Stocks rose to record levels on Friday even after a disappointing April jobs report as the weak number made investors believe easy monetary policies that powered the market’s historic rebound will stay in place for longer.

The S&P 500 climbed 0.7% to 4,232.60, hitting a record high. The Dow Jones Industrial Average rose 229.23 points, or 0.7%, to 34,777.76 to reach another closing high. The tech-heavy Nasdaq Composite popped 0.9% to 13,752.24.

The Labor Department said nonfarm payrolls increased by just 266,000 in April, far less than the 1 million total economists were expecting, according to Dow Jones. The unemployment rate rose to 6.1% last month amid an escalating shortage of available workers, higher than an expectation of 5.8%. Meanwhile, March’s originally estimated total of 916,000 was revised down to 770,000.

Investors bet that the big jobs miss could keep the easy policies of the Federal Reserve in place, including record low interest rates and a massive bond-buying program. Tech stocks, which have been winning under the low-rates regime during the pandemic, outperformed after the data release. Microsoft and Tesla both rose more than 1%, while Netflix, Alphabet and Apple all registered gains. Higher rates tend to hit growth stocks the most since they reduce the value of their future earnings.

“The Fed will feel some vindication in their hesitancy to embrace tapering,” Adam Crisafulli, founder of Vital Knowledge, said in a note following the jobs report Friday.

Bank of America research warned as recently as Friday that strong economic data could hit stocks, especially tech shares, if it caused the central bank to dial back on its easy monetary policies.

Some believe that April’s jobs number could just be a blip and it shouldn’t change minds about the trajectory of the U.S. economy.

“It was a huge surprise,” Goldman Sachs chief economist Jan Hatzius said on CNBC’s “Squawk on the Street.”“I think that you always have to take every data release with a grain of salt and this one I think you may have to take with a rock of salt,” he said, citing seasonal adjustments as a potential source of error.

Still, the disappointing jobs number poured cold water on many economists who estimated a sharp rebound in job growth. Goldman Sachs economists expected a total of 1.3 million jobs to have been added in April.

It also cast doubt on whether the economy could pull off a full recovery from the pandemic as quickly as many expected. Some economists are forecasting double-digit growth in the current quarter after gross domestic product rose at a 6.4% annualized pace in the first quarter.

“It was a disappointing read on job creation and brings into question the assumption that Q2 is going to carry-forward the positive momentum established at the beginning of the year,” Ian Lyngen, head of U.S. rates at BMO, said in a note.

Shares of Roku rallied more than 11% after the streaming company blew past expectations with its first-quarter results. Roku posted adjusted earnings of 54 cents​​ per share, compared to an estimated loss of 13 cents per share, according to Refinitiv. Revenue rose 79% from a year ago and exceeded expectations.

For the week, the Dow rallied 2.7% to break a two-week losing streak. The S&P 500 gained 1.2%, while the Nasdaq Composite shed 1.5% this week.

Patti Domm of CNBC also reports the stock market may be misreading what this weak jobs report means for the Fed:

The much weaker than expected April jobs report reinforces the Federal Reserve’s easy policy stance, but some strategists still expect the central bank to signal in the next couple of months that it will slow down its bond buying.

Economists had expected to see 1 million new jobs last month, so the government’s report of just 266,000 was a gut punch to the view that the economy is rebounding in a smooth upward trajectory. The anticipation for a big jobs number also had put the spotlight on the Fed’s easing programs.

Stock futures rose and Treasury yields immediately fell after the report. But the 10-year Treasury yield, after falling to about 1.49% turned around to trade at 1.55%. The 5-year also fell but stayed near its low. Yields move opposite bond prices. In afternoon trading, stocks remained higher with the Dow up about 160 points.

“I’m wondering if bonds are selling off a little as it just reinforces [Fed Chair Jerome] Powell wanting to be patient,” said John Briggs, head of global strategy at NatWest Markets. “But if you’re like me, waiting for the Fed to taper, I think the Fed is going to start talking about it in September. That means the market is going to be talking about it in the summer.”

Economists said the May jobs report will provide more information on the state of hiring, which could have been slowed by bottlenecks showing up in supply chains. For instance, auto workers have been idled due to the shortage of semiconductors needed to build automobiles. There is also an acute shortage of workers in some areas and industries. Economists also see closed schools as an issue, keeping parents from the workforce. To some extent, expanded unemployment benefits may also be a factor.

“If one is thinking about the evident labor shortages being inflationary, that should push the 5-year yield up,” said Michael Schumacher, Wells Fargo rates director. “But the other side is if you consider the chance of the Fed tapering, that’s been pushed back slightly. Not much in my opinion, but people might take that view.”

Schumacher said he still expects the Fed to discuss trimming its purchases of about $120 billion a month in Treasurys and mortgage securities.

Fed Chairman Jerome Powell has knocked the idea that the Fed will begin discussing an unwind any time soon. But some strategists still expect the Fed to be forced into slowing the purchases and ultimately ending them due to the strength of the economic recovery and the specter of inflation.

A step toward ending the bond-buying program would ultimately be a step toward raising interest rates, which the Fed is not expected to do any time soon. Powell has said the Fed would complete the slow wind down of its bond purchases before raising interest rates.

“If you’re an economy bull, you say this is probably an aberration. ... The bears can say you’re losing momentum. Either are possible until you get another month,” Briggs said, noting the next report could show a large amount of hiring. “When was the last time you reopened an economy in a pandemic? Where are your seasonal factors for that?”

He said the bond market is also reacting to the potential for more fiscal stimulus, highlighted by the White House after the weak number.

“It’s as simple as this — a drop in rates, let’s buy tech,” said Peter Boockvar, chief investment strategist at Bleakley Advisory Group. “The stock market can’t decide whether it wants to celebrate the drop in yields and maybe a Fed that’s not going to taper so quickly but at the same time, we’re early stage in the recovery but we’re seeing a lot of late stage behavior like supply demand getting hot ... this overheating.”

Jan Hatzius, chief economist at Goldman Sachs, said the bond market reversal appears to have come as traders looked at the inconsistencies and decided the number was distorted. “That was my view as well,” he said on CNBC. Hatzius said the weak jobs report does not change his view that the Fed will taper its bond purchases starting next year and then raise interest rates in 2024.

“I’m not sure having one dud report changes the calculation too much,” said Schumacher. “I suspect the forecast range will be astronomical next month.”

The unemployment rate rose in April to 6.1% from 6%. The bulk of hiring was in the leisure and hospitality sector, which added 331,000 jobs as pandemic restrictions on restaurants eased.

Average hourly wages rose by 21 cents to $30.17 in April, and economists note that strong hiring of workers in the hospitality industry typically makes overall wage numbers go down.

“This is a devastating disappointment, more than just seasonal problems. We had declines in everything from professional services to manufacturing and even couriers and transportation,” said Diane Swonk, chief economist at Grant Thornton. “Turning on the lights in the economy is harder than turning them off.”

And Jeff Cox of CNBC also explains April’s big jobs miss and what it means for the US economic outlook:

The stunningly disappointing April jobs report shouldn’t be taken as an indictment against the fast-moving economic recovery but shouldn’t be dismissed as merely a one-month blip either, according to Wall Street economists and market experts.

A confluence of factors helped explain the weak Labor Department count that showed nonfarm payrolls grew by just 266,000 in a month that forecasters had expected to see 1 million.

Among them: low labor supply caused by a lack of qualified workers, reluctance of some to go back to work because of Covid-related fears and the continuation of enhanced unemployment benefits, and seasonal factors that skewed expectations for job creation.

“The main thing we learned in this reopening trade was that we thought it was going to be this smooth trend of all this good stuff happening. What we’re starting to realize is it’s probably going to be a little bit bumpier,” said Jim Caron, head of global macro strategies for the Global Fixed Income Team at Morgan Stanley Investment Management.

“The road is still pointed in the right direction. It’s just going to be a little less smooth than we had thought,” he added.

Some positive signs amid the weakness

Despite the big miss, there were still things to like in the report that pointed to strong fundamental factors for the jobs market even if the headline number was a big letdown.

For one, the unemployment rate rose 0.1 point to 6.1%, but that was primarily because more Americans returned to the labor force, a critical metric for policymakers.

Also, the level of working remotely fell to 18.3% of those employed from 21% in March. Those who said they weren’t working because their employer closed or lost business due to pandemic-related reasons declined from 11.4 million to 9.4 million. Those prevented from looking for work due to the pandemic fell to 2.8 million from 3.7 million the previous month. The average duration of unemployment declined to 28.8 weeks from 29.7 weeks.

There’s also hope for the future: Economic growth is expected to get even stronger through the second quarter, and other real-time indicators like restaurant reservations, foot traffic and employment costs all point to continued employment gains ahead.

“This is just a blip. It’s one data point. I would not take a lot from it,” said JJ Kinahan, chief market strategist at TD Ameritrade. “This is one of those reports that is kind of interesting, but that makes the next report even more interesting, because something about this seems odd.”

Indeed, the financial markets weren’t disappointed at all.

Stocks rallied through the day and shorter-duration government bond yields fell, an indication that at least near-term inflation pressures were diminishing.

The market reaction was a bit puzzling, particularly the bond market moves, though there was an overall sense that any urgency the Federal Reserve may have felt to tamp down economic growth would be quelled further by the jobs situation.

“Time for a deep breath. One month’s data prove nothing; payrolls could rebound massively in May,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics. “But if the April report is indicative of [a] trend which will persist, then the rally in Treasuries after these data makes no sense, because the outcome will be substantially faster wage growth and the potential embedding of the impending reopening spike in margins.”

Lots of questions

Wages did accelerate during the month, rising 0.7% from March though flat year over year. The gains may have reflected added pressure on businesses to pay more in order to encourage workers to return to jobs.

The combination of higher pay and a slight decline in hours worked “suggests labor shortages are becoming more evident, which may in turn be a factor holding back jobs growth,” Capital Economics senior U.S. economist Michael Pearce said in a note.

“Overall, it is difficult to judge how much weight to put on this report at a time when most of the other evidence suggests economic activity is rebounding quickly, but it is a clear reminder that the recovery in the labor market is lagging the rebound in consumption,” he added. “That’s a crucial distinction for the Fed.”

Nationwide Mutual chief economist David Berson said the April numbers raise the question of “whether this relatively weak employment report is a sign of a weakening demand or a sign of lack of supply.” Within that question is whether unemployment benefits, which provide $300 above what recipients normally would get, are too high. He also wondered whether a skills mismatch is at play, if it’s a matter of schools yet to reopen, or if business start-ups are lagging.

“All of these probably are playing a role,” he wrote.

Krishna Guha, head of central bank strategy for Evercore ISI, said the report “can only lower conviction in the view that a very vigorous acceleration is already underway,” and he characterized it as “more supply-constrained stagflation lite than Goldilocks.”

Stagflation is a term to describe a 1970s-like economy where growth is low and inflation runs high.

But White House officials on Friday generally chalked up the report as indicative that more needs to be done, not less, to get the economy back to full power.

President Joe Biden said the numbers are “on the right track” but “we still have a long way to go,” while Treasury Secretary Janet Yellen said the report shows that there will be some bumps along the way.

Wall Street generally agreed, maintaining that the high levels of stimulus combined with continued progress against the coronavirus will spur more hiring ahead.

“My inclination is not to read too much into the weakness,” wrote Eric Winograd, senior economist at AllianceBernstein. “I remain confident that the economy is accelerating sharply and will continue to do so, and that the labor market will reap the benefits of that expansion sooner rather than later.”

Alright, it was another hectic Friday with the hugely disappointing nonfarm payrolls figures that came out earlier today.

While all eyes were on the stock market, it's the bond market which caught my attention today:

The yield on the 10-year Treasury note initially dropped below 1.5% to hit a low of 1.47% and then closed right below 1.58%. That is a huge intraday move and it demonstrates the bond market isn't buying this anomaly of a US jobs report.

If you've been around markets long enough, you know that there are big surprises in the US nonfarm payrolls -- both positive and negative -- that pop up here and there.

This is why forecasting any US jobs number on any given month is next to impossible, most of the time you'll be in the ball park but sometimes, you'll look like a fool. 

As far as stocks, the Nasdaq futures took off after the report as rates plunged this morning but gave a lot of the earlier gains as rates came back up.

The truth is tapering is coming and the market is sniffing this out. Will it come in September, October or December? Nobody knows but they know that monetary and fiscal policy are overly accommodative and the party is going to end sooner rather than later.

You already see this with hyper growth stocks like Roku (ROKU) which rallied today after a stronger than expected earnings report but is still way off its February high:

Roku Inc is part of Cathie Wood's Ark Innovation ETF (ARKK) which is really struggling lately after hitting a high in February:

While Cathie Wood loves the setup for her stocks after sell-off and expects big returns from her strategies, the truth is hyper growth stocks are in trouble.

Tech stocks in general are struggling to gain footing here but a distinction needs to be made between old tech stalwarts and new hyper growth tech which is more vulnerable to downside risks:

In fact, Martin Roberge of Canaccord Genuity continues to recommend commodities over technology, writing this in his weekly wrap-up:

Our focus this week is on the obscure relationship between commodities and technology stocks. Why should this matter to investors? Because commodities are a barometer of global economic activity, hence a key driver moving bond yields which, by ricochet, impact the valuation of technology stocks. This cycle, we believe that the transmission mechanism between commodities and bond yields has been impaired because of the Fed’s “average” inflation strategy, which pushes back its tightening cycle. As such, to the extent that this strategy and QEs have held bond yields lower than normal, technology stocks may have performed better than normal as well. But what if we bypass bond yields and heed the message of commodities? Well, the surge of the CRB index above its 200-wma lately spells trouble for the valuation of technology stocks. Indeed, as our Chart of the Week shows, when a similar surge occurred in Spring 2000, a lengthy period of multiple compression began. In light of the marked compression in the equity risk premium for technology stocks, we reiterate our call to scale out of growth and rotate into value for the next 3 to 6 months.

No doubt, some commodity stocks like Freeport-McMoRan (FCX) and Alcoa (AA) continue ripping higher as demand outstrips supply:

Even energy shares (XLE) are re-accelerating up and making a bid for a new high:

But it's financials (XLF) that have carried the stock market higher and as the recovery gains, they are going to lead the way higher:

Having said this, the entire market looks shaky and we can see a sell-off ahead which hits all stocks, so it's very hard to play momentum in any sector right now.

I highly suggest you read Francois Trahan's latest weekly comment on the top three risks that will curtail the S&P 500 gains this year here. 

I'll just share the beginning with you:

But take the time to read his full weekly comment, it's excellent and he even ends off with a new Sell Model to identify potential torpedoes you need to beware of.

Alright, let me wrap it up with this week's S&P sector performance as well as the best performing large cap stocks (it was mostly energy and commodities):

Below, CNBC's "Halftime Report" team discusses April's jobs numbers and how they're investing right now. They also discussed the outlook for the US economy after the April jobs numbers fell short of expectations with Wharton professor Jeremy Siegel. 

IPE reports Ontario Teachers to buy Brazilian electricity firm Evoltz from TPG:

Ontario Teachers’ Pension Plan Board is buying an electricity transmission platform in Brazil from TPG.

Ontario Teachers has agreed to buy Evoltz Participações from the global alternative asset manager for an undisclosed sum.

Founded by TPG in 2018, Evoltz consists of seven electricity transmission lines that total more than 3,500km across 10 states in Brazil.

Dale Burgess, senior managing director, infrastructure and natural resources at Ontario Teachers, said: “Evoltz is a highly attractive portfolio of power transmission concessions that provides reliable power to businesses and consumers across Brazil.

“Our strategy focuses on allocating significant capital to high-quality core infrastructure assets with lower risks and stable inflation-linked cash flows. Electricity transmission businesses are particularly attractive given their importance in facilitating a transition to a low-carbon economy.”

Ontario Teachers is already invested in regulated electricity transmission and distribution businesses, as well as the broader energy sector. Earlier this year, the C$221.2bn (€150.5bn) Canadian fund acquired a 40%  stake in Finnish electricity company Caruna. It has also been active in Chile’s transmission and distribution sector for over 12 years through a 50% stake in Saesa.

Edward Beckley, partner at TPG, said: “Since founding Evoltz three years ago with the acquisition of seven transmission assets from judicial recovery, we have been proud to work with management to turn-around the prospects for Evoltz and establish it as a leading independent operator in Brazil’s energy transmission sector.

“Today, having expanded and consolidated its operations, Evoltz plays an important role in delivering green, renewable energy to major cities and population centres across the country. We look forward to its next chapter under Ontario Teachers’ leadership.”

OTPP put out a press release on this deal earlier today:

Ontario Teachers' Pension Plan Board ("Ontario Teachers’") is pleased to announce that it has entered into a definitive agreement with TPG, a global alternative asset firm, to acquire a 100 percent interest in Evoltz Participações S.A. (“Evoltz”), a leading electricity transmission platform in Brazil. Founded by TPG in 2018, Evoltz consists of seven electricity transmission lines that total more than 3,500km across 10 states in Brazil.

“Evoltz is a highly attractive portfolio of power transmission concessions that provides reliable power to businesses and consumers across Brazil,” said Dale Burgess, Senior Managing Director, Infrastructure & Natural Resources at Ontario Teachers’. “Our strategy focuses on allocating significant capital to high-quality core infrastructure assets with lower risks and stable inflation-linked cash flows. Electricity transmission businesses are particularly attractive given their importance in facilitating a transition to a low-carbon economy.”

Ontario Teachers’ has extensive experience investing in regulated electricity transmission and distribution businesses, as well as the broader energy sector. Earlier this year, Ontario Teachers’ acquired a 40 percent stake in Caruna, Finland’s largest electricity distribution company. It has been active in Chile’s transmission and distribution sector for over 12 years through a 50% stake in Saesa. The acquisition of Evoltz represents a significant infrastructure investment adding to Ontario Teachers’ portfolio of high-quality investments in Brazil and across Latin America.

“Since founding Evoltz three years ago with the acquisition of seven transmission assets from judicial recovery, we have been proud to work with management to turn-around the prospects for Evoltz and establish it as a leading independent operator in Brazil’s energy transmission sector,” said Edward Beckley, Partner at TPG. “Today, having expanded and consolidated its operations, Evoltz plays an important role in delivering green, renewable energy to major cities and population centers across the country. We look forward to its next chapter under Ontario Teachers’ leadership.”

“I would like to take this opportunity to thank TPG, our board of directors, and employees for the hard work and support in building and transforming Evoltz into a leading operational electricity transmission company,” said João Nogueira Batista, CEO of Evoltz. “We are pleased to welcome Ontario Teachers’ as our new shareholder and are excited to work with them to drive the company to new heights.”

The transaction is expected to close in the third quarter of 2021 and is subject to customary closing conditions and regulatory approvals.

About Ontario Teachers’
The Ontario Teachers' Pension Plan Board (Ontario Teachers') is the administrator of Canada's largest single-profession pension plan, with C$221.2 billion in net assets (all figures at December 31, 2020). It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annual total-fund net return of 9.6% since the plan's founding in 1990. Ontario Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific region offices are located in Hong Kong and Singapore, and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded, invests and administers the pensions of the province of Ontario's 331,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.

About TPG
TPG is a leading global alternative asset firm founded in 1992 with more than $91 billion of assets under management and offices in Beijing, Fort Worth, Hong Kong, London, Luxembourg, Melbourne, Mumbai, New York, San Francisco, Seoul, Singapore, and Washington, DC. TPG’s investment platforms are across a wide range of asset classes, including private equity, growth equity, impact investing, real estate, secondaries, and public equity. TPG aims to build dynamic products and options for its investors while also instituting discipline and operational excellence across the investment strategy and performance of its portfolio. For more information, visit www.tpg.com or @TPG on Twitter.

About Evoltz
Founded in 2018, Evoltz operates and maintains 3,561 km of electricity transmission lines that cross ten Brazilian states and are distributed into seven concessions (Manaus Transmissora de Energia, Norte Brasil Transmissora de Energia, Evoltz IV, Evoltz V, Evoltz VI, Evoltz VII and Evoltz VIII). Based out of its headquarters and operational center in Rio de Janeiro, Evoltz is a holding company with end-to-end management of its concessions, leveraging cutting-edge technology and best practices within the electricity transmission sector. Learn more at: www.evoltz.com.br.

This is another big electricity transmission deal for Ontario Teachers' Pension Plan (OTPP).

Back in March, I covered how OTPP is investing in Finland's power grid, as it, AMF and KKR acquired a big stake in Caruna, Finland’s largest electricity distribution company.

As the press release states, OTPP has been active in Chile’s transmission and distribution sector for over 12 years through a 50% stake in Saesa. 

The acquisition of Evoltz represents a significant infrastructure investment adding to OTPP's portfolio of high-quality investments in Brazil and across Latin America.

Dale Burgess, Senior Managing Director, Infrastructure & Natural Resources at OTPP explains it very well: "Our strategy focuses on allocating significant capital to high-quality core infrastructure assets with lower risks and stable inflation-linked cash flows. Electricity transmission businesses are particularly attractive given their importance in facilitating a transition to a low-carbon economy.”

Remember, OTPP has committed to achieving net zero emissions by 2050. 

As such, expanding its global electricity transmission assets makes perfect sense as it can lower its carbon footprint and deliver on its mandate.

As Dale states, electricity transmission is part of high-quality core infrastructure assets with lower risks and stable inflation-linked cash flows, so you're not going for huge returns but rather a yield that offers a decent but stable premium over bonds with some inflation protection (they are regulated assets and tariffs are set based on a specific country's inflation).

OTPP's partner, TPG, founded Evoltz in 2018 and it now consists of seven electricity transmission lines that total more than 3,500km across 10 states in Brazil.

Here is a brief history of the company from its website: 

Evoltz is born in 2018, a company created by TPG Capital aimed at gathering the operational transmission assets acquired in the judicial recovery process of Abengoa in Brazil. The assets consist of seven transmission lines, totaling 3,561 km and crossing 10 states in Brazil.They represent an essential investment in the infrastructure segment by the Managing Company.

Evoltz, a holding company with a majority interest in 7 companies, 4 of which are subsidiaries and 3 are joint ventures, each of which holds public electricity service concessions, is in a corporate, financial and operational restructuring process, which includes the development of a new business plan and a long-term growing strategy with important advances to consolidate its presence in the transmission sector.

In 2019, it was consolidated with a platform capable of receiving any investment resulting from the restructuring of its organizational and administrative structure. Still in line with the restructuring process, it concluded the acquisition of 50% of the shares of one of its joint ventures, ATE VIII Transmissora de Energia S.A., held by Empresa Brasileira de Desenvolvimento e Participações Ltda. - EMBRADE.

In 2020 in accordance with the Competitive Disposal Procedure settled by Eletrobras in 2019, the Eletrobras Board of Directors approved the binding offer made by Evoltz to acquire Eletrobras' interest for the acquisition price of R$ 232 million. On April 28, 2020, a share purchase agreement and other covenants were signed between the Company and Centrais Elétricas Brasileiras S.A. - Eletrobras considering the aforementioned price. As a result, Evoltz Participações S.A. now holds 100% of the shares of Manaus Transmissora de Energia S.A.

Those of you who read Portuguese can view a corporate presentation here.

OTPP took a 100% stake, meaning it now has full control of the company and will take seats on its board.

No doubt, it will work with current management to expand its footprint in Brazil.  

In terms of its overall portfolio, take a look at this section on infrastructure from OTPP's 2020 Annual Report:

Infrastructure assets represent roughly 8% of total assets but they are expanding and diversifying this portfolio as OTPP already has significant stakes in airports, toll roads and ports (58% in transportation infrastructure) and post-pandemic, they are looking for more stable high quality assets which offer stable returns and are more in line with their sustainable investing targets.

Let me end by giving credit to OTPP's Latin America Infrastructure team headed by Stacey Purcell for putting this deal together, very well done.

Our President and CEO, Jo Taylor, spoke at the FT Global Boardroom online event this week on the climate challenge and how #COP26 is an important next step in agreeing on global #netzero objectives. Watch a clip from the event below: pic.twitter.com/vjSa9A1tWc

— Ontario Teachers' Pension Plan (@OTPPinfo) May 7, 2021

I am trying to find the full interview online so if anyone has it, please share.

Below, a clip from two years ago on how an 800kV ultra-high-voltage (UHV) power transmission project, build by the Brazil subsidiary of the State Grid Corporation of China, has benefited local people a lot by sending electricity to remote areas and creating jobs. 

As you can see, it's not only OTPP looking to invest in Brazil's electricity transmission business.

Also, watch this interesting clip on where the Brazilian electricity sector is heading. Clearly there are a lot of opportunities in this sector over the long run and OTPP is now well positioned to benefit from the ongoing changes in this sector.

OPTrust’s responsible investing accomplishments in 2020 include updating its Statement of Responsible Investing Principles and expanding the emphasis on diversity and inclusion in its Proxy Voting Guidelines, developing a cross-portfolio approach to integrate responsible investing in all its externally managed investments, and building an investing program to allocate capital to opportunities at the intersection of sustainability and innovation.

“Environmental, social and governance (ESG) issues create financial and reputational risks, but we also believe that solving these challenges presents significant investment opportunities,” said Alison Loat, Managing Director of Sustainable Investing and Innovation at OPTrust. “We are committed to continually improving the integration of responsible investing principles across the organization, and to finding opportunities that arise when tackling pressing global challenges like climate change.”

In 2020, OPTrust also initiated a renewal of its Climate Change Action Plan and completed carbon risk assessments, including measuring the carbon footprint of its public equity, fixed income, private equity and infrastructure portfolios. Further, the Sustainable Investing and Innovation team also built relationships with sustainability-themed funds, with a focus in the climate space, and made its first investment in early 2021 in a sustainable real assets fund.

