nervous, if the US economy picks up in the second half, long bond yields start climbing, the US dollar starts strengthening, RISK OFF will creep back into global stocks and emerging markets will get clobbered.

Clearly that isn't the case now but these stocks seem extended even if they are likely to keep gaining in the short run.

Lastly, it was really a crazy week in some small biotech and pot stocks as big hedge funds played the pump and dump game once more:

Most of the pumping occurred on Wednesday and the dumping on Thursday and Friday.

Please be very careful trading stocks (any stock) that are up massively on abnormally huge volume, it's almost always a coordinated attack from a few large hedge funds pumping and dumping stocks, making a killing in the process.

Earlier today, Bloomberg's Lisa Abramowicz tweeted this: Federal prosecutors are investigating whether criminal misconduct fueled the rapid rise in GameStop & AMC stocks. “It sounds like the retail guys were a smokescreen for real professionals doing the professional hardball warfare that has always existed"

Federal prosecutors are investigating whether criminal misconduct fueled the rapid rise in GameStop & AMC stocks. “It sounds like the retail guys were a smokescreen for real professionals doing the professional hardball warfare that has always existed"https://t.co/LpkUuws6Ef

— Lisa Abramowicz (@lisaabramowicz1) February 12, 2021

I replied: 

Big hedge funds have been pumping and dumping stocks forever with impunity. The reason they get away with this and other shady activity, like naked short selling and gamma squeezing, is they pay big fees to big banks. Time to take a sledgehammer to Wall Street but good luck!" (the game is rigged in their favor, that will never change). 

The game is rigged, don't kid yourselves. YOLOers of the world uniting is all nonsense! Wall Street has already tamed the rebellion but these big hedge funds still operate with impunity, they have infiltrated stock chat boards and are spreading all sorts of nonsense (both ways), so be careful trying to outsmart them, most of the time, you'll lose your shirt.

Alright, let me wrap it up. Hope you enjoyed this and other comments and please remember to donate to this blog using the PayPal options under my picture on the top left-hand side. I thank all of you who take the time to support this blog, it's greatly appreciated!

Below, CNBC's Brian Sullivan discusses commodities possibly entering a "supercycle" as prices rise in tandem with Francisco Blanch of Bank of America Securities

And "Bloomberg Commodities Edge" talks to the smartest voices in the commodity world about the companies, the physical assets and the trading behind the hottest commodities. This week Bloomberg's Alix Steel digs into a potential supercycle for commodities, oil earnings and Trafigura's push to cut emissions.

Bill Gates helped usher in the digital revolution at Microsoft, and has spent the decades since exploring - and investing in - innovative solutions to some of the world's toughest problems - global poverty, disease, and the coronavirus pandemic, which he's spent nearly $2 billion on. 

Now he is focusing on climate change, agreeing with the overwhelming majority of scientists who warn of a looming climate disaster. The good news is Gates believes it's possible to prevent a catastrophic rise in temperatures. The bad news? He says in the next 30 years we need scientific breakthroughs, technological innovations and global cooperation on a scale the world has never seen.

Anderson Cooper: You believe this is the toughest challenge humanity has ever faced?

Bill Gates: Absolutely. The amount of change, new ideas.  It's way greater than the pandemic. And it needs a level of cooperation that would be unprecedented. 

Anderson Cooper: That doesn't sound feasible--

Bill Gates: No, it's not easy. But hey, we have 30 years--

Anderson Cooper: It sounds impossible.

Bill Gates: We have more educated people than ever. We have a generation that's speaking out on this topic. And, you know, I got to participate in the miracle of the personal computer and the internet. And so, yes, I have a bias to believe innovation can do these things. 

He is talking about innovations in every aspect of modern life - manufacturing, agriculture, transportation, because nearly everything we now do releases earth warming greenhouse gases, mainly carbon dioxide, into the atmosphere. He took us to his favorite burger joint in Seattle to explain. 

Anderson Cooper: You're talking about changing everything in the economy, I mean, every aspect of it--

Bill Gates: In the phy-- yeah, the physical--

Anderson Cooper: So--

Bill Gates: --economy--

Anderson Cooper: Of what we can see right now, of us sitting around here, what specifically would be impacted?

Bill Gates: Well, this cement would be made in a different way. The steel in the building would be different. You know, the meat in the burgers a big deal. These-- you know, all this plastic and paper--potatoes.

Anderson Cooper: With potatoes you're talking about fertilizer, the irrigation system that's used.

Bill Gates: All the tractors, the transport.

Anderson Cooper: The trucks that bring them to this restaurant, all that has to change?

Bill Gates: Hey, when you're going to zero, you don't get to skip anything. 

Gates says going to zero means eliminating all greenhouse gas emissions. Or else...

Anderson Cooper: If they wait 100 years to do this…

Bill Gates: It's way too late. Then the natural ecosystems will have failed. The instability, you know, the migration. You know, those things will-- will get really, really bad well before the end of the century.

Anderson Cooper: When you talk about migration, you're talking about hundreds of thousands of people trying to move from North Africa to Europe every year?

Bill Gates:  Exactly. The Syrian War was a 20th of what climate migration will look like. So, the deaths per year are way, ten times greater than-- than what we've experienced in the pandemic. 

In a new book "How to Avoid a Climate Disaster." Gates outlines all the solutions he believes we need.  

He says the U.S. has to lead the world getting to zero greenhouse gas emissions by 2050. He supports President Biden's decision to rejoin the Paris Climate Agreement, but is asking the administration to massively increase the budget for climate and clean energy research to $35 billion a year. 

Anderson Cooper: You've said that governments need to do the hard stuff, but not just go after the low-hanging fruit. What-- what's low-hanging fruit?

Bill Gates: Passenger cars, part of the electric generation with renewables. The things everybody knows about, that's getting almost all the money, not the hard parts, which is the industrial piece including the steel and cement. Those pieces we've hardly started to work on.

No one thinks much about cement and steel, but making it accounts for 16% of all carbon dioxide emissions. And the demand is only growing. The world will add an estimated two and a half trillion square feet of buildings by 2060 -- that's the equivalent of putting up another New York City every month for the next 40 years. 

So one innovative company Gates has been pouring money into is CarbonCure. They inject captured carbon dioxide into concrete. 

Bill Gates: What they do is they stick CO2 in here in the cement, and they mix them up. And so, you're able to actually get rid of some CO2 by sticking it in the cement. Right now they get rid of about 5%. But they have a next generation that can get to 30%. 

Anderson Cooper: The carbon has been just injected into this so it's captured it. So, it's not gonna be released into the atmosphere.

Bill Gates: That's right. 

Gates has already invested $2 billion of his own money on new green technologies, and plans to spend several billion more.

In 2016 he also recruited Jeff Bezos, Mike Bloomberg and nearly two dozen other wealthy investors to back a billion-dollar fund called "breakthrough energy ventures," making long-term, often risky investments in promising technologies. 

Gates regularly consults with the fund's team of top scientists and entrepreneurs who've so far invested in 50 companies with cutting edge ideas to reduce carbon emissions.

Anderson Cooper: What's like, the most far-flung idea you've backed?

Bill Gates: There's one that's so crazy it's even hard to describe.

Anderson Cooper: Wait a minute, it's so crazy it's hard to describe?

Bill Gates: Even f-- yeah.

Anderson Cooper: How do you pitch that--

Bill Gates: And--

Anderson Cooper: -to investors?

Bill Gates: Well, they find geological formations, and they just pump water down into them. The energy they've used to pump it in, then they can draw that energy back out. So it's-- it's a water pressure storage thing, which, you know, when I first saw it I thought, "That can't work." But--

Anderson Cooper: But you gave money to it?

Bill Gates: Yeah, lots of money.

Because cows account for around 4% of all greenhouse gases, Gates has invested in two companies making plant based meat substitutes, Impossible Foods and Beyond Meat. But farming the vegetables used to make many meat alternatives emits gases as well, so Gates is also backing a company that's created an entirely new food source.

Bill Gates: This company, Nature's Fynd, is using fungis.  And then they turn them into sausage and yogurt. Pretty amazing.

Anderson Cooper: When you say fungi, do you mean like mushroom or a microbe?

Bill Gates: It's a microbe.

The microbe was discovered in the ground in a geyser in Yellowstone National Park. Without soil or fertilizer it can be grown to produce this nutritional protein -- that can then be turned into a variety of foods with a small carbon footprint.

Bill Gates: This is the yogurt.

Anderson Cooper: Oh this is good.

Bill Gates: Wow. 

Anderson Cooper: I've had, like, cashew yogurt or oat yogurt. It's-- it's sort of along those lines. 

Bill Gates: Yeah, with the burgers, they're, you know, like Beyond and Impossible, they're getting close to the real thing, but you can still tell. These I'm not sure I could've tell-- now I'm-- I'm more of a burger expert than I am then a yogurt expert.

Gates never planned to focus on climate change, but while working in Africa with the foundation he started with his wife, Melinda, in 2000, he came to see just how vulnerable those in developing countries are to the effects of rising temperatures. 

So 15 years ago Gates started educating himself on climate change, bringing scientists and engineers to his office in Seattle for what he calls "learning sessions." He also reads voraciously, books and binders full of scientific research.

Bill Gates: Yeah, so this is the most recent one, which is about clean hydrogen.

Anderson Cooper: So you're reading thousands of pages every few days on topics?

Bill Gates: Yeah. My reading is, is key. and then asking questions when it doesn't make sense.  

Gates isn't just looking to cut future carbon emissions, he is also investing in direct air capture, an experimental process to remove existing CO2 from the atmosphere. Some companies are  now using these giant fans to capture CO2 directly out of the air, Gates has become one of the world's largest funders of this kind of technology. 

But of all his green investments, Gates has spent the most time and money pursuing a breakthrough in nuclear energy -- arguing it's key to a zero carbon future.

He says he's a big believer in wind and solar and thinks it can one day provide up to 80% of the country's electricity, but Gates insists unless we discover an effective way to store and ship wind and solar energy, nuclear power will likely have to do the rest. Energy from nuclear plants can be stored so it's available when the sun isn't shining and the wind isn't blowing. 

Anderson Cooper: Were you always a big proponent of nuclear? 

In 2008 he founded TerraPower, a company that has re-designed a nuclear reactor.

Anderson Cooper: This is your prototype?

Bill Gates: Exactly. TerraPower's Natrium Reactor. This is a rendering, we haven't built it yet. But here's the nuclear island right here.

Anderson Cooper: This is the reactor?

Bill Gates: Exactly. 

Gates says TerraPower's reactor is less expensive to build, produces less waste and is fully automated, reducing the potential for human error. Gates and director of engineering Lindsey Boles showed us what they say is another key to its safety. 

Anderson Cooper: What is it that we're looking at here?

Lindsey Boles: So these individual fuel pins are actually where the uranium fuel is. And that's what generates all the heat in our natrium reactor.

Anderson Cooper: This is what everybody is worried about?

Lindsey Boles: Yes, exactly. 

Bill Gates: In a normal reactor, it's water that's flowing past and heating up. And it'll boil and-- and generate a lot of high pressure. 

That high heat and pressure can cause an explosion, like in Chernobyl in 1986 when radioactive material was spread for thousands of miles. 

But Gates says the TerraPower reactor won't use water to cool down the fuel rods -- they plan to use liquid sodium. 

Bill Gates: The liquid sodium can absorb a lot more heat. And so we-- we don't have any high pressure inside the reactor.

In October, the Department of Energy awarded TerraPower $80 million to build one of the first advanced nuclear reactors in the U.S. 

Bill Gates: Nuclear power can be done in a way that none of those failures of the past would recur, because just the physics of how it's built. I admit, convincing people of that will be almost as hard as actually building it. But since it may be necessary to avoid climate change, we shouldn't give up.

Anderson Cooper: You've been criticized for being a technocrat, saying technology is the only solution for-- for tackling climate change. There are other people that say, "Look, the solutions are already there. It's just government policy is what really needs to be focused on.

Bill Gates: I wish that was true. I wish all this funding of these companies wasn't necessary at all. Without innovation, we will not solve climate change. We won't even come close.

Gates credits young activists for keeping climate change in the headlines. But he knows some consider him an imperfect ally. 

Anderson Cooper: Are you the right messenger on this? Because you fly private planes a lot. And you're creating a lot of greenhouse gases yourself.

Bill Gates: Yeah.  I probably have one of the highest greenhouse gas footprints of anyone on the planet. You know, my-- my--

Anderson Cooper: It's kind of ironic.

Bill Gates: --personal flying alone is gigantic. Now, I'm spending quite a bit to buy aviation fuel that was made with plants. You know, I switched to an electric car. I use solar panels. I'm paying a company that actually at a very high price, can pull a bit of carbon out of the air and stick it underground. And so I'm offsetting my personal emissions.

Anderson Cooper: Those are called carbon offsets?

Bill Gates: Right. So you know, it's costing like $400 a ton. It's like $7 million. 

Anderson Cooper: So you're paying $7 million a year to offset your carbon footprint?

Bill Gates: Yup.

He's encouraging others who can afford it to buy carbon offsets and green products so that what he calls "the green premium," the added production cost for reducing carbon emissions, will go down and quality of products up -- driving the innovations that may get us to zero.

Anderson Cooper: It just seems overwhelming if every aspect of our daily life has to--

Bill Gates: It--

Anderson Cooper: --change.

Bill Gates: It can seem overwhelming.

Anderson Cooper: But you are optimistic?

Bill Gates:  Yeah.  There are days when it looks very hard.  If people think it's easy, they're wrong. If people think it's impossible they're wrong.

Anderson Cooper: It's possible.

Bill Gates: It's possible. But it'll be the most amazing thing mankind has ever done.

Anderson Cooper: That's what it has to be?

Bill Gates: Yeah. It's an all-out effort, you know, like a world war, but it's us against greenhouse gases.

Most people are off this Monday so I chose to focus on this interview Gates gave to CBS 60 Minutes.

It's an important interview, one of Bill Gates' best, and there is an important message to everyone here, especially large global pensions and sovereign wealth funds looking at the risks and opportunities of climate change. 

For me, there are three critical takeaways I got from this interview:

1. A looming climate disaster is upon us and we basically have to act decisively in the next two decades or else it's too late.
2. Government policies alone (eg. carbon taxes) will not be enough to change the trajectory the world is on, we need to embrace innovation and invest in new climate technologies.
3. Although solar and wind will be important sources of renewable energy, we need to invest more in nuclear power now to make sure we can achieve zero greenhouse gas emissions in 30 years.

Now, on all these points, I think Gates is the eternal optimist.

Yes, he's sounding the alarm but in my opinion, it's already too late.

I'm on record stating I knew the world was screwed on climate change back in 1995 when I took a course on ecological economics at McGill University which professor Tom Naylor taught (he's still around teaching this and other courses on money laundering). 

That's why when environmental zealots tell me "you know, it's all about climate change," I tell them: "Really? Where were you 25 or 30 years ago? All of a sudden the environment has become your new religion?".

Anyways, Gates thinks we have a small window to make a huge difference on the climate. I hope he's right because if we waste another 30 years dithering, we really are screwed, way beyond where we are now.

On Gates' second point, he's absolutely right, government policy alone isn't going to solve climate change. In fact, I'm completely against carbon taxes because they're regressive and hurt the people who need to drive and work to make ends meet.

People need to work, if this pandemic taught us anything, it's that there is a huge subset of the population that doesn't have the luxury of working from home, they need to hustle and are working on the front lines, pharmacies, grocery stores, food plants, restaurants, small retail stores, etc.

Work provides more than a paycheck, it provides dignity and the message is clear, we need to address climate change but we better create good jobs in the process and stop adopting silly policies that target "carbon polluters" and impact much needed jobs in those industries.

Instead of always pointing the finger at Alberta, let's adopt climate technologies that reduce the footprint of the tar sands industries. 

AIMCo's former CEO, now Chair of Nautical Energy and Cachet Capital, Leo de Bever, has been pounding the table on this for a long time, to no avail.

Leo thinks pensions are way too timid in adopting new climate technologies and I agree.

Pensions need to be a lot more aggressive in funding new companies doing cutting edge research on new climate technologies and there, I think Canada's top ten pensions can unite to create a new venture capital fund which invests primarily in Canada and the United States with one focus only, find emerging climate technologies.

What about Bill Gates' third point on investing in more nuclear power plants?

Again, I agree 100% and have been very vocal on my blog about all these Canadian pensions investing in solar and wind farms, namely, it's great at the margin, these are long term profitable investments, but if Canada's pensions really want to make a difference, they'd band together and with large engineering firms to invest in more nuclear power plants.

In the interview, Bill Gates said:

[...] he's a big believer in wind and solar and thinks it can one day provide up to 80% of the country's electricity, but Gates insists unless we discover an effective way to store and ship wind and solar energy, nuclear power will likely have to do the rest. Energy from nuclear plants can be stored so it's available when the sun isn't shining and the wind isn't blowing. 

I think he's way too optimistic on his 80% target coming from solar and wind (given where we are now, we'll be lucky to achieve 50% over next decades) but he's right that nuclear power will be needed and it can provide an important source of renewable energy.

Nuclear power now provides 20% of the US electricity generation, natural gas and coal provide 65% (we still need coal for a very long time), solar and wind only 9% (but obviously growing fast).

The problem with nuclear power plants is they take a long time to build and you need to build them somewhere and are always met with the NIMBY reaction (not in my backyard).

But it's been a long time since Chernobyl and Fukushima, we've learned a lot from those disasters and nuclear is actually a lot safer now than it has ever been, even before you take Bill Gates' new investment into account.

Among Canada's large pensions, only one, OMERS, counts a nuclear power plant among its infrastructure portfolio companies (Bruce Power, a great company).

I know, there are legacy reasons as to why Bruce Power is owned by OMERS, but my point is very simple, if Canada's large pensions truly have a very long investment horizon, why aren't they investing more in nuclear power plants?

I know, solar & wind are sexy, quick, you can invest a large amount and reap rewards a lot quicker, but that still doesn't answer my question" why aren't Canada's large pensions banding together and with large engineering companies to invest more in nuclear power where there is a much better match to long dated liabilities?

Lastly, I encourage Bill Gates, Jeff Bezos and other super wealthy billionaires to not only enlist "scientists" in their battle to against climate change, but economists like Tom Naylor and Leo De Bever, environmentalists like Michael Shellenberger and moral philosophers like Charles Taylor and Martha Nussbaum.

The problem with all these billionaires is they think they hold a monopoly of wisdom on the most pressing issues of our time because of their unfathomable wealth.

They don't. They're fabulously wealthy and that often clouds their judgment and leads them to believe they are a lot more informed than others on humanity's more pressing issues and how to confront them in a fair and equitable way.

To be blunt, these billionaires including Bill Gates need a good dose of humble pie and they need to surround themselves by real intellectuals who can challenge their thinking on many important social and environmental issues.

In that regard, Gates and his ilk are hopeless technocrats who think innovation is the answer to all social ills (innovation without judgement leads to massive inequality and more social problems). 

Anyway, take the time to watch Bill Gates' 60 Minute interview here, it's excellent.

Below, Bill Gates speaks with GeekWire reporter Lisa Stiffler about his new book, “How to Avoid a Climate Disaster.” In the book, due out Tuesday, he presents an ambitious but achievable plan for saving the planet, including scientific and technological breakthroughs, and unprecedented efforts on a global scale. In many ways, this is even better than the 60 Minutes interview.

And Michael Shellenberger, co-founder and Senior Fellow at the Breakthrough Institute, where he was president from 2003 to 2015, and a co-author of the Ecomodernist Manifesto, discusses why he changed his mind on nuclear power. Great talk, listen to his insights.

AIMCo is anticipating a robust economic rebound in the next couple of years before growth rates settle back towards long-term trends. That’s the premise of the investment manager’s 2021 Long-Term Asset Class Forecast.