Despite the challenges posed by global lockdowns, the organization also continued its work as an active investor. In 2020, OPTrust voted at 2,028 company meetings in 52 countries and engaged 543 companies on key ESG issues. The organization’s responsible investing efforts earned it an A+ for its strategy and governance approach to responsible investing from the Principles for Responsible Investment (PRI).

“Responsible investing is integral to our mission of paying pensions today and preserving pensions for tomorrow,” said Peter Lindley, President and Chief Executive Officer at OPTrust. “While we’ve been on a responsible investing journey for many years, the events of 2020 have given a renewed sense of urgency to the importance of keeping long-term Plan sustainability at the forefront of our investment decision-making and sustainable investing is a key part of that effort.” 

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 is a global investor in a broad range of asset classes including Canadian and foreign equities, fixed income, real estate, infrastructure and private markets, and has a team of highly experienced investment professionals located in Toronto, London and Sydney.

Please take the time to read OPTrust's 2020 Responsible Investing Report here.

In total, it's 23 pages but packed with great insights and really gives a great overview of how they are addressing climate change and other ESG issues.

Earlier today, I had a chance to speak with Alison Loat, Managing Director of Sustainable Investing and Innovation at OPTrust. 

I want to thank Alison for another great conversation and Jason White of their Communications team for setting this up and sending me material after our Teams meeting.

Before I get to my conversation with Alison (you can skip to my conservation with Alison below the next section), some highlights and insights from the 2020 Responsible Investing Report:

As you can see, OPTrust was very busy last year beefing up its responsible investing framework.

Sharon Pel, the Chair of the Board, and Lindsey Burzese, the Vice Chair, begin with their message:

As OPTrust marked its 25th anniversary in 2020, it faced one of the most uncertain external operating environments in the organization’s history. In March, COVID-19 was declared a global pandemic and the team quickly transitioned to a remote work environment and adapted to the new realities of a physically distanced world. 

As a Board of Trustees, it was reassuring to see how OPTrust responded to these challenges, seamlessly navigating short-term market volatility while keeping a focus on members’ interests and the Plan’s long-term sustainability. The pandemic highlighted the importance of investment stewardship and in this report, we are pleased to share the progress OPTrust made in enhancing our responsible investing program and commitments to sustainable investing and equality. 

Some highlights from 2020 include the updating of OPTrust’s Statement of Responsible Investing Principles and Proxy Voting Guidelines to reflect evolving best practices. We also developed a capital allocation program dedicated to investing in innovative sustainability solutions and maintained our A+ grade on strategy and governance from the UN Principles for Responsible Investment (PRI).

While 2020’s challenges solidified our long-standing belief that environmental, social and governance (ESG) factors can materially impact risk, return and reputation, the continued evolution of OPTrust’s approach to responsible investing is possible because of our strong foundation. 

We extend our deep appreciation to the team for its resilience in adapting to a difficult operating environment and bolstering its responsible investing efforts amid a period of extreme volatility. Investing responsibly is an integral part of our fulfilling our mission to deliver long-term pension security for OPTrust’s members and it has remained at the forefront, even during challenging times.

Peter Lindley, President and CEO at OPTrust, followed up with his message:

In December 2019, OPTrust realigned our responsible investing function by starting a new team dedicated to sustainable investing and innovation to build on our efforts to generate sustainable returns for members and the fund. We knew that responsible investing was growing in importance, but what we could not predict is how profoundly the world would change a year later. When COVID-19 hit, inequality and sustainability became top-of-mind for many people and the responsible investing efforts at OPTrust have taken on a renewed sense of urgency. 

Throughout 2020, key events like the pandemic and the advancement of the Black Lives Matter movement have called attention to issues ranging from systemic racism, to diversity and inclusion, to workplace health and safety. Meanwhile, climate change remains an issue demanding urgent attention. 

These issues are important to us as an investor, not only from a risk management perspective, but also because challenges can become opportunities for those with the ability and expertise to play a role in solving them. ESG issues are also important to our members. In fact, according to our research, the vast majority of members we surveyed said they believe climate change, labour rights and diversity are important for OPTrust’s investing program.

Despite the challenges of this past year, we maintained our focus on responsible investing. For example, in 2020, we completed carbon risk assessments, including carbon footprinting of our public equity, fixed income, private equity and infrastructure portfolios. We also established a cross-portfolio working group to strengthen the integration of ESG into externally managed investments. 

Our expectations to act responsibly don’t only apply to our portfolio companies – we also hold ourselves to a high standard. In 2020 we signed onto the BlackNorth Initiative’s pledge to help play a role in eliminating anti-Black systemic racism and committed to key efforts internally to make OPTrust a more diverse and inclusive workplace. 

We also strongly believe in the value of defined benefit pensions, not only to members and retirees, but to society and the economy more generally, which is why we launched OPTrust Select in 2018 to allow nonprofit sector workers to participate in our pension plan. Even against the backdrop of a global pandemic, we continued to enroll new members through 2020. The people who have joined OPTrust Select provide a range of critically important services including healthcare, community support and environmental advocacy and it is a true honour to be able to support them in retirement through this pension offering. 

I would like to thank the team for its ongoing efforts throughout a difficult time to ensure we continue to progress on our responsible investment journey for the ultimate benefit of plan members.

Peter highlights a few critical issues here but the bottom line is that ESG issues are important to OPTrust and its members and he doesn't just discuss climate change but the broader ESG issues which include labour rights and diversity.

He also once again highlights the value of defined benefit pensions not only for their members but for society and the economy in general, and discusses how OPTrust Select is growing and allowing more nonprofit sector workers to participate in their plan.

OPTrust's Board approved a Statement of Responsible Investing Principles (SRIP) which provides the principles-based framework that OPTrust applies to incorporate ESG factors into their investing programs. In 2020, they revised the SRIP to reaffirm their guiding principles, which are grounded in our fiduciary duty to ensure sustainable pension security: 

• With oversight of OPTrust’s responsible investing program, the Board approves the SRIP and the Proxy Voting Guidelines on an annual basis and receives regular reporting on responsible investing activities and performance.
• The Board has delegated responsibility for operationalizing the SRIP to the CEO, who in turn has delegated it to the CIO. The CIO oversees the implementation of the responsible investing program.
• The Investment Division investing teams are responsible for adhering to the SRIP and are accountable for identification, assessment and management of ESG factors in the investment process.
• The Managing Director, SII, oversees the responsible investing program and supports the Investment Division in instituting responsible investing practices and managing ESG issues. 
• Chaired by the Managing Director, SII, and accountable to the CIO, the RIC is comprised of representatives from across the organization and serves to facilitate the integration of responsible investing into the investment function.

And here is the Sustainable Investing and Innovation (SII) Group:

As you can see, the group is made up largely of women and is comprised of representatives across the organization.

What else caught my attention in the the 2020 Responsible Investing Report?

I enjoyed reading the Q&A with Andy Alcock, Director of the Real Estate Group (REG) where he noted how OPTrust's REG supported its tenants throughout the pandemic: 

I also enjoyed reading insights from Sandra Bosela, Co-Head of Private Markets Group, Managing Director and Global Head of Private Equity, on active ownership in private markets during COVID-19:

Also, on page 16, Zarqaa Shaikh, Associate Portfolio, Multi-Strategy Investing, Capital Markets Group, discusses OPTrust's new responsible investing partner evaluation framework:

Lastly, the report also has a Q&A with James Davis, CIO at OPTrust on page 19:

Alright, there's more to OPTrust's 2020 Responsible Investing Report so take the time to read it but I gave you the critical points.

Conversation with Alison Loat

Alright, as I stated at the top of the comment, I did get to speak to Alison Loat, Managing Director of Sustainable Investing and Innovation at OPTrust.

Alison is really smart and dedicated, she speaks fast so I had to rush and take as many notes as possible and if needed, I will edit this section.

It's important to note Alison arrived at OPTrust in December 2019, literally right before the pandemic hit. She has managed to cultivate solid relationships at the organization "virtually" and has done outstanding work in a short time span to fortify OPTrust's responsible approach which was already on solid footing. 

She was basically tasked with three mandates:

1. Responsible investing integration with the deal teams.
2. Overall renewal of the climate change strategy at the plan.
3. Building a team and start investing in opportunities in sustainable investing and innovation. 

It's that third investing function which we focused on.

As Alison explained, OPTrust has dedicated roughly 2% on total fund assets ($23 B) to an incubation fund and most (but not all) of that fund will be used by the SII Group. 

She told me they have made an initial investment in a private equity fund and have had virtual meetings with many funds. There is no benchmark yet for this new activity as it is new.

She stressed this new initiative is a collaborative effort as is the entire responsible investing framework at OPTrust.

It's Alison's overall views on ESG investing which I find very interesting.

She said that while climate change remains the central focus, OPTrust is also looking at broader ESG issues which include labour rights and diversity.

She also said when it comes to ESG, institutional investors are "flying a plane and building it at the same time," highlighting how ESG investing is still evolving. 

She also stressed how important it is "to start small" and build on your ESG goals.

For example, they worked with an external partner to help a private company build its ESG framework and from that came their "RIPE" framework which they now use for other companies (see page 16 and above).

"It reflects our values and sustainable investing expectations"

Again, she highlighted the "collective intelligence" of the deal teams, their external partners all of which helped shape and continue to shape their responsible investing framework. 

What else? We briefly talked about divesting and I let her know I do not believe in it (except tobacco where engagement is futile and even there, it's can be costly to divest). 

Alison told me that pensions have a fiduciary duty first and foremost and it's sometimes hard for external groups to understand why they prefer engagement.

I told her I've received my share of criticism from left-wing environmentalists who are obsessed with divestment and right-wing pro-oil and gas groups who think there's too much ESG nonsense out there and pensions shouldn't focus on it.

"Well, that means you must doing something right if you're getting criticized from all sides."

Anyway, I always enjoy talking to Alison and truth be told, I wish we could have taped our conversation to embed it here because I couldn't jot down everything we covered, only the important points.

Alison Loat and the SII Group are ramping up their investments and it's going to be interesting to see this team evolve over the next few years. 

I for one wish them much success. 

On Thursday, Alison Loat will be hosting an OPTrust/PAAC event called “Great expectations - How will sustainability define the post COVID-19 world?” : 

 The event is free and the public can register for free here. 

Alison is excited to discuss many policy issues with this great panel and I look forward to watching this event.

Once again, I thank Alison for taking the time to talk to me and if I need to add or edit anything, I will do so as quickly as possible.

Below, a Canadian Club panel discussion on sustainable investing which was moderated by Mark Wiseman and featured Alison Loat (December 2020). Take the time to watch this discussion.

A pension fund for academics and professional staff at universities has dumped Alberta’s government-owned investment manager from control of $2.7 billion of its assets.

The board of the Universities Academics Pension Plan (UAPP) agreed in December to move its public equities portfolio, and has since withdrawn those assets from the Alberta Investment Management Corporation (AIMCo) while it searches for a new manager.

The move comes after AIMCo reported a $2.1-billion loss last April due to a volatile investment strategy that has since been scrapped, and as other Alberta teachers are set to see their public pensions move under AIMCo management.

UAPP board chair Geoffrey Hale said Monday some of the board’s concerns with AIMCo’s management have been addressed, but the board was not entirely satisfied with responses to what they see as problematic issues.

“While no one likes to see an investment manager blow 10 years of value-added as a result of poor oversight over a strategy, it went beyond that,” said Hale.

The total value of UAPP’s public equities fund was $2.7 billion — or about 46 per cent of a total $5.8 billion in assets — as of the end of last year, according to its annual 2020 report.

AIMCo chief executive officer Kevin Uebelein told a legislature committee meeting Friday that withdrawing assets from AIMCo is well within UAPP’s purview, but he disagreed with the strategy.

“The last time they did that, it did not serve them well … while I truly wish UAPP all the best in the decisions that they’re making, it is a well founded principle that chasing performance by moving from asset manager to asset manager rarely works,” said Uebelein.

Hale called that statement presumptuous and the board has done its due diligence.

“We have seen an adaptation on our fixed-income managers that has served us well,” said Hale.

Last year, the vast majority — or 77.5 per cent — of UAPP’s investments were managed by AIMCo, which includes separate portfolios that continue to be managed by AIMCo, including alternative investments.

Legislation passed in late 2019 made changes to the oversight of public sector pension funds, and required that teachers’ pension assets be moved under AIMCo management from the Alberta Teachers Retirement Fund by December 2021. After the government imposed an investment management agreement in January, the Alberta Teachers’ Association filed a legal challenge.

However, the UAPP is governed under different legislation than most other public sector plans, and has been jointly governed since 2001. It counts about 16,500 members who either contribute or are pensioners.

Kassandra Kitz, press secretary to Finance Minister Travis Toews, said in a statement Monday the government has no plans to change the legislation and regulations in place surrounding UAPP’s agreement.

“We are confident that public sector workers will continue to benefit from efficiencies achieved through AIMCo’s investment management,” Kitz said.

NDP Opposition labour critic Christina Gray said the UAPP’s ability to move its pensions to another manager put the hypocrisy of Bill 22 on full display.

“If you’re a university teacher, you get control, if you’re a K-12 teacher, (Premier) Jason Kenney gets control of your pension,” said Gray in a statement Friday.

In April, AIMCo announced a new CEO, Evan Siddall, will replace Uebelein in July.

With assets under management reaching $118.6 billion, AIMCo noted a 2.5 per cent overall return in 2020 — 5.4 per cent below its performance benchmark — and a 7.7 per cent annualized return over the last 10 years.

Let me begin by stating Kevin Uebelein, AIMCo's outgoing CEO, is absolutely right, chasing performance from asset manager to asset manager rarely works, especially in these markets.

With all due respect to the Universities Academics Pension Plan (UAPP) board chair Geoffrey Hale, they're playing with fire with their members' pensions and while I am sure they have a bunch of (high fee) consultants recommending asset managers to them, the truth is over the long run, their members are better served sticking with AIMCo.

How do I know? I've seen plenty of "blowups" at large Canadian pensions over the years, some make the headlines, some don't, but in all cases, these large, well governed pensions that invest across public and private markets all over the world have come back very strong. 

Case in point, CDPQ. It lost $40 billion back in 2008 and has since come back to not only make up the losses but become a global powerhouse in the investment world. 

I'm sure back then if Quebec teachers could have pulled their money out, they would have and it would have cost them dearly over the next 13 years. 

I don't like irrational, shortsighted decisions when it comes to pensions. 

I understand, UAPP was concerned about the now infamous AIMCo vol blowup that occurred last year. 

I have written on AIMCo's vol blowup in detail on this blog:

• AIMCo's $3 billion volatility blowup?
• AIMCo to conduct review of volatility blowup
• AIMCo CEO responds to volatility blowup
• Barb Zvan to review AIMCo's vol blowup
• AIMCo's all too familiar vol blowup?  
• AIMCo's first vol casualties emerge
• AIMCo execs get grilled on VOLTS

I also discussed Kevin Uebelein's departure and was tough but fair in my comments.

In particular, I think it's a shame that people (including well known reporters) are so stuck on AIMCo's vol blowup and didn't pay attention to the totality of how Kevin Uebelein has changed the organization for the better over the years.

Was he perfect? No, he will be the first to admit he made mistakes, we all make mistakes, but he didn't hide from them and he faced the music when it hit the fan.

That's what leaders do, they don't hide when the going gets tough, they step up to the plate and take full responsibility for mistakes that were made.

Again, AIMCo wasn't the only large Canadian pension selling volatility, its risk management wasn't up to par, they lost $2.1 billion but between you and me, they could have limited those losses if this didn't make the newspapers (markets had a ultra V-shaped recovery and volatility collapsed).

Still, it happened and major risk lapses were highlighted so it was a good thing this came out because it forced them to address the matter which they did (they shut it all down).

AIMCo recently appointed former CMHC head Evan Siddall as next CEO.

Mr. Siddall is known to take risk management very seriously but he also needs to navigate the politics in Alberta, which I am sure he will do very well. 

As the former head of the CMHC, he's all too familiar with politics and I'm sure they are preparing him before he begins his new mandate on July 1st.

By the way, AIMCo is beefing up its risk management department:

Changing managers is easy, they might even look smart over one or two years, but 10 or 20 years down the road, they will regret this decision, that I'm certain of.

And where will UAPP board chair Geoffrey Hale be then? Long gone, nobody will properly tally up the cost of leaving AIMCo and that's what really irks me. 

AIMCo is a large, well governed pension plan, its Chair is Mark Wiseman, he formerly ran the country's largest pension fund and has a clear vision of where AIMCo is heading.

He's part of the committee which wisely chose Evan Siddall as the next CEO.

I suggest people stop the petty politics and trust the governance at this organization. 

Below,  Mohamed El-Erian, Allianz chief economic adviser and former PIMCO CEO, joins 'Closing Bell' to discuss his views on the market.

And David Rosenberg from Rosenberg Research joins 'Closing Bell' to digest this morning's CPI data and what it means for the economy and the Fed.

Lastly, Josh Brown, Ritholtz Wealth Management, joins 'Closing Bell' to discuss the volatility in the markets that's leading to a third-straight day of losses. 

My take? A year from now, this will be another inflation blip, but people do not realize the base effect is large because of the pandemic and lockdowns that took effect last year. 

If you look at the long term chart of annual inflation rates in the US, you will understand why this number is very normal and nothing to worry about:

What worries me is what happens if markets crash and we get a huge financial dislocation that spreads to the real economy? Then we will all be worrying about deflation, not inflation, and good luck if you're not part of a large well governed pension plan over the next decade(s).

Zhao Baidong, a 28-year-old property agent in Beijing, would like to travel when he retires, but with China and its state pension system facing a “challenge unprecedented in human history” as its population gets older, he is concerned he might be forced down a different route for his golden years.

China’s once-in-a-decade census confirmed this week that its working age population is shrinking, and Zhao’s concerns are a reflection of many that their retirement needs will not be met by the state pension system, which is projected to face a financing shortfall within the next two decades as contributions from workers are outweighed by payouts to retirees.

“I have paid a lot of attention to the social security fund. I hope that the retirement age will be extended and there is a guarantee of income [when I retire],” said Zhao. “If my retirement income is just average, I might run a small store to support myself. If I have more than I need, I might travel a bit to experience different ways of life.”

A projection released in November by the Insurance Association of China said that the nation’s elderly population could reach 300 million by the end of 2025, and that the gap between contributions and outlays could be as high as 10 trillion yuan (US$1.6 trillion) in a decade.

An earlier estimate by the Chinese Academy of Sciences in 2019 projected that China’s state pension fund wouldrun out of money by 2035.

“It is an unprecedented challenge in human history to deal with the pension problem of a large elderly population,” Luo Zhiheng, chief economist at Yuekai Securities said following the release of the census data on Tuesday.

Last year, China’s working age population of those 15 to 59 year old fell to 894 million, down 5 per cent from a 2011 peak of 925 million.

And as the number of workers able to pay their taxes to add to the pension fund declined, the number of elderly people aged 65 and over rose to 191 million last year from 119 million in 2010, meaning the group who will need to rely on that fund accounted for 13.5 per cent of the population in 2020, up from 8.9 per cent a decade earlier.

This proportion still leaves China behind the likes of Japan, the United States, Germany, Britain and France, who are dealing with larger proportions of elderly citizens, but the number of elderly in China are expected to grow faster than its workforce based on various estimates, including projections from the United Nation.

In 2000, according to Larry Hu, chief China economist at Macquarie Group, China’s ratio of people aged between 15 and 65 against the over 65 group was 10-1, meaning one pensioner for every 10 people of working age.

This ratio fell to 5-1 in 2020, and Hu said that even according to the United Nation’s optimistic projection, the ratio will drop to 4-1 in 2030 and a mere 2-1 in 2050.

“As a result, the government has no choice but to postpone the retirement age over time,” said Hu.

China’s state pension system, which consists of various provincial pension plans and the National Council for the Social Security Fund, accounts for around two-thirds of China’s total pension assets.

While returns from the investment of the national fund have remained in double digits, earnings for provincial schemes have dropped and been hovering in the low single digits, with some provinces already facing overall funding shortfalls.

In Heilongjiang province, the balance of its pension fund has been in negative territory for a number of years, while the funds in Liaoning, Inner Mongolia, Jilin, and Qinghai will also be depleted in the short term, according to Luo from Yuekai Securities.

For more than four decades, China’s retirement age has remained unchanged at 60 for men and 55 for women, although it can be earlier for women in blue-collar jobs.

But the Chinese government announced in March that it wouldgradually lift the retirement age in response to the declining labour force, longer life expectancy, and an ageing population, to help sustain the state pension scheme.

Still, on top of the projection of smaller workforce in the coming years, the biggest immediate concern for policymakers is how they will make up the shortfall after the national social security fund fell to 6.13 trillion yuan in 2020 from 6.85 trillion yuan in 2019 after China cuts pension contributions and insurance tohelp firms during the coronavirus outbreak.

Beijing has already implemented various measures to ensure stable provisions to its pension scheme, includingtransferring shares in state-owned firms to social security funds to make up for the shortfall, but such measures are not sustainable, said Wan Feng, former president of the state-owned China Life Insurance.

“[Based on the current projection] in 2022, that’s next year, the balance [of the fund] will begin to fall and will turn negative in 2028,” Wang told Caijing Magazine on Tuesday. “[Transferring state firms shares] I believe it is only a temporary solution. What’s going to happen after a few years?”

Analysts believe encouraging businesses to set up private pensions to which both firms and their employees contribute is now an urgent task for Beijing, although progress has been slow despite a number of pilot programmes.

China has discussed the private pension provision previously, but the proposal was mentioned for the first time at the central economic work conference in December, and was brought up again inPremier Li Keqiang’s report to the “two sessions” meeting of policymakers in March and included the 14th five-year plan introduced this year.

“For China, the direct pressure brought by ageing will first be reflected in the pension funding gap,” Shen Jianguang, chief economist at JD.com‘s finance unit, said on Wednesday.

Uptake of workplace schemes, to which employees and employers both contribute and are roughly comparable to popular 401(k) plans in the United States, is slow and have yet to be widely accepted despite efforts by policymakers.

Chinese regulators have also approved new pension products, which are modelled on targeted risk funds that have proven popular in the US and other markets, but these products are also yet to become widely used by Chinese savers.

“The pension gap problem is imminent, and new funds are urgently needed. The development of private pension is the only way,” added Luo.

“There are still problems such as slow progress in pilot advancement, cumbersome tax deferral procedures, and low incentives. It is difficult to stimulate enthusiasm for participation.”

Zhao, who is originally from Shanxi province, said he is not interested in private pension provision products because the market is still immature, insisting that the state pension fund is the only retirement savings plan he trusts.

“I grew up in a rural area, and I can see the lives of elderly people without social security support everywhere,” he said. “They are poverty stricken. They live a decent life if their sons are relatively wealthy. Those who are not rich are reluctant to eat meat and buy new clothes,” he said.

Nineteenth century French writer Jean-Baptiste Alphonse Karr didn’t have stock market history in mind when he said, “the more things change, the more they stay the same,” but he might as well have.

Sometime in the future, the markets will respond in exactly the same way as they have in the past. But you must know the market’s history if you’re to succeed on the long road ahead. Sadly, most investors have no such knowledge and without it, they are treading on thin ice.

In 2017, I wrote an article about the long-term history of the stock market. I have updated the data from the end of 2016 to the present. In my opinion, we have entered the twilight zone when it comes to valuations — the parallels to the late 1990s have never been so stark. Frankly, I think we are on the precipice of history repeating itself.

The accompanying table shows 120 years of U.S. stock market history from the beginning of the last century until today. I’ve noted the peaks and troughs of the Dow Jones Industrial Average over that period. I’ve also included the growth of GDP and the Shiller P/E ratio, a cyclical ratio that takes into account 10 years of earnings.

At the beginning of the 20th century, stocks were expensive with the Dow at 68 and the P/E at almost 19 times earnings. Twenty-one years later, the market was unchanged, but stock valuations as measured by the P/E were at just 5.2 times earnings — those are bargain prices. No one wanted to own stocks because, why would you want to put money in the market that had delivered no capital gains returns over 21 years?  Warren Buffett labelled this, “rear-view mirror investing.”

From the bottom of the market, we witnessed the “Roaring Twenties” with the stock market going on a tear — stocks were up nearly 500 per cent and the P/E was almost 33X — until 1929.

This market top ushered in the Great Depression with the market bottoming out 20 years later in 1949, down a massive 57.5 per cent from its highs. Valuations were at 9.1 times earnings, a fraction of the 1929 highs. Again, we can assume investors had no interest in owning shares of businesses.

At this point, the market again took off, advancing more than 500 per cent with stocks priced at 24 times in 1966, a full 17 years later. Again, another drop in the market to the bottom in 1982 when stocks were trading at a very low level of 6.6 times earnings. Then, the following mega-market lasts an incredible 18 years, finally topping out in 2000 with valuations reaching an unprecedented 44X and the bursting of the dot-com bubble. And finally, stock prices bottomed out in early 2009 and once again you could not get people to buy stocks.

At the time, I wrote about my efforts to get advisers and their clients to load up at those cheap prices. The universal question I received: “Does your fund have any U.S. stocks in it? Because if it does, we have no interest.” This was an almost unanimous reply.

(These are wonderful indicators. History shows that when everybody agrees about the stock market, something very different or opposite is about to happen.)

From that bottom, stocks have gone on another long bull run, appreciating more than 400 per cent to current market levels. And valuations have gone from 13 times in ’09 to 37 times today, not far from the high-water mark set in 2000.

Now turn to the GDP columns. They show the economy going in just one direction through every period — up. Pick any time period, especially the periods of stock market decline and you will see the economy advancing even in the face of massive declines in the stock market. Why is there such a disconnect between the stock market and the underlying economy? Shouldn’t stock prices rationally reflect the growth in the economy?

Buffett had the answer in his seminal article in Fortune magazine in 2001. Investors behave in human — that is, emotional — ways. They get very excited in bull markets and make the recurring mistake of investing with their eyes locked on the rear-view mirror. Valuations be damned. 

“When they look in the rear-view mirror and see a lot of money having been made in the last few years, they plow in and push and push and push up prices,” Buffett wrote. “And when they look in the rear-view mirror and they see no money having been made, they say this is a lousy place to be.”

Since I last wrote about this at the end of 2016, the Dow has exploded, rising by more than 70 per cent. Valuations have gone from 29 times to 37 times. Investors once again are looking backward down the investing highway. Staring only in that direction can lead to serious financial accidents. More money has nevertheless continued to pour into the stock market and into riskier asset classes such as cryptocurrencies.

And as the past 120 years have shown us, we have a good chance of a significant decline in stock prices. Both the business environments and investment participants have changed a great deal over the years. But one thing has remained the same — investors’ emotions and irrational behaviour. On these, you can be absolutely sure.

Plus ça change, plus c’est la même chose.

So, caveat emptor.

A great article written by a value manager who is warning investors that valuations matter and stocks are bloody expensive now.

With all due respect, however, you could have said the same thing a year ago when I wrote about how central banks all over the world led by the Fed have unleashed the mother of all liquidity orgies, probably the last one we'll see in a very long time. 

I knew things were getting wacky but had no idea how wacky as quant funds pumped concept stocks up to the moon.

Case in point, look at shares of Nio (NIO), Plug Power (PLUG) and Snowflake (SNOW), all are up big today but they have gotten destroyed since the beginning of the year:

What has led to such a violent sell-off since the start of the year? Rising rates. When rates are at record lows, you can invest in hyper growth stocks making no money but as soon as they started to rise, investors (more like quant hedge funds that pumped them up) pulled the plug (no pun intended).

Nowhere is this more prevalent than the hyper growth stocks which rallied like crazy last year as the pandemic hit and rates fell to a record low.

Just look at Cathie Wood's Ark Innovation ETF (ARKK), it's up more than the Nasdaq today but it's gotten clobbered since peaking earlier this year:

I actually wrote about the unARKing of the market a couple of weeks before the ARKK ETF peaked and I'm afraid to say, I don't think we have seen the worst of it yet. 

In my opinion, there's still so much hype in these markets fueled by insane liquidity and the whole FOMO, TINA, and WSB/ YOLOers of the world uniting which are nothing more than large, sophisticated unscrupulous hedge funds pumping and dumping stocks at will as they spread nonsense on social media and online stock chat sites.

In short, the level of criminality out there is unprecedented but regulators are staying mum because clamping down on all this nonsense would mean deflating the bubble and that's a scarier option.

Meanwhile, central banks led by the Fed are cornered, they're increasingly meddling in markets, petrified of what happens when everything crashes, but in doing so, they're creating severe economic dislocations, exacerbating inequality and quite frankly, sowing the seeds of the next major deflationary crisis which I believe will make the 1974-75 bear market look like a walk in the park. 

And now a new study brings a fresh warning for retirees hoping to rely on the so-called “4% rule” to make their money last until they die:

Those expecting to retire soon may face a “worst-case scenario” as a result of elevated stock prices and record low bond yields, warn Jack De Jong, finance professor at Nova Southeastern university, and John Robinson, a financial planner in Honolulu (the pair are co-founders of a financial planning business, Nest Egg Guru). Many need to slash their spending as a result.

And the pair calculate that many of those who retired 20 years ago, at the lowest peak, and relied on the 4% rule may already be in trouble.

The so-called 4% rule was coined by financial planner William Bengen in 1994. Using historical data, he estimated that a new retiree should be able to make their money last for their remaining years if they followed a simple two-step process.

First, in the initial year of retirement, spend no more than 4% of your portfolio’s value. And second, in all subsequent years, increase that spending only in line with inflation.

For those who retired around 2000, the “4% safe withdrawal rate will likely fail well before 30 years for most asset allocations,” De Jong and Robinson calculate. Those retirees were devastated by the “nightmarish. lost decade” for stocks from 1999 to 2009, which included two devastating crashes. “Much of the conventional planning wisdom, including the vaunted “4% rule,” failed investors during this period.”

And even though U.S. stocks boomed after 2009, it was too late for many retirees, they report. Anyone who had spent 4% of their portfolio in 2000 raising it in line with inflation each year afterward, had spent too much of their savings by 2009 for them to recover.

This is what’s known among financial planners as “sequence risk.”

There are some caveats here, which are in the fine print. The pair assumed retirees increased their spending 3% a year over the past 20 years instead of simply in line with the official CPI. Also, more significantly, they assumed retirees were also paying 1% a year in fees, taxes and other costs. In other words, the 4% rule was more of a 5% rule.

I ran my own model using a spreadsheet, the official CPI, and the returns from a rough-and-ready benchmark of a balanced portfolio, the Vanguard Balanced Index Fund  (VBINX), which is 60% U.S. stocks and 40% U.S. bonds. In my calculations, those who retired in 2000 and applied the 4% rule, raising spending no more than in line with the CPI, are still OK today, 20 years on. They’ve actually got about 88% of their initial portfolio left. But this assumes no taxes, fees or other costs. If you’re paying 1% of your portfolio value a year, you’ve been almost wiped out by now. Yes, costs — including fees — can make that much difference.  

What’s ominous for today’s likely retirees is that current math looks even worse than it did in 1999, at the peak of the last stock market mania.

That’s because retirees typically hold a portfolio of stocks and bonds. And while stocks are not quite as expensive today as they were in 1999, bonds are much more so.

Back then 10-year U.S. Treasury bonds paid interest rates that were about 6%, or twice the rate of inflation. So people who put their money in bonds were getting well paid.

Today the same bonds pay interest rates of just 1.6%–or less than the rate of inflation.

The lost decade after 1999 “does not represent a ‘worst-case’ scenario because the bear market in stocks was accompanied by an extension in the decadeslong bull market in bonds,” write DeJong and Robinson. “A worst-case scenario would be one in which the lost decade for stocks began and lasted over a period when interest rates were at historic lows and either stayed low or rose in conjunction with high inflation.” And that, they add, may be what retirees face now.

In the summer of 2000, when the stock market was just around its bull market peak, I had lunch near London’s Covent Garden with my late friend Peter Bennett. He simultaneously called the Nasdaq “the most obvious short of my entire life,” and inflation-protected Treasury bonds known as TIPS, which then promised guaranteed interest rates of inflation plus 3% a year, “an absolute gimme.”

To conventional wisdom at the time he sounded crazy on both fronts. But his clients soon had cause to thank him.

What this article highlights is that people retiring now face the very real prospect of diminishing stock and bond returns over the next decade and they run the real risk of outliving their retirement savings.

Of course, inflationistas are pounding the table this week, they think massive inflation is on the horizon and rates going to back up significantly.

I say "bullocks" and keep warning my readers that deflation will be the endgame from all this nonsense.

Again, let me give you two scenarios:

1. We get an unanticipated inflation shock (doubt it), rates back up, the Fed is forced to hike rates, stocks and the economy crash and we enter a long period of deflation.
2. Or stocks, cryptocurrencies, commodities and other risk assets (like high yield bonds) keep inflating into bubble territory, more leveraged funds take increasingly dumb risks like Archegos to leverage their fund using total return swaps, we get a full-blown financial crisis and again, a long period of deflation as the financial crisis leads to another economic depression.

No worries, the Fed and other central banks stand ready for any scenario, they know what they're doing.

But I am worried, more worried than ever before that this market will crater so fast, it will leave destruction in its wake.

And all sectors will get hit if this happens, not just the hyper growth stocks but even cyclical stocks (financials, industrials, energy and materials) that have been all the rage lately as COVID restrictions have been lifted in the US.

Don't worry, stocks aren't crashing anytime soon, but if you're really paying attention to how all stocks are trading, including cyclical shares, you'll see huge volatility which tells me investors and traders are nervous.

Below, Stan Druckenmiller, CEO of Duquesne Family Office, joined "Squawk Box" earlier this week to discuss why he believes the Fed shouldn't be in emergency mode and warns that the distortion of long-term interest rates is risky for the economy and for the Fed itself. 

This is a phenomenal interview with one of the greatest money managers of all time, take the time to listen to him. I don't agree with his short USD call but he provides so many great insights here.

BTG Pactual announced that a consortium led by its Timberland Investment Group (TIG), along with British Columbia Investment Management Corporation (BCI), one of Canada’s largest institutional investors, and APG, one of the world’s largest pension providers, has agreed to acquire Chilean timberland asset from Arauco for US$385.5 million.

The transaction is comprised of approximately 80,500 hectares of high-quality, sustainably-managed timberlands in the central and southern regions of Chile and will establish the consortium’s timberland presence in the country.

The acquisition supports the consortium’s strategy of investing in timberland assets around the world that can achieve compelling investment returns, while applying high standards of environmental and social governance. The timberlands in this transaction have all been certified with Arauco by the Forest Stewardship Council (FSC).

Gerrity Lansing, Head of TIG and MD Partner at BTG Pactual, added: “The Timberland Investment Group has been searching for an opportunity to establish our presence in Chile for more than a decade. This transaction offers both the scale and high-sustainability requirements we’ve been looking for and we are pleased to be investing alongside BCI and APG, two of the world’s leading institutional investors.”

Lincoln Webb, Executive Vice President and Global Head, Infrastructure & Renewable Resources at BCI added: “As an active investor, we are excited by the opportunity to expand our global infrastructure and renewable resources program in Latin America with trusted partners. The investment provides compelling risk-adjusted returns for our pension plan and insurance fund clients, and increases our exposure to high-quality, sustainably managed forests.”

“This transaction not only helps us realize profitable and long-term returns for our pension fund client ABP and their participants, it also matches our ambition to partner with like-minded investors to make investments that contribute to the UN Sustainable Development Goals”, added Vittor Cancian, Senior Portfolio Manager at APG, “The timberland assets we are buying are all certified under Arauco’s group FSC certification to ensure that they are being managed in a way that is environmentally responsible, preserves biological diversity and benefits the lives of local people and workers. The FSC system also allows businesses and consumers to identify, purchase and use wood, paper and other forest products made with materials from well-managed forests or recycled sources.”

The transaction is subject to customary closing conditions, including antitrust approvals, and is expected to close in the third quarter of 2021.

 ADDITIONAL INFORMATION

ABOUT BTG PACTUAL TIMBERLAND INVESTMENT GROUP

BTG Pactual (BPAC11) is the largest investment bank in Latin America, operating in the Investment Banking, Corporate Lending, Sales & Trading, Wealth Management and Asset Management markets. BTG Pactual Asset Management has an international presence with over US$70 billion in assets under management and administration. BTG Pactual Timberland Investment Group (TIG), a division of BTG Pactual Asset Management, is one of the world’s oldest and largest timberland investment managers with nearly US$ 4 billion in assets and commitments and 2.6 million acres under management globally. TIG is focused on achieving compelling investment returns while also applying high standards of environmental and social governance, and has a 40+ year track record with over 100 professional staff members in 16 offices around the globe, bringing local, regional, and global experience to bear on the management of client investments. www.timberlandinvestmentgroup.com.

ABOUT BCI

With C$171.3 billion of assets under management as of March 31, 2020, British Columbia Investment Management Corporation (BCI) is one of Canada’s largest institutional investors. Based in Victoria, British Columbia, BCI is a long-term investor that invests across a range of asset classes: fixed income; public equities; private equity; infrastructure; renewable resources; real estate; and commercial mortgages. BCI’s clients include public sector pension plans, insurance, and special purpose funds. BCI’s infrastructure & renewable resources program, valued at over C$18.3 billion, invests in tangible long-life assets that include a portfolio of direct investments in companies across a variety of sectors spanning regulated utilities, energy, telecommunications, and transportation, as well as investments in timberlands and agri-businesses. These companies operate in stable and mature regulatory environments, provide opportunities for future capital investments, and have the potential to generate steady returns and cash yields for our clients. The program is diversified across North America, Asia, Australia, Europe, and South America.

ABOUT APG

As the largest pension provider in the Netherlands, APG looks after the pensions of 4.7 million participants. APG provides executive consultancy, asset management, pension administration, pension communication and employer services. We work for pension funds and employers in the sectors of education, government, construction, cleaning, housing associations, sheltered employment organizations, medical specialists, and architects. APG manages approximately €577 billion in pension assets. With approximately 3,000 employees we work from Heerlen, Amsterdam, Brussels, New York, Hong Kong, Shanghai and Beijing. For more information, please visit www.apg.nl.

This is actually a huge deal for APG, BCI and BTG Pactual, so it's worth spending some time on it.

First, SWFI also reported on this deal:

Celulosa Arauco y Constitución (Arauco) is a Chilean wood pulp, engineered wood, and forestry company controlled by Anacleto Angelini’s economic group Empresas Copec S.A. (99.97805% ownership). Roberto Angelini Rossi and Patricia Angelini Rossi own Empresas Copec S.A.

Arauco sold approximately 80,500 hectares of timberlands in the central and southern regions of Chile for US$ 385.5 million from an investor group. The investor group is led by BTG Pactual’s Timberland Investment Group (TIG). Other investors in the consortium include British Columbia Investment Management Corporation (BCI) and APG Asset Management. The timberlands in this transaction have all been certified with Arauco by the Forest Stewardship Council (FSC).

The Timberland Investment Group has been searching for an opportunity to establish our presence in Chile for more than a decade.

The transaction is subject to customary closing conditions, including antitrust approvals, and is expected to close in the third quarter of 2021.

The deal represents 9% of the Angelini family-controlled pulp and wood division of Empresas Copec.  

[Fun fact: Anacleto Angelini Fabbri(January 17, 1914 – August 28, 2007) was an Italian-born Chilean businessman At the time of his death, he was South America's wealthiest person, with an estimated net worth of US$6 billion. He was chairman at AntarChile, one of Latin America's largest conglomerates.]

Next, the case for timberland as an asset class. Sam Radcliffe, Vice Presdident at Prentiss and Carlisle wrote an excellent paper of re-examining the case for timberland which you can download here.

There are plenty of other excellent papers on timberland like here and here.

Timberland is a real asset that offers diversification and attractive risk-adjusted returns in a portfolio that aren't correlated to stocks, bonds or even other real assets like infrastructure and real estate (more similar to farmland but it has different characteristics).

Right now, both stocks and bonds are way overvalued, so it makes sense for large institutions to diversify their holdings of real assets.

Anyway, the Prentiss and Carlisle paper which I referred to earlier is dated (2017). Recent trends in inflation and soaring demand for lumber, fueled by the demand for single family homes, have undoubtedly changed the demand for high quality timberland.

And this is how I view this Chilean timberland asset from Arauco, as another high-quality timberland asset.

Interestingly, back in 2018, the Hancock Timber Resource Group, one of the institutional leaders in timberland investing, acquired approximately 12,250 Hectares of timberlands in Chile: 

The Hancock Timber Resource Group (HTRG) has completed the acquisition of approximately 12,250 hectares of timberlands in central Chile.

“The majority of these lands were established several decades ago as timber plantations and contain an extensive infrastructure network and thriving plantations. These are high quality assets that have been managed to supply hardwood fiber to Chile’s growing export chip market,” said Hancock Timber Resource Group President Brent Keefer, “We are very pleased to add these productive timberlands to our clients’ portfolios.”

The timberlands were acquired from Forestal Tierra Chilena Ltda. a limited liability company established by Mitsubishi Corporation and Mitsubishi Paper Mills Limited in 1990 to develop timberlands in Chile and provide fiber to Mitsubishi Paper Mills Limited.

The lands are located in the Bio Bio and Araucania Regions of Chile which are known for their productive soils and deep timber markets.

This is the company’s second acquisition in Chile. In 2014, HTRG acquired approximately 62,000 hectares of timberland through a joint venture with MASISA S.A., a Chilean forest products company. With this latest acquisition, HTRG manages approximately 75,000 hectares of timberland in Chile and 2.4 million hectares globally.

About the Hancock Timber Resource Group

The Hancock Timber Resource Group, founded in 1985, is a division of Hancock Natural Resource Group, Inc., a unit of Manulife Asset Management Private Markets. Based in Boston, it manages approximately 5.9 million acres of timberland in the United States, Brazil, Chile, Canada, New Zealand and Australia on behalf of investors worldwide. Additional information about Hancock Timber may be found at www.hancocktimber.com.

When it comes to timberlands, just follow the Hancock Timber Resource Group, they know what they're doing.

The  BTG Pactual Timberland Investment Group (TIG), isn't too shabby itself. It is one of the world’s oldest and largest timberland managers,and it recently joined nearly 200 forward-thinking companies as the newest member of the World Business Council for Sustainable Development (WBCSD): 

With more than a 40-year track record, TIG has nearly US$ 4 billion assets and commitments and approximately 2.6 million acres under management throughout the U.S., Latin America and elsewhere. The TIG team is composed of more than 100 professional staff in 15 offices and home offices throughout the U.S. and Latin America, bringing local, regional, and global experience to bear on the management of client investments.

In 2020, TIG launched Landscape Capital, a new division that is seeking to accelerate the transition to a regenerative economy through natural climate solutions at scale.

“At TIG, we have long believed that investing in a sustainable manner can achieve compelling investment returns, while also creating benefits for people and the environment,” said Gerrity Lansing, Head of TIG. “Last year, we launched Landscape Capital, which is focused on delivering outsized climate benefits from natural climate solutions: when forests are planted, harvested and replanted sustainably, and the harvested wood is used in the right applications, the climate benefit of storing carbon in long-lived wood products and of displacing more carbon-intensive materials like concrete, steel or plastic can be 2-3x the benefit of the forest itself,” he added.

“We’re looking forward to working with the other members of WBCSD’s Forest Solutions Group, as well as with the broader network, to strengthen the role sustainably managed forests and forest products can play in mitigating climate change, as well as supporting sustainable development and biodiversity,” he added.

“We are delighted to welcome Timberland Investment Group to the WBCSD network and to the Forest Solutions Group. Their wealth of knowledge and expertise in sustainable timberland investment combined with their drive for responsible investment practices, and their commitment to sustainably managing the world’s timberlands while applying high standards of environmental and social governance innovation will bring added value to our network of member companies. It is a priority that we work together with companies like TIG that can help transform our world towards one that is net zero-emissions, circular, healthy, inclusive and resilient” said WBCSD President and CEO Peter Bakker. “WBCSD is dedicated to working towards a transformation in sustainable systems. This will only be achieved in collaboration with global industry leaders such as TIG and we look forward to working with them and benefit from their leadership and experience across our programs and projects.”

All this to say, APG and BCI picked a great partner in the  BTG Pactual Timberland Investment Group (TIG), to invest in timberlands in Chile in a sustainable manner. 

Lincoln Webb, Executive Vice President and Global Head, Infrastructure & Renewable Resources at BCI explains it in the press release: “As an active investor, we are excited by the opportunity to expand our global infrastructure and renewable resources program in Latin America with trusted partners. The investment provides compelling risk-adjusted returns for our pension plan and insurance fund clients, and increases our exposure to high-quality, sustainably managed forests.” 

 Below, watch a clip from BTG Pactual's Timberland Investment Group. Great clip, watch it and you'll understand why APG and BCI partnered with them to acquire timberlands from Arauco. It also shows you how critical forestry management is to addressing climate change, something both APG and BCI are keen on.

Wall Street Banks Reject Racial Equity Audits, While Professing BLM Support - via @commondreamshttps://t.co/H87lXFZ7eN

— Leo Kolivakis (@PensionPulse) May 18, 2021

Shareholders at JPMorgan Chase (NYSE: JPM) annual meeting on May 18 registered the highest vote tally of all racial equity audit proposals for the season, to date: 39%. Large institutional shareholders, including CalPERS, CalSTRS, the Florida State Board of Administration and Trillium Asset Management, joined CtW Investment Group’s push, supported by investor advisory firm Glass, Lewis & Co, to convene stakeholders including civil rights organizations, employees and customers of color to partner with the bank on an audit and assessment of how effectively the bank addresses “adverse impacts on nonwhite stakeholders and communities of color.” 

Luckily for ERM, its focus is on sustainability, not as much on the "social and governance aspects" of ESG investing because if racial equity audits become the norm on Wall Street, it will expose some dirty little secrets in an industry which has been slow to act on diversity & inclusion at all levels (it's not the only one, Big Tech also lags behind other industries).

Lastly, in other related news, London City Airport announced last week the return of SWISS flights to Zurich:

London City Airport has welcomed the restoration of connections to Zurich (ZRH), with SWISS to resume flying to Switzerland’s largest city from today (Wednesday 12^th May).
 
SWISS will operate two rotations per week to Zurich initially, although their schedule will increase in line with the anticipated surges in demand for leisure and business travel as travel restrictions are relaxed in the UK and Europe this summer.

This is great news for AIMCo, OMERS, OTPP and Wren House Infrastructure Management Limited ("Wren House"), the infrastructure investing arm of the Kuwait Investment Authority, which bought London City Airport back in February 2016.

London City Airport has a unique history, it's an important investment for these three Canadian pensions and I'm glad to see business is slowly resuming after the pandemic forced shutdowns at this airport.

One infrastructure expert recently told me that "London City Airport is like Billy Bishop Airport in Toronto, it allows business people from Zurich to fly directly into London, not waste time at Healthrow, and leave the same day to go back home." 

In any case, the resumption of activities at London City Airport is great news for AIMCo, OMERS and OTPP.

I also note that London City Airport has become the first major international airport in the world to be fully controlled by a remote digital air traffic control tower, following intensive testing and live trials of the technology during lockdown:

All flights on the airport’s summer schedule are being guided to land or take off by air traffic controllers based 115km away at NATS’ air traffic control centre in Swanwick, using an enhanced reality view supplied by a state-of-the-art 50m digital control tower.

The technology marks a step-change in global air traffic management and is expected to help the airport meet an expected surge in demand for flying during the summer season as COVID-19 restrictions are eased from Monday 17 May.

Pretty cool stuff and it shows you how London City Airport is adopting cutting edge technology to bolster its operations.

Below, watch a short clip on why ERM is a global leader in sustainability consultancy.

Also, this year, ERM celebrates its 50th anniversary.You can watch a clip on this anniversary on its website here. 

Great company that will grow much larger in the years ahead under the supervision of KKR.

 CPP Investments released its fiscal 2021 results, gaining a record net annual return of 20.4%:

Canada Pension Plan Investment Board (CPP Investments) ended its fiscal year on March 31, 2021, with net assets of $497.2 billion, compared to $409.6 billion at the end of fiscal 2020. The $87.6 billion increase in net assets consisted of $83.9 billion in net income after all costs and $3.7 billion in net Canada Pension Plan (CPP) contributions.

For the fiscal year, the Fund returned 20.4% net of all costs, the highest return since inception. 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 11.0%, respectively.

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.

In the five-year period up to and including fiscal 2021, CPP Investments has contributed $198.2 billion in cumulative net income to the Fund after CPP Investments costs. Since its inception in 1999, CPP Investments has contributed $343.7 billion to the Fund on a net basis.

“The Fund performed exceptionally well in fiscal 2021, with all investment departments capitalizing on improving global equity markets following the steep declines observed at the end of fiscal 2020,” said John Graham, President & Chief Executive Officer, CPP Investments. “The fiscal year was bookended by extremes, with markets reaching new record highs following the significant lows just 12 months earlier. Our discipline ensures we keep the Fund on track, demonstrating resilience in a crisis and strong growth on the upside. With optimal diversification, including access to private assets, the Fund continues to perform as designed.”

CPP Investments established an ambitious business plan going into fiscal 2021, as the global pandemic arrived at our offices across five continents. Virtually all employees pivoted to remote work for their safety, and to help protect our communities. The circumstances affected regular business activities, including in-person engagement with partners and portfolio companies. Enterprise-wide teams quickly adapted to ensure full implementation of our business plan and regular operations, including managing existing assets and completing hundreds of new transactions while upholding high standards of risk management and compliance.

“The organization never paused despite the personal and professional challenges of operating during a global pandemic. Everyone leaned into their work, collaborating remotely to best serve CPP contributors and beneficiaries. Delivering strong results that contribute to the sustainability of the Fund helps remove at least one potential worry for millions of households – and there is no greater motivation for us in the full spirit of our purpose,” Mr. Graham added.

All six investment departments exhibited positive performance over the fiscal year. Global equities, across both emerging and developed markets, contributed to significant investment returns for the Fund. Amid these buoyant markets, foreign exchange losses of $35.5 billion curtailed the Fund’s gains due to a strengthening Canadian dollar against the U.S. dollar during the fiscal year.

“Diversification, prudent risk-taking in investment selection and high-caliber global teams propelled the Fund as we near the half-trillion-dollar milestone about seven years before it was projected at inception,” added Mr. Graham.

Fund 10- and Five-Year Returns^{1, 2, 3}
(for the year ended March 31, 2021)

Performance of the Base and Additional CPP Accounts

The base CPP account ended the fiscal year on March 31, 2021, with net assets of $490.9 billion, compared to $407.3 billion at the end of fiscal 2020. The $83.6 billion increase in net assets consisted of $83.5 billion in net income after all costs and $0.1 billion in net base CPP contributions. The base CPP account achieved a 20.5% net return for the fiscal year.

The additional CPP account ended the fiscal year on March 31, 2021, with net assets of $6.3 billion, compared to $2.3 billion at the end of fiscal 2020. The $4.0 billion increase in net assets consisted of $0.4 billion in net income and $3.6 billion in net additional CPP contributions. The additional CPP account achieved an 11.6% net return for the fiscal year.