The forecast is prepared annually to help inform clients’ strategic asset allocation decisions and to establish reasonable expectations for risks and returns over a 10-year time frame. This year, AIMCo is sharing its analysis more widely, in the interest of transparency and with the idea it may be helpful to others as the world looks towards a post-pandemic recovery.

The long-term forecast covers 18 asset classes, including equities, fixed income and private assets. 

Take the time to download and read the entire document here. 

It was prepared by AIMCo's Economics & Fund Strategy Team, under the leadership of the CIO, Dale MacMaster, and its Chief Investment Strategy Officer (CISO), Amit Prakash.

Let me first thank Dénes Németh for sending me this document and congratulate him for being promoted to the position of Vice President, Corporate Communications & Public Affairs.

Anyway, I received this document late last week but took the weekend to read through it as it's not a quick read. 

I think it's worth posting the joint CIO and CISO message below:

Carefully devising strategic asset allocation assumptions is paramount to generate positive risk-adjusted outcomes for client portfolios. In this spirit, we are pleased to present the 2021 AIMCo Long-Term Asset Class Forecast. This exercise is a collaborative endeavour across AIMCo to construct a cohesive, long-term view to be used by our clients in their asset-liability discussions and actuarial deliberations. Long-term financial returns are underpinned by robust building blocks that are more stable than on shorter time investment horizons. These characteristics are supportive of long-term capital market assumptions as a reliable process to align clients’ long-term objectives and their long-term portfolio allocations. 

Certainly, from a short-term perspective, the COVID-19 pandemic has materially changed the world. Various economic sectors have been hit particularly hard, potentially requiring a restructuring in certain cases. Having learned some useful lessons during the Global Financial Crisis (GFC), policymakers across the globe reacted in an unprecedented and concerted manner to provide fiscal and monetary stimulus. They worked towards alleviating cash crunches for households and extended loans and bailouts thereby preventing going concern businesses from failing. In the footsteps of this unprecedented, whatever-it-takes stimulus approach, global markets have rebounded handsomely from the sharp drop of mid-March 2020.

Although the path could reveal itself to be a bumpy one, under the lens of a longer time horizon, the global economy is likely to recover. In the short-term, however, a rise in public spending has hit public finances similarly to past wars — government deficits have been pushed to levels not seen since the two world wars of the twentieth century. Furthermore, debt burdens have increased for many households and corporations, although the cost of debt has diminished due to lower interest rates. Optimistically, even with virus cases rising entering 2021, the advent of vaccines becoming more widely distributed could support a significant economic rebound accompanied by job growth, rising household and business incomes and expanding demand for goods and services. These elements should lead pressures on government finances to gradually abate and to a broader acceleration of prices and wages from depressed levels in the medium term. As such, we remain relatively constructive on the economic and market outlook over the next decade.

Many ongoing structural trends, such as an aging population in much of the developed world, are likely to continue slowing productivity growth. Such challenging economic trends are now compounded by the once-in-a-century shock induced by the pandemic, firmly leading to lower global trend growth onwards compared to what was experienced before the GFC. With monetary policy expected to be at the lower bound in terms of interest rates for the first few years of the next decade before tightening, financial conditions should remain supportive of risky markets, including equities and illiquid assets, such as real estate, infrastructure, private equity and renewable resources. 

In equity markets, however, valuations have rebounded post-March 2020 to rich levels in the footsteps of the consensus for moderate, albeit volatile, long-term economic growth. Furthermore, the increased focus on resolving social and economic inequalities from various governments might result in policies which could put upward pressure on wages, reversing past trends in high corporate margins. Combined with lower-trend economic growth, this points to more challenged equity returns over the next 10 years. In this scenario of gradually improving economic fortunes, bond yields are also expected to increase moderately over time. 

We look forward to discussing our long-term capital market assumptions with all clients and continuing the fruitful dialogue surrounding their impact on long-term portfolio construction. 

There's a lot of food for thought in this small comment, way more than I can properly cover here but I do suggest my readers look at my comments on why Canada's largest pension sees risk of inflation and my more recent comment on whether another commodities supercycle is upon us.

Importantly, there is tremendous fiscal and monetary stimulus, a normal response to the pandemic, but I remain very careful forecasting long term inflation trends.

As I keep warning my readers, don't confuse cyclical inflation pressures (from lower US dollar and rising oil prices) with secular inflation pressures that can only come from sustained wage gains.

Having said this, both inflation expectations and growth rates are positive and will put pressure on long bond yields.

Can US long bond yields back up more in the second half of the year? Yes, as the vaccine rollout goes smoothly there and across the developed world, we can see a pickup in US and OECD growth and this will put upward pressure on yields.

When will we reach pre-pandemic levels of growth? According to the nonpartisan Congressional Budget, the US jobs market will return to pre-pandemic levels in 2022:

U.S. economic growth will recover “rapidly” and the labor market will return to full strength more quickly than expected, thanks to the vaccine rollout and a barrage of legislation enacted in 2020, according to a government forecast published on Monday.

Gross domestic product, or GDP, is expected to reach its previous peak in mid-2021 and the labor force is forecast to return to its pre-pandemic level in 2022, the nonpartisan Congressional Budget Office said.

Importantly, the CBO said its rosier projections do not assume any new stimulus, including President Joe Biden’s $1.9 trillion stimulus plan.

Here’s what the CBO sees for the U.S. economy:

• Real GDP to grow 3.7 percent in 2021
• GDP growth to average 2.6 percent over the next five years
• The unemployment rate to fall to 5.3 percent in 2021, and further to 4 percent between 2024 and 2025
• Inflation to rise to 2 percent after 2023
• The Federal Reserve to start hiking the federal funds rate in mid-2024
• Upgrades the economic outlook through 2025

These projections are a stronger outlook than the budget office’s prior forecast from summer 2020, when the CBO said it expected the coronavirus to sap about $7.9 trillion of economic activity over the next decade-plus.

The CBO said it upgraded its estimates “because the downturn was not as severe as expected and because the first stage of the recovery took place sooner and was stronger than expected.” CBO staff added that businesses proved more able to adapt to government-imposed restrictions, but that certain industries — like hospitality and food services — are still struggling.

Regardless, the rapid expansion the CBO projects for the next five years is expected to moderate in the five years thereafter, amid an uptick in prices and a more normal level of long-term consumer spending.

Between 2026 and 2031, the CBO foresees real GDP growth of about 1.6 percent annually and the Fed allowing inflation to run above its 2 percent target.

The office also issued some analysis of the recent, $900 billion stimulus package that Congress passed in December. CBO estimates that the pandemic-related provisions in that legislation will add $774 billion to the deficit in fiscal year 2021 and $98 billion in 2022.

Those provisions will boost the level of real GDP by 1.5 percent, on average, in calendar years 2021 and 2022, CBO estimates.

The CBO’s outlook comes at a precarious time for the economy as the coronavirus prompts many states to impose business closures and other social-distancing measures to help slow the spread of the disease.

Economists say the economy suffered a brief, but sharp recession in 2020 as the unemployment rate spiked to 14.8 percent in April and growth contracted 31.4 percent in the second quarter. Covid-19 has killed more than 440,000 Americans, according to data compiled by Johns Hopkins University.

While the economy has come a long way since then, both Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell have in recent months warned that Congress may need to pass additional stimulus to support households and business until the Covid-19 vaccine is more widely available.

According to the latest reading, the U.S. employment rate stood at 6.7 percent in December. The Labor Department is scheduled to publish the next look at the employment situation this Friday.

Now, how high can US long bond yields go? Maybe we hit 2% on the 10-year Treasury note yield in 2022 and that's only if everything goes well all over the world and there's no negative shock in Europe or emerging markets.

Remember, as US growth picks up, the US dollar will rebound, placing pressure on some growth markets which have been on a tear over the last year.

If long bond yields all over the world remain negative or at record lows, it places pressure on US long bond yields, capping any backup in yields.

And even the CBO states inflation will rise to 2% after 2023, and I believe this is an optimistic forecast.

‘This is not inflation’: Economist says expectations are unanchored from reality https://t.co/DGT6rLaZqS

— Leo Kolivakis (@PensionPulse) February 17, 2021

As far as the massive stimulus we are seeing -- both monetary and fiscal -- they were needed but are also causing massive distortions in wealth, exacerbating inequality, and that too constrains growth in the future.

All this stimulus, however, isn't leading to the economic recovery most have hoped, at least not yet. 

Still, it is occurring, all over the world, and bond markets are taking notice.

One thing that worries me a little is what happens if long term bond yields all over the world start rising way too fast. This will kill the recovery.

I don't think it will happen but markets tend to surprise you when you least expect it.

Anyway, enough of my thoughts, let's get to AIMCo's long term forecasts for each asset class:

As you can see, AIMCo's aggregate balanced fund is expected to achieve a 4.9% annualized return over the next decade.

The highest expected returns are in private markets -- Private Equity, Real Estate, Infrastructure and Renewable Resources -- all of which are expected to return between 6% (Canadian RE) and 10% (for PE). 

Of course, this led a cynical friend of mine to state "how convenient, private markets are where the highest returns are expected, where they can manipulate benchmarks to proclaim they added a lot of value over time."

But I submit, it's not just about private markets and fudging benchmarks, it's the approach in private markets that counts now more than ever at AIMCo and the rest of Canada's large pensions.

What do I mean? Take Private Equity and take two pensions allocating to PE, one solely through fund investments and the other other through funds and large co-investments.

Canada's large pensions take the second approach to reduce fee drag and to maintain their allocation to PE. It's not just economical, it's a superior approach in every sense but to do it properly, you need to hire talented people who are able to analyze co-investments quickly and diligently.

Anyway, back to AIMCo's long-term asset class forecasts. This year, AIMCo factored in climate change to its long-term forecasts:

I will let you read the details but it is an interesting analysis and climate change will impact all asset classes over the long run, negatively and positively.

Alright, let me wrap it up there, once again, please take the time to download and read AIMCo's 2021 Long-Term Asset Class Forecast here.

Every pension fund does this but at least AIMCo shares its analysis and results. It's an important exercise but it's not an easy one, a lot of things can and will happen over the next decade to change the final results (ie. the gap between expected returns and actual returns can be very wide if things go wrong).

Still, I encourage everyone to read the report to understand the building blocks of each asset class and how they come up with their expected return.

I applaud AIMCo’s Economics & Fund Strategy Team, Dale MacMaster and Amit Prakash for writing a thorough report with an excellent analysis as to how they derive their conclusions.

Below, Carl Weinberg, chief economist at High Frequency Economics, says inflation expectations are "unanchoring" from reality as a result of higher energy costs, arguing that true inflation in the US is a long way off.

And everyone knows Jeremy Grantham as the face of GMO, the behemoth money manager that has become legendary for its work on asset allocation, but Ben Inker, head of asset allocation at GMO since 1998, seems to be next in line for the throne. 

In this interview with Ed Harrison, Inker helps viewers make sense of the post-COVID investment landscape from the perspective of a major asset allocator. Together they discuss everything from the future of the 60/40 portfolio to bonds as an asset class in this new low rate world. They also dig in to US vs. non-US assets, the trouble with popular ex-post facto explanations for FAANG outperformance and narrative bubbles like Tesla, and why the financial sector can be so difficult to value. 

This interview was filmed on September 21, 2020. I wonder what he thinks nowadays.

Greystar has raised A$1.3bn (€830m) for the Greystar Australia Multifamily Venture Fund I (GAMV I) fund in its second and final close.

GAMV I, which raised A$370m in February last year, is a four-way partnership with three institutional investors, including Dutch pension fund manager APG and Ivanhoé Cambridge, and plan to potentially invest up to A$5bn in built-to-rent apartments in Australia.

Chris Key, managing director, Greystar Australia, told IPE Real Assets that the third investor was a “large European” pension fund. APG was the first investor in the partnership, and Greystar had a modest stake in the venture, he said.

“We have seeded the fund with two projects in Melbourne. One is a 686-apartment project on adjoining sites in South Yarra, and the second is a separate site for 700-apartments in South Melbourne.”

Key said the fund was actively looking for sites in Sydney. “Our ambition is to close on a number of those deals this year.”

The focus of the new fund would be on key gateway cities, starting with Melbourne and Sydney, then, the economics permitting, Perth, Adelaide, Brisbane and Canberra.

“Looking out 10 years,” he said, “with our equity backing and debt, we are looking at creating a portfolio of at least A$4bn, closer to A$5bn,” Key said.

Today, Ivanhoé Cambridge, CDPQ's massive real estate subsidiary posted this on Linkedin:

We have entered Australia's build-to-rent housing sector alongside Greystar and APG through a new investment vehicle, Greystar Australia Multifamily Venture I (GAMV I), with capital commitments of A$1.3 billion.

It will focus primarily on the Sydney and Melbourne markets to deliver a new generation of high-quality, purpose-built rental housing with best-in-class services and amenities to meet the rapidly evolving needs of the rental cohort.

The importance of rental housing is a key global conviction for Ivanhoé Cambridge, and the partnership is also an opportunity to increase our exposure to Australia.

This is an excellent long-term deal in Australia alongside APG, a well-known Dutch pension fund, and Greystar, a partner of choice for large pensions looking to invest in multifamily properties all over the world.

Recall, a couple of weeks ago, I discussed CPPIB's big investments in real estate and renewables and mentioned another deal with Greystar in the US:

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.

As I stated back then, pandemic or no pandemic, people need to live somewhere and multifamily properties remain a great option for people who can't afford a home and are looking to rent a nice property.

Also, post-pandemic, there will be a new normal between working from home and working at the office, which is another reason why Canada's large pensions are focusing more (but not exclusively) on multifamily properties.

Pattering up with Greystar, a global leader in developing, managing and operating multifamily properties is a very wise decision.

In other real estate news this week, QuadReal, BCI's real estate subsidiary, announced an $800 million logistics partnership with GPT:

The GPT Group (“GPT” or “Group”) today announced it has entered into a strategic partnership with QuadReal Property Group (“QuadReal”), with the establishment of the GPT QuadReal Logistics Trust.

The 50:50 joint venture has an objective to acquire and develop a high quality portfolio of Australian prime logistics assets, with an initial targeted investment of $800 million.

GPT Managing Director and CEO, Bob Johnston, said: “Growth of our Logistics portfolio is a core focus for GPT and we have made strong progress in securing development and investment opportunities in the sector. The logistics market continues to benefit from structural tailwinds driven by growth in ecommerce, food and pharmaceuticals distribution and the recovery in the housing market. GPT is delighted to be building a significant capital partnership with QuadReal that will leverage GPT’s brand and track record in the sector to create value for both parties.”

Peter Kim, QuadReal Managing Director, International Real Estate, Asia adds: “We could not be more aligned with the GPT team. We share a commitment to the fundamental reasons to expand logistics opportunities for the tenants with whom we partner. We also share a commitment to how we will do business together as both organizations consider the best for today and tomorrow in design, execution, environmental stewardship and the relationships we foster.”

The partnership launches with more than 20 per cent of the targeted investment committed across two assets. This includes the acquisition of a $137 million fund-through¹ development at Truganina in Melbourne’s west, and a $38 million speculative logistics development at Metroplex Place, Wacol in Brisbane.

The partnership provides an opportunity for both GPT and QuadReal to accelerate the growth of logistics assets under management. GPT has been appointed to provide investment management, capital transaction, property management and development services to the joint venture, leveraging the Group’s strong track record in logistics development and asset management. QuadReal brings its own extensive experience in the industrial sector, owning and managing more than 80 million square feet (7 million square metres) of single-and-multi-tenant industrial buildings across the globe. The organizations share an aligned commitment to environmental, social and governance (ESG) initiatives, which will be incorporated into the joint venture’s activities.

GPT Head of Office and Logistics, Matthew Faddy, said: “The value of the GPT Logistics portfolio has doubled since 2017 to $3.0 billion, and we continue to achieve strong growth through successful developments and targeted acquisitions. As we look to continue driving growth in the Logistics sector we are pleased to partner with a global real estate investor in QuadReal.”

¹ Subject to Foreign Investment Review Board approval

About The GPT Group

The GPT Group is one of Australia’s largest diversified property groups, listed on the ASX and a constituent of the S&P/ASX 50. GPT owns and manages a $24.4 billion portfolio of retail, office and logistics property assets across Australia. The Group’s logistics portfolio consists of 41 prime logistics assets, totalling in excess of 1,000,000 square metres leased to more than 80 tenants. In 2020, the logistics portfolio grew to $3.0 billion with 165,200 square metres of new facilities developed and acquired. The Group has a pipeline of development projects with an expected end value of approximately $1 billion.

www.gpt.com.au

About QuadReal
Headquartered in Vancouver, Canada, QuadReal Property Group is a global real estate investment, operating and development company. QuadReal manages the real estate and mortgage programs of British Columbia Investment Management Corporation (BCI), one of Canada’s largest asset managers with a $171.3 billion portfolio. QuadReal manages a $44.2 billion portfolio spanning 23 Global Cities across 17 countries. The company seeks to deliver strong investment returns while creating sustainable environments that bring value to the people and communities it serves.   Now and for generations to come.

QuadReal: Excellence lives here.

www.quadreal.com

Notice the target market is Australia here too but this time, the focus is on logistics properties, signing a joint venture with The GPT Group in Australia, another solid real estate partner with an expertise in developing and managing logistics properties.

Why logistics? Well, the growth of e-commerce all over the world, especially during the pandemic, explains why.

GPT Managing Director and CEO, Bob Johnston, states it clearly: 

“Growth of our Logistics portfolio is a core focus for GPT and we have made strong progress in securing development and investment opportunities in the sector. The logistics market continues to benefit from structural tailwinds driven by growth in ecommerce, food and pharmaceuticals distribution and the recovery in the housing market. GPT is delighted to be building a significant capital partnership with QuadReal that will leverage GPT’s brand and track record in the sector to create value for both parties.”

In QuadReal, GPT gets a solid long-term partner to help it expand its operations well into the future and in return, QuadReal gets a solid partner to help it participate in the growth of Australia's economy through logistics and other properties.

I'm actually quite impressed with QuadReal, Dennis Lopez and his senior team are doing a great job diversifying BCI's real estate portfolio outside of Canada (Gordon Fyfe, BCI's CEO, was smart to recruit him).

Lastly, OMERS' real estate subsidiary, Oxford Properties, has been very busy this year.

Three weeks ago, Richard Lowe of I&PE Real Assets reported it bought fund manager M7 as it plans to pump £3bn into European logistics:

Oxford Properties Group, the real estate arm of Canadian pension fund OMERS, has confirmed that it is buying European fund manager M7 Real Estate.

The C$80bn (€51bn) real estate investor said it was making the acquisition as part of plans to deploy £3bn (€3.33bn) into multi-let industrial and urban logistics across Europe.

M7 Real Estate, which manages about €4bn of assets on behalf of third-party investors, will continue to operate as a standalone business, led by co-founders Richard Croft and David Ebbrell.

Under the new ownership, the company will have access to a greater pool of capital for both real estate and corporate investments.

“Oxford had previously stated its ambition to deploy £3bn of capital into the European logistics sector, and the acquisition gives it immediate scale to do so,” the investor said.

“Oxford will also benefit from M7’s management team’s expertise when considering additional corporate or portfolio acquisitions that might provide it with further access across these target sectors.

“The acquisition of M7 also presents opportunities for Oxford’s investment partners to deploy capital in the much sought-after European logistics sector and grow M7’s third-party capital under management.”

It is not the first time that Oxford Properties has acquired a fund management business. In 2018, it beat Blackstone in a bidding war for the Investa Office Fund in Australia and in November 2020 bought a stake in Investment Office Management Holdings.

Oxford Properties likened its purchase of M7 to that of Investa, and other corporate acquisitions including UK build-to-rent operator Get Living and IDI Logistics in the US.

Jo McNamara, executive vice president for Europe at Oxford Properties, said: “This transaction is a perfect example of how Oxford is creative with its capital to access opportunities in the asset classes and geographies where we have highest conviction.

“We can purchase properties and portfolios, develop, invest in debt or equities, and acquire businesses, all in service of our capital allocation priorities.”

She added: “Across the globe, our investment partners are increasingly asking us to access the opportunities presented by the Oxford platform and portfolio of businesses. Our acquisition of M7 also allows our partners to invest capital with a best-in-class management team in a sector with great growth prospects.”

M7 Real estate was established in 2009 by former Halverton executives to invest in light industrial and urban logistics in Europe. Today, it has 225 employees in 14 countries and manages a portfolio of 620 assets.

McNamara said: “M7 is a market-leading platform, led by a highly ambitious and entrepreneurial management team that has deep-rooted expertise in the sector, through which we intend to significantly expand and accelerate our investment in this asset class across Europe.”

Croft, executive chairman at M7 Real Estate, said: “From a standing start 11 years ago, we have built M7 into a market-leading investment management business with over €4bn of assets under management.

“This transaction provides us with the support and resources of a significant global real estate investor which shares both our entrepreneurial ethos and our strong ambition to grow the M7 business substantially over the next few years to create a truly world-class industrial-focused asset and investment management platform.”

Jo McNamara definitely knows what she's doing and this deal will allow Oxford Properties (OMERS) to significantly ramp up its logistics properties across Europe.

When you don't have enough people in a region, the best way to ramp up operations is to buy a fund, allow the current managers to continue operating and provide them them with long-term capital to finance their new acquisitions.

What else caught my attention? A week ago, Oxford Properties signed three life sciences leases, totaling 113,000 square feet at Pappas Way in Boston:

Oxford Properties Group announced it has signed 113,000 square feet of new life sciences leases at 645 Summer Street, a lab and innovation building at Pappas Way in Boston.

645 Summer Street is now 100 percent leased. Deals include:

• A renewal and expansion for a 75,000 square foot, 10-year lease with Akouos, a precision genetic medicine company dedicated to developing gene therapies with the potential to restore, improve, and preserve hearing for individuals living with disabling hearing loss;

• A 21,000 square foot, 5-year lease with Ikena Oncology, a biotech company discovering and developing targeted oncology and immunometabolism therapies for cancer patients who need life-saving treatment; and

• A 17,000 square foot, 5-year lease with Monte Rosa Therapeutics, a biotech company developing cancer therapeutics that modulate protein degradation pathways.

“Oxford has great local insights into Boston’s leading life sciences market. We also have the sector expertise and tailored, state-of-the-art lab and bio-manufacturing space to help established and emerging companies advance their mission-driven work,” said Abby Middleton Mondani, director of leasing, at Oxford. “These relationships are emblematic of our growing life sciences business, a key area of expansion for Oxford, and our ability to create a dynamic ecosystem for businesses doing important research and development. We welcome Ikena Oncology and Monte Rosa as customers and are pleased Akouos can double its size within 645 Summer Street to more efficiently support development of potential gene therapies for treatment of disabling hearing loss.”

“Akouos has been a part of the dynamic life sciences ecosystem in Boston since our founding in 2016. In collaboration with Oxford at 645 Summer Street, we continue to expand our research and manufacturing infrastructure to support the development of genetic medicines with the potential to address a broad range of inner ear conditions,” said Manny Simons, Ph.D., founder, president, and CEO of Akouos. “We are grateful to have found a space that supports our growing team in its mission to make healthy hearing available to all.”

In 2019, Oxford Properties and Pappas Enterprises partnered to own and operate Pappas Way, a 42-acre business park between South Boston and the Boston Seaport District. It currently consists of nine industrial and lab buildings, an open-air pedestrian route along the waterfront, and public green space offering scenic views of the Reserved Channel.

Growing a substantial life sciences business is one of Oxford’s highest conviction investment strategies and top priorities across its business in 2021. In North America, the initial focus will be on Boston, as well as the San Francisco Bay Area, San Diego, and other emerging locations that Oxford has early excitement over. Beyond North America, Oxford is also reviewing opportunities across Europe as it looks for global exposure to the asset class.

Over the past few years, it has built expertise in the space and deployed capital into the sector through a variety of equity and credit investments and, in the past month, has purchased four assets in Boston and San Francisco for $275 million with a further $500 million of follow-on investment in those assets.

Carolyn Wheatley, Meredith Christensen, and Jeff Landers of CBRE represented the landlord in these transactions. Connor Barnes, Deanne Munger and Sharon Joyce of Cushman & Wakefield represented Akouos.

This is another great real estate deal in Boston, a hub for life sciences and AI.

Recall, I recently covered PSP Investments' big Boston lease with Amazon, and discussed how the presence of Harvard, MIT, top tech companies are all very attractive features of that city but it's also known as a leader in life sciences.

Third, one of Oxford Properties major buildings, 50 Hudson Yards, just topped out at 1,011 feet: 

One of the largest office buildings in New York City officially topped out this month. The Foster + Partners-designed 50 Hudson Yards reached its 1,011-foot summit last week, becoming the city’s fourth-biggest office tower by square footage. Developed by Related Companies and Oxford Properties Group, the 2.9 million-square-foot stone and glass structure completes phase one of the Hudson Yards mega-development.

In November 2019, Facebook signed a lease for 1.5 million square feet across three buildings, including 30 Hudson Yards, 55 Hudson Yards, and 50 Hudson Yards. The bulk of the tech company’s lease includes 1.2 million square feet at 50 Hudson Yards.

Asset management company BlackRock will occupy 970,000 square feet across 15 floors, leaving about 25 percent of the office space at the building unleased. The developers expect 50 Hudson Yards to open next year.

“The topping out of 50 Hudson Yards, on schedule despite a global pandemic, underscores the incredible construction team who remained committed to robust safety precautions as they redefined the City skyline,” Bruce A. Beal Jr., president of Related Companies, said.

“New York City has long been one of the world’s centers of innovation and commerce and we know this city’s best days are still ahead, fueled by a new generation of modern office space that will continue to attract the best companies and talent.”

Taking up a full block between Hudson Boulevard and Tenth Avenue between 33rd and 34th Streets, the 58-story office tower will boast massive open floor plates ideal for “large trading floors and other collaborative work,” with space for 500 employees on each floor, according to a press release.

The lobby of the building, which faces the Hudson Yards public square and the 7 subway station, features two artworks by Frank Stella. Tenants will also benefit from its high ceilings and panoramic Hudson River views and amenities like a private porte-cochère, sky lobbies, and outdoor terraces.

Despite pandemic-related delays, commercial construction projects have continued. Nearby, Bjarke Ingels’ office tower the Spiral topped out last month at 66 Hudson Boulevard. The 1,301-foot-tall building contains 2.8 million square feet of office space and ground-floor retail. And late last year, One Vanderbilt, the 77-story skyscraper next to Grand Central, officially opened its doors.

Beautiful building, who wouldn't want to work there?

Let me end by noting AIMCo also entered into a few real estate deals recently. 

In December, on behalf of certain of its clients, and Canmoor it completed the off-market acquisition of 10 urban industrial estates in the U.K. from Starwood Capital Group and Barings:

The portfolio consists of high-quality warehouse properties totalling 1.6 million square feet, located in major urban conurbations including Oxford, Birmingham, Newcastle and Glasgow.

The estates typically comprise mid-size units ranging from 5,000 to 30,000 square feet that serve last-mile delivery/trade counter/storage functions. The acquisition positions AIMCo and Canmoor to capitalize on the continued growth of online retailing, heightened by the COVID-19 pandemic, set against the low supply of new industrial estates. The portfolio is approximately 95% let to more than130 individual tenants.

“We continue to have strong conviction in the U.K. urban industrial market. Occupational demand remains strong, set against a backdrop of very limited new supply and low vacancy. This portfolio complements our existing U.K. industrial exposure and is well positioned to capture future growth in the sector. We look forward to working with Canmoor to create additional value in the portfolio,” commented Rupert Wingfield, AIMCo’s Head of European Real Estate.

More recently, Oxenwood and AIMCo acquired a prime London development site:

Oxenwood Real Estate, the UK and European real estate investment management firm, and its joint venture partner, Alberta Investment Management Corporation (AIMCo), on behalf of certain of its clients, have acquired a prime, last-mile logistics development site in west London.

The joint venture, which was set up at the beginning of 2017, targets value-add logistics opportunities in the UK.

The 4.7-acre site at 16 Eastman Road in Acton has been acquired from the occupier, RSN Property Limited. The site comprises a 100,000 sq ft milk processing and bottling facility, which has been leased back to RSN, the UK’s largest independent processing dairy, to allow the relocation of RSN’s business.

Oxenwood will work up plans for a new 100,000 sq ft facility, which it will aim to pre-let to a single occupier.

Jeremy Bishop, co-founder of Oxenwood, said: “AIMCo has been a partner for nearly four years, during which time the logistics market has become one of the most attractive real estate sectors. We are delighted to be adding this new asset as part of our plans to grow the portfolio. The off-market transaction represents a superb opportunity to acquire a prime development site in the London market. During the leaseback period, we will look to identify an occupier with whom we can work to deliver a high-quality last-mile facility”.

Rupert Wingfield, AIMCo’s Head of European Real Estate commented: “We are very pleased to have secured this redevelopment site in Acton.  The location offers easy access to the M4 and M40 motorways and is surrounded by densely populated, affluent London boroughs, thereby offering future potential logistics occupiers the perfect opportunity to ‘shorten the last mile’. We look forward to working with Oxenwood over the coming years to deliver this exciting project”.

Alright, I just gave you a glimpse of how Canada's large pensions are investing in foreign real estate.

There are too many deals to cover in one post but the key thing I want to bring to your attention is that our large pensions are diversifying outside of Canada and they're partnering up with the right companies and funds to invest in the best properties all over the world.

I encourage my readers to go see the following websites for more news on other deals:

• Ivanhoé Cambridge news
  
• QuadReal news
• Oxford Properties news
• Cadillac Fairview news

Lastly, a senior pension fund manager told me I was a bit rough on Daniel Fournier, the former CEO of Ivanhoé Cambridge in some of my comments on the writedowns that CDPQ needed to take on its large retail real estate portfolio.

I probably was a bit rough on him but I still believe he could have done more when he was in charge to drastically reduce those investments.

It doesn't mean the man wasn’t good, he was excellent and did a lot of good things while he was at the helm of Ivanhoé Cambridge and worked very closely with Blackstone's Jon Gray and others to invest across the globe, I just think more needed to be done on CDPQ's non performing retail assets a long time ago.

Mr. Fournier is now the Chancellor of Bishop's University and I hope he's enjoying that experience (I did summer school there when I was 12-years-old to improve my French and loved it.

If Mr. Fournier or others want to write a guest comment on real estate, by all means, the forum is theirs.

Below, Davina Rooney of Green Building Council of Australia talks with Mark Fookes, Chief Operating Officer of The GPT Group, on what they are doing to reduce their carbon footprint.

I also embedded a cool clip on the construction of 50 Hudson Yards in New York City.

Sovereign wealth and public pension funds are bolstering their funding of private debt, with close to $9 billion committed since the COVID-19 crisis as they hunt for yield and their ample liquidity allows them to take on more risk than banks.

Most recently, Saudi Arabia's Public Investment Fund said last week it had become an anchor investor in a new $300 million shariah credit fund. Queensland Investment Corp (QIC), an investment arm of the Australian state, last month became the latest state-owned investor to launch a private debt team.

Last year marked a tricky time for the asset class. Private- debt fundraising declined substantially and commitments to direct lending, the largest chunk of it, fell by more than half.

But as the uncertainty surrounding the pandemic lifts, activity is expected to pick up in 2021. State-owned investors with their deep pockets and long-term investment horizons are at the forefront.

"Now we are seeing real interest from sovereign and pension funds that wasn't there a couple of years ago," said Antoine Josserand, head of business development at pan-European private credit manager Pemberton Asset Management, which counts both types of investors as clients.

"It's a reflection of the fact that they recognize the merit in terms of diversification of their alternative asset bucket. Others, as part of their fixed-income portfolio, are trying to find the best relative value they can in the current negative rate environment."

With interest rates near zero in the pandemic's aftermath, many are tempted by the yield pick-up offered by private debt, with estimated returns over a 20-year period of close to 9%, more than U.S. equity or corporate high-yield benchmarks, according to PitchBook data.

"They are doing it because conventional asset classes are not giving the returns they have historically delivered," said Andy Cairns, head of corporate finance of First Abu Dhabi Bank, the biggest lender in the United Arab Emirates, home to state-owned investors Abu Dhabi Investment Authority (ADIA) and Mubadala Investment Co, both active in private debt.

Many funds choose external partners to manage their portfolios or invest alongside. Others, such as ADIA and now QIC, also have in-house specialists. QIC's team will look after the origination, analysis and management of private debt, initially in infrastructure assets.

The operations will act as a source of financial stimulus for sectors like infrastructure, real estate and companies rebuilding after COVID-19, QIC said.

The asset class has grown from 2% of portfolios in 2015 to 3.2% in 2020 among the top 10 state-owned investors, according to Global SWF, an industry data specialist. State-owned funds have allocated close to $9 billion to private debt since the pandemic, according to its data.

"Sovereign investors benefit from lower liability constraints that enable them to take on more liquidity risk than banks," Global SWF said.

Across all investors, fundraising for distressed debt and credit special situations, such as for growth capital and balance sheet restructurings, rose during 2020 to $37.3 billion, PitchBook data showed.

Qatar Investment Authority is generating strong returns on a multi-billion dollar bet it made on distressed debt, sources told Reuters last month.

So far, there has been little sign of investors being burned, with no wave of payment defaults after the COVID crisis. Still, mark-to-market values for private debt funds fell during the pandemic's immediate aftermath.

"Early indications point to a modest recovery in subsequent quarters, but the full extent of the damage to portfolios won't be known until later in 2021," Dylan Cox, a private capital analyst at PitchBook, wrote in a research report.

Interestingly, three weeks ago, PitchBook released its 2020 Annual Global Private Debt Report where it stated private debt is primed to bounce back in 2021 after a pandemic plunge:

The number of new private debt funds dropped to a nine-year low in 2020, while the amount of new capital raised sunk to its lowest point in five years. Some investors were wary of the market chaos caused by the COVID-19 pandemic. Others had coffers that were already well-stocked after a glut of major funds in recent years.

But last year's decline is more likely to be a blip than the beginning of a significant shift in the market, according to PitchBook's 2020 Annual Global Private Debt Report, sponsored by Tree Line Capital Partners. Among the other key takeaways:

• A slump in direct lending fundraises played a key role in last year's decline, with new fund count falling more than 50%

• Other major strategies, including distressed debt and special situations funds, saw annual increases in capital raised

• Quarterly IRR for private debt funds was -6.2% in Q1, a sign of the toll taken by the pandemic on fund valuations
  

A quarterly IRR of -6.2% in Q1 2020 is bad given what unfolded in markets last March. 

I've already discussed pensions' love-hate relationship with private debt.

A full discussion of the asset class is beyond the scope of this post but I do recommend you read a short comment by Next Edge Capital on The Case for Private Lending. 

In fact, here is the gist of that comment, first on the benefits and who invests in the asset class:

After I worked at PSP Investments, I worked a couple of years at the Business Development Bank of Canada (BDC), so I saw firsthand the risks and opportunities of private lending to Canada's small and medium sized businesses (the BDC is a complementary lender to banks and takes part in syndication deals too).

For regulatory and other reasons, big banks retrenched from direct lending and that created a void large private equity funds and pension funds filled.

And this is happening all over the world. For example, last summer, Bloomberg reported how KKR & Co., Asia’s largest private equity investor, said the region’s entrepreneurs are seeking more direct loans as the coronavirus pandemic dries up other avenues of funding.

Flush with liquidity, large private equity funds are only too happy to lend to cash starved businesses, for a nice yield, of course. 

If anything goes wrong, they structure the loans in ways to make sure they and their investors are protected as much as possible. 

Now, very large Canadian pensions invest with these large private equity funds doing direct lending and some of the really large ones, like CPP Investments and PSP Investments, have their own highly sophisticated private debt operations internally.

In fact, my sources tell me what David Scudellari and his team do at PSP Investments is extremely sophisticated and their private debt operations are second to none. Others tell me the same thing about John Graham and his team at CPP Investments, they really know the private debt markets extremely well.

In any case, all of Canada's large pensions are involved in one form or another in private debt and the reason is simple, record low bond rates are forcing them to take risks to make up for the yield shortfall from traditional fixed income securities, including high yield bonds which yield less than 4%, a record low.

Are there risks in direct lending? Of course there are, the economy can tank, lenders can have trouble meeting their obligations but sophisticated teams working at Canada's large pensions know all this, they diversify their portfolios by regions and sectors. 

In a post-pandemic world, the demand for direct lending is only going up, which is why you're seeing large sovereign wealth funds and pensions double down on private debt.

Now, to be sure, with all this money coming into the asset class, competition for deals is heating up and with that, prospective returns are diminishing.

Again, this is why those who run more sophisticated operations internally are much more solid than those who over-rely on external funds to meet their private debt targets.

Also, a couple of days ago, I covered AIMCo's 2021 long-term asset class forecast and they wrote this about private debt: 

Below, on "Bloomberg Money Undercover", Bloomberg's Lisa Abramowicz talks with Randy Schwimmer, head of capital markets at Churchill Asset Management. The firm, an affiliate of Nuveen, has $6.8 billion in committed capital under management as of December.

Mr. Schwimmer explains why private credit has nothing to do with systemic risk. Great insights, listen to what he says.

The latest round of 13F filings from institutional investors is out, revealing to the world the stocks that some of the richest and most successful investors have been buying and selling.

Takeaways From 13F Season: Investors who follow particular fund managers can easily look up what each was buying and selling in the quarter, but other investors may be more interested in overall themes from 13F filings. The fourth quarter of 2020 was a big quarter for the S&P 500, and investors were likely interested in what top managers were buying and selling heading into 2021.

Google parent Alphabet has the attention of fund managers in Q4, with Tepper and Klarman selling and Soros buying.

Auto stocks have been hot in the market, and Cooperman was buying General Motors on the strength while Soros was taking profits.

Buffett took huge new positions in Verizon and Chevron, both of which pay dividend yields above 4.4%. Buffett also reduced exposure to bank stocks in the quarter, selling Wells Fargo, JPMorgan, M&T and PNC.

Several fund managers traded ETFs to play particular themes. Tepper bet on the Energy Sector by buying the XLE fund while Soros made a big bet on emerging markets by buying the EEM fund.

Here’s a rundown of how the smart money was playing some of the most popular stocks last quarter.