The additional CPP, that began in 2019, differs in contributions, investment profile and risk targets from the base CPP because of the way each part is designed and funded. As such, we expect the investment performance of each part to be different.

Long-Term Sustainability

Every three years, the Office of the Chief Actuary conducts an independent review of the sustainability of the base and additional 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 real 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 both 10-year and five-year annualized net real returns of 9.1%.

Relative Performance against the Reference Portfolios

CPP Investments has established benchmarks of passive, public market indexes called Reference Portfolios that reflect the targeted level of market risk that we believe is appropriate for each of the base CPP and additional CPP accounts, while also serving as a point of measurement when assessing the Fund’s performance over the long term. CPP Investments performance relative to the Reference Portfolios can be measured in dollar terms, or dollar value-added, after deducting all costs.

On a relative basis, the aggregated Reference Portfolios’ return of 30.4% exceeded the Fund’s net return of 20.4% by 10.0%. As a result, in fiscal 2021, net dollar value-added for the Fund was negative $35.3 billion.

The base CPP account earned a net return of 20.5%, which was less than its Reference Portfolio’s return of 30.5% by 10.0%. This equates to a single-year net dollar value-added of negative $35.2 billion, after deducting all costs. The additional CPP account earned a net return of 11.6%, which was below its Reference Portfolio’s return of 17.0% by 5.4%. This equates to a single-year net dollar value-added of negative $93.7 million, after deducting all costs.

In investing for the long term, the Fund grows not only through the value added in a single year, but also through the compounding effect of continuous reinvestment of gains (or losses). We calculate compounded dollar value-added as the total net dollars that CPP Investments has added to the Fund through all sources of active management, above the returns of the Reference Portfolios.

CPP Investments has generated $28.4 billion of compounded dollar value-added, after all costs, since the inception of active management at April 1, 2006.

While the Reference Portfolios provide a comparable measure of the level of risk required to fulfill the Fund’s long-horizon mandate, CPP Investments has deliberately and prudently constructed a portfolio that is significantly more diversified, including by asset type, region and sector, and includes considerable weightings in private equity and real assets. This is designed to minimize short-term volatility and generate more consistent returns compared with a portfolio that is mainly exposed to public equity markets. Our active management strategy has resulted in the Fund exceeding the return of the Reference Portfolios on a cumulative basis since inception, demonstrating lower volatility while serving as a safe harbour during periods of stress.

Managing CPP Investments Costs

CPP Investments is committed to maintaining cost discipline as we continue to build a globally competitive platform that will enhance our ability to invest over the long term. The Fund’s performance is reported net of costs, as is the net income generated by each investment department.

To generate $83.9 billion of net income, CPP Investments directly and indirectly incurred $1,417 million of operating expenses, $2,723 million in investment management fees paid to external managers and $291 million of transaction costs. Altogether, these costs totalled $4,431 million for fiscal 2021, compared to $3,452 million for the previous year.

Total operating expenses of $1,417 million represent 31.4 cents for every $100 of invested assets, compared to $1,254 million in fiscal 2020 or 30.6 cents. Operating expenses of 31.4 cents are in line with the five-year average of 31.5 cents, even as we continue to enhance our capabilities in technology and build our global talent. Investment management fees increased by $915 million in the fiscal year, driven by a greater volume of assets under the direction of external fund managers, growth of funds in emerging markets, and higher performance fees paid to fund managers in public market strategies and real estate. Performance fees are paid to external managers when higher than expected returns are earned for CPP Investments, which helps ensure an alignment of interests. Transaction costs decreased by $99 million compared to the prior year as we pursued fewer private market investments. Transaction costs vary from year to year as they are directly correlated with the number, size and complexity of our investing activities in any given period.

CPP Investments also incurred financing costs associated with its use of leverage. CPP Investments’ strong balance sheet, measured by a “AAA” credit rating, has increasingly provided access to a range of cost-effective financing options to make additional and more diversified investments while maintaining the Fund’s risk and liquidity targets. Financing costs include expenses from a variety of leverage generating strategies, ranging from debt issuances to derivative transactions. Financing costs were $1,217 million in fiscal 2021, a decrease of almost 50% compared to $2,429 million for the previous year. The decrease over the prior year of $1,212 million is attributable to lower effective market interest rates.

A breakdown of costs by base and additional CPP accounts is included in the CPP Investments Annual Report for fiscal 2021, which is available at www.cppinvestments.com.

Portfolio Performance by Asset Class

Fund returns by asset class are reported in the table below. A more detailed breakdown of performance by investment department is included in the CPP Investments Annual Report for fiscal 2021.

Diversified Asset Mix

We continued to diversify the Fund by the return-risk characteristics of various assets and countries during fiscal 2021. Canadian assets represented 15.7% of the Fund, and totalled $78.3 billion. Assets outside of Canada represented a combined 84.3% of the Fund, and totalled $419.0 billion. The asset mix below is reported for the Fund.

Operational Highlights for the Year:

Executive announcements

• John Graham appointed as President & CEO in February 2021, succeeding Mark Machin. In this role, John is responsible for leading CPP Investments and its investment activities globally. John has been instrumental in shaping and executing CPP Investments’ strategy over the last decade. As a member of the Senior Management Team and throughout his career, he has had a highly successful track record of building and leading global investment businesses.
• Announced the following Senior Management Team appointments:
  • Ed Cass as the first dedicated Chief Investment Officer and Head of Total Fund Management;
  • Deborah Orida as Senior Managing Director & Global Head of Real Assets;
  • Frank Ieraci as Senior Managing Director & Global Head of Active Equities; and
  • Andrew Edgell as Senior Managing Director & Global Head of Credit Investments.

Board announcements

• The National Association of Corporate Directors (NACD) named the CPP Investments Board of Directors as a winner of the 2020 NACD NXT® award. NACD NXT showcases boards that are leveraging innovation and diversity to elevate company performance, and this is the first time the recognition has been awarded to a Canadian organization.

Corporate developments

• Thinking Ahead, an initiative to share CPP Investments insights, issued several reports in the year. For example: our 2021 Economic and Financial Outlook highlighted the continuing ripple effects of COVID-19 and considered possible long-term outcomes; Women, COVID-19 – and the threat to gender equity and diversity explored 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; and How COVID-19 is shaping the landscape for long-term investors, analyzed the breadth of change expected following the global pandemic and emerging opportunities.

• Hosted our public meetings, one for each of the nine provinces that participate in the CPP and one meeting for the three territories, to inform Canadians about the Fund’s financial performance and our investment strategy.

• Published an updated Policy on Sustainable Investing, reflecting our increased conviction in the importance of considering environmental, social and governance risks and opportunities amid an increasingly competitive corporate operating environment. The new Policy on Sustainable Investing specifically outlines CPP Investments’ support for companies aligning their reporting with the Sustainability Accounting Standards Board and the Task Force on Climate-Related Financial Disclosures.

Bond issuance

CPP Investments uses a conservative amount of short- and medium-term debt as one of several tools to manage our investment operations.

• In fiscal 2021, CPP Investments continued with its leadership role in the global transition to the new reference rates through its Sterling (GBP) issuance platform, with two benchmark issuances totalling £1.75 billion. In addition, CPP Investments issued its first SONIA-linked Floating Rate Note valued at £200 million, among other issuances. Debt issuance gives CPP Investments flexibility to fund investments that may not match our contribution cycle. Net proceeds from the issuances will be used by CPP Investments for general corporate purposes.

• With our continued commitment to sustainable investing, CPP Investments added a fourth currency for green bond issuance with an inaugural 20-year Australian-dollar green bond valued at A$150 million. The total issuance of green bonds since inception of the program is now C$5.5 billion. Green bonds enable CPP Investments to invest further in eligible assets such as renewables, water and green real estate projects, and to diversify the investor base.

Investment Highlights for the Year:

 Active Equities

• Invested a total US$150 million in the Series B financing and as lead in the Series C financing for insitro, a biopharmaceuticals company that applies machine learning throughout the discovery and development process, and joined the Board of Directors upon closing.

• Invested US$150 million as a cornerstone investor in the IPO of Kuaishou Technology, a mobile short video sharing and live streaming platform in China.

• Invested C$1.2 billion in cornerstone financing to support Intact Financial Corporation (Intact) in its acquisition of the RSA Insurance Group plc. Canada and U.K. & International operations. Intact is the largest provider of property and casualty insurance in Canada.

• Closed a US$100 million investment in HUTCHMED through a private placement. HUTCHMED 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.

• Invested an additional C$92 million in fiscal 2021 in Premium Brands Holdings Corporation, a Canadian specialty food manufacturing and differentiated food distribution business, through two private placements of common shares. Our ownership in the company is approximately 8.3%.

• Invested a combined €499 million in Sweden-listed Embracer Group, Europe’s largest developer and publisher in the global video game industry, for a 5.4% stake.

Credit Investments

• Established an investment vehicle with Angel Oak Capital to invest up to US$250 million in U.S. residential mortgage loan pools, with Angel Oak Capital managing the operations, asset management and financing.

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

• Invested US$175 million in the first lien term loan, senior secured notes and second lien term loans of LogMeIn, Inc., a provider of remote working, collaboration and customer engagement software-as-a-service.

• Committed to acquire US$1 billion of home improvement focused consumer loans from Service Finance Company, LLC, a sales finance business owned by ECN Capital Corp. Under the agreement, the purchases will be made through 2020 and 2021.

 Private Equity

• Invested US$300 million in equity to acquire a 24.99% stake in Virtusa Corporation (Virtusa), alongside Baring Private Equity Asia. Virtusa is a global provider of a full spectrum of IT services. 

• Increased our investment in Visma, a leading provider of business-critical software to enterprises in the Nordic, Benelux and Baltic regions in Europe, to an approximate 6% stake.

• 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.

• Committed US$30 million to Y Combinator ES20 and YCC20, a pair of venture capital funds backing the global accelerator known for its early seed investments in technology companies such as Stripe, Dropbox, Doordash and Coinbase, among others.

• Committed US$750 million to Silver Lake Partners VI, targeting large scale, growth-oriented investments in the technology, media and telecommunications and technology-enabled sectors.

Real Assets

• Entered into a joint venture with Tricon Residential Inc. to invest in build-to-core multi-family rental projects in the Greater Toronto Area, with a C$350 million equity allocation for 70% ownership.

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

• Invested approximately US$624 million for a 15% interest in Transurban Chesapeake, 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.

• Established a new, U.K.-based platform, Renewable Power Capital (RPC) to invest in solar, onshore wind and battery storage, among other onshore renewable 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. Subsequently, the company announced a joint venture in Spain to develop a portfolio of 3.4 GW of solar energy projects.

• 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. 

• Extended our partnership with GLP through the launch of the GLP Japan Income Fund (GLP JIF), the largest private open-ended logistics fund in Japan. The partnership with GLP was first established in 2011, and at the end of August 2020, CPP Investments successfully exited the investment in GLP JDV I, receiving approximately JPY 48 billion (C$590 million) of net proceeds. Following the disposition, CPP Investments recommitted JPY 25 billion (C$307 million) of the proceeds into the newly established GLP JIF. In December 2020, an additional JPY 8.2 billion (C$105 million) was committed to the fund in conjunction with further asset dispositions from GLP JDV II into GLP JIF. 

Disposition Highlights for the Year:

• Agreed to sell our 45% interest in GlobalLogic Worldwide Holdings, Inc. (GlobalLogic), a leader in design-led digital engineering services that develops next-generation software platforms for enterprises worldwide, to Hitachi, Ltd. for an enterprise value of US$9.5 billion. Net proceeds from this transaction are expected to be approximately US$3.8 billion. Our ownership stake was initially acquired in 2017.

• Sold our 80% interest in a Distribution Centre in Lytton, Queensland, Australia, held through the Goodman Australia Development Partnership. Net proceeds from the sale are expected to be approximately A$138 million. Our interest was progressively funded between 2011-2012.

• Sold our 7.5% stake in Citycon, or half of our position, in the Nordic owner, manager and developer of mixed-use centres. Net proceeds from the sale were approximately C$147 million. Our ownership interest was initially acquired in 2014.

• Sold our ownership interest in Zoox, a U.S. technology company focused on developing a fully integrated autonomous vehicle mobility solution, as part of Amazon.com, Inc.’s acquisition of the company. Our ownership interest was initially acquired in 2018.

• 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.

• Sold our 50% interest in Nova, an office-led, mixed-use development in London Victoria, U.K. Net proceeds from the sale, which was completed through two separate transactions, were approximately C$725 million. Our ownership interest was initially acquired in 2012.

• Sold our 45% stakes in AMLI 900, AMLI Lofts, AMLI Campion Trail, and AMLI Arts Center, multifamily properties in the U.S. Combined net proceeds from the sales were approximately US$223 million. Our ownership interests were initially acquired in 2012 and 2013.

Transaction Highlights Following the Quarter:

• Acquired an additional 15.9% of the total units in IndInfravit Trust (IndInfravit) through two separate transactions for a combined investment amount of C$173 million, increasing our stake to 43.8%. IndInfravit is an infrastructure investment trust sponsored by L&T Infrastructure Development Projects Limited, which acquires and maintains stable brownfield road concessions in India and holds a portfolio of 13 operational assets.

• Committed €185 million to the new Commercial Real Estate Debt Opportunities partnership with Acofi Gestion. The partnership’s strategy is to invest in middle market real estate credit opportunities across France.

• Committed to an investment of up to R$1.7 billion (C$385 million) in Brazilian water and wastewater company Iguá Saneamento S.A., in which we hold a 46.7% aggregate equity stake, to support the privatization of water and sewage services from CEDAE in greater Rio de Janeiro.

• Invested US$70 million in a super priority term loan of David’s Bridal, a U.S.-based bridal and special-occasion apparel retailer.

• Invested US$150 million in the National Stock Exchange of India, the leading equity and derivatives exchange in India.

• Entered into a joint venture with RMZ Corp to develop and hold commercial office space in Chennai and Hyderabad, India, with an INR 15,000,000,000 (US$210 million) equity allocation for an 50% ownership.

About CPP Investments

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 March 31, 2021, the Fund totalled $497.2 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedIn, Facebook or Twitter.

Alright, it's time to cover the results of Canada's largest and best pension fund, CPP Investments.

Let me begin by thanking Michel Leduc, Senior Managing Director & Global Head of Public Affairs and Communications, for emailing me last night to give me a heads-up and for sending me a lot of material this morning to review and share on my blog comment.

I give CPP Investments an A+ on communications and I'm not just stating this to flatter Michel or John Graham, you will understand why after reading my comment below.

In fact, I spoke to John Graham earlier today going over the results and we talked about the importance of communication (see section below toward end of my comment).

Let me begin by stating I read the Annual Report 2021 for their fiscal year 2021 (ends March 31, 2021). 

The annual report is where you will get all the relevant and necessary information and I urge you all to read it carefully.

Admittedly, it's not a quick and easy read but it's very well written and explains in detail all the operations at this mammoth pension fund. 

Because I have a lot to cover, I will skim through the more important parts of the report, bringing to your attention what caught my eye.

First, I read the Chairperson's Report on page 2 where Dr. Heather Munroe-Blum went over the performance, risk management and notes this on succession planning:

Succession planning is an ongoing activity, not an event. Key members of the Senior Management Team (SMT) are identified and prepared for potential appointment as chief executive. This ongoing process enabled the Board of Directors’ clarity and conviction in appointing a new President & CEO, John Graham, when Mark Machin stepped down at the end of February.

Since joining CPP Investments in 2008, John has established a successful track record as an innovator and builder of leading global investment businesses. A highly regarded member of the SMT, John has been instrumental in helping shape and execute our organization’s strategy. John’s commitment to the organization, to his colleagues and to CPP Investments’ unique mandate is unequalled. The Board of Directors unanimously agreed that he is ideally suited to lead the organization forward.

I thank Mark Machin for his leadership and very significant contributions to the growth and success of CPP Investments during his tenure as CEO. My fellow Directors and I wish Mark the best in his future endeavours.

In writing this, Dr. Munroe-Blum lays to rest any speculation that the appointment of John Graham after Mark Machin's abrupt departure was done in a hasty manner. 

Importantly, and I can't emphasize this enough, an organization like CPP Investments which is in charge of the pensions of over 20 million Canadians can't afford not to have ongoing succession planning no matter who is in charge because the role of President and CEO is critically important.

The fact that John Graham was appointed so quickly shows you how the Board takes succession planning very seriously and to be frank, it's also a testament to the organization's incredible bench strength at the senior level. Having had conversations with John Graham and Ed Cass, the CIO, I can attest to this and I'm sure other senior managers are just as highly qualified.

Moving on to the President's message on page 4 of the annual report, John Graham's first annual update, he discusses how the past year was characterized by "extreme conditions" but CPP investments stuck to its diversified investment strategy to deliver solid returns.

I urge you to read John's full message but here I will focus on his discussion on performance:

The challenges of the last year tested the Fund like never before. This experience strengthened our belief that working together across our distinct investment departments and across markets to act as one Fund will continue to allow us to surface compelling opportunities to grow and safeguard the Fund.

The Fund performed well in fiscal 2021 and these results indicate that our strategy is on track.We saw the Fund grow to $497.2 billion, based on $83.9 billion in net income and $3.7billion in net contributions received. The half-trillion-dollar mark is a significant milestone for the Fund and underscores the strength of our active management strategy. When CPP Investments was first created in 1999, it was estimated that we would not reach this point until 2028. Now, here we are, about seven years and $175 billion ahead of schedule, with a global footprint and diversified investment programs that could scarcely have been imagined back then.

To hold our strategy of active investment management accountable, we report a dollar value-added (DVA) comparison of our investment returns, after all costs, to our aggregated Reference Portfolio, which represents a passive portfolio of public-market stocks and bonds that the Fund might otherwise hold had CPP Investments not pursued active management.

The Reference Portfolio for the base CPP is made up of 85% global equities and the Reference Portfolio for the additional CPP is made up of 50% global equities. These Reference Portfolios outperformed this year after global equity markets soared amid fiscal stimulus flooding the market in response to COVID-19. Our Investment Portfolios’ growth was less dramatic, but well above the range required to maintain the Fund’s sustainability over the long term. Both the Reference Portfolios and the Fund ultimately behaved as we would expect them to this year, as they did at the end of our last fiscal year when our private market investments cushioned against a dramatically different falling market backdrop. Our DVA compared with our aggregated Reference Portfolio this fiscal year was negative $35.3billion, or negative 10.0%, and our Reference Portfolios returns for the base CPP and additional CPP were 30.5% and 17.0%, respectively.

This year’s return should be viewed in the context of our generational investment horizon. Short-term pressures can have a striking influence on yearly results but may be barely visible when viewed over the course of a generation. In fiscal 2015, for example, we achieved an annual net return of 18.2%, which was then our highest ever (until this year’s results). Yet, just six years earlier, in fiscal 2009, we suffered our largest loss of 18.6% as the world entered the global financial crisis. This stark contrast of yearly results is an expected part of the process for long-term, diversified investors. As I have assured my friends and neighbours, we are built to withstand these annual fluctuations. We continue to far exceed returns projected to be needed to sustain the CPP over the long term. Our five-year and 10-year net returns of 11.0% and 10.8%, respectively, begin to demonstrate the wisdom of this strategic approach.

And on why CPP Investments remains highly diversified in a COVID-19 world, John adds this:

While risks abound in the world today, our strategy of diversifying across currencies, countries and asset classes enables us to manage those risks. We seek to ensure that the Fund is appropriately rewarded for risks we take, including geopolitical, climate change and reputation-related considerations, which is a unique approach that helps set us apart when analyzing investments and executing our strategy. For example, we rely on our regional expertise to deeply understand the risk characteristics of an intensifying capital and technology race between the Eastern and Western Hemispheres – an ability few investors can claim. (For more on our approach to Risk Management see page 97.)

John also highlights three notable achievements over the past year:

First, we believe that the most rewarding investment opportunities in the global economy over the coming decades will be found among businesses that truly understand the risks, opportunities and impacts of climate change. Our investment strategy ensures we identify such businesses. Our Climate Change Program is more deeply embedded into our investment processes and operations, including tools for assessing the economic damage associated with different Energy Transition and Climate Change (ETCC) paths as we select securities and design our portfolio. By acting as a long-term and engaged capital partner, we expect to see continued reduction of the Fund’s exposure to greenhouse gas emissions over time.

Second, we continued to enhance our approach to risk management. This year, we built on our Integrated Risk Framework with a new and extended policy that provides the safeguards needed to manage a crisis while protecting the financial stability and operations of the Fund. Our approach worked as intended during the pandemic by prioritizing employee health and safety, the ability to meet our obligations to the CPP and other counterparties, and adherence to Board-approved investment and non-investment risk tolerances. We were able to act decisively this year because we had risk management mechanisms in place before COVID-19, including a structure to quickly gather and assess information in a crisis.

Third, we started to realize an increase in innovation across the Fund through a focused effort to harness the power of our San Francisco office’s proximity to cutting-edge technology. We now regularly expose our global colleagues to the expertise and relationships we’ve built in the Valley. For example, we hosted a private discussion for select portfolio-company Chief Financial Officers and organized an investment pitch event focused on solving complex societal problems. We have reimagined how collaboration can happen by acting as a convener between our investment professionals, external investment managers and Bay Area thought leaders and entrepreneurs.

Having now spent over a decade at CPP Investments, I’m convinced our organization has unparalleled potential. We operate at a rare nexus in the financial world and possess knowledge and perspective that is only attainable by managing a multi-asset class, global and diverse portfolio. This powerful combination makes us the sought-after capital partner we are today.

We plan to use this standing to bring increased rigour to how we integrate various elements of our portfolio and use new tools. Three elements of particular interest include: building our talent strategy to attract the highest performing individuals from a multitude of disciplines who want to work for a purpose-driven organization; identifying and removing unconscious biases from investment decisions by bringing to bear all the talents and wisdom of a diverse workplace; and continuing to seek rewarding investment opportunities among businesses that understand the risks, opportunities and impacts of climate change.

On the last point, I continue to believe CPP Investments represents all Canadians and as such it has to reflect the society it works for.

I also believe that CPP Investments should hire the best, most diversified talent across the country no matter where they are located and accommodate that talent to work at this purpose-driven organization.

Yes, the head office will remain in Toronto but CPP Investments now manages half a trillion in assets and has offices all over the world, surely it can open a few more offices across Canada or just hire talent that is already working from home in a post-pandemic world (hint: the name of the talent retention game is flexibility).

In short, while Toronto is the mecca for North American pensions, it doesn't hold a monopoly on pension talent in this vast country of ours.

Please note, these are my views, not John Graham's or anyone else's at CPP Investments, but I have strong views on our national pension fund and how it can attract more talent across the country.

Keep in mind, by 2050, the CPP Fund (base + additional) is projected to reach $3 trillion ($1.6 trillion when value is adjusted for expected inflation):

That's a lot of money to manage and it's going to happen over the next 29 years. 

I believe it's critically important that CPP Investments stays the course, meaning it continues with its active strategy, diversifying across public and private markets all over the world, leveraging off its external partners where needed and managing the rest in-house.

Of course, the key to CPP Investments' long-term success remains its independent governance, it needs to remain independent, managing assets at arm's length from the federal and provincial governments. 

Now, getting back to the results, they were obviously excellent but like John Graham states in his message: "this year’s return should be viewed in the context of our generational investment horizon."

Looking at the annual performance for each of the ten past years, you see that fiscal 2021 was indeed a record year:

And on that front, CPP Investments is delivering solid long-term results, delivering 10-year and five-year annualized net nominal returns of 10.8% and 11.0%, respectively.:

Importantly, CPP Investments is designed in a way to capture global growth while demonstrating resilience during periods of market uncertainty. The Fund invests in 56 countries and has 292 world-class investment partners to build value in their existing assets:

But it's also important to note that there are six investment departments at CPP Investments, managing assets across public and private markets, and all of them performed well last year:

Now, I did note this in the press release above in terms of the relative performance relative to the Reference Portfolio:

On a relative basis, the aggregated Reference Portfolios’ return of 30.4% exceeded the Fund’s net return of 20.4% by 10.0%. As a result, in fiscal 2021, net dollar value-added for the Fund was negative $35.3 billion.

The base CPP account earned a net return of 20.5%, which was less than its Reference Portfolio’s return of 30.5% by 10.0%. This equates to a single-year net dollar value-added of negative $35.2 billion, after deducting all costs. The additional CPP account earned a net return of 11.6%, which was below its Reference Portfolio’s return of 17.0% by 5.4%. This equates to a single-year net dollar value-added of negative $93.7 million, after deducting all costs.

I have two comments to make:

1. On any given year, CPP Investments can outperform or underperform its Reference Portfolio (benchmark) for base CPP which is made up of 85% global equity and 15% Canadian government bonds. For the additional CPP, CPP Investments has adopted a Reference Portfolio of 50% global equity/50% nominal bonds issued by Canadian governments (see details here).The Reference Portfolio for additional CPP takes less risk because unlike base CPP, it's not partially but fully funded. The bulk of the assets remain in base CPP, for now.
   
2. Still, as experienced last fiscal year, when stocks are on a tear and performance is coming mainly from a handful of tech giants, both base CPP and additional CPP can underperform their respective Reference Portfolio.

The first chart shows the excess return over the required minimum return for the plan's sustainability since implementing the active management back in fiscal 2006 (see details here).

The second chart shows the cumulative 10-year return of the CPP Fund relative to its Reference Portfolio, showing it added 60 basis points (10.8% vs 10.2%) or more importantly, $27.8 billion 10-year dollar value added. 

That's $27.8 billion value added that wouldn't have existed if CPP Investments only invested passively in its Reference Portfolios. 