David Einhorn’s Greenlight Capital

Notable Q4 Buys/Increases:

• Danimer Scientific Inc (NYSE: DNMR)

• Fubotv Inc (NYSE: FUBO)

• Concentrix Corp (NASDAQ: CNXC)

• Dillard's, Inc. (NYSE: DDS)

• Sonos Inc (NASDAQ: SONO)

• Consol Energy Inc (NYSE: CEIX)

Notable Q4 Sells/Reductions:

• Intel Corporation (NASDAQ: INTC)

• Jack in the Box Inc. (NASDAQ: JACK)

• AerCap Holdings N.V. (NYSE: AER)

David Tepper’s Appaloosa Management

Notable Q4 Buys/Increases:

• Amazon.com, Inc. (NASDAQ: AMZN)

• Occidental Petroleum Corporation (NYSE: OXY)

• Energy Select Sector SPDR Fund (NYSE: XLE)

• QUALCOMM, Inc. (NASDAQ: QCOM)

• Facebook, Inc. (NASDAQ: FB)

• Microsoft Corporation (NASDAQ: MSFT)

• Twitter Inc (NYSE: TWTR)

Notable Q4 Sells/Reductions:

• PG&E Corporation (NYSE: PCG)

• Micron Technology, Inc. (NASDAQ: MU)

• AT&T Inc. (NYSE: T)

• Alibaba Group Holding Ltd - ADR (NYSE: BABA)

• Alphabet, Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL)

• Netflix Inc (NASDAQ: NFLX)

Leon Cooperman’s Omega Advisors

Notable Q4 Buys/Increases:

• Mp Materials Corp (NYSE: MP)

• General Motors Company (NYSE: GM)

• Barings BDC Inc (NYSE: BBDC)

• Energy Transfer LP Unit (NYSE: ET)

• Comcast Corporation (NASDAQ: CMCSA)

Notable Q4 Sells/Reductions:

• AMC NETWORKS INC (NASDAQ: AMCX)

Barry Rosenstein’s Jana Partners

Notable Q4 Buys/Increases:

• Laboratory Corp. of America Holdings (NYSE: LH)

• W R Grace & Co (NYSE: GRA)

• Tegna Inc. (NYSE: TGNA)

• TreeHouse Foods Inc. (NYSE: THS)

Notable Q4 Sells/Reductions:

• Callaway Golf Co (NYSE: ELY)

Jeff Smith’s Starboard Value

Notable Q4 Buys/Increases:

• ON Semiconductor (NASDAQ: ON)

• ACI Worldwide (NASDAQ: ACIW)

• Corteva (NYSE: CTVA)

• NortonLifeLock (NASDAQ: NLOK)

Notable Q4 Sells/Reductions:

• Advance Auto Parts (NYSE: AAP)

• ComScore (NASDAQ: SCOR)

Warren Buffett’s Berkshire Hathaway

Notable Q4 Buys/Increases:

• Verizon Communications Inc. (NYSE: VZ)

• Merck & Co., Inc. (NYSE: MRK)

• AbbVie Inc (NYSE: ABBV)

• T-Mobile Us Inc (NASDAQ: TMUS)

• Chevron Corporation (NYSE: CVX)

Notable Q4 Sells/Reductions:

• Apple Inc (NASDAQ: AAPL)

• Wells Fargo & Co (NYSE: WFC)

• Barrick Gold Corp (NYSE: GOLD)

• M&T Bank Corporation (NYSE: MTB)

• PNC Financial Services Group Inc (NYSE: PNC)

• Pfizer Inc. (NYSE: PFE)

• JPMorgan Chase & Co. (NYSE: JPM)

George Soros’ Soros Fund Management

Notable Q4 Buys/Increases:

• Quantumscape Corp (NYSE: QS)

• iShares MSCI Emerging Markets ETF (NYSE: EEM)

• Walt Disney Co (NYSE: DIS)

• Amazon.com, Inc. (NASDAQ: AMZN)

• Nike Inc (NYSE: NKE)

• Uber Technologies Inc (NASDAQ: UBER)

• Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL)

Notable Q4 Sells/Reductions:

• Draftkings Inc (NASDAQ: DKNG)

• General Motors Company (NYSE: GM)

Carl Icahn’s Icahn Capital

Notable Q4 Buys/Increases:

• Icahn Enterprises LP Common Stock (NYSE: IEP)

• Bausch Health Companies Inc (NYSE: BHC)

• Dana Inc (NYSE: DAN)

• Xerox Holdings Corp (NYSE: XRX)

Notable Q4 Sells/Reductions:

• Cheniere Energy, Inc. (NYSE: LNG)

• Tenneco Inc (NYSE: TEN)

Bill Ackman’s Pershing Square Capital

 
Notable Q4 Buys/Increases: (none)

Notable Q4 Sells/Reductions:

• Starbucks Corporation (NASDAQ: SBUX)

• Restaurant Brands International Inc (NYSE: QSR)

• Lowe’s Companies Inc (NYSE: LOW)

• Agilent Technologies Inc (NYSE: A)

• Hilton Hotels Corporation (NYSE: HLT)

Seth Klarman’s Baupost Group

Notable Q4 Buys/Increases:

• Intel Corporation (NASDAQ: INTC)

• Marathon Petroleum Corp (NYSE: MPC)

• Facebook, Inc. (NASDAQ: FB)

• eBay Inc (NASDAQ: EBAY)

Notable Q4 Sells/Reductions:

• CBS Corporation (NASDAQ: VIAC)

• HP Inc (NYSE: HPQ)

• Fox Corp (NASDAQ: FOXA)

• Alphabet, Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL)

It's that time of the year again where we get to peek into the portfolios of the world's top money managers, with a customary 45 day lag.

Now, you might wonder why a 45 day lag? If Cathie Wood, founder, CEO & CIO of ARK Invest and the hottest portfolio manager on the planet right now can post her daily activity of what they bought and sold in the ARK funds (for example, see her ARK Innovation ETF (ARKK) holdings here), then why can't all these top funds do the same?

The answer? They don't want you to have access to their daily activity and refuse to be as transparent as Ms. Wood is.

Anyway, before I cover 13F holdings, let's go over some market news as the S&P 500 fell slightly on Friday to end a losing week:

Stocks came under pressure Friday afternoon, reversing early gains.

The Dow Jones Industrial Average finished the day up less than 1 point at 31,494.32 after climbing more than 150 points earlier in the session. The S&P 500 finished down 0.19% at 3,906.71 while the Nasdaq Composite gained less than 0.1% to finish at 13,874.46.

Though the major indexes traded higher for most of the morning, a combination of rising interest rates and profit taking in some of the market’s largest technology companies appeared to dampen optimism after noon.

For the week, the S&P 500 lost 0.71% while the Nasdaq shed 1.57%. The Dow fared better with a slight gain of 0.11%.

Cyclical stocks outperformed the broader market with the materials, energy and industrials sectors up 1.8%, 1.7% and 1.6%, respectively. Utilities and consumer staples stocks were among the biggest laggards.

Small-cap stocks, which also tend to track the ups and downs of the broader economy, clinched solid gains Friday at the expense of some of the market’s largest members. The Russell 2000 added 2% while Facebook, Amazon, Netflix, and Microsoft all fell. Apple ended the week down 4%.

Not all of technology underperformed as chipmakers proved resilient. Applied Materials, which makes the equipment used to manufacture semiconductors, gave a better-than-expected second-quarter forecast after the bell Thursday. The shares gained 5.3% Friday.

The strength among economically sensitive stocks came after Treasury Secretary Janet Yellen told CNBC Thursday after the bell that more stimulus is necessary even as some economic data suggested a rebound is already underway. She added a $1.9 trillion stimulus deal could help the U.S. get back to full employment in a year.

“We think it’s very important to have a big package [that] addresses the pain this has caused – 15 million Americans behind on their rent, 24 million adults and 12 million children who don’t have enough to eat, small businesses failing,” Yellen told CNBC’s Sara Eisen during a “Closing Bell” interview.

“I think the price of doing too little is much higher than the price of doing something big. We think that the benefits will far outweigh the costs in the longer run,” she added.

Still, the stock market’s rally to records stalled a bit this week as fears of rising rates and higher inflation crept in.

Some investors have said pessimism over a jump in interest rates and the potential for inflation have kept Wall Street in check in recent sessions. The 10-year Treasury yield this week rose to the highest in nearly a year, and on Friday rose another 5 basis points to 1.34%.

“I think that this week may have put a little bit of inflation fear into people. Not necessarily in the short term, but this could turn really quickly,” said JJ Kinahan, chief market strategist at TD Ameritrade.

“You saw some pretty decent-sized swings this week in rates. I don’t want to get too carried away – it’s not like the 10-year is creeping above 2%,” he continued. But “I just think that because of the velocity of how quickly we started the year, it may just be a little bit of people taking a breather.”

Yellen, though, said she doesn’t believe inflation should be the biggest concern.

“Inflation has been very low for over a decade, and you know it’s a risk, but it’s a risk that the Federal Reserve and others have tools to address,” she said. “The greater risk is of scarring the people, having this pandemic take a permanent lifelong toll on their lives and livelihoods.”

Many on Wall Street agree with Yellen that a large stimulus is needed and that a trillion-dollar package, along with a smooth economic reopening this year, will cause the market rally to continue.

“A big part of our rationale for additional gains from here is dependent on a continued belief that the major drivers that helped carry the market to current levels will remain intact,” Scott Wren, Wells Fargo’s senior global market strategist, said in a note. One of the drivers is “additional stimulus from Congress that will help bridge the gap between now and when vaccines are widely distributed.”

The House of Representatives will try to pass a $1.9 trillion coronavirus relief plan before the end of February, Speaker Nancy Pelosi said Thursday. Democratic Congressional leaders may try to pass a package without votes from Republicans.

After a temporary pullback in December, homebuyers returned to the market in January despite record low supply. Closed sales of existing homes in January increased 0.6% compared with December, according to the National Association of Realtors.

Sales ended the month at a seasonally adjusted, annualized rate of 6.69 million units. That figure is 23.7% higher compared with January 2020 and the second-highest sales pace since April 2006.

The big story this week is the rise in long bond rates with the yield on the 10-year Treasury note on the verge of making a new 52-week high:

As long bond yield back up, it hits risk assets like big tech shares (QQQ) and emerging markets (EEM) but you need to have some perspective, they're still in a bull market:

That's why I don't get too flustered about rates creeping up, they'd have to jump well above 2% for there to be a really significant sell-off.

And to be honest, I think the bond market is wrong, far too worried about inflation which isn't going to happen.

Having said this, the vaccine rollout if going well all around the world (except here in Canada) and I suspect we will reach herd immunity in many OECD countries by late summer.

Once this second stimulus package passes in the US, it will also help boost the ongoing economic recovery, that will boost the US dollar and put a little more pressure on long bond yields.(I see us hovering around 1.6% on the 10-year by summer).

Again, the backup in yields is more of a growth story, nothing to do with inflation which is more cyclical, not secular in nature.

But the backup in long bond yields will put pressure on growth stocks, and it can turn a rational bubble into an irrational one: 

Dhaval Joshi, chief European investment strategist for BCA Research, has said for some time that low yields meant the rally into stocks and other assets, made sense — a rational bubble, if you will. “Rational, because the nosebleed valuations are justified by a fundamental driver. And not just any fundamental driver, but the most fundamental driver of all – the bond yield,” he writes.

But not now. Forward price-to-earnings multiples have been rising even as yields have climbed. The earnings yield in the most growth-focused sector, technology, has now been surpassed by the bond yield plus a fixed amount, as the chart shows.

There are three ways this can resolve. One, is for stock prices to decline; another is for bond yields to decline; a third is for neither to move but earnings to rise, to improve stock valuations. (That third factor looks unlikely, for now, at the tail end of earnings season.)

“Our current recommendation is to stay tactically neutral for the next few weeks to see whether risk-asset valuations can revert to rationality. This means keep existing investments in the market, but hold fire on new deployments of cash,” says Joshi. “If valuation reverts to rationality in any of the three ways listed above, then investors can safely deploy new cash into the market.”

And what about if not? Joshi says if the market turns irrational, the key will be to look if investors at longer-time horizons join the party. “As investors with longer and longer time horizons join the irrational bubble, there will be well-defined moments of heightened fragility, at which correction risk increases. This is what burst the irrational bubble in 2000, and will burst any new irrational bubble.”

Looking at the weekly chart of US long bond prices, I wouldn't be surprised if the selling pressure (backup in bond yields) subsides here as the move was a bit too extreme in my opinion:

If long bond prices continue to drop -- ie. long bond yields continue to back up -- then expect there to be some real fireworks in certain vulnerable sectors of the stock market which ran up like crazy since last March.

That remains to be seen, one thing is for sure, the backup in long bond yields helped propel cyclical shares higher this week and it hurt utilities and other dividend sectors:

Alright, the information above gives you a good macro background of where we are now.

Keeping this in mind, let's go back now to see what top funds bought and sold durin the last quarter of the year.

Zero Hedge provided a good a snapshot summary of some of the key position changes revealed at the more popular hedge funds in the 4th quarter, courtesy of Bloomberg:

ADAGE CAPITAL PARTNERS

• Top new buys: BMY, LSPD, SAGE, PH, OXY, TWTR, RKT, WEC, ANNX, CMI
• Top exits: PFE, CCK, TM, GRA, HSC, ATR, WM, SIRI, VMC, PCG
• Boosted stakes in: AMZN, JNJ, ST, BRK/B, HZNP, UPS, UAA, HON, DHR, TXN
• Cut stakes in: OTIS, ROST, CSCO, BAC, RTX, C, FIVE, ITT, FCX, BMRN

• APPALOOSA

• Top exits: AVGO, QCOM, VST, TSLA, HUM
• Boosted stakes in: PCG, MU, MSFT, ET
• Cut stakes in: AMZN, T, GOOG, BABA, FB, NFLX, PYPL, WFC, V, MO

BALYASNY ASSET MANAGEMENT

• Top new buys: LULU, BAC, GOOGL, TJX, SNX, ROP, CARR, VAR, TMUS, XOM
• Top exits: JPM, FLT, NSC, C, NKE, AZN, SAIC, TWLO, LSTR, CTLT
• Boosted stakes in: MCD, CTSH, MDT, SWKS, WAT, CMCSA, RTX, TWTR, AJG, MSI
• Cut stakes in: FISV, QGEN, LITE, NXPI, QRVO, ITW, DKS, GM, LHX, HOLX

BAUPOST GROUP

• Top new buys: PSTH, MU, AMAT, PEAK, HWM
• Top exits: AKBA, HCA, ABC, UNVR, VTR
• Boosted stakes in: PCG, SSNC, VRNT, HDS, VSAT
• Cut stakes in: EBAY, GOOG, TBPH, HPQ, FB, VIST, CLNY, FOXA, QRVO

BERKSHIRE HATHAWAY

• Top new buys: ABBV, MRK, BMY, SNOW, TMUS, PFE
• Top exits: COST
• Boosted stakes in: BAC, GM, KR, LILAK
• Cut stakes in: WFC, JPM, PNC, GOLD, MTB, LBTYA, AXTA, DVA, AAPL

BRIDGEWATER ASSOCIATES

• Top new buys: WMT, PG, KO, JNJ, PEP, MCD, ABT, MDLZ, EL, DHR
• Top exits: INDA, LMT, PM, FIS, MO, CI, FISV, ADP, AMT, TMUS
• Boosted stakes in: BABA, EEM, VWO, IEMG, COST, SBUX, JD, TGT, NIO, DG
• Cut stakes in: IVV, SPY, FXI, MCHI, EWY, EWZ, LOW, HD, SHW, SINA

COATUE MANAGEMENT

• Top new buys: SNOW, RUN, Z, NUAN, LB, ZG, GPS, DECK, AEO, URBN
• Top exits: BA, HWM, SFIX, NOW, TDG, BBBY, TWTR, SKT, HD, AAP
• Boosted stakes in: TSLA, GPN, SQ, PLAN, UBER, SHOP, FB, DIS, DOCU, NFLX
• Cut stakes in: LBRDK, DXCM, SMAR, OKTA, MU, GH, DDD, SRNE, SDC, LRCX

CORSAIR CAPITAL MANAGEMENT

• Top new buys: PSTH, ECPG, BERY, CCK, APG, PCG, GSAH, MS, LKQ, GVA
• Top exits: IWO, REPH, HGV, IWM, SMIT, GSL
• Boosted stakes in: VRT, GDDY, NATR
• Cut stakes in: QQQ, BXRX, PRSP, VOYA, PLYA, CHNG, STAR, HMHC, C, WMB

CORVEX MANAGEMENT

• Top new buys: ILMN, FE, ACM, TWTR, DIS, ZEN, HCA, NAV, FIVE
• Top exits: IAA, CNC, TIF, FLMN, CZR
• Boosted stakes in: EXC, BABA, ATVI, CNP, ATUS, CMCSA, HUM, LYV, EVRG
• Cut stakes in: MSGS, AMZN, PCG, NFLX, ADBE, TMUS

D1 CAPITAL PARTNERS

• Top new buys: U, IR, BEKE, BLL, DT, SNOW, OM, GDRX, ADI, CD
• Top exits: AMZN, AZO, FLT, BFAM, ESTC, TSM, SBUX, API, ALLO, HST
• Boosted stakes in: CVNA, JD, MSFT, EXPE, GOOGL, PNC, LYV, FB, RH, JPM
• Cut stakes in: BABA, NFLX, LVS, DHR, FIS, HLT, AVB, ORLY, PLAN, HPP

DUQUESNE FAMILY OFFICE

• Top new buys: NUAN, GDX, NEE, XLI, EXPE, CVNA, PANW, ADI, SNE, NET
• Top exits: XBI, HD, WFC, CB, INSM, SRPT, AZO, MAR, CRWD, TCDA
• Boosted stakes in: MSFT, PENN, BABA, TMUS, SBUX, MELI, AMZN, JD, VZ, FIS
• Cut stakes in: JPM, PYPL, WDAY, GOOGL, BKNG, CCL, LYV, FSLY, REGN, NFLX

ELLIOTT MANAGEMENT

• Top new buys: UNIT, CUB
• Top exits: T, RYAAY, SPR
• Boosted stakes in: DELL, CRMD
• Cut stakes in: WELL, RILY

ENGAGED CAPITAL

• Top new buys: EVH, MX
• Top exits: SMPL
• Boosted stakes in: NCR, STKL, IWM
• Cut stakes in: MED, RCII

GREENLIGHT CAPITAL

• Top new buys: SNX, NCR, TWTR, INTC, INGR, DDS, UHAL, ICPT, GHC, PANA
• Top exits: TPX, SATS, WHR, XELA
• Boosted stakes in: GLD, AAWW, JACK, REZI, NBSE
• Cut stakes in: AER, GDX, GPOR, CNX, APG, TECK, CC, CHNG

ICAHN

• Boosted stakes in: IEP, XRX
• Cut stakes in: HLF, LNG

IMPALA ASSET MANAGEMENT

• Top new buys: FDX, RKT, FCX, VALE, SBSW, FND, MHK, ALK, THO, AGQ
• Top exits: QCOM, HES, VAC, DOOO, MU, TGT, DKS, SKX, TJX, CRNC
• Boosted stakes in: KSU, WYNN, KNX, KL, CMI, SBLK, CNK, CENX
• Cut stakes in: RIO, SIX, DRI, HOG, TOL, ADNT, TTWO, NSC, MT, LPX

LAKEWOOD CAPITAL MANAGEMENT

• Top new buys: LBRDK, TMUS, CWH, GLD, LOW, UPWK, SAIC, VVV, MIK
• Top exits: YNDX, BLDR, NKLA, SHAK
• Boosted stakes in: ABG, ANTM, COF, C, SKX, APO, BHC
• Cut stakes in: BIDU, BC, CI, CMCSA, CWK, AXS, GOOGL, WRK, FB, GS

LANSDOWNE

• Top new buys: IDA, BLDP, EQT, CDE, LOOP, KCAC, RIDE
• Top exits: ONEM, GE, SMMT, GDX, AAL, NKE, SALT
• Boosted stakes in: FCX, TSM, OTIS, FSLR, EGO, DAR, ETN, COG, TMUS, AG
• Cut stakes in: C, MU, DAL, LRCX, AMAT, LUV, UAL, AES, ADI, VMC

LONG POND

• Top new buys: GLPI, PGRE, EXPE, NTST, H, MGP, XHR, RLJ
• Top exits: FR, SEAS, INVH, MAR, HST, BXP, TRNO, DRH, ESRT, REXR
• Boosted stakes in: EQR, AVB, SHO, WELL, AIV, RHP, DEI, HPP, CPT, JBGS
• Cut stakes in: HLT, PEAK, WH, SBRA, MAA, MAC, HGV, LVS