What this tells you is CPP Investments' strategy works but in order to fully appreciate it, you need to stop looking at relative performance on any given year and look at it over a longer time horizon.

It's also worth noting that CPP Fund's framework changed in F2015 from 100% relative return to 50% relative/ 50% absolute return:

All this to say, it's not just about beating a benchmark, it's about delivering solid risk-adjusted returns over the long run to make sure the CPP remains sustainable over the long run no matter what economic conditions prevail.

So, yes, on any given year, CPP Investments can underperform its Reference Portfolio (see the Globe and Mail article which misses the point) which is made up mostly of global equities (85%) but it will not experience the volatility of this benchmark because it's highly diversified across public and private markets:

However, I took issue with this slide because base CPP is partially funded and its Reference Portfolio is heavily tilted towards equities, so in a raging bull market like we experienced over the past year, it will be the toughest benchmark to beat, but you're not comparing apples to apples.

John Graham actually agreed with me here and stated each pension has "its own objective function" to beat and it's not really fair comparing benchmarks for one fund to the other.

Discussion with John Graham

Alright, let me get to my discussion with John Graham, CPP Investments' President and CEO.

John began by telling me to go back a year, to April 2020, there was a lot of uncertainty and major dislocations in all markets.

He told their priority was on Fund liquidity and was very pleased on how everyone at CPP Investments performed operationally, not just the investment group, but "tax, legal, finance, HR, everyone pulled through."

Basically, the two top priorities were:

1. Operational excellence throughout the organization
2. Building out the organization by focusing on breadth in capital management, seizing on the right opportunities

By breadth, he means geographic and sector diversification and really looking at each deal bottom-up, company by company, deal by deal, and that includes leveraging off their global offices and the people working there.

John is a huge believer in diversification and he told me last year was odd in the sense that most of the gains in global markets came from a handful of stocks, tech giants (like Alphabet, Facebook, Amazon) and Tesla. 

This "crowding effect" is another reason why CPP Investments can underperform its Reference Portfolio on any given year, especially when positioning is so extreme in a handful of tech names.

John told me markets have rallied back to their highs and now more than even, they need to be cognizant of risk-adjusted returns, making sure they get compensated for the risks they take.

We spoke about credit, the department he used to run, and he told me that Credit delivered 18.8% local currency in F2021, 6.8% in CAD.

He said it's his roots in credit which leads him to believe so much in diversification because it's a "heterogeneous asset class" where you need to diversify by geography and strategy (corporate, structured, direct lending, etc.).

He told me CPP Investments has built out a solid credit platform, doing a lot internally, using some funds for emerging markets, and still relying on Antares for its mid market direct lending in the US market.

Interestingly, he told me most of the best relative value they are seeing in credit is in the structured credit space where they are still active across the market.

He noted, however, while Credit Investments performed well,  the CPP Investment returns were driven by strong results from across the entire organization, "it was really a team effort" (indeed, read performance by investment department starting on page 66 of the annual report). 

On Real Estate, he told me Retail remains challenging and the pandemic accelerated trends that were already in place before, benefiting logistics properties which CPP Investments identified early on as a growth area.

He said in the Office space they're seeing "a flight to quality" where tier 1 buildings remain in high demand, tenants continue to pay their rent, but he admitted there is a lot of uncertainty as employers grapple with working from home versus working from office.

Interestingly, he said Multifamily has now become more popular than Office and that they see increased activity there, in logistics and data centers. 

Still, he noted "there's a lot of dispersion in real estate."

On transportation infrastructure, I asked him about Highway 407 which remains CPP Investments most important asset.

John told me that the pandemic and lockdowns hit toll revenues but it remains a very valuable asset and given its long dated concession, "it's a very sought after asset".

Given where rates are, I believe him, this remains a jewel of an asset for CPP Investments.

Lastly, we talked about the importance of communication, both internal and external.

Internally, he told me he's holding more town hall meetings, one on ones with all employees, and even meetings with senior managers "where there's no agenda", just free flowing thoughts and discussions.

Externally, he told me he views CPP Investments 20 million+ contributors and beneficiaries as "clients" and that's why regional public meetings are important but above and beyond those, John wants to make sure the Fund treats all Canadians with respect and that they understand the strategy and "given the choice, they will always opt to stay invested with us."

He credits his wife for the focus on communications and praised Michel Leduc and his team as well.

I told him that he's the only Canadian pension CEO who took the time during the pandemic to do a video going over the results and that speaks volumes (never take your contributors and beneficiaries for granted even if they're captive clients).

Alright, I am going to end it there, I want to thank John Graham for taking the time to call me earlier, always enjoy our conversations. 

Please take the time to read the Annual Report 2021 to go over their fiscal year 2021 in detail.

Also, as I customarily do when covering annual results, I end with a summary compensation table for senior managers:

As always,  compensation is based primarily on long-terms results, and CPP Investments has delivered outstanding long-term results. Take the time to read compensation details beginning on page 119 of the annual report.

Below, CPP Investments' President and CEO, John Graham, goes over fiscal 2021 results. 

John also spoke to BNN Bloomberg earlier to  break down the record results (watch here if it doesn't load below). Take the time to listen to him, he provides great insights here.

A number of well-known U.S. hedge funds bought value stocks and blank-check acquisition companies, selling some winners from the technology-led stock rally as bond yields rose during the first quarter, filings released on Monday showed.

Special-purpose acquisition companies, known as SPACs, proved popular among hedge fund managers, with funds such as Third Point and Saschem Head adding shares of SPACs, including FinTech Acquisition Corp V and healthcare company Orion Acquisition Corp (OHPA) to their portfolios.

Tiger Global added shares of Revolution Healthcare Acquisition Corp and Soaring Eagle Acquistion Corp and trimmed its position in Facebook Inc.

Activist investor Starboard Value invested in a string of other so-called SPACS that exist to buy private companies and take them public, including Montes Archimedes Acquisition Corp, Altimar Acquisition Corp, Churchill Capital Corp II and Forest Road Acquisition Corp.

Over 400 SPACs have listed their shares since the start of 2021, though the majority are underperforming the broad stock market, a Reuters analysis showed. read more 

At the same time, several hedge funds added to financial, energy and consumer companies. Third Point added a new position in Carvana Co (CVNA) and Uber Technologies Inc (UBER), while Epoch Investment Partners added new positions in energy firms such as Exxon Mobil Corp (XOM), Pioneer Natural Resources Co (PXD) and Diamondback Energy Inc (FANG).

Billionaire Ray Dalio's Bridgewater Associates, the largest hedge fund manager in the world, added a new position in General Motors Corp (GM), Ecolab Inc (ECL) and Johnson Controls International PLC (JCI) while selling out of its position in media companies, including the New York Times Co, News Corp and Discovery.

The moves into stocks that benefit from a broadly growing economy came during a quarter in which so-called value stocks - in industries such as financials and materials that rise on economic growth - surged and interest rates rose as investors positioned for a reopening of the global economy after the coronavirus pandemic.

The Russell 1000 Value index, for instance, is up 17% for the year to date, while the Russell 1000 Growth index - which is top-loaded with shares of technology companies like Apple Inc and Amazon.com Inc that surged during the economic lockdowns - is up 3.5% over the same time.

Bond yields, meanwhile, rose to reflect rising inflation expectations, increasing borrowing costs for consumers and companies. Consumer prices rose in April by the largest measure in 12 years, prompting some mutual fund managers to increase their cash positions and turn more defensive. read more

Hedge fund managers' positions were revealed in 13F filings that show what fund managers owned at the end of the quarter. While they are backward-looking, these filings are one of the few public disclosures of hedge fund portfolios and are closely watched for clues on trends and what stocks certain fund managers are favoring.

They do not disclose the date a purchase was made during the quarter.

Some hedge fund managers unloaded shares of companies that performed well over the last year, suggesting they see limited gains ahead. Epoch Investment Partners, for example, liquidated its position in Under Armour Inc, which is up 34% for the year to date, and cut its position in Amazon by roughly 46%.

Third Point, meanwhile, sold out of its position in Alibaba Inc (BABA).

Dan Loeb also exited his Palantir trade, made a big bet in a newly public company, and trimmed big tech stocks in the first quarter of 2021:

Billionaire investor Dan Loeb exited his Palantir trade, made a large bet in a newly public company, and trimmed some of his big-tech holdings in the first quarter of 2021.

Third Point securities filings for the period show that Loeb exited his Palantir (PLTR) position, selling 2,356,991 shares of the big-data company. The company's stock is down nearly 13% year-to-date as investors rotate into stocks that hinge on an economic recovery.

Loeb added 41,500,000 shares of Paysafe, a British payments firm that went public via a special purpose acquisition company during the quarter. The company is his fifth largest holding. His eighth largest holding is a new position in CoStar (CSGP), a commercial real estate company.

The Third Point chief said in a letter to investors earlier this month that his flagship fund gained 11% in the first quarter, outperforming the S&P 500. 

Loeb said that one of his best-performing investments last quarter was Upstart. The fund first invested in Upstart at a $145 million valuation about six years ago. It now owns roughly 13.3 million shares for a value of around $1.7 billion following the AI-powered lender's IPO in December. Upstart is the fund's top holding.

Loeb also trimmed back on some of his big tech stocks. He slimmed down his positions in Alphabet, Amazon, and Facebook, but added 300,000 shares of Microsoft.

Loeb also exited his positions in Pinterest, Adobe, Salesforce, Alibaba, Nike, and DoorDash.

The activist investor said that he's bullish on stocks and the US economy in his investor letter, citing ample liquidity in markets, loose monetary and fiscal policy, and a supportive Federal Reserve.

Rupert Hargreaves of Gurufocus also asks, why are hedge funds piling into SPACs?:

As I have been going through hedge fund 13F reports over the past few days, I've noticed one clear trend. Most big-name firms have built up extensive holdings of Special Purpose Acquisition Companies (SPAC) in 2021.

Seth Klarman (Trades, Portfolio)'s Baupost is a great example. According to the hedge fund's 13F for the three months ended March 2021, Baupost owned the following SPACs:

• Reinvent Technology Partners Y Units (NASDAQ:RTPYU)

• Avanti Acquisition Corp. (NYSE:AVAN)

• Reinvent Technology Partners (NYSE:RTP)

• Horizon Acquisition Corp. II (NYSE:HZON)

• Liberty Media Acquisition Corp. (NASDAQ:LMACA)

• Broadstone Acquisition Corp. (NYSE:BSN)

• Altimeter Growth Corp. 2 (NYSE:AGCB)

• Investindustrial Acquisition Corp. (NYSE:IIAC)

• Dragoneer Growth Opportunities Corp. III (NASDAQ:DGNU)

• Finch Therapeutics Group Inc. (NASDAQ:FNCH)

• SVF Investment Corp. (SVFA)

• Dragoneer Growth Opportunities Corp. II (DGNS)

• Reinvent Technology Partners Z (RTPZ)

Why are hedge funds piling into SPACs? I don't know, maybe because they realize public markets are insanely overvalued right now, so go hide in SPACs, aka, the poor man's private equity.

All I know is the SPAC market has cooled considerably in recent weeks, with companies that went public by merging with a blank-check entity trading well off their highs, and a growing number of regulatory hurdles emerging for an investment strategy that often dominated financial news headlines in 2020.

Anyway, it's that time of the year again when we get a sneak peek into what top fund managers bought and sold last quarter, with a 45-day lag. 

Before I get into the details, please take the time to read my more recent market comments:

• Will stocks crash after entering the valuation Twilight Zone?
• What Does the Big US Jobs Miss Signal For Stocks?
• Market Sells Big Tech's Blowout Earnings
• Sell in May and Go Away?  

I am continuously looking at the stock market, every day I go over which stocks registered the biggest advances and declines, I check out which sectors are outperforming, which ETFs are outperforming, I look at the top holdings of top stocks, then look at a bunch of daily and weekly charts.

It's a full-time job (what, you think I'm only interested in pensions?) and I realize how tough these markets are getting which is why I tell all my readers to focus on risk management right now.

On that note, take the time to read the latest weekly comment from Trahan Macro Research on managing risk in an usually polarized equity market (download it here).

I note this: 

There is little doubt that the economy is gaining strength as the U.S. appears to be quickly transitioning into a post-pandemic recovery. Unfortunately for equity investors this has not been an easy backdrop to manage money.What we have seen this year is a see-saw between leadership of Growth/Stability and Value/Cyclicality, and with the latter has come downward pressure on the S&P 500 Index as a whole. One of the reasons for this behavior is the unusually high proportion of Growth stocks in the Index, which currently exhibits a historically high valuation spread relative to Value.

 

In the report, Francois Trahan explains why valuations matter at extremes and they then develop a way to minimize volatility by focusing on Middle-Duration stocks in the S&P 500:

They even provide a list of stocks based on their All Weather Model and Middle Duration stocks:

As Francois explained to me:

This approach generated 600 basis points of excess performance over the S&P 500 this year while limiting "market leadership" or "rotation" risk. This is the part that clients are really focused on. There is a lot of anxiety about leadership and how to manage it with the ISM near historic highs.

I couldn't resist to share my two cents, noting how I read a Bloomberg article on a three-decade bond veteran warning against big bets on inflation:

Lee, who worked in bond sales in the 1990s at UBS Group AG, said yields on 10-year U.S. Treasuries are more likely to fall below 1% than to normalize above 3%for “any lasting time.” That’s because the deflationary pressures that have plagued markets for decades -- increasing automation, aging demographics and falling global productivity -- haven’t gone away.

“It’ll take years to be able to normalize beyond the sort of 2-3% range” that we’re hoping to enter now, said Lee, who holds a doctorate in Mathematics from Oxford University. “Pretty much every country has got a debt burden that corporates or households would struggle to service if yields rose by really quite modest amounts.”

Her strategy? “Sit out taking an active position” when necessary, rather than risk losses. She’s exited most of her overweight positions in inflation-linked bonds.

Why is this important? Well, because after a huge increase in the yield of the 10-year Treasury yield over the last six months, long bond yields seem to be stalling here:

Interestingly, this week, the cyclical sectors (Financials, Energy, Industrials, Materials) registered losses and the more defensive rate sensitive sectors (Real Estate, Utilities) and rate neutral (Healthcare) registered gains while Technology was flat, recovering losses from earlier this week:

If rates continue to creep lower, this is what you'd expect, but I'm not convinced as I see a strong US economic recovery in the second half of the year (you'll likely see it in the May nonfarm payroll data which comes out on the first Friday of June).

There are a lot of macro undercurrents in this market, if you don't get the macro right, you will not pick your stocks correctly.

There is a lot of uncertainty which is why I'm providing you some food for thought before going over top funds' Q1 activity.

Who cares, tell me what Soros et al. bought and sold!

Alright, let's get into what top funds bought and sold last quarter. 

Earlier this week, Zero Hedge did a complete 13F summary:

Well, the latest barrage of 13F reports confirms that tech indeed was the bete noir of the first quarter, with some of the most notable hedge funds dumping some or all of their tech exposure, as they rotated into value and reflation sectors such as financials and energy. That and much more is noted in the below summary of the most notable 13F moves of the past quarter, courtesy of Bloomberg:

• Philippe Laffont’s Coatue Management slashed many of its tech holdings that have benefited from the pandemic-induced lockdowns, like fitness-equipment maker Peloton Interactive Inc., cyber-security solutions company Crowdstrike Holdings Inc., and Zoom Video Communications Inc. Coatue reduced its exposure to technology stocks by about 8%, data compiled by Bloomberg show. Alex Sacerdote’s Whale Rock Capital Management also decreased its stake in some of those stocks, including Peloton and Crowdstrike.

• Financials were a key sector that firms re-allocated to as they broadly trailed other cyclical sectors due in part to low interest rates. Dan Sundheim’s D1 Capital liquidated its stake in JPMorgan Chase & Co., jettisoning a position worth more than $1 billion as of March 31. Viking Global also decreased its JPMorgan stake, but it’s starting a new position in Bank of America. Duquesne took a new position in Citigroup and has a small holding in JPMorgan. Berkshire Hathaway Inc., meanwhile, cut its position in Wells Fargo. ValueAct dumped its remaining stake in Morgan Stanley.

• GameStop Corp. was among the companies that skyrocketed during the Reddit-fueled trading frenzy at the beginning of the year. Lee Ainslie’s Maverick Capital exited its stake in the video-game retailer, valued at $88 million at the end of December, when the shares traded at $18.84. GameStop shares hit a record $347.51 on Jan. 27 as Redditors pushed the stock “to the moon.”

• Alibaba Group Holding Ltd. seemed to fall out of favor with some hedge funds in the first three months of the year as China’s crackdown on the technology sector weighed on the e-commerce giant. It was a top exit for Third Point and Coatue Management; Soroban Capital Partners trimmed its stake.

• Bill Ackman's Pershing Square added Domino’s Pizza Inc. to its investments and exited Starbucks

• Elliott added E2open Parent Holdings Inc. Class A to its investments and exited F5 Networks Inc. in the first quarter. Elliott also added to its holdings in Twitter Inc, Decreased its stake in CorMedix Inc; Dell Technologies Class C was the biggest holding, representing 28% of disclosed assets

• David Tepper's Appaloosa added Chesapeake Energy Corp. to its investments and exited Square. Other higlights: it added to its holdings in Energy Select Sector SPDR Fund, and decreased its stake in PG&E Corp; Micron Technology Inc. was the biggest holding, representing 9.2% of disclosed assets.

• George Soros’s investment firm was among those that capitalized on the distressed remains of Bill Hwang’s Archegos Capital Management. His Soros Fund Management snapped up shares of ViacomCBS Inc., Discovery Inc. and Baidu Inc. as they were being sold off in massive blocks during the collapse of Archegos at the end of March. Coatue Management also started smaller new positions in three of the names in the quarter: a $148 million stake in Farfetch Ltd., a $147 million position in RLX Technology Inc. and a $77 million holding in ViacomCBS. And D1 Capital Partners added 124,000 shares of Shopify Inc. for a stake valued at $137 million. Elliott Management Corp. disclosed it held a $95 million stake in Discovery Inc.

• Stan Druckenmiller’s family office Duquesne took a new position in Citigroup, worth $154.6 million, a $139.4 million stake in data-mining firm Palantir and a small holding of JPMorgan. The investment firm boosted its holding in Starbucks and liquidated its investment in Disney, worth about $124 million, while also exiting cruise liner Carnival.

• Starboard Value jumped on a hot Wall Street trend: SPACs. The activist investor, which launched its own blank-check company last year, made relatively small investments in 18 such companies in the quarter, including ones being run by notable investors such as Michael Klein and Alex Rodriguez and private equity firms KKR & Co. and Warburg Pincus. Another activist investor, Keith Meister’s Corvex Management, also snapped up several SPAC names in the quarter.

• Berkshire Hathaway exited Synchrony Financial in the first quarter as Warren Buffett’s company continued to trim its bets on financial firms.

• Chase Coleman’s Tiger Global kept the majority of its positions static in the first quarter and only sold out of two names. Digital games company Roblox, which made its public debut in the quarter, emerged as a new top holding for Tiger Global, behind JD.com and Microsoft, and was valued at $2.6 billion at the end of March. Tiger Global was among the company’s pre-listing backers, having first invested in Roblox in 2018

Jana Partners built a new position in Vonage Holdings Corp. The hedge fund plans to push for changes at the telecommunications services company, according to people familiar with the matter

Andreas Halvorsen’s Viking Global started a new position in Bank of America, snapping up 31.3 million shares worth $1.2 billion as of March 31. That makes it Viking’s fifth biggest long holding. Shares of Bank of America have been on a tear, rising 28% in the first quarter after gaining 26% in the fourth quarter. Viking also took new stakes in Netflix, solar energy company Sunrun and 25 others companies. Meanwhile it sold out of Disney, ditching shares worth $774 million as of March 31 and getting out of a stake worth $632 million in American Express as of the same date.

A detailed breakdown of the top fund changes follows:

ADAGE CAPITAL PARTNERS

• Top new buys: PRAH, AEVA, F, PNTM, PAX, APTV, VRT, MIT, EPIX, PTC

• Top exits: MMM, CEO, IMVT, KMB, SRPT, STEM, SAIC, NVAX, VALE, NVT

• Boosted stakes in: FTV, ALXN, MRK, HON, JNJ, MSFT, BAC, GOOG, GOOGL, W

• Cut stakes in: RPRX, AAPL, BURL, EYE, XOM, DOV, UAA, AMZN, DLTR, EIX

APPALOOSA

• Top new buys: CHK, PSFE, DHI, MOS, AR, IQ, APA, ETWO, BP, DISCA

• Top exits: SQ, WFC, MMP, TEN, KMI, ENBL

• Boosted stakes in: XLE, OXY, XOP, UNH, GT, FCX, ADS, QCOM

• Cut stakes in: PCG, BABA, TMUS, TWTR, PYPL, DIS, MA, AMZN, V, CRM

BALYASNY ASSET MANAGEMENT

• Top new buys: WFC, COHR, INTC, ISRG, SCHW, HIG, PHM, FDX, HON, MTD

• Top exits: PYPL, NVDA, XOM, RTX, JBHT, AAPL, STLA, SBUX, PG, KR

• Boosted stakes in: TGT, BK, ZTS, AMZN, MS, MA, ALGN, CNI, ATVI, INFO

• Cut stakes in: GOOGL, BABA, DIS, NFLX, MSFT, TEAM, TSCO, V, BAC, PANW

BAUPOST GROUP

• Top new buys: WLTW, IFF, NUVB, CGEM, AJAX, TBA, AVAN, HZON, RTP, LMACA

• Top exits: MPC, RBAC, RADI, VIST

• Boosted stakes in: INTC, GOOG, QRVO, FB, MU, VRNT, PEAK, SSNC

• Cut stakes in: EBAY, FOXA, ATRA, FNF

BERKSHIRE HATHAWAY

• Top new buys: AON

• Top exits: SYF, SU

• Boosted stakes in: KR, VZ, RH, MMC

• Cut stakes in: CVX, WFC, MRK, STNE, LBTYA, ABBV, AXTA, BMY, SIRI, GM

BRIDGEWATER ASSOCIATES

• Top new buys: LOW, HD, JCI, LULU, DD, SHW, ECL, TSLA, KMX, F

• Top exits: NOW, ADBE, SCCO, NVDA, APD, ATVI, ADSK, DE, AMAT, LRCX

• Boosted stakes in: PG, KO, JNJ, MCD, WMT, TT, EL, APTV, PEP, WFC

• Cut stakes in: GLD, EEM, IAU, SPY, IVV, VEA, PDD, EFA, IEFA, IEMG

COATUE MANAGEMENT

• Top new buys: OSCR, MRNA, FTCH, RLX, TWLO, AI, LMND, BNTX, QS, DDD

• Top exits: LRCX, JD, AYX, NVDA, DT, BABA, CREE, EXPE, GPS, MU

• Boosted stakes in: LI, GH, XPEV, AMZN, NKLA, SE, SNOW, LSPD, COUP, VLDR

• Cut stakes in: PYPL, DIS, PTON, CRWD, ZM, GPN, SQ, TSLA, UBER, PLAN

CORVEX MANAGEMENT

• Top new buys: MSFT, EXPE, BLMN, AJAX, CAP, HZON, TWND, AACQ, HEC, FIII

• Top exits: WDAY, ADBE, AEO, ZEN, HCA, HUM, EVRG, CNP, STEM

• Boosted stakes in: EXC, GOOGL, TMUS, CCEP, AMZN, JPM, ATUS

• Cut stakes in: MGM, FE, ATVI, GLD, NFLX

D1 CAPITAL PARTNERS

• Top new buys: BKNG, DDOG, AMZN, DECK, MRVI, BAX, DRI, TEAM, BX, EDU

• Top exits: IR, PNC, CLVT, DT, MSGS, MU, SMAR, KRC, BABA, ESS

• Boosted stakes in: MSFT, EXPE, NFLX, FB, GOOGL, DIS, RH, JPM, DHR, TGT

• Cut stakes in: LYV, CVNA, AVB, ORLY, HPP, BLL, LVS, DEI, AAP, RACE

DUQUESNE FAMILY OFFICE

• Top new buys: C, PLTR, ON, BKNG, INTU, BLDR, FB, TSM, JPM, CAT

• Top exits: DIS, NEE, CCL, IQV, ADI, WDAY, SMAR, SMH, NYT, ELAN

• Boosted stakes in: EXPE, SBUX, CMI, UBER, GOOGL, USFD, TECK, FLEX, VALE, LIN

• Cut stakes in: TMUS, NUAN, MSFT, CVNA, NET, MELI, PENN, AMZN, PANW, SE

ELLIOTT MANAGEMENT

• Top new buys: ETWO, DISCK, TTD, RYAAY, FB, PFG

• Top exits: FFIV, FNV, XOP

• Boosted stakes in: TWTR, MPC, PINS, SNAP

• Cut stakes in: CRMD

EMINENCE CAPITAL

• Top new buys: AAP, NICE, ETWO, WBA, LIVN, NSTG, CHTR, CCK, SNRH, PFGC

• Top exits: DD, CHNG, FISV, WWE, OUT, CNC, AVTR, WELL, VRT, VVV

• Boosted stakes in: DNB, AMZN, EXPE, WSC, RRR, GOOG, AON, PSTG, PEGA, ABG

• Cut stakes in: USFD, MIC, RHP, DFS, PLAY, NUAN, BERY, NEWR, CNNE, COF

ENGAGED CAPITAL

• Top new buys: CORE

• Top exits: MGLN

• Boosted stakes in: NCR

• Cut stakes in: QUOT, IWM

FIR TREE

• Top new buys: CIT, EXC, NAAC, PCPC, MSFT, EAC, FPAC, CTAQ, PNTM, TACA

• Top exits: EXPE, MSGE, CTXS, HHC, AACQ, DIS, WPF, THCB, ASPL, BOWX

• Boosted stakes in: OUT, ENPC, ABBV, MLAC, STWO, GLEO, SCVX, GOAC, CRHC, CONX

• Cut stakes in: SLM, LAMR, FE, SPR, GRSV, BSX, DELL, TMUS, HEC, THCA

GREENLIGHT CAPITAL

• Top new buys: FSRV, WPF, SPNV, GPRO, XOG, CPRI, GANX, RTP, DGNR, NGAC

• Top exits: NCR, GDX, CCK, DDS, UHAL, ICPT, MNOV

• Boosted stakes in: DNMR, CNXC, APG, SATS, ADT, JACK

• Cut stakes in: GRBK, AER, GLD, FUBO, REZI, CNX, CHNG, TECK, AAWW, CC

ICAHN

• Top new buys: FE

• Boosted stakes in: BHC, DAN, XRX, TEN

• Cut stakes in: HLF, OXY

IMPALA ASSET MANAGEMENT

• Top new buys: WFG, PXD, LYB, ZIM, AGCO, ASTE, OSK, WDC, TFII, SONY

• Top exits: FCX, THO, CMI, SIX, EOG, KBH, LEA, CLR, GBX, F

• Boosted stakes in: DAC, UAL, HES, DVN, TROX, ADNT, CENX, LAD, CNK, TECK

• Cut stakes in: KNX, HOG, NVR, RIO, DOOR, SLB, COP, HGV, SBSW, MU

JANA PARTNERS

• Top new buys: VG, CONE

• Top exits: BLMN, TGNA, NEWR, GRA

• Boosted stakes in: THS, LH

• Cut stakes in: EHC, SPY

LAKEWOOD CAPITAL MANAGEMENT

• Top new buys: AEL, GDDY, GPI, CDW, FAII, SYNH, HEC, TSCO, DNMR, UWMC

• Top exits: TMUS, LBRDK, AGNC, GS, UE, SCHW, GLD, CWH, CROX

• Boosted stakes in: FB, ATH, BABA, MIME, GOOGL, FAF, AXTA, SAIC, ANTM, WRK

• Cut stakes in: CIT, DELL, HCA, APO, MCD, COF, ALLY, ABG, MA, SKX

LANSDOWNE

• Top new buys: IEUR, BLBD, AER, CDE, PAAS, RBLX, SSO, USO

• Top exits: C, UNP, NSC, PSX, IDA, AG, HTOO, EEM, GLD

• Boosted stakes in: RYAAY, ETN, GE, CARR, ENIA, VXX, REGI, UVXY, EGO

• Cut stakes in: OTIS, TSM, VMC, TMUS, AES, ED, BKNG, LUV, BLDP, DAR

LONG POND

• Top new buys: INVH, GDS, FMX, EXPE, QTS, DIA, HLT, CONE, AIV, MLCO

• Top exits: AIRC, GLPI, ESS, UDR, DEI, ABNB, LSI, MGP, EXP, RADI

• Boosted stakes in: AMH, FR, SUI, CPT, WH, LVS, HGV, MSGS, ELS

• Cut stakes in: EQR, AVB, PHM, JBGS, NNN, MAA, SRC, FPH

MAGNETAR FINANCIAL

• Top new buys: PRAH, KSU, COHR, SJR, MGLN, PBCT, CCIV, CATM, CTB, FRTA

• Top exits: CCX, NOVA, VIEW

• Boosted stakes in: CHNG, FLIR, ATH, RTP, TCF, BDX, AZN, MDT, AJRD, AVTR

• Cut stakes in: OPEN, BSX, ARVL, IPOF, LH, THBR, VGAC, FUSE, ATAC, FIII

MAVERICK CAPITAL

• Top new buys: CPNG, TMUS, IFF, MELI, AJAX, TBA, SUM, DRNA, TSM, SPFR

• Top exits: GME, GTLS, WYNN, IBP, CPB, CROX, JACK, VFC, CMLF, MKC

• Boosted stakes in: LPLA, AMZN, AON, FIS, UBER, NFLX, XP, ELAN, LB, LVS

• Cut stakes in: DD, FB, BABA, AXP, FLT, LRCX, MGM, AMAT, ADBE, NKE

MELVIN CAPITAL MANAGEMENT

• Top new buys: SNOW, UBER, ADSK, SBUX, USFD, NTES, BILL, MU, SIG, SEAS

• Top exits: FISV, AMD, ADBE, MELI, JD, MSFT, AZO, BABA, MSCI, SPGI

• Boosted stakes in: LH, NFLX, AMZN, RACE, PAGS, FICO, CRWD, DECK, IAA, CBRL

• Cut stakes in: FB, EXPE, BKNG, MA, COUP, NKE, LVS, PINS, LB, NOW

OAKTREE CAPITAL MANAGEMENT

• Top new buys: CHK, SHLS, KRC, HIMS, FTAI, XOG, SRNE

• Top exits: VALE, IBN, BBD, PBR, AU, AZUL, AFYA, TSM, AMX, LU

• Boosted stakes in: STKL, EQR, IEA

• Cut stakes in: ITUB, VST, CX, CRC, VEON, TV, NMIH, MTG, LBTYK, ALLY

OMEGA ADVISORS

• Top new buys: BABA, IFF, NRG, PSFE, FOA, PNTM, JWSM, APSG

• Top exits: AMCX, MNRL, BGS, NBR, AC, GBL

• Boosted stakes in: ATH, ET, WSC, STKL, SMTS, C, VRT, FLMN, BBDC, ORCC

• Cut stakes in: TRN, COOP, AMZN, OCN, SRGA, SNR, FCRD, ABR, MGY, NAVI

PERSHING SQUARE

• Top new buys: DPZ

• Top exits: SBUX

• Boosted stakes in: HHC

• Cut stakes in: CMG, QSR, A, HLT, LOW

SOROBAN CAPITAL

• Top new buys: DPZ, INFO, V, MA, SPGI, WPF, NSTB, FUSE, FTOC, CAP

• Top exits: YUM, MAR, FB, FISV, PSTH, HLT, ARMK, SONY, PLNT

• Boosted stakes in: LOW, FIS, GWRE, AMZN

• Cut stakes in: BABA, ADI, CMCSA, RTX, GOOGL, MSFT

SOROS FUND MANAGEMENT

• Top new buys: BIDU, VIPS, TME, IFF, OPEN, DISCK, MU, ASHR, WAL, DISCA

• Top exits: PLTR, EEM, SLQT, NLOK, DRI, PFSI, SE, XLNX, AGNC, FTAI

• Boosted stakes in: AMZN, DHI, GOOGL, TXN, ADI, DEN, GM, IQ, VICI, ATVI

• Cut stakes in: LBRDK, ALC, CLVT, HAIN, OTIS, UBER, MT, APTV, NOW, NKE

STARBOARD

• Top new buys: ELAN, EHTH, MAAC, CCX, KVSC, PRPB, KVSA, TWCT, LNFA, DGNU

• Top exits: AAP

• Boosted stakes in: ACM, BOX, NLOK, IWM, SCOR, GDOT

• Cut stakes in: ACIW, CERN, IWR, MMSI, CTVA, CVLT, ON

TEMASEK HOLDINGS

• Top new buys: RBLX, XLF, INDA, GOVT, GRCL, PDD, AFRM, KRTX, PCVX, LMND

• Top exits: AQUA, XLI, XLY, ABNB, SYK, MDT, ZBH, FTSI, BSX

• Boosted stakes in: BGNE, KDP, MA, AMZN, VIR, V, EWY, IWM, SNOW, ADBE

• Cut stakes in: DASH, BABA, VIRT, FTCH, EWZ, VNET, MSFT, DDOG, SE

THIRD POINT

• Top new buys: CSGP, UBER, DD, DELL, SHOP, SU, CVNA, NYT, AES, SLV

• Top exits: BABA, FIS, ADBE, CRM, PLNT, EXPE, SWK, NKE, PINS, PLTR

• Boosted stakes in: PSFE, EL, UNH, MSFT, INTU, Z, SPGI, RH, LESL, APTV

• Cut stakes in: IAA, AMZN, CHTR, DIS, PCG, JWS, RACE, ETRN, BKI, GOOGL

TIGER GLOBAL

• Top new buys: RBLX, FUTU, CPNG, PLTK, OSCR, ONTF, DOCN, BMBL, XM, TBA

• Top exits: GOTU, YALA

• Boosted stakes in: DOCU, MSFT, DASH, SHOP, ZM, SE, ADBE, NOW, COUP, ONEM

• Cut stakes in: UBER, SPOT, RUN, GDS, FB, STNE, DESP, INTU

TUDOR INVESTMENT

• Top new buys: XLI, SMH, INFO, XLE, INTC, CLGX, DOCN, PRAH, WPC, FXI

• Top exits: WLTW, EWZ, DD, PG, ZTS, VICI, IBM, LH, DELL, IRM

• Boosted stakes in: SPY, NAV, ZM, XLNX, ALXN, LSPD, HIG, WMT, PANW, HQY

• Cut stakes in: WORK, MXIM, ICLN, RSG, AAPL, MDLZ, EQIX, HEC, LOW, ELAN

VIKING GLOBAL INVESTORS

• Top new buys: BAC, ORLY, COUP, NFLX, RUN, DE, AMP, XPEV, CRL, LAD

• Top exits: DIS, AXP, TSM, HLT, BKNG, AMD, EHC, MU, AVB, APD

• Boosted stakes in: GE, FB, TMO, LH, CB, FTV, BMY, UNH, PODD, PANW

• Cut stakes in: JPM, MSFT, MELI, BSX, FIS, CI, NUAN, HIG, PH, VRSN

WHALE ROCK CAPITAL MANAGEMENT

• Top new buys: GOOGL, W, AMAT, WDAY, ORCL, TWTR, ASML, MSFT, NCNO, CPNG

• Top exits: SQ, NXPI, ZM, UBER, ZS, CRUS, EXPE, FTCH, NVDA, JD

• Boosted stakes in: FB, BEKE, TRIP, AMZN, ZEN, TWLO, BILL, BILI, SMAR, SNOW

• Cut stakes in: TSLA, CRWD, TSM, PTON, SE, PENN, CREE, FIVN, DIS, MDB

Source: Bloomberg

The links below take you straight to their top holdings and then click to see where they increased and decreased their holdings (see column headings).

Top multi-strategy and event driven hedge funds

As the name implies, these hedge funds invest across a wide variety of hedge fund strategies like L/S Equity, L/S credit, global macro, convertible arbitrage, risk arbitrage, volatility arbitrage, merger arbitrage, distressed debt and statistical pair trading. Below are links to the holdings of some top multi-strategy hedge funds I track closely:

1) Appaloosa LP

2) Citadel Advisors

3) Balyasny Asset Management

4) Point72 Asset Management (Steve Cohen)

5) Peak6 Investments

6) Kingdon Capital Management

7) Millennium Management

8) Farallon Capital Management

9) HBK Investments

10) Highbridge Capital Management

11) Highland Capital Management

12) Hudson Bay Capital Management

13) Pentwater Capital Management

14) Sculptor Capital Management (formerly known as Och-Ziff Capital Management)

15) ExodusPoint Capital Management

16) Carlson Capital Management

17) Magnetar Capital

18) Whitebox Advisors

19) QVT Financial 

20) Paloma Partners

21) Weiss Multi-Strategy Advisors

22) York Capital Management

Top Global Macro Hedge Funds and Family Offices

These hedge funds gained notoriety because of George Soros, arguably the best and most famous hedge fund manager. Global macros typically invest across fixed income, currency, commodity and equity markets.

George Soros, Carl Icahn, Stanley Druckenmiller, Julian Robertson  have converted their hedge funds into family offices to manage their own money.

1) Soros Fund Management

2) Icahn Associates

3) Duquesne Family Office (Stanley Druckenmiller)

4) Bridgewater Associates

5) Pointstate Capital Partners 

6) Caxton Associates (Bruce Kovner)

7) Tudor Investment Corporation (Paul Tudor Jones)

8) Tiger Management (Julian Robertson)

9) Discovery Capital Management (Rob Citrone)

10 Moore Capital Management

11) Element Capital

12) Bill and Melinda Gates Foundation Trust (Michael Larson, the man behind Gates)

Top Quant and Market Neutral Hedge Funds

These funds use sophisticated mathematical algorithms to make their returns, typically using high-frequency models so they churn their portfolios often. A few of them have outstanding long-term track records and many believe quants are taking over the world. They typically only hire PhDs in mathematics, physics and computer science to develop their algorithms. Market neutral funds will engage in pair trading to remove market beta. Some are large asset managers that specialize in factor investing.

1) Alyeska Investment Group

2) Renaissance Technologies

3) DE Shaw & Co.

4) Two Sigma Investments

5) Cubist Systematic Strategies (a quant division of Point72)

6) Numeric Investors now part of Man Group

7) Analytic Investors

8) AQR Capital Management

9) Dimensional Fund Advisors

10) Quantitative Investment Management

11) Oxford Asset Management

12) PDT Partners

13) Angelo Gordon

14) Quantitative Systematic Strategies

15) Quantitative Investment Management

16) Bayesian Capital Management

17) SABA Capital Management

18) Quadrature Capital

19) Simplex Trading

Top Deep Value, Activist, Event Driven and Distressed Debt Funds

These are among the top long-only funds that everyone tracks. They include funds run by legendary investors like Warren Buffet, Seth Klarman, Ron Baron and Ken Fisher. Activist investors like to make investments in companies where management lacks the proper incentives to maximize shareholder value. They differ from traditional L/S hedge funds by having a more concentrated portfolio. Distressed debt funds typically invest in debt of a company but sometimes take equity positions.

1) Abrams Capital Management (the one-man wealth machine)

2) Berkshire Hathaway

3) TCI Fund Management

4) Baron Partners Fund (click here to view other Baron funds)

5) BHR Capital

6) Fisher Asset Management

7) Baupost Group

8) Fairfax Financial Holdings

9) Fairholme Capital

10) Gotham Asset Management

11) Fir Tree Partners

12) Elliott Investment Management (Paul Singer)

13) Jana Partners

14) Miller Value Partners (Bill Miller)

15) Highfields Capital Management

16) Eminence Capital

17) Pershing Square Capital Management

18) New Mountain Vantage  Advisers

19) Atlantic Investment Management

20) Polaris Capital Management

21) Third Point

22) Marcato Capital Management

23) Glenview Capital Management

24) Apollo Management

25) Avenue Capital

26) Armistice Capital

27) Blue Harbor Group

28) Brigade Capital Management

29) Caspian Capital

30) Kerrisdale Advisers

31) Knighthead Capital Management

32) Relational Investors

33) Roystone Capital Management

34) Scopia Capital Management

35) Schneider Capital Management

36) ValueAct Capital

37) Vulcan Value Partners

38) Okumus Fund Management

39) Eagle Capital Management

40) Sasco Capital

41) Lyrical Asset Management

42) Gabelli Funds

43) Brave Warrior Advisors

44) Matrix Asset Advisors

45) Jet Capital

46) Conatus Capital Management

47) Starboard Value

48) Pzena Investment Management

49) Trian Fund Management

50) Oaktree Capital Management

Top Long/Short Hedge Funds

These hedge funds go long shares they think will rise in value and short those they think will fall. Along with global macro funds, they command the bulk of hedge fund assets. There are many L/S funds but here is a small sample of some well-known funds.

1) Adage Capital Management

2) Viking Global Investors

3) Greenlight Capital

4) Maverick Capital

5) Pointstate Capital Partners 

6) Marathon Asset Management

7) Tiger Global Management (Chase Coleman)

8) Coatue Management

9) D1 Capital Partners

10) Artis Capital Management

11) Fox Point Capital Management

12) Jabre Capital Partners

13) Lone Pine Capital

14) Paulson & Co.

15) Bronson Point Management

16) Hoplite Capital Management

17) LSV Asset Management

18) Hussman Strategic Advisors

19) Cantillon Capital Management

20) Brookside Capital Management

21) Blue Ridge Capital

22) Iridian Asset Management

23) Clough Capital Partners

24) GLG Partners LP

25) Cadence Capital Management

26) Honeycomb Asset Management

27) New Mountain Vantage

28) Penserra Capital Management

29) Eminence Capital

30) Steadfast Capital Management

31) Brookside Capital Management

32) PAR Capital Capital Management

33) Gilder, Gagnon, Howe & Co

34) Brahman Capital

35) Bridger Management 

36) Kensico Capital Management

37) Kynikos Associates

38) Soroban Capital Partners

39) Passport Capital

40) Pennant Capital Management

41) Mason Capital Management

42) Tide Point Capital Management

43) Sirios Capital Management 

44) Hayman Capital Management

45) Highside Capital Management

46) Tremblant Capital Group

47) Decade Capital Management

48) Suvretta Capital Management

49) Bloom Tree Partners

50) Cadian Capital Management

51) Matrix Capital Management

52) Senvest Partners

53) Falcon Edge Capital Management

54) Park West Asset Management

55) Melvin Capital Partners

56) Owl Creek Asset Management

57) Portolan Capital Management

58) Proxima Capital Management

59) Tourbillon Capital Partners

60) Impala Asset Management

61) Valinor Management

62) Marshall Wace

63) Light Street Capital Management

64) Rock Springs Capital Management

65) Rubric Capital Management

66) Whale Rock Capital

67) Skye Global Management

68) York Capital Management

69) Zweig-Dimenna Associates

Top Sector and Specialized Funds

I like tracking activity funds that specialize in real estate, biotech, healthcare, retail and other sectors like mid, small and micro caps. Here are some funds worth tracking closely.

1) Avoro Capital Advisors (formerly Venbio Select Advisors)

2) Baker Brothers Advisors

3) Perceptive Advisors

4) Broadfin Capital

5) Healthcor Management

6) Orbimed Advisors

7) Deerfield Management

8) BB Biotech AG

9) Birchview Capital

10) Ghost Tree Capital

11) Sectoral Asset Management

12) Oracle Investment Management

13) Palo Alto Investors

14) Consonance Capital Management

15) Camber Capital Management

16) Redmile Group

17) RTW Investments

18) Bridger Capital Management

19) Boxer Capital

20) Bridgeway Capital Management

21) Cohen & Steers

22) Cardinal Capital Management

23) Munder Capital Management

24) Diamondhill Capital Management 

25) Cortina Asset Management

26) Geneva Capital Management

27) Criterion Capital Management

28) Daruma Capital Management

29) 12 West Capital Management

30) RA Capital Management

31) Sarissa Capital Management

32) Rock Springs Capital Management

33) Senzar Asset Management

34) Southeastern Asset Management

35) Sphera Funds

36) Tang Capital Management

37) Thomson Horstmann & Bryant

38) Ecor1 Capital

39) Opaleye Management

40) NEA Management Company

41) Great Point Partners

42) Tekla Capital Management

43) Van Berkom and Associates

Mutual Funds and Asset Managers

Mutual funds and large asset managers are not hedge funds but their sheer size makes them important players. Some asset managers have excellent track records. Below, are a few funds investors track closely.

1) Fidelity

2) BlackRock Inc

3) Wellington Management

4) AQR Capital Management

5) Sands Capital Management

6) Brookfield Asset Management

7) Dodge & Cox

8) Eaton Vance Management

9) Grantham, Mayo, Van Otterloo & Co.

10) Geode Capital Management

11) Goldman Sachs Group

12) JP Morgan Chase& Co.

13) Morgan Stanley

14) Manulife Asset Management

15) UBS Asset Management

16) Barclays Global Investor

17) Epoch Investment Partners

18) Thornburg Investment Management

19) Kornitzer Capital Management

20) Batterymarch Financial Management

21) Tocqueville Asset Management

22) Neuberger Berman

23) Winslow Capital Management

24) Herndon Capital Management

25) Artisan Partners

26) Great West Life Insurance Management

27) Lazard Asset Management 

28) Janus Capital Management

29) Franklin Resources

30) Capital Research Global Investors

31) T. Rowe Price

32) First Eagle Investment Management

33) Frontier Capital Management

34) Akre Capital Management

35) Brandywine Global

36) Brown Capital Management

37) Victory Capital Management

38) Orbis

39) Ariel Investments 

40) ARK Investment Management

Canadian Asset Managers

Here are a few Canadian funds I track closely:

1) Addenda Capital

2) Letko, Brosseau and Associates

3) Fiera Capital Corporation

4) West Face Capital

5) Hexavest

6) 1832 Asset Management

7) Jarislowsky, Fraser

8) Connor, Clark & Lunn Investment Management

9) TD Asset Management

10) CIBC Asset Management

11) Beutel, Goodman & Co

12) Greystone Managed Investments

13) Mackenzie Financial Corporation

14) Great West Life Assurance Co

15) Guardian Capital

16) Scotia Capital

17) AGF Investments

18) Montrusco Bolton

19) CI Investments

20) Venator Capital Management

21) Van Berkom and Associates

22) Formula Growth

23) Hillsdale Investment Management

Pension Funds, Endowment Funds, Sovereign Wealth Funds and the Fed's Swiss Surrogate

Last but not least, I the track activity of some pension funds, endowment, sovereign wealth funds and the Swiss National Bank (aka the Fed's Swiss surrogate). Below, a sample of the funds I track closely:

1) Alberta Investment Management Corporation (AIMco)

2) Ontario Teachers' Pension Plan

3) Canada Pension Plan Investment Board

4) Caisse de dépôt et placement du Québec

5) OMERS Administration Corp.

6) Healthcare of Ontario Pension Pan (HOOPP)

7) British Columbia Investment Management Corporation (BCI)

8) Public Sector Pension Investment Board (PSP Investments)

9) PGGM Investments

10) APG All Pensions Group

11) California Public Employees Retirement System (CalPERS)

12) California State Teachers Retirement System (CalSTRS)

13) New York State Common Fund

14) New York State Teachers Retirement System

15) State Board of Administration of Florida Retirement System

16) State of Wisconsin Investment Board

17) State of New Jersey Common Pension Fund

18) Public Employees Retirement System of Ohio

19) STRS Ohio

20) Teacher Retirement System of Texas

21) Virginia Retirement Systems

22) TIAA CREF investment Management

23) Harvard Management Co.

24) Norges Bank

25) Nordea Investment Management

26) Korea Investment Corp.

27) Singapore Temasek Holdings 

28) Yale Endowment Fund

29) Swiss National Bank (aka, the Fed's Swiss surrogate)

Below, CNBC's "Halftime Report" team discusses their view on monetary policy, economy and investment strategy. They also discusses stock market volatility, particularly tech stocks.

Third, investor Michael Burry and his firm Scion Asset Management placed a sizeable bet against Elon Musk and Tesla Inc. that was revealed in the latest 13F regulatory filing. Bloomberg’s Dani Burger reports on "Bloomberg Surveillance: Early Edition."

Fourth, Cathie Wood, chief executive officer and chief investment officer at Ark Investment Management, says the correction in commodities prices is one sign that the U.S. economy is poised for a "massive" period of deflation. She speaks with Bloomberg's Carol Massar at The Bloomberg Businessweek event. Wood also said Bitcoin is "on sale" right now, although it is not necessarily at a bottom (agree with her deflation call, not so much on bitcoin).

Lastly, watch Stanley Druckenmiller, CEO of Duquesne Family Office, share his great insights in a couple of great clips. The first one is embedded below, the second one is his 2021 keynote speech on COVID’s macro consequences for the USC Marshall Center for Investment Studies which you can watch here. Take the time to watch both these clips.

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The union representing 125,000 Ontario municipal workers who are members of the OMERS pension plan is calling for a third-party review of the plan’s investment performance after it posted a “shocking” loss in 2020.

The Canadian Union of Public Employees Ontario published a report Wednesday that highlights what it says is a long-term pattern of underperformance by the Ontario Municipal Employees Retirement System, which manages the retirement income of more than 500,000 active and retired municipal employees.

The public call comes after OMERS published its annual results in February, revealing it had lost 2.7 per cent in 2020, a significant swing from the 6.9-per-cent gain it had set as a benchmark.

“We’d been warned that 2020 might be a bad year for returns, but we were shocked at how bad,” CUPE Ontario president Fred Hahn said during a virtual press conference Wednesday. He said the 2.7-per-cent loss amounted to about $3 billion. “No other comparable pension plans had a negative return in 2020.”

But OMERS said Wednesday “an additional third-party independent review is not warranted.”

George Cooke, chair of the board of directors of the OMERS Administration Corporation, said the pension plan is governed by an independent expert board that “continually and thoroughly reviews investment performance, independent of management, utilizing external experts where appropriate.”

“Following the 2020 results specifically, we undertook a thoughtful look at our investment strategy and past decisions with an open mind,” Cooke said in an emailed statement.

“We are confident in our strong new leadership team and have concluded that our current investment strategy is appropriate,” he said. (Blake Hutcheson took over as OMERS CEO last June and the pension plan named new heads of its capital markets and infrastructure businesses earlier this year.)

CUPE Ontario’s report notes that the Healthcare of Ontario Pension Plan (HOOPP), the Ontario Teachers’ Pension Plan and the Caisse de dépôt et placement du Québec posted annual returns for 2020 of 11.4 per cent, 8.6 per cent and 7.5 per cent, respectively.

The report also points to a longer-term trend of lower returns at OMERS, which had a 10-year annualized return of 8.2 per cent as of 2019. In contrast, HOOPP, Teachers and the Caisse had 10-year returns of 11.4 per cent, 9.8 per cent and 9 per cent, respectively, at that time. OMERS’ 2020 performance brought its long-term rate of return down even further.

PBI Actuarial Consultants Ltd. reviewed CUPE’s report, which is based on publicly available information. PBI said the comparisons made are reasonable and show “a significant gap in performance between OMERS and other comparable public pension plans and funds.”