MAGNETAR FINANCIAL

• Top new buys: VAR, MXIM, MPLN, BMCH, GLIBA
• Top exits: QGEN, PAYA, UTZ, FSR, HYLN, CCC, PACB, SNY, PCG, IR
• Boosted stakes in: EHC, ABBV, GRUB, PIC, SYNH, NVS, PTAC, MRK, CHNG, AVTR
• Cut stakes in: UBER, VLDR, LCA, AZN, BDX, NOVA, HCAC, PRGO, PKI, PAE

MAVERICK CAPITAL

• Top new buys: BX, NKE, GPN, BECN, GPRO, OSH, GME, MCD, LB, TGT
• Top exits: BTI, STNE, IRBT, SCHW, NTAP, GIS, CHGG, FL, PLCE, BIG
• Boosted stakes in: LRCX, GLW, TGTX, LOGI, FLT, PRSP, DD, AMAT, LIVN, AXP
• Cut stakes in: GOOG, NFLX, AVTR, DLTR, MSFT, APD, AMZN, FB, HUM, ALNY

MELVIN CAPITAL MANAGEMENT

• Top new buys: ALGN, MCD, DDOG, TJX, AMD, MSCI, WDAY, SBAC, LYV, TEAM
• Top exits: CRM, FLT, FIS, CSGP, WEN, YUM, TWLO, NFLX, FB, VRSN
• Boosted stakes in: BABA, PINS, NKE, NOW, EXPE, ADBE, FISV, GOOGL, DOCU, LVS
• Cut stakes in: AZO, PYPL, AMZN, MSFT, DPZ, JD, RACE, DECK, CAR, BURL

OAKTREE CAPITAL MANAGEMENT

• Top new buys: MEG, UNIT, VALE, AMX, CEO, EQR, GTXMQ, XPEV, LEA
• Top exits: TMHC, BABA, CZR, IHRT, CCO, SRNE, BCEI
• Boosted stakes in: TRMD, NMIH, IBN, EGLE, KC, TV, ASC, ITUB
• Cut stakes in: CCS, AU, TSM, PBR, MELI, BBD, API, GTH, INDA, BIDU

OMEGA ADVISORS

• Top new buys: GOOGL, ATH, VRT, MSI, FVAC, EPD, MNRL
• Top exits: JPM, CNC, GTN, VICI, DNRCQ
• Boosted stakes in: COOP, OCN, ASPU, FCRD, NAVI, STKL, AMCX, ASH, FOE, SNR
• Cut stakes in: CI, PE, SRGA, GCI, NBR, LEE, ABR

PERSHING SQUARE

• Cut stakes in: A, HLT, LOW

SOROBAN CAPITAL

• Top new buys: ADI, PSTH, FISV, FIS, ARMK
• Top exits: NOC
• Boosted stakes in: YUM, ATUS, MSFT, CSX, RTX
• Cut stakes in: FB, SNE, AMZN

SOROS FUND MANAGEMENT

• Top new buys: QQQ, PLTR, XLI, MCHP, U, VAR, MXIM, DIS, MCHI, NGHC
• Top exits: TDG, GRFS, BK, BAC, JPM, GS, PNC, USB, WFC, TFC
• Boosted stakes in: DHI, DRI, ARMK, GM, ATVI, PFSI, TIF, MT, CHTR, APTV
• Cut stakes in: IGSB, PCG, TMUS, NLOK, PTON, C, GOOGL, OTIS, LPLA, LQD

STARBOARD

• Top new buys: SPY, CTVA
• Top exits: EBAY
• Boosted stakes in: ACM, ACIW, IWN, GDOT, IWR, MMSI, SCOR, BOX
• Cut stakes in: NLOK, AAP, IWM, CERN, CVLT

TEMASEK HOLDINGS

• Top new buys: DCT, SNOW, SE, IAU, GOVT, SCHP, XLK, BNTX, EWT, IWM
• Top exits: FIS, VRT, PDD, NIO
• Boosted stakes in: PYPL, AMZN, IBN, HDB, DDOG
• Cut stakes in: TME, TMO

THIRD POINT

• Top new buys: PCG, MSFT, TDG, FTV, EXPE, PINS, AVTR, CZR, PLNT, GDRX
• Top exits: BAX, RTX, NKE, EVRG, ATVI, TTWO, GPS, CNNE
• Boosted stakes in: BABA, JD, BKI, FB, V, BURL, INTU, TEL, ETRN, SHY
• Cut stakes in: GB, IQV, ADBE, DIS, AMZN, IAA

TIGER GLOBAL

• Top new buys: SNOW, GSX, BEKE, SUMO, BIGC, JAMF, FROG, GDRX, CD, ASAN
• Top exits: NEWR, ATH, CHWY
• Boosted stakes in: PDD, CRWD, PTON, ZM, NOW, AMZN, UBER, WDAY, TEAM, MSFT
• Cut stakes in: SVMK, PYPL, TWLO, CRM, BABA

TUDOR INVESTMENT

• Top new buys: NGHC, KDP, GDRX, VICI, HEC, FSLR, LIN, RXT, DLR, RPAY
• Top exits: SOXX, O, X, TMUS, TME, NLOK, SCHW, AVB, SJM, CDAY
• Boosted stakes in: GRUB, GLIBA, KC, BDX, GOOGL, AMT, TEAM, CVX, ADBE, AMD
• Cut stakes in: PCG, CRWD, UBER, ATHM, NFLX, SBAC, ESS, BXP, THO, BXMT

VIKING GLOBAL INVESTORS

• Top new buys: TSM, AVB, AMD, RTX, GOOGL, CSGP, ZBH, BILL, BMY, OTIS
• Top exits: UBER, JD, CRM, PLAN, LOW, SHW, LIN, NFLX, DHR, BABA
• Boosted stakes in: MSFT, TMUS, MELI, FIS, CME, JPM, BKNG, PH, NUAN, HLT
• Cut stakes in: AMZN, CMCSA, CI, LVS, ALL, DRI, FTV, SE, RPRX, WDAY

Source: Bloomberg

Again, this is all lagged data, which is why I'm going to show you how to look at stocks (any stock) in real time so you can stop fretting over what Soros et al. are buying and selling.

I'm going to use shares of Bausch Health Companies (BHC), a top holding of Paulson, ValueAct, Glenview and now Icahn (see full list of  top institutional holders here).

First, let's look at the weekly chart. Go to stockcharts.com and type in BHC and change setting for it's weekly and go back 5 years. For the purposes of this exercise, I used the 10, 50 and 200 week moving averages:

You see  how it's breaking out here, well above its 10-week moving average and making a new three-year high? Also, the weekly MACD is positive and rising which supports more gains ahead.

What about short term moves? I typically use one year daily charts and the 9 and 20 day exponential moving averages to see if a stock is overbought or oversold in the short run:

 

Using the daily chart, it tells me shares of BHC are a little overbought in the short-term and might correct a little but if they hold key levels, it's a buying opportunity to load up as the weekly chart tells me it's headed much higher.

Now, this isn't a science but it can help you navigate a lot of stocks which move, especially meme stocks that were pumped and dumped recently.

Look at the daily chart on BlackBerry (BB) shares: 

Now look at the weekly chart:

You see how it spiked to over $28 on the daily, was way overbought and has corrected hard ever since?

Now, I want to see if it holds its 10-week moving average or goes to test its 200-week moving average.

The key point I want to make here, no matter which stock you're buying or selling, you need to make informed decisions and above and beyond the fundamentals, you need to know your key daily and weekly levels or else you're flying blind.

Stop worrying about what top fund managers bought and sold last quarter, start understanding the macro backdrop (most important thing) and then analyze stocks and other risk assets using daily and weekly charts (and monthly if you have access to them).

Capiche? What else? Shares of Palantir (PLTR) soared today, up 15% on massive volume after WallStreetBets touted it (after Cathie Wood touted it earlier this week on CNBC):

This stock is fairly new, doesn't have much history, so I only use the daily chart to gauge it:

And? What does this daily chart tell me? It tells me not to get too excited until the stocks breaks above $30 and sustains an uptrend. 

The same thing with that Yahoo Finance snapshot of the one -month chart I provided above, it tells me not to get excited about today's pop and not to chase it. 

In fact, I'd probabaly be shorting it here if I was a professional hedge fund trader but managing my risk very tightly as stocks like this can explode up.

My point is do not get too excited, I know many hedge funds and top funds own shares of Palantir (see full list here), but I don't care, I stay emotionless and analyze it like I'd analyze any other stock. 

The same goes for QuantumScape, another hot stock with a short history. Here, the daily looks good but not great as the daily MACD is still negative:

I know Fidelity, Soros, Millennium, Baillie Gifford and other top funds loaded up on it in Q4 (see full list here) but that doesn't tel me whether they played the massive run-up and sold or are still holding it (they probably pumped, dumped and bought it back at the end of Q4).

Let's look at another one, Twilio Inc (TWLO), a top holding of Cathie Wood's ARK Innovation fund:

Both the daily and weekly chart tell me this stock is in a bullish uptrend but the daily tells me it's overbought in the short term and is due for a correction and has to hold key levels (like its 10-week moving average).

What about GameStock (GME) which continues to be the most heavily shorted stock in the stock market? 

First, look at the 5-year weekly chart:

I would have bought this at $20 and probably ridden it till low 40s (didn't touch it) and missed the explosive upside.

But look at its daily chart, it's telling me to stay the hell away from this stock:

Sure, short sellers will cover, it might go to $55 but they will come back in hard and short it even harder.

Who bought GME in Q4 of 2020? The full list is available here and some big name hedge funds like Maverick Capital made a killing but I know they're long gone now.

That brings me to another important point, be careful with these WallStreetBets stocks, I'm almost sure they are in cahoots with big hedge funds pumping and dumping stocks. 

Every week I see pump-and-dumps in the stock market and I know it's big hedgies driving the insane action, mostly in small biotechs but not exclusively, they do it al over.

Where is the SEC? The SEC doesn't care as long as big hedge funds make a killing and pay big banks big fees (read my comment on YOLOers of the world uniting, the game is totally rigged!).

Alright, let me wrap it up there, there are a lot of interesting stocks I wanted to cover like Freeport McMoran (FCX), Cameco (CCJ), Haliburton (HAL), Vale (VALE) and BioCryst Pharmaceuticals (BCRX) but you definitely don't pay me enough to cover all these stocks and a lot more.

Use the information above wisely, use 13F filings wisely, stay disciplined, stay nimble, manage your position and portfoli risk well, these markets may look easy and made for trading but one wrong move taking too much risk and you're dead.

Trust me, it takes years of analyzing macro markets and stocks across all sectors to be a great investor and trader, I'm just giving you a glimpse of what I look at on a daily level.

The majority of the people out there are better off buying thr S&P 500 ETF (SPY), the Nasdaq (QQQ) and emerging markets (EEM) although they make me nervous now.

I typicaly end these quarterly comments with links to top funds and their holdings but the new Nasdaq site doesn't provide this information yet (only for stocks, you type in your symbol at the top, scroll down the left hand side and click on institutiotnal holdings).

Alternatively, you can copy and paste the following link in your web browser:

https://www.nasdaq.com/market-activity/stocks/XYZ/institutional-holdings 

Just change XYZ for the stock symbol of your choice to see which funds own it as of the end of last quarter (remember, the data is lagged by 45 days).

Once the new Nasdaq site starts provided fund data, I will go back to my old links.

Below, ARK Invest founder, CIO and CEO Cathie Wood is the hottest portfolio manager on the planet right now, delivering incredible returns, and she appeared on CNBC's Halftime Report earlier to discuss her Tesla, Teledoc and Zoom positions and the future of a bitcoin ETF with Scott Wapner and Bob Pisani. 

Whether or not you agree with her, take the time to listen to her insights. You can see the holdings of the ARK Innovation Fund ETF (ARKK) by clicking here, it is updated every day. The holdings for other ARK funds are available here.

And yesterday, the US House Comittee on Financial Services held hearings online to look into the GameStop saga. the hearings featured Robinhood CEO, Vlad Tenev, Melvin Capital CEO Gabriel Plotkin and Ken Griffin, CEO of Citadel.

I wasn't impressed, some parts were revealing but there was way too much moralizing by some Democrats who used this forum to chastize rich hedge fund managers. 

But I didn't agree with everything Ken Griffin said, praising Gabriel Plotkin as "one of the best traders of his generation" (umm, he might be great at picking stocks but his risk management totally sucks!) and truth be told, I thought AOC asked the best questions (she did her homework and others should have ceded their time to her). Still, if you have patience, take the time to watch this.

The hedge fund manager who impressed me the most last year wasn't even Chase Coleman, although he delivered great results and cashed in big time, it was Perceptive Advisors' Joseph Edelman, who picked some great biotech winners like Novavax (NVAX) and many others. When it comes to biotech, they are at the top of their game.

Lastly, take the time to watch an interview with hedge fund legend Stanley Druckenmiller where he discusses his current outlook on the market, his approach to risk management throughout his career, and his perspective on the conversation surrounding the role of capitalism in American society. 

My favorite part is when he talks about VaR and how he doesn't need it because he looks at his portfolio's P&L. Great interview, don't agree with him on everything but love listening to his insights.

In your blog comment on Bill Gates’ new book ‘How to Avoid a Climate Disaster,’ you raise some interesting issues around the difficulty of getting to net-zero GHGs by 2050.

Short of quitting while we are behind, the only real option is nurturing as many promising technologies as possible and speeding up investment in their adoption. Having worked on that problem since leaving Alberta Investment Management Corporation, I have developed a great respect for entrepreneurs and their backers. As CEO, I had the latitude to fund good opportunities as I saw fit. Being on the other side of that negotiation and having to fight for every dime to commercialize a new technology has been both humbling and educational.

When you analyze what slows down technology adoption, it is less about technical merit and return on investment than the ‘human element,’ i.e. finding and convincing the right people to work with you. Most new technologies come from small companies. They typically deal with big entities for regulation, permitting, product adoption, and financing.

Big entities like to repeat whatever process made them successful. Novel approaches challenge that standard way of doing things. The social benefit of new technology may be great, but don’t expect applause if it upsets the status quo from an organizational or personal career perspective. For example, convincing someone to tell the boss that their approach is past its ‘best before’ date is a tough ask. Finding and educating all the right people in the right places takes time and money. That cost and delay can kill small companies.

Trying to finance commercialization domestically at times seems pointless: Canada’s annual commercialization capital from all sources (including pension plans) is minimal. More often than not, companies end up being sold to foreign entities when they are about to be profitable.

Why are Canadian pension plans, known for being innovative, absent from the commercialization space? A typical initial technology commercialization transaction is $20-$50 million, often deemed ‘too small to move the needle.’ Contrast this with l solar and wind projects that fit the typical infrastructure profile, i.e. large transactions and well-known return on risk characteristics.

Ignoring commercialization investments because of their small initial size is a mistake. It undervalues the benefit of quickly repeating the same project in different locations with little need for incremental due diligence. If I could do AIMCo again, knowing what I learned, I would enter commercialization financing the same way we got into infrastructure at OTPP around 2000. Initially, partner with people you trust, and then build out internal capacity if that is more efficient.

So, starting with a minimal appetite for commercialization, it will take too long to build significant Canadian capacity in this space through changes in investment philosophy alone. I see great merit in jumpstarting the process with a ‘limited time offer’ tax incentive to entice the broadest category of investors to explore this profitable area.Besides keeping more Canadian-developed technology at home, I also see it as an opportunity to import useful GHG reduction approaches developed elsewhere.

To squarely home in the goal of raising more commercialization capital, a logical tax incentive would be a refundable tax credit, patterned after the 35% Scientific Research & Experimental Development (SRED) programme for venture capital. That makes the investment decision independent of current tax status or whether, as is the case with RSP and other pension proceeds, taxation happens in the future. Program cost could be easily controlled the way B.C. does with its Small Business Venture Capital Tax Credit programme through a quick and straightforward eligibility check.

Even if we can accelerate the deployment of new technology still leaves formidable hurdles for achieving net-zero GHG by 2050. We need to re-engineer virtually every industry, which in turn requires far-reaching changes in supply chains. We cannot afford simplistic linear thinking about how this will all play out within Canada and globally. Call me an optimist for aiming for a challenging target, but 30 years of sackcloth and ashes are not an appealing alternative.

------------------------- 

In the interest of full disclosure: I am on the board of Sustainable Development Technology Canada. Through Cachet Capital, I am raising capital for renewables and sustainable technology. I am also helping commercialize Canadian agricultural technologies that dramatically improve fertilizer efficiency and produce organic soil carbon from wood waste. I hope to see Nauticol Energy use Canadian natural gas to make low-GHG methanol in the near future.

Let me first thank Leo de Bever for taking the time to write this comment and share his wise insights with my readers.

Leo touches on a few important points:

•  First, technology adoption is less about technical merit and return on investment than the ‘human element,’ i.e. finding and convincing the right people to work with you. "Most new technologies come from small companies. They typically deal with big entities for regulation, permitting, product adoption, and financing."
• Second, Canada’s annual commercialization capital from all sources (including pension plans) is minimal so trying to finance commercialization domestically seems pointless. 
• He sees great merit in jumpstarting the process with a ‘limited time offer’ tax incentive to entice the broadest category of investors to explore this profitable area. " To squarely home in the goal of raising more commercialization capital, a logical tax incentive would be a refundable tax credit, patterned after the 35% Scientific Research & Experimental Development (SRED) programme for venture capital."

I happen to agree with him on the first point, there is a certain amount of "institutional inertia" when it comes to financing and commercializing new technologies.

Money is cheap, there are plenty of opportunities but the problem, and he alludes to this, is you have to devote enormous amount of time and energy to an activity that hardly moves the needle, at least now for large public pensions.

But I also need to be careful here as there are initiatives at all of Canada's large pensions to invest indirectly (through funds) or directly in promising emerging technologies.

For example, Ontario Teachers' Pension Plan where Leo used to work before joining AIMCo has the Teachers' Innovation Platform (TIP) headed by Olivia Steedman:

TIP seeks equity investments both directly and indirectly through:

Directs and co-investments: We are continuously looking for attractive opportunities to invest directly in private companies with like-minded partners. We seek companies that value Ontario Teachers’ long-term investment horizon and approach to value creation where we can actively support management throughout our investment period. Along with financial support, we provide access to Ontario Teachers’ strong global networks, and advice and guidance to help grow the businesses we invest in. We look for well-managed companies with high-potential brands and compelling growth prospects. We can act as a direct equity investor, or partner with our established, industry-leading fund partners as a co-investor.

Funds: Ontario Teachers' has strategic investments with many of the world's leading growth equity and venture capital firms. We value the opportunities to share information, co-invest and work in other ways with our fund partners, including the pursuit of opportunities in markets we can't easily access directly. We are members of the Institutional Limited Partners Association (ILPA), and endorse the ILPA Private Equity Principles which we believe form the basis of an effective private equity partnership: Alignment of Interest, Governance and Transparency.

Strategic Partnerships and Platforms: Ontario Teachers’ has a track record of forming strategic relationships with a variety of corporate partners who are aligned with us on uncovering unique and valuable investment opportunities. TIP is building on this by forming long-term partnerships with leading technology companies. We are flexible in how we invest with partners and employ a large range of structures such as joint-ventures, platform companies, investment vehicles and funds.

In my recent discussions with OTPP's CIO, Ziad Hindo, he emphasized that achieving net zero emissions by 2050 will necessarily require investing in emerging technologies. 

Bil Gates effectively said the same thing, you can't just divest from fossil fuels (he did but he doesn't believe others should) and you really need to invest in emerging technologies to tackle climate change over the long run. 

We saw this recently with the catastrophic failure of the Texas power grid. Data showed that wind power was the culprit of the Texas grid collapse. Nat gas also failed to provide the needed power.

Discussing this with a friend of mine who is an engineer/ MBA who actually worked on power grids in North America and elsewhere in the world, he shared this with me:

Wind power is extremely expensive on a per KW/h basis. So the turbines are made cheaply (not winterized) to justify their use by the authorities.