“We hear a lot about front-line heroes these days and this is a critical pension plan for them,” Hahn said in an interview. “We need there to be a mechanism to discover what’s going on here and fix it.”

Many CUPE Ontario employees — which include special education assistants, Toronto Public Library employees and Children’s Aid Society workers — work part-time hours, earn low wages or both. 

During the news conference, union leaders said their members are concerned about losing benefits such as pension payments that are indexed to inflation or being required to contribute more to make up for investing shortfalls.

Yolanda McClean, second vice-president of CUPE Ontario and a member of CUPE Local 4400, representing education workers at the Toronto District School Board, said workers in her local earn an average of $38,000 per year and are predominantly racialized women.

“We care about this plan. We want to fix whatever is going on at OMERS to turn the tide,” McClean said.

Hahn said CUPE leaders met with executives and board members from OMERS on two occasions this year. The union asked for a review of the pension plan’s investment returns, but Hahn said OMERS told them it wasn’t necessary. 

OMERS, which has $105 billion in net assets, has pointed to three main factors for the 2020 loss. It said widespread lockdowns affecting the retail, transportation and entertainment sectors “significantly impacted” its real estate and private equity portfolio. With respect to publicly traded companies, OMERS said dividend-paying stocks it owns in the financial services and energy sectors were also hit hard.

Finally, the pension plan said it took steps amid the market turmoil of March and April 2020 to reduce foreign currency hedging positions, a move designed to protect against a potential decline in value of the Canadian dollar. It said those “prudential steps” achieved their objective but “resulted in currency losses, as the Canadian dollar appreciated after we reduced our hedges.”

David Milstead of the Globe and Mail also reports that CUPE report calls for third-party review, alleges underperformance by pension fund manager OMERS:

The union for Ontario public sector employees has renewed calls for an outside review of the Ontario Municipal Employees Retirement System, saying the pension’s 2020 loss is part of a long-term pattern of underperformance.

In response, OMERS said Wednesday that an independent review “is not warranted.”

The Canadian Union of Public Employees (CUPE) Ontario said that 2020 was “not just one tough year” for OMERS, which posted a negative 2.7-per-cent return in 2020. The union, which initially spoke out when OMERS released that result in February, issued a report Wednesday that suggests OMERS has underperformed its own internal benchmarks, as well as other large Canadian pension plans, for the past decade or more.

CUPE says OMERS’s 10-year return of 6.7 per cent is lower than seven other major Canadian pensions, whose returns over the period ranged from 8.5 per cent to 11.2 per cent. It’s also lower than the 10-year internal benchmark of 7.3 per cent. OMERS does not disclose the 10-year benchmark figure in its annual reports, which makes it different from the other plans, CUPE says. CUPE said OMERS provided the figure to the union.

The long-term underperformance can also be seen in the 10 years ended in 2019, indicating the issue is not solely the result of OMERS’s performance during the pandemic, according to CUPE.

CUPE has raised questions of OMERS management before, including a lengthy critique of its expenses after it announced its 2018 results. Fred Hahn, President of CUPE Ontario, said the union has engaged with OMERS management and “we kept being told everything would be fine ... we weren’t satisfied with that.”

Mr. Hahn and other CUPE members who appeared at a Wednesday press conference questioned whether benefits would ultimately be endangered.

“We care about this plan – we want to fix whatever’s going on, to provide our members with certainty,” said Yolanda McClean of CUPE’s Toronto Education Worker/Local 4400.

In a statement, George Cooke, the chair of the board of directors of OMERS Administration Corp., said the board, which is nominated by the employer and employee sponsors of the plan, “continually and thoroughly reviews investment performance, independent of management, utilizing external experts where appropriate.”

“Following the 2020 results specifically, we undertook a thoughtful look at our investment strategy and past decisions with an open mind,” Mr. Cooke said in the statement. “We are confident in our strong new leadership team and have concluded that our current investment strategy is appropriate. An additional third-party independent review is not warranted.”

CUPE Ontario represents 125,000 of the pension’s 289,000 active members. Two CUPE researchers authored the report, which was reviewed by PBI Actuarial Consultants of Vancouver. “Overall, we believe the analysis is sufficient to conclude that OMERS investment performance in 2020 and longer term is significantly lower than other comparable plans,” wrote Bradley Hough of PBI.

In 2020, OMERS’s real estate investments posted an 11.4-per-cent loss, while the value of its private equity portfolio declined by 8.4 per cent. Its performance also suffered from being heavily invested in dividend-paying oil and gas and financial-services stocks and underweight in technology companies. The fund’s benchmark was a gain of 6.9 per cent, so it underperformed by 9.6 percentage points, the biggest margin of the past decade, according to CUPE.

Alright, let me begin by stating I hope everyone in Canada had a superb long weekend.

I was bombarded with emails last week bringing this CUPE Ontario issue to my attention but had to cover other material and wanted to take my time to cover this properly.

Let me just state that I personally find it very sad and disturbing when I see public-sector union representatives publicly go after the very pension that feeds them and their members.

Going after your pension in such a public manner is not only damaging the brand of your pension, it's also demoralizing for the people working hard at these pensions to make sure they remain fully solvent over the long run.

Moreover, as you will read below, Fred Hahn has a personal agenda going after OMERS, he has no clue of what he's talking about and quite frankly, I am not impressed with PBI Actuarial who should know better than comparing returns of pensions with different asset mixes and liabilities. They are comparing apples to oranges and missing a lot of important points.

First, CUPE Ontario put out a press release stating “Not just ‘one tough year’”:

The long-term underperformance of the Ontario Municipal Employees Retirement System (OMERS) pension plan urgently requires a full and independent review, says CUPE Ontario in a report released today.

“Investment returns are a critical part of funding the pensions of front-line workers. Unlike the comparable eight large defined benefit pension plans and funds in Canada, OMERS has fallen short on that front,” said Fred Hahn, President of CUPE Ontario. “Not only were their 2020 returns shockingly below that of comparable pension plans, but we have seen, over time, OMERS regularly falling short of even their own, internal benchmarks. This is at least a decade-long problem. We need to find out why OMERS continues to post such poor investment returns. As the largest representative of workers in this plan, we want to ensure hard-working members’ pensions are protected and that they aren’t asked to pay for OMERS’ mistakes.”

The report, titled Not Just One “Tough Year”: The Need for a Review of OMERS Investment Performance, examines how OMERS investments have performed compared to other large pension plans and funds. It also reveals how OMERS has underperformed compared to its own internal benchmarks.

OMERS’ claim that its 2020 return of -2.7%, or a loss of $3-billion, was due to the economic impacts of COVID-19 is unsupported in comparison to other major plans who were investing in the same economic climate and had healthy returns regardless. As well, though OMERS has publicly claimed its 2020 results were an anomaly and in no way indicative of its strength as a long-term investor, the report’s comparison of OMERS’ 10-year returns with those of eight comparable plans, in periods both before and including 2020, shows those claims are simply not accurate.

As the report details, over that much longer period of time, OMERS’ investment results still find it at the bottom of the pack for major Canadian pension plans and funds. Additionally, OMERS’ results have fallen short of its own internal benchmarks, and, unlike other major pension plans and funds, OMERS no longer reports this critical information in their annual reporting, making it difficult for plan members and their union representatives to hold their investment managers accountable.

“This blatant issue of lack of transparency, which does not exist in other pension plans, makes it very difficult for sponsors like CUPE Ontario to understand why OMERS continues to underperform,” said Hahn. “We urgently need an independent and fully transparent review conducted by those of us, like CUPE Ontario and other sponsors from both sides of the table, who are the representatives of these hard-working plan members and employers. And we need OMERS to agree to fully co-operate in that independent and fully transparent review.”

Of OMERS’ 289,000 active members, CUPE Ontario is the largest sponsor, representing 125,000 plan members.

“Retirement income security is critical for all workers, and we know that is best accomplished through defined benefit plans like OMERS,” said Hahn. “Many of our members in OMERS are some of the lowest-waged workers in the plan and they have continued working for municipalities, school boards, and child welfare agencies in no small part because they can access a defined benefit pension.”

“Our concern does not lie with the defined benefit model but with the long-term investment return record at OMERS, which falls well short of what it could be and what is being achieved by other large plans and funds. As the largest plan sponsor, we appoint representatives to both OMERS Boards, but restrictive confidentiality rules prevent these representatives from keeping us – and therefore our members – fully-informed about issues at OMERS, including these problematic investment returns. The first thing you need to do to solve a problem is to admit there is one and as this report details, OMERS’ investment issues are not new. It is well past time for plan sponsors to work together to fix OMERS.”

Take the time to download and read the CUPE Ontario report here. 

To a layperson, this report is black and white, it clearly shows OMERS long-term performance (cherry-picking the data for maximum effect) has been lower than its peers and even lower than its benchmark portfolio.

But to an expert reading this report, it's so misguided, so biased, so warped, so grossly misleading that it took me minutes to read it and conclude this is a CUPE Ontario sanctioned "hit piece" which ignores important points and distorts facts in the most prejudicial way.

The first thing I can tell you is that the only measure of success for a pension plan -- whether it's OMERS, OTPP, OPTrust, HOOPP or CAAT pension plan - is it's funded status.

Hugh O'Reilly, the former chief executive officer of OPSEU Pension Trust (OPTrust) and Jim Keohane, the former CEO of Healthcare of Ontario Pension Plan (HOOPP) wrote a wonderful comment about this five years ago which you can read here.

Please note this part:

Positive investment returns are generally a good indication of success, but not always. There are scenarios in which investment returns have been positive and the funded ratio has declined, and conversely times when investment returns are negative yet the funded ratio improved.

Our own industry has been as guilty as anyone else in trumpeting annual returns. In a world in which so many people are in a pension rat race to accumulate the biggest pot of money before they retire, it feels normal to celebrate when we've been able to make our assets perform faster, higher and stronger. However, if we are honest with ourselves, it's not the business we're in. Does this mean that returns don't matter? Not at all. What it does mean is that as pension plans, our investment approach must be inextricably linked to the goal of keeping the plan fully funded.

Growing and maintaining our funding surplus over time to ensure we can deliver pension benefits to our members leads to very different decision-making, particularly when it comes to risk management, and the nature and mix of assets that we hold in the investment portfolio.

For members, the true value of a defined-benefit (DB) pension plan is certainty at a stage of life when there is little runway to accumulate more. Beyond the dollars that will one day be paid, we give members the confidence that they can count on their pension to be there when they retire and that their contributions will remain as stable as possible during their working years.

When creating certainty is the true goal, taking undue risk with members' futures for the sake of a few hundred extra basis points in a given year makes no sense at all. That is why both of our organizations have adopted an approach that puts funding first, one in which we balance the need to generate returns with the need to effectively manage risk.

I'm happy to report that by this measure of success, all of Canada's large public pensions are doing very well as they are all fully funded.

Even after it experienced a 2.7% loss in 2020, OMERS is still 97% funded:

At year-end, our funded status, calculated on a smoothed basis, remains at 97%, which is unchanged from last year. On a fair value basis (i.e., without smoothing), our funded ratio was 93% down from 101% in 2019. This decrease is driven by our negative investment return in 2020, discussed in the following Investments section. 

We measured our funded status using a slightly lower real discount rate than last year, having decreased it by a further 5 bps to 3.85% (excluding inflation). Progressively lowering our discount rate in this manner is a key component of our strategy. Since 2015, we have reduced the real discount rate by 40 bps and we intend to keep lowering it, as a lower discount rate can help make the Plan more resilient to the funding risks we see on the horizon. We are doing this incrementally so that we balance our long-term financial health with benefit and contribution rate stability.

Pension Terminology

• The “funded ratio” is the ratio of net investment assets to long-term pension obligations. It is an indicator of the long-term financial health of the Plan. It can be calculated on a “smoothed” or “fair value” basis:
• • "Smoothed” evens out the variations in annual returns over a five-year period. In this way, contribution rates and benefits are set using a more stable, long-term view of investment performance.
  • “Fair value” uses year-end values of OMERS assets, without any adjustments. Because our investment returns vary each year, this calculation results in a funded ratio that will also vary year over year. In some years the variation will be significant.
• The “discount rate” is the interest rate used to estimate the dollar value of OMERS long-term pension obligations. It includes two components: a “real” rate before inflation and net of a margin for risk and an inflation estimate. Setting the discount rate is key to managing the Plan and addressing risk. Lowering it increases the dollar value of our pension obligations and therefore decreases our funded ratio but can help make the Plan more resilient against future adverse experience.

Provides the option for the SC Board, based on its annual assessment of the Plan’s health and viability, to reduce future inflation increases on benefits earned after December 31, 2022.

This change is effective January 1, 2023 and does not affect benefits earned before that date. This means that when you retire, the benefits earned on or before December 31, 2022 will be granted full indexation. Benefits earned on or after January 1, 2023 will be subject to Shared Risk Indexing, meaning that the level of indexation will depend on the SC Board’s annual assessment of the financial health of the Plan.

More information will be available closer to the implementation date.

Between you and me, it's about time that OMERS adopts shared risk indexing because it ensures inter-generational equity in risk sharing (as more members retire, they can afford to shoulder some of the risk of the plan), but there was pushback from, you guessed it, Fred Hahn, president of CUPE Ontario.

Again, none of this is mentioned in this report from CUPE Ontario, it only mentions funded status quickly without getting into details and primarily focuses on performance without regard to differences in liabilities and asset mixes of these pensions.

The report also cherry-picks data to make OMERS look bad relative to its peers:

Again, these comparisons are absurd for a lot of reasons but the most important one is you are not comparing apples to apples, each pension has different liabilities, different asset mixes and quite truthfully, as I states at the top, the only thing that ultimately counts is funded status.

For example, in terms of asset mix, OMERS has close half its assets in private markets, 28% divided equally in Real Estate and Private Equity and 20% in Infrastructure, and only 6% in Bonds:

By contrast, HOOPP has 50% of its assets in bonds, has successfully ridden bond yields down over the last 20 years but now that yields are at record lows, it's looking to beef up its infrastructure portfolio and other strategies in its new LDI 2.0 approach.

Basically, as HOOPP grows, it's looking to shift its asset mix so that it looks more like that of its larger Canadian peers including OMERS.

And just so we are clear, I remember Jim Keohane, HOOPP's former CEO, telling me "OMERS has great infrastructure assets" precisely because it was one of the first to diversify into this asset class "when valuations were more reasonable" (Jim's words).

What else? That RBC Pension Plan Universe which they included in this report is heavily skewed to global public equities which is why it delivered 9.2% annualized last year, but over the long run, it hasn't produced better risk-adjusted returns than the large Canadian pensions which have more invested in private markets and have the right approach too.

Another thing, when OMERS released its results in late February, Blake Hutcheson, OMERS President and CEO, was spot on to draw attention to the long run:

“We are a long-term investor that pays pensions over decades, and with a strong team and strategy in place, this single year will not define us,” said Blake Hutcheson, OMERS President and CEO.

“Over the ten-year period leading up to 2020, OMERS investment portfolio performed well by any measure, averaging an annual return of 8.2%, and in 2019 alone OMERS delivered 11.9%. We are active investors and asset managers with high-quality assets diversified globally and we believe in the strong investment future that our portfolio represents for over 500,000 members and our more than 1,000 employers in Ontario,” he added.

OMERS funded status on a smoothed basis remains at 97%, with a lower discount rate of 5.85%. “Over the past five years OMERS has lowered its discount rate by 40 basis points, to improve resilience to risks we see on the horizon,” said Jonathan Simmons, OMERS CFO.

We are making the appropriate changes to better position our platform for the future. Pension payments continue as usual and OMERS paid pension benefits of $5.1 billion in 2020 to more than 180,000 members.

“As announced early in January we are entering a new year with a refreshed senior team to shape our way forward,” said Mr. Hutcheson. “Collectively this new team brings deep experience from inside and outside of OMERS, multiple countries, perspectives and backgrounds, and it achieves much greater gender diversity. I would confidently put this new team up against any other to deliver on OMERS commitment to our members in the years ahead.”

“The fundamentals of our strategy remain sound. In any year, regardless of result, we would evolve our approach to adapt to current realities. Given the disruptions we experienced this year, we have made a number of important adjustments that lend additional strength to our approach,” said Mr. Hutcheson.

So, going into 2020, the 10-year annualized return was 8.2%, which was in line with its peers (never mind what they say in the report). Also worth noting, the 3 and 5-year annualized returns going into 2020 were just as solid (8.5%).

Then the pandemic hit, OMERS lost 2.7% and it impacted its short and long-term results:

 I note that OPTrust was not included in their report. It also fared well in 2020, delivering 8.9% last year, giving it a 10-year annualized return of 7.8% which is above that of OMERS's 6.7%.

Again, who cares? OMERS got hit in 2020 for reasons I discussed in detail on this blog here.

The CUPE report discusses "lack of transparency" but there was plenty of transparency about where things didn't go well last year:

Also, Blake Hutcheson was very transparent with me as to where OMERS got hit in Real Estate and Private Equity:

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%). 

It's important to note that most of Canada's large pensions lost money in Real Estate last year, including CPP Investments which just posted a 20% return (it lost 4% in Real Estate).

Why? In short, they got slammed in Retail and Offices but made money in logistics, healthcare, and multifamily properties. Also, those that were more exposed to Canadian properties got hit harder.

But pandemics don't occur every year, they occur once in a lifetime (hopefully) and we really need to put 2020 behind us once and for all.

As I stated when I covered OMERS 2020 results, there's no doubt in my mind that OMERS will bounce back this year, and that's what is going on.

Last week, I covered how AIMCo and OMERS sold ERM to KKR.  

The sale of ERM is OMERS Private Equity’s fourth realisation in Europe and its fifth successful exit globally in the past three years.

That tells me they are printing money this year in private markets, and even in public markets where the tech melt-up of last year has cooled significantly and value stocks are more in favor, things are reverting back to the mean. 

I suspect by this time next year, this chart will need to be updated:

Don't hold your breadth, however, I doubt Fred Hahn and CUPE Ontario will update their results if they look remotely favorable to OMERS.

Mr. Hahn obviously has an axe to grind, he's running to be re-elected and he found his whipping boy, the very pension that feeds him and his members.

But in publicly going after OMERS, he's only weakening the organization's brand and to be really honest, he's exposing how clueless he is about what really matters.

There's nothing nefarious going on at OMERS. Period. You don't need a third-party independent review, you need to trust the organization's independent governance and let OMERS senior managers execute on their long-term strategy.

Last year wasn't a disastrous year. Trust me, I've seen a few disastrous years covering pensions over a decade, this wasn't one of them.

It was a bad year, one OMERS has already put behind it.

I suggest Fred Hahn and other CUPE Ontario members do the same, focus on the long run, OMERS has great assets, assets other pensions can only dream of owning (like Bruce Power).

When I read the conclusion of the report, I was floored:

 

Serious concerns with OMERS investment performance? Really?  I have no concerns, none, zero, zilch!

My concerns are with power hungry union hacks who think they're pension experts even though they clearly don't have the fainstest of what they're talking about.

And I'll leave it at that before my Greek side comes out and I eat Fred Hahn for dinner (it's time for dinner and I get very irritable when I'm hungry).

Read the report they put together with a shaker of salt, it's grossly biased, grossly misleading and quite frankly, it misses the most critical point, namely, OMERS is fully funded and doing great.

More discouragingly, it's totally disrespectful to the hard-working men and women at OMERS and it's demoralizing reading these articles by reporters who also don't have a clue about pensions.

For example, David Milstead of the Globe and Mail wrote an article last week on how CPP Investments made 20% in fiscal 2021 but underperformed its benchmark.

Really buddy? Who cares if it underperformed its benchmark? They made 20% and the Fund's long-term return is way above the required minimum rate of return for the CPP to be solvent over the next 75 years set by the Chief Actuary of Canada. That's all Canadians care about.

It drives me nuts reading these articles, it's as if reporters are looking for anything negative because that's what sells newspapers.

Anyway, bottom line, forget Fred Hahn and CUPE Ontario's "hit piece" on OMERS. It has more holes in it than Swiss cheese and anyone in the pension industry with half a brain will ignore it.

Below, on April 6, OMERS hosted its 2021 Annual Meeting. Over 1,300 people registered for this virtual event to hear from the OMERS Executive Leadership Team on a variety of topics.

I actually couldn't embed it below because it's not on Vimeo or YouTube (it should be) but a full recording of the webcast is available here.

Take the time to watch this, especially listen to Blake Hutcheson's comments starting at the 45 minute mark. He explains a lot and is more than transparent!

Again, my only criticism is that OMERS doesn't have a dedicated YouTube channel to post these webcasts there so I can easily embed them here. Take the time to watch it here.

The private equity investment division for the Ontario Municipal Employees’ Retirement System (OMERS) has bought a 25% stake in International Schools Partnership (ISP), a UK-based global network of K-12 private schools, as part of the pension fund’s private market expansion in Europe. 

The acquisition from Swiss asset manager Partners Group will value the international school group at about $2.3 billion, OMERS Private Equity said Monday. Partners Group will still hold a majority stake in ISP. 

ISP was part of a buy-and-build strategy for Partners Group when it first founded the school network in 2013. The private markets asset manager said it planned to capitalize on consolidation opportunities in the K-12 school market. 

Now, the investors are planning to continue expanding ISP’s international network. Since 2014, under the leadership of its chief executive Steve Brown, ISP has added 50 schools across 15 countries. It’s the fifth largest school network for K-12 students overseas. 

For OMERS, ISP will be part of its expansion into private equity opportunities across Europe, according to OMERS Head of European Private Equity and Senior Managing Director Jonathan Mussellwhite. 

“Over the last 15 years, OMERS Private Equity has successfully executed on a strategy of partnering with top management teams at industry-leading companies to support accelerated growth,” Mussellwhite said in a statement. “ISP is a great fit for this strategy.” 

The capital raised from the acquisition will be used to continue expanding ISP, particularly into investments in learning and technology, as well as improvement into physical infrastructure of the schools, and further mergers and acquisitions. 

OMERS has $12.3 billion (C$14.8 billion) allocated to private equity, about 14% of the $87 billion (C$105 billion) in total assets OMERS had under management as of December.

Among the UK and Europe-based assets in the OMERS Private Equity portfolio are workforce firm Alexander Mann Solutions, sustainability consultancy firm ERM, and behavioral health care provider Lifeways.

OMERS put out a press release on this deal Monday:

OMERS Private Equity announced today that it has signed an agreement to acquire a 25% stake in International Schools Partnership (“ISP” or the “Company”) from Partners Group. OMERS Private Equity invests on behalf of OMERS, the defined benefit pension plan for municipal employees in the Province of Ontario, Canada. The transaction values ISP at an enterprise value of EUR 1.9 billion.

ISP is a leading group of 50 international schools currently spanning 15 countries and serving around 45,000 students globally through multiple curricular options. Its experienced and ambitious management team, led by Steve Brown, CEO, is committed to expanding ISP’s global network, after having added 50 schools between 2014 and 2020.

Jonathan Mussellwhite, Senior Managing Director and OMERS Head of European Private Equity, said:“Over the last 15 years, OMERS Private Equity has successfully executed on a strategy of partnering with top management teams at industry-leading companies. ISP is a great fit for this strategy, especially given the strength and experience of its leadership team. We are excited by the addition of ISP to our portfolio as we continue to look for opportunities to deploy capital across Europe and build our European Private Equity business.”

Steve Brown, CEO of ISP, said:“We have successfully grown ISP since inception in 2013 with the support of Partners Group. As we focus on extending ISP’s global network further, we are delighted to now have OMERS Private Equity invested alongside us. We look forward to working closely with OMERS experienced and active team. We welcome their long-term approach to value creation, and are confident that with OMERS, together with Partners Group, we will be able to continue delivering exceptional outcomes.”

James Frankish, Director, OMERS Private Equity, said:“Steve Brown and the ISP team, in conjunction with Partners Group, have built ISP into a global leader, and we are excited by the opportunities ahead as we partner to drive continued, accelerated growth.”

David Layton, Co-CEO, Partners Group, says:"ISP is a textbook example of entrepreneurial ownership and transformational investing in action. Having invested extensively in the education sector, we saw the potential to create a leading K-12 schools platform supported by growing global demand for high quality education. We had sufficient conviction to back a great management team and get to work to build a business from the ground up. Today, we are pleased to welcome OMERS as a shareholder to ISP, which is already one of the largest K-12 school groups globally and still has significant growth potential ahead of it."

Weil, Gotshal & Manges LLP acted as legal counsel for OMERS Private Equity. EY served as financial advisor for OMERS Private Equity. 

With all the hoopla around CUPE Ontario and OMERS's performance (more on that below), I wanted to take a step back today and discuss a great deal with Partners Group, buying a 25% stake in International Schools Partnership (ISP).

This is private equity at its best. ISP was part of a buy-and-build strategy for Partners Group when it first founded the school network in 2013. The private markets asset manager said it planned to capitalize on consolidation opportunities in the K-12 school market. 

Over the past eight years, ISP has become a leading group of 50 international schools currently spanning 15 countries and serving around 45,000 students globally through multiple curricular options. Its experienced and ambitious management team, led by Steve Brown, CEO, is committed to expanding ISP’s global network, after having added 50 schools between 2014 and 2020. 

OMERS Private Equity has a strategic partnership with Partners Group, a leading private equity firm, and approached it to buy a stake in ISP. 

If you look at the portfolio of companies in OMERS Private Equity, you'll quickly understand how this company fits in perfectly into their portfolio.

It's an investment in the fast-growing education sector where demand is strong and it complements their other portfolio companies. 

The transaction values ISM at $2.3 billion which means OMERS is investing a bit more than $500 million to acquire this stake. 