No power grid is able to support more than 20% intermittent renewables like wind and solar and be 100% dependable (not hydro).

Most utilities have pushed the limits to 30% intermittent. Some extremely stupid utilities (who listen to the politicians and environmentalists more than engineers) have pushed it even further.

So when your wind turbine fleet goes down and your firm power generation (ie carbon based) kicks up to make up the shortfall, you get an extremely unstable grid. Then, if it goes out of phase, the grid is down and out for a week.

I have been saying this for years but now that you have a concrete example of a major screw-up, everyone is trying to distort the truth.

This has nothing to do with being anti-environment. It has to do with politics, combined with dumb environmentalism, and a utility that isn’t willing to stand up to its political masters.

Politicians and environmentalists love renewable energy, "let's go renewables!", renewable energy jobs, etc., but when you talk to engineers who actually work on power grids, none of them want to go more than 20% renewable (max 30%) precisely to avoid a Texas-style disaster.

What else? Those of you who blame Texas' deregulated utility system and the fact that they are not part of the national grid are missing the bigger picture.

As my friend stated privately to me: "If Texas was part of the national grid, you would have had catastrophic power failures in neighboring states. A few years back, Michigan's power grid collapsed and it hit large parts of Ontario too. People talk politics, not science and facts and it's sad because they really don't know what they are talking about."

Just like me and Bil Gates, my friend thinks the only way we are really going to make a material difference in tackling climate change is by investing more in nuclear power plants. 

"Of course, pensions don't want to touch them (except OMERS) and they prefer the headlines of wind and solar farms which are heavily subsidized but unless you invest in nuclear power, climate change will only get worse."

He's absolutely right and like I said, he's an engineer who knows power grids inside out, worked on major projects in Canada and around the world.

Come to think of it, Canada's large pensions should band together, hire him to work on major nuclear power plants in this country on their behalf, create an independent subsidiary like CDPQ Infra and have him manage this project (if I gave you his credentials and where he worked, you'd understand but he assures me that he’s not looking for a new gig and is happy where he is).

There's too much dithering in Canada. We talk A LOT about growth and growth equity, ESG and tackling climate change, but when it comes to actions, we aren't doing much, eh?

I think this is what frustrates Leo de Bever and many others.

Lastly, Geoffrey Briant, EVP of Corporate Development at Cachet Capital, sent me his thoughts:

After Leo de Bever’s reply as a comment on last Monday’s Pension Pulse blog post on Bill Gate’s appearance on 60 Minutes, I’d like to comment and explain the proposed refundable investment tax credit with a bit more tax granularity.

As the Executive Chairman of the Cachet Capital group of companies - including Cachet Global Sustainability Inc. - and as a Director of SDTC, Leo de Bever speaks with considerable authority with the proposal to incentivize Canada’s pension funds (and others) to invest in the equity of a company and earn a 35% refundable investment tax credit for investments in financing the commercialization of sustainable developments technologies companies (ie. “commercialization” is what Gordon Power of the Nobel Sustainability Fund calls growth capital PE investing in recently turned EBITDA positive companies or in companies on the verge of being EBITDA positive). For non-taxable entities like pension funds, “refundable” means a cash payment from the Federal government equal to 35% of the equity investment to be paid to the investing pension fund as cash since it does not have any taxes payable to reduce by earning an investment tax credit but it has the investment capital needed to invest in the funding gap that exists in Canada - the post-venture capital, growth capital PE investment phase of investment in “commercializations”.

For the pension fund investor, the effect is a significant enhancement to the IRR on the investment and the minimization, or even the elimination of, the dreaded J curve typically associated with growth capital PE investments during the first 4-5 years of a growth capital PE fund when the investment capital and management fees going out the door result in a negative impact on the value of the units in that Fund. Too often, the J curve can be the excuse for inaction by an institutional investor. 

Furthermore, with portfolio managers at Canada’s pension funds working with a 4-year rolling performance bonus in mind, they might be personally disinclined to invest in growth capital PE equity investments that would otherwise have a negative impact on that bonus. Wouldn’t you be? The introduction of a 35% refundable investment tax credit can minimize or eliminate the affect on the J curve in the calculation of bonuses based on 4-year performance and enable the financing of commercializations of sustainable developments technologies companies involved with renewable energy generation, transportation, buildings, manufacturing and agriculture - exactly what Bill Gate’s prescribed and exactly what is needed if Canada hopes to attain its 2050 goal of net-zero emissions.

A proposal for an SD Refundable ITC - a “Sustainable Development Refundable ITC” -is not a new type of programme. This proposal is a variant on tax legislation that already exists in Canada - the SRED programme and - to prevent the threat of contributing to runaway deficits - the BC Small Business Venture Capital Tax Credit programme. The BC tax credit programme allows the mechanism to be “throttled” with an annual budget allocation for the tax expenditures cost.

It can be used to promote the financing of sustainable development technologies already in Canada and prevent them from being exported from Canada - and lost to Canada - with a commercialization financing readily available in the U.S., for example.

At Cachet, we are working with a fertilizer company with a product that increases crop yields by 35% while reducing GHGs by 40%. That’s the type of technological innovation Bill Gates was referring to in optimistically suggesting we find technological solutions to reduce GHGs and contribute to striving to attain Net-Zero emissions by our 2050 goal.

A SD Refundable ITC can even be used to incentivize the import of sustainable developments technology to Canada. For example, at Cachet we could use it for a combination of an investment by Investissement Quebec + Fondaction + CDPQ + Hydro Quebec to finance a $250M thin-film solar panel manufacturing plant on the old oil refinery site in East Montreal that Fondaction owns. A U.S. company based in Toledo, Ohio - the centre of expertise in the U.S. for thin-film solar panels - has the technology - which the U.S. DoE just endorsed with a grant - for a product called “See Through Windows”. Although I always thought all windows were “see through”, this is a window for high rises that you can see through from inside the building but it’s a solar panel from outside the building. In the best case scenario, not only do they power the building but they generate excess power to contribute to the grid.

Why might they want a plant in Quebec and why can we import the Sustainable Development technology to Canada by tech transfer? Two reasons. First, the biggest input for thin-film solar panels is electricity. The cost of it in Toledo is US$0.17/KWh; in Quebec it’s CND$0.07/KWh. Second, the two rare earth minerals required for thin-film solar panel manufacturing are mined in Quebec.

Refundable Investment Tax Credits

The Scientific Research & Experimental Development Tax Credit (SRED) program provides that a Canadian-controlled private corporation (CCPC) can earn an investment tax credit (ITC) of 35% up to the first $3M of qualified expenditures for SR&ED carried out in Canada and 20% on any excess amount. Other Canadian corporations.

As a refundable investment tax credit, if the business claiming the ITC makes no profit and is non-taxable as a result, the refund is paid as cash. That is, it can be refundable in cash if the “taxpayer” claiming the ITC does not need it to reduce its current taxes otherwise payable.

The Sustainable Finance solution in this case, therefore, is to provide for the payment of the 35% cash refund to investors that are Eligible Investors and Qualified Institutional Investors that have invested in an Eligible Business Corporation either:

•  Directly: i.e., pension funds, endowments & foundations 
•  Indirectly: through a “Registered Growth Capital PE fund

In that case, the after-tax cost of an investment for Qualified Institutional Investors is $0.65 per $1.00 of investment which is the gross amount of the investment ($1.00) LESS; the amount of the SD Refundable ITC available thereon ($0.35).

This tax incentive for Qualified Institutional Investors may be known as the 35% Sustainable Finance Investment Tax Credit or “SFITC” or the “SD Refundable ITC”. The Legislative Model:

The B.C. Small Business Venture Capital Program offers tax credits to investors (individuals or corporations) to encourage them to make equity capital investments in B.C.-based small businesses.

The B.C. government recognizes that creating new small businesses and expanding existing ones contributes to a healthy economy. This program gives small business continuous access to early stage venture capital to help them develop and expand.

B.C. investors receive a 30% tax credit on their investment in a venture capital corporation (VCC) or an eligible business corporation (EBC).

Individuals are also able to contribute their eligible investment to an SD RSP to further reduce the after-tax cost of their investment.

The following legislation applies to the B.C. small business venture capital tax credit:

•  Income Tax Act (B.C.) Section 21 
•  Small Business Venture Capital Act • Small Business Venture Capital Regulation 
•  Bill 5 – Budget Measures Implementation Act, 2019 The Spring Budget is the Federal Government’s opportunity to provide for such creative tax incentive solutions to incentivize Canada’s pension funds to invest in sustainable development technologies (as stated in Recommendation #2 of the Final Report of the Expert Panel on Sustainable Finance released June 14, 2019). It isn’t unprecedented and can be structured with a mechanism to prevent runaway deficits.

Let’s hope officials in the Department of Finance - including Michael Sabia as Canada’s new Deputy Minister of Finance - read the Pension Pulse blog! 

Like Bill Gates, I’m an optimist. I think we can rise to the occasion and Canada’s pension funds will see what Leo de Bever and Michael Sabia have long implored of their pension fund colleagues - and now Mark Carney advocates - which is that there are investment opportunities to climate change - not just risks. 

As an optimist, I think we can achieve our goal in Canada of net-zero emissions by 2050 and we at Cachet are doing our best to contribute to that goal for the sake of Canada, the world, our children and our grandchildren.

I thank Geoff for sharing his insights and I'm not sure if Michael Sabia still reads my blog but I know he used to religiously when at the helm at the Caisse (nowadays, he has monumental challenges to address as Deputy Finance Minister, God help him!!).

Anyway, there's a lot of food for thought here, once again I'd like to thank Leo de Bever for his comment and Geoff Briant for his extensive comment following up on Leo's comment.

Below, more than three million homes and businesses in Texas lost power for over a week. Microsoft co-founder Bill Gates joined "Squawk Box" to weigh in on the energy crisis stating nuclear has be part of the equation and the new generation of nuclear solves the economics, making it more affordable, and revolutionizes the safety. 

He also discusses divesting from fossil fuels stating even though he divested from fossil fuels he's not claiming everyone should divest, he's pushing more to invest in new areas, particularly in the hard categories of industrials where more innovation is needed.

Lastly, Lockheed Martin, the American advanced technologies consortium, recently obtained a patent on a revolutionary design for a Compact Fusion Reactor (CFR), a mobile device that can be mounted on trucks as well as aircrafts and ships. You can read more about this here and watch the clip below on how nuclear power may be making a comeback as researchers develop reactors that are smaller than ever before. Just remember, in order to address climate change, the world needs more nuclear power.

A Canadian Crown corporation has invested millions of dollars in two U.S. private prison giants, financial filings reveal, a move one federal union decried as “abhorrent.”

In the last half of 2020, the Public Sector Pension Investment Board (PSP) bought a total of more than 600,000 shares of CoreCivic and the Geo Group, two of the largest providers of private prisons, jails and immigration detention centres in the United States, according to documents filed with the U.S Securities and Exchange Commission.

The moves came even as other large pension funds around the world — including the Canada Pension Plan — have sought to sell off their shares in the private prison sector in recent years amid an escalating backlash from activists and plan members.

CoreCivic, Geo and other private prison companies were harshly criticized during the Trump administration for jailing migrants and would-be refugees, including some parents who had been separated from their children while crossing the border from Mexico.

“The idea that Canada would want to be associated with these terrible practices I would hope would be an absolute outrage for the average Canadian citizen who was part of this pension fund,” said Morgan Simon, a managing partner at Candide Group, a socially responsible investment group in California. “You have a country that is kind of known globally, I think, for having high moral standards … And from that perspective, I would think that it would be pretty shocking that a Canadian pension fund would choose to invest in American private prisons.”

PSP, a federal body that operates at arm’s length from the government, manages the pension investments of federal employees, members of the RCMP and the Canadian military. The fund has been criticized over the past year for its investments, including its sole ownership of Revera, one of Canada’s largest providers of for-profit long-term care.

The fund also recently entered into a $700-million (U.S.) joint investment with Pretium Partners, a Wall Street private equity firm, to purchase and develop single-family rental (SFR) housing in the American Sun Belt. The American SFR industry, which grew out of the ashes of the foreclosure crisis, has been linked by researchers to a host of bad outcomes for tenants. 

The decision to invest in the American private prison sector, though, may prove to be PSP’s most controversial. Over the last four years, activists have aggressively pushed banks and institutional investors to exit the industry, with considerable success.

Since 2017, some of the largest pension funds in the United States have sold off their shares in CoreCivic and Geo Group. Pension funds representing public employees and teachers in California, New York and New Mexico have all divested from the sector, which New York City’s comptroller called “financially risky and morally bankrupt” in an interview with the Financial Times.

“This industry’s business model is fundamentally premised on taking criminal justice backwards, and their reported human rights abuses pose enormous long-term financial and reputational risks to our pension fund portfolio,” Scott Stringer said.

Pension funds from Denmark and Canada have also recently fled the industry. The Canada Pension Plan Investment Board sold off its stakes in Geo and CoreCivic in 2019, after a series unflattering stories about its ties to the industry.

PSP, though, is moving in the opposite direction. According to SEC filings, the fund owned no shares in Geo Group or CoreCivic as of May 14, 2020. Over the next three months, the fund acquired about 43,000 CoreCivic shares, worth about $410,000 (U.S.) and then another 272,000 shares of CoreCivic and 307,000 shares of the Geo Group.

Combined, the fund owned about $4.8 million (U.S.) worth of the two companies as of Feb. 12, according to a 13F holding report filed with the SEC.

In a statement, a spokesperson for PSP said the fund “has a significant allocation to public markets which we manage internally and externally, using a combination of actively-managed and index-replication strategies. Our CoreCivic investment is held in our passive index replication portfolio which follows the S&P 600 index.”

(PSP did not reply to a request for comment on the GEO Group before deadline.)

In a statement, a spokesperson for CoreCivic said in part that the company “plays a valued but limited role in America’s immigration system, which we have done for every administration — Democrat and Republican — for nearly 40 years. While we know this is a highly charged, emotional issue for many people, much of the information about our company being shared by special interest groups is wrong and politically motivated, resulting in some people reaching misguided conclusions about what we do. The fact is our sole job is to help the government solve problems in ways it could not do alone — to help manage unprecedented humanitarian crises, dramatically improve the standard of care for vulnerable people, and meet other critical needs efficiently and innovatively.”

Amanda Gilchrist, CoreCivic’s director of public affairs, added that none of the company’s facilities provide “housing for children who aren’t under the supervision of a parent.”

“Lastly, the false narrative out there is being spread by special interests with a political, not problem-solving agenda. We’ve stepped up our leadership to solve problems — to align with and respond to the needs of our government partners and to find ways to get better at our profession and offer even more innovative solutions,” Gilchrist said.

For the union that represents many federal employees, though, PSP’s decision to invest in the private prison industry is an outrage. In a statement, the Public Service Alliance of Canada called on PSP to sell off the investment.

“Our members are telling us that they do not want to be involved in investments of this nature,” said James Infantino, a PSAC pensions and disability insurance officer. “There’s a moral aspect to it, but there’s also an issue about whether, from a pension perspective, these are actually good, long-term investments for our pension funds. And our answer is no, they’re not.”

Over the last 12 months, CoreCivic’s stock has fallen from a high of more than $16 (U.S) per share to less than $8.

I was waiting for this article for a couple of weeks, it's more nonsense about how PSP Investments is putting profits over people.

What is this all about? It's about indexing activity which PSP and all of Canada's large pensions do internally.

This is similar to if you or I bought the SPDR Portfolio S&P 600 Small Cap ETF (SPSM) which is very diverse and equal weighted (or close to it) and full of good and more questionable small cap stocks.

You and I are not going to look at all 600 constituent companies.

PSP Investments can do this because they do their indexing in-house to save on fees and I'm a little surprised they kept these private prison stocks which don't conform to their ESG standards (or maybe they do and they engage with them).

I remember there was a similar uproar three years ago when CPP Investments invested in detention centers. 

Back then, Michel Leduc, CPPIB's Senior Managing Director & Global Head of Public Affairs and Communications, put it all into proper context:

Out of CPPIB's 26 investment programs, only 2 are on cruise control, the passive balancing (index) portfolio and the systematic quantitative portfolio which invests in stocks all over the world based on quantitative factors. The problem lies with the latter portfolio.

Michel told me other large US and Canadian pensions also invested in these stocks, some like CalSTRS, divested from private prisons, others didn't. CPPIB was like 20th down the list but given its size and status, it got called out in the press. 

He reiterated that CPPIB does not divest from stocks because of some outside interest group. "We have a mandate to maximize returns without taking undue risks."

However, he also stated that "perception matters to the extent it hurts the brand and reputation of the organization" so while it doesn't drive the investment process, it must be taken into consideration.

Also, CPPIB adheres to certain ESG factors when making an investment and "human rights is one of them" so this "crisis" represents an opportunity to address certain deficiencies in the passive and systematic quant portfolios.

Basically, what he means is CPPIB is exploring a way to add an important qualitative filter to all its investments to make sure certain ESG principles are being adhered to. 

It's important to note even though CPPIB doesn't divest, it does routinely look at its investment process and makes changes as needed like protecting the organization from brand and reputation risk and making sure it adheres to its ESG principles across all portfolios. 

I raised the issue of tobacco and how pensions should follow Dr. King's advice and divest from it, and he told me "it's an issue for our passive portfolio and we are carefully weighing the pros and cons of maintaining tobacco investments but again, we must respect our mandate and our process."

Lastly, he told me he had spoken with a large US asset manager who manages trillions (hmm, I wonder who that can be...) and he told him "for ten years, we didn't have an issue with these investments and then all of a sudden, they got flagged."

Now, we are reliving the same thing with PSP Investments. 

I firmly believe this is a nothing burger, one that PSP Investments can easily fix by adding a qualitative ESG filter to remove some of the more questionable investments in their passive and active portfolios.

Yes, it's a bit of a pain in the butt, but you know what, better this than having the unions huffing and puffing and making a mountain out of a molehill. 

PSP Investments has to start rethinking its entire communications strategy. I understand, they rightfully feel that these are distractions and choose to ignore or dismiss them, but like Michel Leduc told me back then, "perception matters" to the extent it hurts the brand and reputation of the organization.

The other thing we need to keep in mind is these investments literally represent peanuts in PSP Investments portfolio, they can easily remove them and it wouldn't impact their performance in the least.

My problem with private prisons is what they represent in the larger societal context.

The US has an incarceration problem, one that disproportionately impacts blacks and Latinos.

Why invest in businesses that are part of a much bigger problem? It's just not worth it and not aligned with PSP's ESG policies.

For all those reasons, I believe PSP will follow CPP Investments and CalPERS which got out of private prisons back in 2019. 

It's just not worth the headache and is nothing but a huge distraction.

Having said all this, let's not make a big issue out of this, it wasn't part of some evil plot, these are negligible investments that should have been filtered out and for whatever reason, they weren't.

As I discussed on Monday when I went over Mark Wiseman's comment on how the world can learn from the Canadian pension model, I'm getting increasingly irritated and very concerned by what I see as blatant incrementalism and encroachment on our large public pensions and how they conduct their affairs.

In fact, nobody has spoken to me off or on the record but you can just feel the enormous pressure they are under to make the ESG crowd happy, taking their demands seriously even if they don't make sense for the beneficiaries and stakeholders of these pensions.

As I keep stating, ESG is an important and critical element and all of Canada's large pensions take it very seriously but the focus must always remain on maximizing returns without taking undue risks to balance assets with long term liabilities. Period. Everything else is secondary or complementary to that overriding mission.

There's way too much moralizing going on out there and quite frankly, some of these environmental and activist groups are just plain wrong and spreading misinformation and/ or recommending things that are counterproductive to their goals and ideals.

Below, private prisons were established during the war on drug and tough on crimes era when the US was incarcerating more people than ever. Since their establishment, activists and politicians have debated whether they should exist to begin with. Some argued they didn’t save the government the projected 20% nor were they of better quality. But they continued to grow into a billion dollar industry. Today the industry is largely dominated by two companies,Geo group and CoreCivic. But in 2019, the two companies have had a tough year. From Families Belong Together protests that lead to Wall Street divesting to Democratic candidates saying that they will abolish the industry, if elected. After three decades of arguing it is morally wrong to profit from incarceration and detention, activists say this could be the beginning of the end for these companies. 

 CORRECTION (Dec. 29, 2019): At 2:30​ we misstated the operating costs of state and federal prisons. The costs (as shown on screen) are billions, not millions of dollars.

Paula Sambo of Bloomberg News reports OMERS has worst loss since 2008 on bad COVID bets:

Now, I understand points 2 and 3 very well. Most pensions invest in high-quality value companies and last year the Fed and other central banks increased their balance sheets by trillions, opening the speculative floodgates. 

I called it a liquidity orgy and that's exactly what is was, a giant global Risk On trade that benefited growth stocks, small cap growth, biotech, commodities, commodity currencies, 

That's all reversing this year as long bond yields back up and you can see it in the S&P sector performance year-to-date:

Basically, if the loonie hits 79-80 US cents, it's time to start shorting it in my opinion but you have the commodity supercycle folks that tell you it will hit parity (no chance!!). 

I'll cover more macro stuff tomorrow when I go over markets.

Back to OMERS and where they got hit last year. 

Blake and I spoke about real estate. They got hit in Retail and Offices in Calgary and New York City.

Interestingly, Blake told me Retail represents 16% of the real estate book and diversification (both geographic and sectors) helped mitigate some of the fallout. 

Still, the lockdowns impacted malls, hotels, offices, airports, toll roads, and two of their 20 private equity companies -- Cineplex and a recruiting agency -- both of which accounted for 90% of the losses in PE (-8.4%).

Blake admitted that they need more diversification in Private Equity and "smaller ticket sizes" but the damage was done, the global pandemic wreaked havoc on some private businesses.

Think about it, companies cannot function with a no revenue model, some of OMERS portfolio companies were severely impacted by the lockdowns, more than their peers which were also impacted.

Some of their tenants went belly up, that impacted their real estate revenues.

Also, the footnote in the press release is important:

* For disclosure purposes, we present our investments and our performance by asset class. As such, Oxford Properties’ real estate credit business and public equity investment into HKSE-listed ESR Logistics is presented under ‘credit’ and ‘public equity’ respectively, and not in ‘real estate’. Including the performance of its credit business and investment in ESR Logistics, the Oxford Properties 2020 net return is -6.8%.

Blake told me Oxford lost 7% last year but because REITs are shifted to capital markets, the real losses in Real Estate were not as bad as reported (-11.4%). 

Now, the big question is in a post-pandemic world, will certain segments of Real Estate bounce back? That's a huge topic, one I've covered here and here. 

The truth is nobody knows, we are entering uncharted territory and we will likely see a hybrid model evolve to balance WFH and WFO.

Still, it's fair to say the writedowns OMERS took on some of their real estate holdings are to be expected but they are not recurring, so I expect that asset class to bounce back over the next five years.

The same thing with Private Equity, their strategy is shifting, they are going to diversify more globally and among sectors and that takes time.

As far as losses in Credit, Blake explained it was not on a cash flow basis, more on a mark to market basis.

Private debt is typically a hedge to rising rates and last year rates plunged to historic lows but they didn't suffer defaults, the way the accounting rules are, it showed up as a loss but it exaggerates what is truly happening there.

This activity will also bounce back nicely this year which is why global pensions doubled down on it.

Lastly, a lot of comparisons will be made between the performance of OMERS and other large Canadian pensions.

As tempting as this may be, I caution my readers to avoid making such direct comparisons.

OMERS has a unique portfolio, it has a huge allocation to Private Markets, there were specific reasons as to why it's Real Estate and Private Equity portfolios got hit last year.

Last month, Blake Hutcheson revamped his executive team, they are ready to move forward and I am confident they will do so and continue delivering great long term returns.

As Blake reminded me what Mark Wiseman always says: "In the pension world, a quarter is measured over 25 years."

The pandemic disproportionately hit OMERS for all the reasons I cited above but it's time to forget about last year and move forward.

I hope this comment helps clarify some issues and to all the critics, and there are a few, I can assure you after speaking with Blake, I'm much more understanding of what went wrong and I do not think there is anything fundamentally wrong at OMERS or with their long-term strategy, quite the contrary.

Before I forget, this year OMERS released its Annual Report at the same time as it released its results. It can be found here and I urge all of you to read it carefully because I cannot cover all the details here.

I will end as I always do when covering annual results, with the summary compensation table for senior officers:

Let me once again thank Blake for taking the time to speak with me earlier, if there are any changes or additions that need to be done, I will update this comment as soon as possible.

Below, Blake Hutcheson, president and chief executive officer of Ontario Municipal Employees’ Retirement System (OMERS), discusses the pension fund's investment strategy amid Covid-19, and how OMERS integrates ESG factors into its investment decision-making processes (October 2020).

The head of Canada's largest pension fund received a COVID-19 vaccination while on a "very personal" trip to Dubai, he told staff in an email Thursday night.

Mark Machin disclosed the information in an internal memo after the Wall Street Journal reported he flew to the United Arab Emirates earlier this month, where he received the first dose of the Pfizer-BioNTech vaccine and is awaiting the second dose.

Machin said in the email viewed by The Canadian Press that he remains in Dubai with his partner "for many reasons, some of which are deeply personal."

"This was a very personal trip and was undertaken after careful consideration and consultation," the memo reads.

CPP Investments did not immediately respond to requests for comment Thursday evening.

The federal government is actively discouraging Canadians from travelling abroad and recently implemented strict quarantine measures for those returning home.

Machin told staff he followed all travel protocols related to his role as head of the pension fund while on the trip.

"This trip was intended to be very private and I am disappointed it has become the focus of public attention and expected criticism," he wrote.

Several politicians and health-care officials have become high profile flashpoints of public anger in recent months for leaving the country despite public health advice to the contrary.

Among them, the former CEO of the London Health Sciences Centre is now embroiled in litigation after his travel to the U.S. prompted the hospital to terminate his contract.

Rod Phillips, Ontario's former finance minister, resigned from his post in late December after taking a personal trip to St. Barts.

CPP Investments, which had $475.7 billion in assets under management as of Dec. 31, invests money on behalf of retired and active employees covered by the Canada Pension Plan.

A spokeswoman for Finance Minister Chrystia Freeland said that while CPPIB is an independent organization, the revelation is "very troubling."

"The federal government has been clear with Canadians that now is not the time to travel abroad," Katherine Cuplinskas said in an emailed statement.

"We were not made aware of this travel and further questions should be directed to the CPPIB on this matter."

Machin, who has been in his current role since 2016, joined CPP Investments in 2012. Prior to joining the pension fund manager, he spent 20 years at investment bank Goldman Sachs.

This report by The Canadian Press was first published Feb. 25, 2021.

This morning, the Board of CPP Investments released a statement stating Mark Machin has resigned and is being replaced by John Graham, effectively immediately:

The Board of Directors of Canada Pension Plan Investment Board (CPP Investments) issued the following statement today:

Since 1999, CPP Investments has existed to help provide a foundation upon which millions of Canadians can build their financial security in retirement. In practice, that requires managing nearly $500 billion in assets at arm’s length from federal and provincial governments, relying on a skilled, experienced and professional team. Leadership is, therefore, fundamental to meeting our objectives on behalf of Canadians and we take that responsibility of leadership very seriously.

Recently, our CEO Mark Machin decided to travel personally to the United Arab Emirates where he arranged to be vaccinated against COVID-19. After discussions last evening with the Board, Mr. Machin tendered his resignation and it has been accepted.

Mr. Machin has provided outstanding leadership to the organization as a senior executive and then CEO. His significant accomplishments will help to strengthen Canadians’ retirement income security for many decades to come. The Board wishes to thank Mr. Machin for his global perspective, leadership and commitment to excellence and we offer him our sincere best wishes for the future. In his resignation, Mark emphasized his honour and pride in leading one of the finest global investment organizations over the last five years and deeply appreciates the tremendous diligence and talent of the entire CPP Investments team. He added that he is very grateful for the dedication and guidance of the Board of Directors over the years as well as the tenacity, partnership and camaraderie of the senior management team.

Effective immediately, the Board is pleased to appoint John Graham as the new CEO of CPP Investments. In making its decision, the Board unanimously agreed John is ideally suited to lead the organization forward. He has been instrumental in helping to shape and execute CPP Investments strategy over the last decade as a longstanding employee and member of the senior management team with a successful track record of building and leading global investment businesses.

As Chair of the Board, Heather Munroe-Blum expressed that John’s commitment to the organization, to his colleagues, and to CPP Investments unique mandate is unequaled. By consistently demonstrating deep knowledge of our operations, embracing a global mindset during his time in Asia, while delivering value as a founder and leader of a key investment department, John earned the Board’s unequivocal confidence.

Wow! I was looking forward to writing my regular Friday market comment -- and there's so much to cover as markets are getting rocked this week -- but then this bomb hit me last night, right after I covered OMERS' disappointing 2020 results (they're fine, they will bounce back).

A friend of mine texted me the news articles and added: "He's done, the Board will ask for his immediate resignation, the optics of this look terrible."

I'm afraid my friend was right, the optics do look terrible and Mark Machin was forced to hand in his resignation.

Let me first begin my stating it really saddens me to watch him leave CPP Investments this way.

CPP Investments isn't just Canada's national pension, in my humble opinion, it is the best pension fund in the country and the world, and a huge part of its success is owed to the leadership of Mark Machin.

To be blunt, Mark is an outstanding leader in every respect, he's not only very knowledgeable and smart (he's an MD by training), he literally expanded CPP Investments' global footprint and he's also a very nice man, very impressionable when you meet him because he's empathetic and genuinely nice.

I've met Mark a couple of times here in Montreal and have exchanged emails with him and spoken to him on the phone on many occasions, and he's always treated me right, he's a stand-up guy.

So, yes, it disappoints me to see such a great leader (in every respect) leaving our country's most important pension fund under these circumstances.

But I'm also disappointed to hear he received the vaccine while on a personal trip in Dubai and somehow this was leaked to the press.

We can conjure up all sorts of stories as to who leaked it but that's not the point, the point is it happened, he owned up to it and the optics do not look good at all.

Canadians have been patiently waiting for a vaccine for months now, the rollout in this country is frustratingly slow, and it just doesn't look right that the leader of Canada's largest pension fund "jumped the queue" to receive his shot before everyone else.

Now, to be fair, we do not know all the details as to why and how this happened, maybe there are legitimate reasons as to why he felt he wanted to be vaccinated as soon as possible, but in such a high profile position, all that doesn't matter, what matters is public perception and whether it harms CPP Investments' reputation and brand.

One retired reporter shared this with me: 

I would argue that this would require a piece as to how CPP pretends to be a leader on ESG while its top executive is completely insensitive to the “Social” aspect. 

Kind of harsh but he's right, you cannot publicly claim you're a leader in ESG and not take your own personal actions into account.

Again, there may be legitimate reasons as to why Mark decided to privately get vaccinated (we do not know his medical condition and he needs to travel a lot), but this was mishandled and it blew up on him and the organization to the point where the Board was forced to act swiftly and decisively. 

There are still many unanswered questions and here are a few of them:

• A friend shared this CBC article on how LHSC board chair resigned amid fallout from CEO's travel scandal. He told me: "If the Board knew and sanctioned his travel, and I cannot see how they were not aware as most CEOs are required to report all travel (even personal), the Chair and the entire Board will need to step down."
• Another friend of mine asked me bluntly: "How many other Canadian pension CEOs jumped the queue to be vaccinated? Are we going to ever find out? I doubt it."
• Did other members of CPP Investments' senior management travel to receive the vaccine abroad? If so, should they be forced to report it?
  
• Was the decision to name John Graham as the next CEO done hastily and should the Board have placed someone as an interim CEO as it pondered who should lead this organization?

Let me tackle that last one because it's important to note, CPP Investments is much bigger than one person, no matter who that individual is, and it has incredible bench strength (this goes back from the days Mark Wiseman was leading the Fund, and Mark Machin only improved it).

I have no doubt whatsoever that John Graham will be an outstanding CEO, he was being groomed for the position for some time, it just sucks that his moment to shine has to come under such a dark cloud.

I actually emailed John earlier to congratulate him and give him and Michel Leduc a heads up to this comment to see if they have anything to add publicly. John replied back and we will catch up at a later date but given the circumstances, he needs to focus on his organization and his employees first which is totally understandable.

I think the most important point I want to get out to the public is even though Mark Machin's departure is troubling and concerning, the organization will survive and thrive for generations to come.

John Graham is surrounded by outstanding men and women at all levels of the organization and they're ready to step up to the plate at a moment's notice. The organization's long-term strategy remains solid and second to none.

Now, as far as the Chair of the Board, Heather Munroe-Blum and the rest of the Board, I do not share my friend's concerns nor do I think she or anyone else on the Board should resign.They are all extremely competent and ethical and we shouldn't jump to conclusions as to whether they were aware that Mark Machin was flying to Dubai to get vaccinated (if they did authorize this trip for that reason, it's a big problem for them).

In fact, my friend was sure that Michael Sabia called Mark Machin to tell him to resign and I said that's "total rubbish", CPP Investments governance is such that the Board and only the Board can make such a decision.

Importantly, nobody from the Government -- any government as CPP Investments is is mandated by all provincial governments (except Quebec) and the federal government -- stepped in to force Mark Machin to resign, this was entirely a Board decision.

That's what "operating at arm's length from the government" means, Justin Trudeau, Chrystia Freeland and Michael Sabia who is now part of the Government have zero say on CPP Investments' internal affairs, and neither should they (Sabia knows this all too well as he dealt with his share of government pressure while he was at the helm of CDPQ).

As far other senior officers at CPP Investments getting the vaccine, we have to be careful, some are stationed in countries where the vaccine rollout is proceeding much quicker than here, so if they are fortunate enough to  be vaccinated, good for them, I'm happy to hear it.

As far as as other Canadian pension leaders being vaccinated on the "down low", it's possible but I highly doubt it and even it happened, I doubt we will ever find out, especially after this story broke out.

Let me end my comment by wishing Mark Machin all the best, he truly was an outstanding leader and a a genuinely great guy who I will miss (please stay in touch).

I also want to congratulate John Graham and wish him and his senior team much success in the years ahead. 

Most importantly, let me reassure all Canadians that as long as CPP Investments' governance remains intact, we can all rest assured that the Fund will continue to generate pension payments for generations to come.

Lastly, some brief market insights since it's Friday and I typically cover markets on Friday:

• I think the backup in US long bond yields is overdone in the short-term. Bond yields tend to overshoot on the upside and downside but it's the veracity of the move that caught many off guard this week. The yield on the 10-year US Treasury note should top off here but yes, it might creep up to 1.65% (who knows!).
  
• The quick backup in long bond yields raised inflation concerns and that the Fed will have to tighten quickly, all of this is nonsense. 
• What the backup in long bond yields has done is help cyclical shares -- Financials (XLF), Industrials (XLI), Energy (XLE) and Materials (XME) -- surge this past month and it hit tech stocks, especially hyper growth tech shares (see my comment on the unArking of the market, much of this was foreseeable).
• Going forward, I expect the rally in cyclical shares to cool as yield backup stalls and the US dollar comes back, I expect we will see the tech giants (XLK) will lead the market, but I'm watching them and the Nasdaq very closely(needs to hold above 13,000 level) and I'm not discounting a March madness surprise, so buy some volatility (VXX) and gold (GDX) just in case as a hedge.

I wish all of you a great weekend, if you have anything to add on this or any of my comments, feel free to reach out to me at LKolivakis@gmail.com.

Below, an interview I posted earlier this week. Mark Wiseman, former head of CPP Investments and chair of AIMCo, talks about"an emerging retirement income crisis" thanks to record low interest rates and decreased economic activity as a result of the pandemic. He talks about what can be done to ensure the strength and success of the Canadian pension model in this environment and how we can grow the economy.

Please also read Mark's comment on this topic and why we need to preserve the Canadian governance model. Stay safe everyone, trust your pension officials are all working hard for your best interests.

DP World alongside its partner Caisse de dépôt et placement du Québec (CDPQ), a global investment group, today signed a long-term agreement with Indonesia’s leading conglomerate Maspion Group to start the construction of an international container port and industrial logistics park in Gresik.

Work on the projects is expected to begin in the third quarter of 2021, with a total investment of up to USD 1.2 billion, enhancing East Java’s position as a key trade gateway for Indonesia.

The signing ceremony was held in the presence of the Coordinating Minister for Maritime and Investment Affairs of the Republic of Indonesia, Mr. Luhut Binsar Pandjaitan, and the United Arab Emirates’ Minister of Energy and Infrastructure, H.E. Suhail Al Mazrouei, in Jakarta at the Indonesia-Emirates Amazing Week 2021 Building Path Towards Economic Recovery business forum. The signatories of the formal agreements are Sultan Ahmed Bin Sulayem, Group Chairman and CEO of DP World, and Dr. Alim Markus, Chairman and CEO of Maspion Group.

Under the agreement, a joint venture company will be established between DP World and CDPQ’s global investment platform and Maspion Group, the first of its kind in the Indonesian transportation sector involving a foreign direct investor (FDI) partner and a private sector Indonesian company. DP World Maspion East Java will become the sole operator of a modern international container port with design capacity of up to three million twenty-foot equivalent units (TEU). DP World and CDPQ will also work with Maspion Group to develop an integrated industrial and logistics park, adjacent to the Container Terminal, with an initial land area of 110 hectares with scope for future expansion. The Park will provide world-class trade environment for domestic and international businesses to help drive economic growth and create jobs.

Since its launch four years ago, the US$8.2 billion DP World-CDPQ platform has invested in 10 port terminals globally and across various stages of the asset life cycle. This investment will allow the partnership to pursue its objectives to further diversify its reach in terms of geography and trade lanes.

Sultan Ahmed Bin Sulayem, Group Chairman and CEO of DP World, said: “The partnership with Maspion Group is an important development in our global ports and logistics network. Indonesia is rapidly developing as one of the world’s most important economies. This project will create modern, efficient infrastructure, as well as an industrial zone that provides quality logistics. DP World’s business model and vision are aligned with President Jokowi’s vision to spur faster economic growth through trade infrastructure development, more investment opportunities, and job creation.”

Emmanuel Jaclot, Executive Vice-President and Head of Infrastructure at CDPQ, said: “Through this partnership with Maspion, CDPQ is delighted to make its first infrastructure investment in Indonesia, a strong growth market which benefits from favourable structural trends. It also represents an important milestone for our joint platform with DP World with the addition of a first greenfield port to our portfolio of high-quality assets that have demonstrated their resilience over the past year despite important shifts in the global supply chain landscape.”

Dr. Alim Markus, Chairman and CEO of Maspion Group, said: “Maspion Group is committed to support Indonesia’s sustainable economic development to be aligned with President Jokowi’s grand plan to make Indonesia the fifth largest economy in the world. Surabaya is an important gateway in Indonesia and the existence of this Container Port will further enhance economic development and investment opportunities in Indonesia.”

Groundbreaking on the Container Terminal is expected to take place in 2021, with commercial operations expected to begin in 2023. The project will develop East Java’s infrastructure as part of President Joko Widodo’s vision to accelerate economic growth through his Indonesia Golden Generation 2045 strategy.

CDPQ put out a press release on this deal here and it's basically the same as what you read above.

Indonesia is an interesting country. It has a population of more than 270 million people and it is home to 12.7% of the world's Muslims, followed by Pakistan (11.0%), and India (10.9%).

Indonesia is the world's largest island country and the 14th-largest countryby land area, at 1,904,569 square kilometres (735,358 square miles). 

 Located in Southeast Asia, lying between the Indian Ocean and the Pacific Ocean, it is located in a strategic location astride or along major sea lanes connecting East Asia, South Asia and Oceania.

The country is on the rise as an Indo-Pacific actor and the country has strategic relationships with Australia, Japan, China, India, and the United States.

This is why CDPQ's Head of Infrastructure, Emmanuel Jaclot calls it "a strong growth market which benefits from favorable structural trends.” 

You have a huge population, a growing middle class, and the location is perfect to build an international container port and industrial logistics park.

Of course, DP World is CDPQ's trusted partner to expand its global port investments and locally, the Maspion Group will be in charge of building this project.

I read a good interview with Dr. Alim Markus, Chairman and CEO of Maspion Group published in Indonesia's Global Business Guide. It's dated (2012) but still worth reading:

Maspion Group is a highly diversified group which is involved in consumer products, construction materials, property and financial services. What can you tell us about the current strategies being followed to further expand the group and its subsidiaries?

Maspion was established in 1962 in the field of kitchenware and we have expanded significantly since then. Now we have around 10,000 products that we manufacture and are involved in many other areas such as property and transport. Building materials is another industry that we are engaged in as well as the durable consumer products industry such as home appliances. We also have a bank to enable our products to be purchased on credit as well as hotels.

Consumer products are one of the most interesting areas for the future as the middle class is growing rapidly in Indonesia so we will continue to focus on this.

Maspion Group currently exports to international markets but the global economic slow down means that we are focusing on the Indonesian market as it offers a lot of potential for further growth.

In your opinion, what are the key areas that Indonesia needs to address to improve the business climate?

Indonesia lacks good infrastructure and if we want to enlarge the business potential then it comes down to having more toll roads, airport and seaports. Today, all the country’s ports are completely congested and this is slowing down businesses in every sector.

Labour regulations are also an area where Indonesia has insufficient laws and legal certainty. Labour strikes in West Java are becoming more common. I believe that it is better to leave labour regulations up to the labour unions and the business owners rather than the government as it should be dealt with at a local level.

I also hold the role of chairman of APINDO for the East Java region.

The China – ASEAN Free Trade Agreement has been seen in both a positive and negative light by Indonesian businesses. What is your opinion on the impact of the FTA on Indonesia?

China has many entrepreneurs who have created their own brands.

In Indonesia, if we do not develop value added brands then we will face a lot of competition from China as a result of the China – ASEAN Free Trade Agreement. It means that Indonesian companies must increase their efficiency, introduce better quality control measures and to invest in their marketing and branding.

Within the field of marketing, what do you think needs to be done to promote Indonesian made products internationally?

Any business will eventually face cost competition. If you offer good quality and good aftersales service as well as pay close attention to areas such as packaging then Indonesian products can move up the value chain. I think this has been an area that has been lacking in the past.

For Maspion, we have created excellent brand awareness and good quality products.

The company is also engaged in other areas such as banking and property. What are the next projects that you have planned within the various companies of the group?

I think in the next five years we will be interested in going into mass housing projects.

Maspion Bank is performing very well, our non performing loans are only 0.2% so we will continue to develop our financial services in Indonesia.

In all types of business, if there is an opportunity then we are open to it. Hotels and malls are really our focus and area of interest for now.

How is the group positioned towards working with international partners and investors looking to come into the Indonesian market?

For the future we are open to working with international partners who wish to set up their operations in Indonesia. We are open in all sectors as we already enjoy a significant market share in many segments in Indonesia.

Nowadays, Maspion Group is a huge conglomerate and it will start the construction of an international container port and industrial logistics park in Gresik.

Again, in order to make these big investments in a foreign country like Indonesia, you need a good strategic partner like DP World and a good local partner like the Maspion Group. 

Once commercial operations of this international container port and industrial logistics park in Gresik commence in 2023, it will offer CDPQ and DP World solid long-term revenue streams.

In other related news, Frederic Tomesco of Post Media News reports the Caisse bets up to $408 million on Brazilian optical-fibre venture: 

Another day, another major investment for the Caisse de dépôt et placement du Québec.

Fresh from committing $475 million to help CAE Inc. make its biggest-ever acquisition, CDPQ said Tuesday it agreed to invest up to $408 million in a joint venture with Spanish telecom company Telefonica Group to build, develop and operate an independent optical fibre wholesale network in Brazil.

Telefonica and CDPQ will each hold 50 per cent under a co-control governance model, according to a statement issued Tuesday. Closing is expected to take place in the second quarter of 2021.

Called FiBrasil Infraestrutura e Fibra Ótica SA, the venture will deploy and run fibre-optic networks in mid-sized cities outside the state of Sao Paulo. FiBrasil will also offer fibre-to-the-home wholesale access to all telecommunications service providers in Latin America’s most populous country.

The Brazilian venture is a first step in the Quebec pension fund manager’s efforts to double the size of its global infrastructure portfolio to $60 billion over four years— a goal that chief executive Charles Emond disclosed last week. Infrastructure holdings returned 5.1 per cent last year, cutting CDPQ’s overall return to 7.7 per cent. Assets include stakes in airports, renewable energy producers and wireless towers.

FiBrasil’s creation “is an opportunity to further diversify our infrastructure portfolio,” Emmanuel Jaclot, head of infrastructure at CDPQ, said in the statement. It demonstrates “ongoing interest for Brazil and the wider Latin America region, where we see opportunities in a variety of sectors.”

Starting with an existing base of 1.6 million homes passed, which Telefonica is contributing, FiBrasil aims to more than triple its network to reach around 5.5 million homes within four years.

CDPQ’s projected capital contributions, coupled with the expected debt that FiBrasil plans to issue, will provide a “fully funded business plan,” according to Tuesday’s statement.

Brazil is Latin America's most populous country with over 211 million people.

It has long represented an important growth market for CDPQ, CPP Investments and all of Canada's large pensions.

I recently wrote a comment on how CPP Investments 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.

You can read this comment here to get an idea on how critical Brazil's telecom space is and how foreign investors want a piece of the action, partnering up with local banks and telecom companies. 

Charles Emond has expressed that CDPQ wants to double the size of their infrastructure portfolio to $60 billion in four years and to do so, Emmanuel Jaclot and his team will need to put the peddle to the metal and partner up with great partners all over the world to invest in high quality infrastructure assets.

As I stated last week when I went over CDPQ's 2020 results, Emmanuel Jaclot and his team were named institutional investor of the year for a second year in a row and they are more than up for the challenge.

Lastly, today is International Women's Day, and while I often praise the men at this organization, there are a lot of great women working at CDPQ like Anita M. George, Helen Beck, Kim Thomassin, Ani Castonguay, Nathalie Palladitcheff and many more:

From Montréal to Singapore to New York to Paris, today we salute the work of our colleagues, in Quebec and around the world, who strengthen our expertise and our abilities as investors through the quality and richness of their perspectives. pic.twitter.com/CC2Z8tQ4jQ

— CDPQ (@LaCDPQ) March 8, 2021

What's that old saying, behind every great organization there are a bunch of great women doing all the hard work? Trust me, it's true (there are a lot of great guys too but today we celebrate women!).

Alright, I'm back from a week off (actually posted last Monday), if there's anything to add, feel free to email me at LKolivakis@gmail.com. 

I want to thank all of you who take the time to financially support this blog by donating under my picture at the top left-hand side, it's greatly appreciated (not to mention I hate reminding people that this blog and the work that goes into it must be monetized, so please show your appreciation through your dollars).

Below, and older (2014) World Bank clip on how inefficiencies at the Indonesia's main port are multiplying logistics costs for the economy. Shortening long dwell times and introducing simpler payment systems can help make the port -- and hence businesses -- run more smoothly.

And Jakarta is the capital of Indonesia, a country with some of the friendliest people you will ever meet. That's why Jakarta (Java Island) generally surprises visitors despite being a huge capital. The highlights of this video include visits to Merdeka square, the National Monument (Monas), Ragusa ice cream, Istiqlal Mosque, Our Lady of Assumption Cathedral and Skye Bar and Restaurant.

Lastly, I embedded an interview with André Borges, Secretary of Telecommunications, Brazil at ITU TELECOM WORLD 2018, Durban, South Africa.Listen to his comments and you will understand why they need foreign investors to develop their telecom space.

OPTrust today released its 2020 Funded Status Report, Taking Care, which details the Plan’s financial results and fully funded status. In 2020, OPTrust achieved an investment return of 8.9 per cent and lowered its discount rate. Membership in OPTrust Select, the defined benefit offering for Ontario’s nonprofit, charitable and broader public sectors, continues to grow. This ensures more frontline workers and essential service providers will have access to a secure, predictable retirement.

“Every day, the team at OPTrust takes care of members and their financial future in retirement, just as our members have cared for many Ontarians in their roles as public servants and nonprofit workers,” said Peter Lindley, President and CEO of OPTrust. “These workers fulfill some of the most essential services in our communities and the OPTrust team is focused on their well-being in retirement.”

This was OPTrust’s 25th year of delivering retirement security to members. During 2020, OPTrust’s Member-Driven Investing (MDI) strategy helped the Plan navigate the market turbulence caused by the COVID-19 pandemic, reflecting the diversification within the portfolio and the strong performance of OPTrust’s risk-mitigating strategies. MDI was designed to weather market volatility by maintaining the funded status of the Plan at the lowest risk possible.

“While no one could have predicted the events of the past year, we know that periods of volatility are always possible,” said Lindley. “The effectiveness of our Member-Driven Investing strategy was evident in the way the portfolio remained resilient, and the high level of liquidity we maintained which enabled us to take advantage of opportunities that arose.”

In keeping with the long-term focus of the Plan, OPTrust bolstered its commitment to sustainability in 2020 by completing carbon risk assessments, including measuring the carbon footprint of the public equity, fixed income, private equity and infrastructure portfolios. In recognition that we all have a role to play in ending systemic racism and promoting fairness, equality and acceptance, OPTrust also reviewed its policies and practices through a diversity lens, signed the BlackNorth Initiative Pledge and is continuing to pursue EDGE certification as a gender-balanced workplace.

While working from home, the OPTrust team continued to provide an exceptional experience to members. In 2020, members and retirees rated their service satisfaction as 8.7 out of 10, a top 10 global placement by CEM Benchmarking Inc. OPTrust continued to strengthen actuarial assumptions to enhance the long-term funding health of the Plan by lowering the discount rate to 3.0%, net of inflation, from 3.1% in 2019.

More detailed information about OPTrust's 2020 strategy and results is available in Taking Care at  www.optrust.com.

ABOUT OPTRUST

With net assets of over $23 billion, OPTrust invests and manages one of Canada’s largest pension funds and administers the OPSEU Pension Plan (including OPTrust Select), a defined benefit plan with over 98,000 members. OPTrust was established to give plan members and the Government of Ontario an equal voice in the administration of the Plan and the investment of its assets through joint trusteeship. OPTrust is governed by a 10-member Board of Trustees, five of whom are appointed by OPSEU and five by the Government of Ontario. 

You can read OPTrust's 2020 Funded Status Report here.

Earlier today, I had a chance to speak with Peter Lindley, OPTrust's President and CEO, to go over the results and more.

Let me first thank Peter for taking the time to chat with me and also thank Claire Prashaw and Jason White of OPTrust's Communications teams for setting up the Microsoft Teams meeting. After some initial glitches, I was able to finally get on and see all of them.

Anyway, Peter started by telling me OPTrust remains fully funded, they dropped the discount rate to 3% real (5% nominal) and net assets are over $23 billion.

He's proud of the team and the theme this year which is "Taking Care". On the website, you'll see his quote:

“It was a year of taking care of not only the Plan, but also each other; our communities, our team and our obligations to our members as we continued to deliver on our mission of paying pensions today, preserving pensions for tomorrow, while working from home.”

Let's face it, it was a tough year, many employees at OPTrust (and elsewhere) had to work from home, some in total isolation, others while juggling kids and taking care of elderly parents, so they rightly felt "Taking Care" in the broadest sense was the right theme to characterize a very challenging year.

Also, as Peter rightly noted, OPTrust not only administers the OPSEU Pension Plan, a defined benefit plan with over 98,000 members and retirees, through OPTrust Select, it manages the pensions of many people (mostly women) working at Ontario's non profit sector.

These are people earning a modest income taking care of others in their time of need so it only makes sense that OPTrust takes care of their retirement needs, making sure they can retire with peace of mind.

More on OPTrust Select below.

First, let's go over some investment stuff so that you understand how OPTrust manages money on behalf of its members.

I would encourage my readers to read OPTrust's Statement of Investment Policies and Procedures here as well as their investment beliefs here.

What is really critical to understand is this:

"Our investment objectives are driven by our liabilities. Our success is determined by how well we meet our pension promise to our plan members. We must earn sufficient real returns over the long-term to ensure the plan remains fully funded, while striving to keep the benefit level and contribution rate stable."

In order to achieve their investment objectives, OPTrust has adopted a Member-Driven Investing (MDI) strategy:

Our members want pension certainty. To accomplish this, we have created our Member-Driven Investing (MDI) strategy, which seeks to earn a return sufficient to keep the Plan fully funded at current benefit levels and contribution rates. This means we must strike the appropriate balance between risk and return. Taking too little risk would result in returns that are too low to keep paying benefits at the current contribution rate, but too much risk could increase the chances of being underfunded.

We face several challenges as we strive to keep the Plan fully funded:

• Investment Environment – The evolution of COVID-19 and unprecedented monetary and fiscal expansion has extended the ranges of outcomes for interest rates, inflation and asset prices.
• Plan Maturity– A declining ratio of active to inactive members has reduced our risk tolerance
• Longevity Risk– Higher life expectancy increases the Plan’s pension obligations
• Discount Rate for Funding Valuation– Lower interest rates have reduced our discount rates, in turn pushing pension obligations higher

To achieve our objectives in a difficult investment environment, our investment strategy is to harvest a diversified set of market risk premia across liquid and illiquid markets, while adding value through active management.

Now, Peter talked about OPTrust's three main portfolios:

1. Their Liability Hedging Portfolio (15-20% of total assets, mostly government bonds)
2. Their Risk Mitigation Portfolio (roughly 12% of total assets, includes gold, bonds, CTAs)
3. Their Growth Portfolio (70% of assets, primarily in Private Equity, Real Estate, and Infrastructure)

Critically important, unlike its peers, OPTrust has only 10%-15% of its total assets in Public Equities, most of the risks are taken in Private Markets where they feel there are decent risk premia and where they can add value.

You should all read a previous comment of mine where I went over understanding Private Equity at OPTrust, to really get a good sense of what Sandra Bosela and her colleagues do to add value in PE.

Also, Peter mentioned Rob Douglas, Managing Director of Real Estate, and the great things he's doing to add value, shifting the portfolio away from Retail and Offices into Industrials (logistics) and Multifamily before the pandemic hit.

Now, looking at the 2020 Funded Status Report, one thing I noticed is OPTrust does not provide a detailed breakdown of its portfolio returns by asset class over the last year, five years and ten years but they do provide the relevant information if you read the details of the report:

• The private equity portfolio generated a net return of 12.3% in 2020.
• The real estate portfolio generated a net return of 1.2% in 2020.
• The infrastructure portfolio generated a net return of -0.5% in 2020.
• The credit portfolio earned a net return of -3.9% in 2020.
• Multi-strategy investments generated a net return of -1.6% in 2020.
  
• The Risk Mitigation Portfolio earned a net return of 26.3% on the year.
• The -3.6% weight of the Funding Portfolio reflects OPTrust’s overall balance sheet leverage.
  

You can read the report for all the details of each asset class but clearly Private Equity generated the bulk of the returns in private markets, real estate generated a very decent 1.2% during an extremely challenging year, and infrastructure was down marginally owing to some transportation infrastructure investments.

But the big gains came from the Risk Mitigation portfolio which Peter explained is made up of U.S. Treasuries, safe-haven currencies, gold and trend-following strategies (CTAs), all of whuch came through big last year.

It's important to note, however, that the bulk of the assets are in growth and that's mostly Private Equity, Real Estate and Infrastructure and that OPTrust has roughly 10% in Public Equities, which is good when stocks get clobbered, less good when stocks melt up.

Still, overall I have to say, these are impressive returns during a very difficult year and Peter did mention they used very little leverage and were very diversified across geographies and sectors in private markets which helped mitigate the downside.

In fact he explicitly stated: "We use less leverage in private equity than our peers and we focus on being diversified by sector and geography." 

We then moved on to discuss OPTrust Select, an innovative DB pension OPTrust offers to those working at Ontario's non-profit sector.

To my surprise (and Peter's too), OPTrust grew its membership during the pandemic! 

In fact, Jason White shared this with me after the web meeting:

Interest in OPTrust Select has been sustained throughout the pandemic. At the end of 2020, membership in OPTrust Select had grown to 43 organizations and close to 1,400 members. As Peter noted, this means more frontline workers and essential service providers will have access to the security of a defined benefit pension.

A map showing OPTrust Select’s member organizations can be found here.

This is really great news, the more workers that have access to a well-governed, well-managed DB plan, the happier I am.

And these workers really deserve a DB plan, they are mostly women doing a lot of hard work in our society, helping the poor, homeless, marginalized and we often take them (and other frontline workers) for granted but we really shouldn't.

Lastly, Peter Lindley discussed OPTrust's commitment to addressing climate change and he praised the work Alison Loat, Managing Director of Sustainable Investing and Innovation, and her small team are doing.

He told me they are not only looking at how ESG is being implemented across public and private markets, they're getting ready to make their first investment in an "incubation fund" very soon and Alison is part of a group which will publish a paper on Climate Action in May.

Great stuff, Alison is very enthusiastic and she's a great addition to OPTrust's team.

Who else do I think would make a great addition to OPTrust's team (or OMERS)? Mihail Garchev, BCI's former head of Total Fund Management and my buddy in Toronto, Steve Boucouvalas who knows more about trading currencies and generating currency alpha than anyone at any Canadian pension fund (both of these two individuals are far too humble, get to it James Davis and Satish Rai).

I mean it, I am tired of seeing good, smart and hardworking people that deserve a job at our large pensions waiting for Canada's large pension executives to hit their bid. And that includes yours truly who is tired of writing blog comments on pensions every night and wants to get back into investing to make some real money.

If I had a choice, I'd create a small team which includes me, Steve B, Mihail Garchev, Brian Romanchuk, Fred Lecoq, Simon Lamy and a few others and ask CPPIB, CDPQ, BCI or some other big Canadian pension outfit to fund our multi-strategy fund and get out of our way! (I might sound delusional but I'm dead serious).

Anyway, on that note, here's the executive compensation at OPTrust for 2020:

Given the excellent long-term returns (8.1% annualized since inception in 1994), it's well deserved and below their large peer group. Interestingly, the Private Markets executives are not listed here, an omission that needs to change as they are integral to OPTrust's success and they earn millions collectively.

Below, Peter Lindley, OPTrust's President & CEO, discusses what attracted him to OPTrust and why he and his team love taking care of their members. 

Peter is a great leader, he comes across exactly like this clip, namely, smart, authentic, emphatic, thoughtful, humble and super nice. I thank him for another delightful conversation and look forward to meeting him in person one day. 

As he stated as we contemplated turning the page on COVID: "Hope springs eternal."

I also embedded a Canadian Club panel discussion featuring Alison Loat, Managing Director of Sustainable Investing and Innovation, discussion ESG and Sustainable Investing. Mark Wiseman (AIMCo Chair), Gerald Butts (Eurasia Group) and Veronica Chau (BCG) also participated.

I look forward to hearing more from Alison in the second half of the year and wish her and her small team a lot of success.

As far as OPTrust's old and new members, they're very lucky their pension assets are being managed exceptionally we. Rest assured, they are taking good care of you and each other.