The capital raised from the acquisition will be used to continue expanding ISP, particularly into investments in learning and technology, as well as improvement into physical infrastructure of the schools, and further mergers and acquisitions. 

OMERS Private Equity will work alongside Partners Group which will still hold a majority stake in ISP to grow this business and scale it into more countries.

Education is a huge business worldwide and the rapid expansion of the sector has been driven by strong demand from families for high-quality, English-medium education – a demand that has in turn been driven by the rapid expansion of the middle class in many emerging markets and an increasingly globalized outlook for students and parents.

What I like about this sector is that it's fairly recession proof (just like student housing) and fits well in a pension portfolio looking for stable cash flows.

I've noticed OMERS Private Equity has been very busy lately, selling its stake in ERM to KKR and realizing on a few deals.

The group is headed by Michael Graham who is based in New York and they have a London office which is headed by Jonathan Mussellwhite. You can read about all their deals here.

Lastly, I did get some feedback on my last comment on OMERS and CUPE Ontario. 

The CUPE Ontario people came at me on Twitter but I stood my ground.

I think the most important points are being lost in all this:

• OMERS had a setback last year, it lost 2.7% as the lockdowns disproportionately impacted its private equity and real estate portfolio. It will bounce back this year, which is something I firmly believe.
• More importantly, it remains fully funded which is the only thing active and retired members really need to worry about.
• I don't like the way this CUPE Ontario report played out in the media and they should have taken it to the board since it is a jointly sponsored plan and held private discussions to voice their concerns. 
• Members have a right to raise issues in a responsible manner, not in a public manner stating misleading opinions to make it look like there is a systemic issue (there isn't).

Also, it's not my job to approach Fred Hahn to get his version of the story. I'm not a reporter, I call it like I see it and this looked awful to me from the moment I saw the articles. 

My email is public, anyone can reach me, I am biased toward OMERS in this case and openly so because I don't like the way this all played out publicly.

People who know me and my blog well know that I don't shy away from thorny issues and have no problem stating it like it is, even if it doesn't look good for the pensions I cover.

My blog is called "Pension Pulse" not "Pension Pandering" but I am an ardent defender of DB pensions and believe Canada has the best DB pensions in the world.

It pains me to see public sector unions go after them in public without fully understanding the issues at play. It's just plain wrong and stupid. 

Alright, let me wrap it up there.

Below, at the International Schools Partnership they want all their children and students to experience amazing learning. Watch some nice promotional clips. This is a great long-term investment for OMERS and its contributors and beneficiaries.

INA, CDPQ, APG, and ADIA recently signed a memorandum of understanding to establish Indonesia’s first infrastructure investment platform: 

Indonesia Investment Authority (INA), Caisse de dépôt et placement du Québec (CDPQ), APG Asset Management (APG), and a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA) today signed a Memorandum of Understanding (MOU) to establish Indonesia’s first infrastructure-focused investment platform and INA’s first investment vehicle since its establishment.

Through this MOU, INA plans to explore opportunities for joint investments in partnership with CDPQ, APG and ADIA in Indonesian toll-road assets. The Investment Platform would be the consortium members’ primary vehicle for toll road investments in Indonesia. Over the next six months, the consortium has agreed to evaluate a set of initial toll road investment opportunities that would form the operating base of the Investment Platform. Once established, the Investment Platform will continuously look for investment opportunities in the toll road sector to add to its portfolio over time. Subject to availability of commercial assets, the Investment Platform is envisioned to have an investment capacity of up to approximately IDR 54 trillion or USD 3.75 billion.

INA together with three globally reputable investment institutions – CDPQ, APG, and ADIA – intends on generating optimal returns to investors while bringing economic benefits to Indonesia through alternative way of financing with the aim to further improve the toll road ecosystem. This is in line with INA’s vision of bringing economic benefit and job creation to Indonesia.

INA has been entrusted with IDR 15 trillion (approximately USD 1 billion) to be followed by an additional injection of IDR 60 trillion (approximately USD 4 billions) in 2021. The creation of INA’s first Investment Platform has been made possible by the strong support from Government of Indonesia that paved the way for the creation and promotion of INA to leading global investors.

DR. Ridha D. M. Wirakusumah, Chief Executive Officer of INA, states: “We are truly delighted to be able to work with leading investors from around the world for our first ever Investment Platform. This demonstrates the confidence that global investors have in the Indonesian economic potentials even in this challenging economic environment. We believe this is a positive start for more collaborations between us and other investors in multiple sectors in Indonesia.”

“On behalf of INA, I would like to extend our most sincere gratitude to the consortium members – CDPQ, APG, and ADIA – who join hands with INA in our maiden investment platform, to the ministries for their strong support, and to the relevant State-Owned Enterprises for their cooperation”, DR. Wirakusumah added. 

Emmanuel Jaclot, Executive Vice-President and Head of Infrastructure at CDPQ, said:“For CDPQ, Indonesia stands out as an attractive place to invest in, especially in the infrastructure sector. This MOU is an opportunity to jointly build a portfolio of critical road assets in one of the fastest growing economies in the world, and would allow us to combine INA’s in-depth knowledge of the market and local networks with CDPQ, APG and ADIA’s international infrastructure expertise.”

Hans-Martin Aerts, Head of Infrastructure at APG Asset Management Asia, said:“We are pleased to partner with INA for its inaugural investment platform which will support further infrastructure investment in Indonesia. APG, as a long-term sustainable investor for its pension fund clients such as ABP, sees long-term collaborative relationships as the foundation of success in the execution of its investment strategy. We welcome the opportunity to work with CDPQ and ADIA on this initiative and to deliver substantial benefit to the investment platform through the application of best practices in operational performance and corporate governance.”

Khadem Alremeithi, Executive Director of the Real Estate & Infrastructure Department at ADIA, said:“Indonesia is an increasingly attractive market for international investors, with a growing, dynamic economy backed by positive demographic trends. Over a number of months, we have worked closely with the INA to develop a better understanding of each other’s objectives and we are pleased that those discussions have led to ADIA’s involvement in INA’s first investment platform alongside other reputed, long-term investors.”

About the Indonesia Investment Authority (INA)

Established in 2020 as part of the Omnibus Job Creation Law, the Indonesia Investment Authority (INA) aims to help attain Indonesia’s sustainable economic development and to build wealth for the country’s future generation. INA invests and collaborates with leading global and domestic investors on sectors that enhances Indonesia’s competitiveness and delivers optimal returns. For more information, please visit www.ina.go.id.

About CDPQ

At Caisse de dépôt et placement du Québec (CDPQ), we invest constructively to generate sustainable returns over the long term. As a global investment group managing funds for public retirement and insurance plans, we work alongside our partners to build enterprises that drive performance and progress. We are active in the major financial markets, private equity, infrastructure, real estate and private debt. As at December 31, 2020, CDPQ’s net assets total CAD 365.5 billion. For more information, visit cdpq.com, follow us on Twitter or consult our Facebook or LinkedIn pages.

About APG Asset Management (APG)

APG is the largest pension provider in the Netherlands; its approximately 3,000 employees provide executive consultancy, asset management, pension administration, pension communication and employer services. APG performs these services on behalf of (pension) funds and employers in the sectors of education, government, construction, cleaning and window cleaning, housing associations, energy and utility companies, sheltered employment organizations, and medical specialists. APG manages approximately €582 billion (April 2021) in pension assets for the pension funds in these sectors. APG works for approximately 22,000 employers, providing the pension for one in five families in the Netherlands (about 4.7 million participants). APG has offices in Heerlen, Amsterdam, Brussels, New York, Hong Kong, Shanghai and Beijing. For more information, please visit www.apg.nl/en.

About the Abu Dhabi Investment Authority (ADIA)

Since 1976, the Abu Dhabi Investment Authority (ADIA) has been prudently investing funds on behalf of the Government of Abu Dhabi, with a focus on long-term value creation. ADIA manages a global investment portfolio that is diversified across more than two-dozen asset classes and sub-categories, including quoted equities, fixed income, real estate, private equity, alternatives and infrastructure. For more information, please visit www.adia.ae.

“At the time, we were interested in telecommunications and — more specifically — telecommunication towers, as we were aiming to further diversify our portfolio,” said Eve Bernèche, Senior Director, Infrastructure at CDPQ. “We were looking for the right opportunity. When the chance to invest in Vertical Bridge arose, it was a rare opportunity to gain exposure to the largest private telecommunication tower operator in the United States, an exceptionally high-quality company that is well managed and respected in the market, particularly by US telecom giants such as AT&T, T Mobile, Verizon and Dish. We had also built a collaborative relationship with Digital Bridge (now Digital Colony), Vertical Bridge’s founding shareholder and felt confident we would be a good fit for the management team in place.”

Founded in 2014 and based in Boca Raton, Florida, Vertical Bridge is the largest private owner and manager of communication infrastructure in the United States, an industry dominated by three publicly listed giants. The company currently has more than 307,000 owned and master leased sites across all 50 US states, including wireless and broadcast towers, rooftops, land parcels, and billboards.

In 2020 alone, Vertical Bridge added over 1,000 towers to its portfolio of owned sites. 

Go back to read my recent comment on how American Tower Corporations (ATC) struck a deal with CDPQ for the sale of a 30% stake in their European business, ATC Europe. 

Kudos to Olivier Renault, Managing Director, Infrastructure, North America, and Eve Bernèche, Senior Director, Infrastructure at CDPQ, and their team for working hard to acquire these tower operators, well done!

A lot of you reading my comments are probably wondering what all the fuss is about investing in Indonesia's toll roads and American and European tower operators, so let me give it to you straight: "Bonds and stocks are ridiculously overvalued and large global investors like CDPQ are right to diversify their portfolio into high-quality infrastructure assets."

Why not put all their funds in meme stocks like GameStop or AMC Entertainment which soared this week? For the same reason you don't walk into a casino and bet your life savings at the roulette table.

There's a bit of communication problem at Canada's large pensions diversifying across public and private markets. I had a discussion about this with Mihail Garchev, the former Head of Total Fund Management at BCI, and we both agreed it's not the fault of the communications teams per se, it's that the narrative isn't being explained properly, leaving these pensions vulnerable to public criticism.  

I asked Mihail to put some of his thoughts on paper and if he does, I will gladly share them with you.

Below, the World Bank Indonesia Country Partnership Framework 2021-2025 aims to support Indonesia’s medium-term development goals and help the country build back better from the COVID-19 crisis. Over the next five years, the World Bank will continue addressing climate change, transition to cleaner energy, and help realize the potential of Indonesia's natural assets. 

I also embedded a clip of someone driving off exit 21 of the Jakarta Tangerang Toll Road (Karawaci 3 toll gate). Have no clue of what he's saying but it looks like a fun ride! :)

Shares of AMC Entertainment (AMC) hit record highs before paring gains on Friday, putting the movie theater chain on track for a 156% weekly gain.

AMC's shares were last up 16.4% at $30.87 after earlier hitting a high of $36.72,and on track for their biggest weekly gains since late January.

Shares in GameStop were down 2.4%on Friday. Shares of the videogame retailer, which has been at the heart of the so-called "stonks" retail trading mania this year, were still set for its best weekly gain since mid-March, up about 40% so far.

Retail traders' shift into so-called meme stocks - shares favored by the denizens of online communities - comes on the back of a selloff in Bitcoin and other cryptocurrencies whose prices have slumped in recent weeks.

AMC saw some $127 mln in inflows from retail investors on Thursday, according to Vanda Research. AMC rose 35.5% in that session adding more than $3.3 billion to its market value, according to data from Refinitiv.

Data shows the cinema operator AMC has been the most traded stock on brokerage Robinhood's popular trading app, as well as on that of UK-based Freetrade, where buy orders have outnumbered sell orders two-to-one.

Investors shorting meme stocks GameStop, AMC and private spaceship company Virgin Galactic (SPCE) are estimated to have lost $2.8 billion so far this week, data from financial analytics firm Ortex shows. They lost $1 billion on Thursday alone.

On trading-focused social media site Stocktwits (ST), message volume related to AMC spiked by nearly 40%, with more than 97% of messages reflecting positive sentiment towards the stock.

"AMC - why sell now when u can sell later for much more, ya (k)now?," user lilant135 wrote, while fellow retail trader BossNoHugo chimed in, "imagine selling because a stranger on ST told u to do so."

We are a little past midday Friday and it's been another crazy week with meme stock mania.

It seems like the Reddit/WallStreetBets YOLOers of the world are uniting once again to drive up the shares of hot meme stocks they track, with AMC Entertainment shares being at the top of their list.  

A 5-day chart of AMC Entertainment's shares  (AMC) shows how meme stock mania is alive and well, reaching a 52-week high of $36.72 earlier today before the big dump came:

Astonishingly, the media and even Zero Hedge still think it's retail investors driving this frenzy but they are marginal players in this very dangerous pump and dump game.

In fact, Vanguard and BlackRock together own 15% of AMC's shares as of the end of last quarter, which makes you wonder if they're behind the pump and dump or is it some sophisticated quant hedge funds which are ultimately the funds behind Reddit/WSB?

I don't know, all I know is I've easily counted over 100 pump and dump scenarios this year alone, and it's not just meme stocks (full list is available here). 

The level of insanity we are witnessing in markets these days reminds me of 1999-2000 except now it's targeted to a handful of meme stocks and other concept stocks and it comes and goes very quickly and unexpectedly in a rolling insanity pattern.

The Securities and Exchange Committee (SEC) is aware but they are sitting on their hands, petrified that increased regulatory scrutiny will deflate the meme bubble, hurt powerful hedge funds and hurt big Wall Street banks that rely on trading commissions with these hedge funds.

On top of meme stock folly, you also have to wonder, how many funds out there are leveraged like Archegos, engaging in very risky trades using total return swaps?

The SEC and other regulators (CFTC) should provide transparent data on all this but good luck finding it.

In the meantime, algos are having fun pumping and dumping stocks at will as unsuspecting retail investors try their hand in the Casino Royale. 

Of course, most people trying to play these meme stocks are getting their head handed to them, some are making a killing but the vast majority are completely and utterly clueless. 

What worries me is we are witnessing the final stages of a very sick market which is heavily reliant on the Fed, I call it the "convulsive state" where you get a series of pops and drops but the overall market goes nowhere and when the selling picks up, it will be ferocious.

The fact that AMC is the poster child this week for all this insanity is prophetic in the sense that I feel like we are watching a really bad movie, one we have seen plenty of times before,

All bubbles are different, this one is different because the Fed and other central banks and governments all over the world are backstopping it, but the end result will be the same.

Having said this, there's no doubt 2020 and 2021 will go down in history in the sense that there are so many bubbles all driven by an insane amount of liquidity.

Electric vehicle, fuel cell, solar, biotech, meme stocks, cryptocurrencies, housing, there are concurrent manias going on all at once.

People are treating risk as if it's a four-letter word, and the end result will be destructive.

Anyway, enjoy your Memorial Day weekend down south, stay safe everyone.

Below, CNBC's "Halftime Report" team discusses where they're expecting markets to head next.

Also, CNBC's Kate Rooney reports on how much money short sellers have lost on meme stocks Virgin Galactic, AMC and GameStop.

Lastly, Lacy Hunt talks about about disinflation, the velocity of money and what happens when the supply chain gets restored. If you want to restore some sanity to these insane markets, take the time to watch this clip, he explains where we are headed.

Nia Williams and Maiya Keidan of Reuters report:

Canada's biggest pension managers boosted their investments in the country's major oil sands companies in the first quarter of 2021, raising questions about the funds' recent commitments to greening their portfolios.

The cumulative investment by the country's top five pension funds into the U.S.-listed shares of Canada's top four oil sands producers jumped to $2.4 billion in the first quarter of 2021, up 147% from a year ago, a Reuters analysis of U.S. 13-F filings show. Much of that increase, which bucked a declining trend since 2018, came from rising prices of shares already owned, but the funds also purchased more shares.

The five funds, in order of size, are Canada Pension Plan Investment Board (CPPIB), Caisse de dépôt et placement du Québec (CDPQ), Ontario Teachers' Pension Plan (OTPP), British Columbia Investment Management Corp (BCI) and the Public Sector Pension Investment Board (PSP), which together manage more than C$1.4 trillion ($1.2 trillion) in assets.

Governments, companies and investors around the world have stepped up pledges to drastically reduce climate-warming greenhouse gas emissions. Some large pension managers, including the New York State Pension Fund and Norway's largest pension fund KLP, have exited oil sands companies. read more

Canadian pensions face pressure to balance a mandate to be environmentally responsible with their fiduciary duty to maximise returns. Canada's oil sands are a high-carbon industry, yet their rising shares prices are tempting for investors. read more

Some Canadian pension funds say they favour continuing to invest in fossil fuel producers to help those firms transition toward producing cleaner energy.

"We have a big problem with pension funds saying we believe in engagement, not divestment, but there's no sign of this engagement," said Adam Scott, director of pension activist group Shift. "The very act of owning them (oil sands companies) implies the funds do not support transition."

While first-quarter exposures to oil sands firms have risen, annual reports show three of the five pension funds decreased their overall energy exposure in 2020 from 2019. But the 13-F filings present a more up-to-date picture.

Compared with same period in 2018, the funds' investments in the four oil sands firms were down 0.9%.

While the Reuters analysis is restricted to four companies - Canadian Natural Resources Ltd (CNQ.TO), Suncor Energy (SU.TO), Cenovus Energy (CVE.TO) and Imperial Oil (IMO.TO) - it provides a glimpse into the funds' investments in northern Alberta's oil sands, the source of the highest emissions-per-barrel oil on the planet, according to a 2020 report from consultancy Rystad Energy.

CDPQ, OTPP and PSP decreased their cumulative exposure to energy to C$22.2 billion in 2020, from C$28.2 billion in 2019, according to annual reports.

But CPPIB, which manages C$497.2 billion in assets, saw exposure to fossil fuel producers rise 51.5% to C$17.6 billion at the end of March 2021, after falling for at least five years. The fund's investments in renewable energy producers rose 16% to C$7.7 billion over the last year by comparison.

CPPIB declined to comment on the 13-F holdings data.

BCI's annual reports do not break out energy investments as a percentage of overall holdings. Spokesman Ben O'Hara-Byrne said numerous factors affect changes in holdings, so percentages should not be used to derive assumptions about BCI's response to environmental, social and governance (ESG) "integration efforts."

A spokeswoman for PSP Investments said many of the investments were held in so-called "passive" portfolios containing a mix of assets based on a stock index designed to match overall market moves.

CDPQ did not comment specifically on its oil sands holdings, but a spokesman said fossil fuels represent a very small share of total assets owned by fund, which is targeting a carbon neutral portfolio by 2050.

OTPP has also committed to a net-zero portfolio by 2050 and will focus on climate-friendly investments that help shift away from fossil fuels, a spokesman said.

Randy Bauslaugh, co-Chair of McCarthy Tétrault's Pension Funds Group, on Wednesday said in a new paper that pensions have a legal responsibility to take into account the risks of climate change.

"Pension fund fiduciaries who fail to consider or manage climate-related financial risks and opportunities, may find themselves personally liable for economic, reputational or organizational loss resulting from that failure," he wrote.

The environmentalists are at it again, criticizing Canada's large pensions for investing in "high carbon companies."

Let me just begin by stating this is just more nonsense that grossly distorts reality and once again omits to clarify certain things.

First and foremost, the number one job of any pension is to make sure there are enough assets to pay liabilities down the road. 

This is their fiduciary duty, not solving the global climate crisis.

To do this, they need to be properly diversified across many sectors, including energy.

Interestingly, as at the end of last year, energy stocks only accounted for 2.3% of the S&P 500 while information technology stocks accounted for 28%. 

That's because tech stocks rallied like crazy last year and energy stocks were down 50% at the beginning of Q4 2020 before the big rally started there. 

This year, energy stocks are on fire leading the S&P 500 in terms of year-to-date gains:

The rally in energy stocks is due to a lot of factors:

• cyclical stocks are rallying as vaccinations allow the global economic recovery to take place
• the weakness in the US dollar helped boost commodity (oil) prices
• there has been a shift away from growth into value shares

Will this continue going in yearend? Nobody knows but the fact remains the rally in commodity and energy stocks was powerful and it allowed the S&P/TSX to make record gains:

To add insult to injury, let's say you divested out of energy stocks and invested in solar stocks at the end of last year, where would that leave you? Not in a good place:

Where am I going with this? While energy stocks don't enjoy the weights they used to (in both the Canadian and US stock market), missing an important rally in this sector can cost pensions a fortune.

In short, there's a cost to divesting out of oil & gas which is a cost Canada's large pensions aren't willing to take, and rightfully so.

By the way, there is a cost to divesting out of anything including tobacco but at least there, you can make the argument that engagement is truly futile because the end product is lethal. That's why even though I'm not a believer in divesting, I still applaud CDPQ, OTPP and others who signed the tobacco-free pledge as I can't stand cigarettes and unlike energy companies which offer us energy, tobacco companies offer us nothing but misery and increased healthcare costs.

All this to say, I don't lump Big Tobacco and Big Oil together, I see why engagement with the latter is actually necessary and fruitful.

If you don't believe me, just read the findings from the PRI which show that engagement is taking place, it's ongoing and it can lead to better outcomes.

People need to take a step back and stop demonizing Canada's oil & gas corporations.

Regular readers of my blog know my cynical views on climate change, we're screwed because there are way too many people on this planet and that's the number one cause of climate change, not oil & gas companies:

Want to fight climate change? Have fewer children | Carbon footprints | The Guardian https://t.co/MpW1xNjPEz

— Leo Kolivakis (@PensionPulse) May 31, 2021

So, let's please stop listening to environmentalists criticizing Canada's large pensions for not doing enough to fight climate change.

They all are doing plenty, have active targets on reducing their carbon footprint significantly over the next decade(s). 

Do they still invest in traditional energy? You bet but it's a small part of their portfolio and they should be investing in this sector, it makes logical sense and reduces the costs of their pension plan.

What about Norway and Saudi Arabia's sovereign wealth funds that got out of Suncor? What about them? Who cares? Suncor shares have rallied this year along with other energy stocks:

Stop watching what others do, trust Canada's top pensions, they're paid to take risks where it's warranted, including investing in energy stocks when the value is right.

Lastly, what about litigation risk?:

Randy Bauslaugh, co-Chair of McCarthy Tétrault's Pension Funds Group, on Wednesday said in a new paper that pensions have a legal responsibility to take into account the risks of climate change.

"Pension fund fiduciaries who fail to consider or manage climate-related financial risks and opportunities, may find themselves personally liable for economic, reputational or organizational loss resulting from that failure," he wrote.

Fair enough, but there's also litigation risk from failing to meet your fiduciary duty and not investing in the best interests of your contributors and beneficiaries.

And as I stated, all of Canada's large pensions take responsible investing very seriously and actively embed it in their investment strategy (some more than others).

So let's all take this nonsense that "Canada's biggest pension managers boosted their investments in the country's major oil sands companies in the first quarter of 2021, raising questions about the funds' recent commitments to greening their portfolios" with a shaker of salt.

If you ask me, they're bending over backwards to accommodate all these environmentalists taking over our politics, and that makes me very nervous. 

Enough is enough already, I'm all for ESG investing but not for reckless divesting which makes a subset of the population feel better but jeopardizes the solvency of pensions.

Below, watch a heated exchange between Conservative MP Pierre Poilievre and former Bank of England (and Canada) Governor Mark Carney. 

Poilievre goes after Carney for opposing pipelines in Canada while the firm he works at (Brookfield Asset Management) invests in them elsewhere.

Now, Carney is the Head of ESG and Impact Fund Investing at Brookfield, he's been a vocal critic of Canada's energy sector and a supporter of the Liberal party and its policies. 

If you ask me, he needs to be very careful or else he will suffer the same fate as Michael Ignatieff and become yet another intellectual liberal elite that nobody pays attention to.

All I can tell you is that I'm glad Canada's largest pensions invest in oil sands and pipelines and aren't taking their cues from Carney or anyone in Ottawa.

Oxford Properties Group has made its first life sciences acquisition in the United Kingdom as part of its plan to build a multi-billion-dollar portfolio in the sector.

The Toronto-based global investor, asset manager and developer paid $77.2 million Cdn to buy 310 Cambridge Science Park, in the city of Cambridge, from the Local Authorities’ Property Fund. The off-market transaction means Oxford has deployed in excess of $1.7 billion in capital into the life sciences sector so far in 2021, with its previous acquisitions in the U.S. and Canada.

“Since our first life sciences investment in 2017 this sector has been one of Oxford’s key global conviction calls,” said Jo McNamara, Oxford’s executive vice-president, Europe and Asia-Pacific, in the announcement Friday morning.

“The sector is supported by several structural tailwinds including demographic changes and the convergence of science and technology. Advances in data analytics and AI are accelerating life-changing innovations across biotech, pharmaceuticals, nutrition and medical devices.

“As a result, both private and governmental funding for promising products and companies has markedly increased in recent years.

“As this capital is deployed, occupier requirements increase, leading to the availability of little to no space in key global hubs such as the Cambridge Science Park or Kendall Square in Boston, which provide tenants with highly desirable networking and talent pooling ecosystems.”

About 310 Cambridge Science Park

The Cambridge building includes approximately 59,000 square feet of laboratory and office space, with around half fitted out as high specification wet labs. It is currently leased to Astra Zeneca until November 2023, when that firm will relocate to a new headquarters.

Founded in 1970, the Cambridge Science Park is a 152-acre campus at the northern edge of Cambridge with approximately 1.9 million square feet of office, lab and R&D space. It contains 130 occupiers spanning life sciences, pharmaceuticals, technology and engineering.

The complex is currently 100 per cent leased. It benefits from strong road connections provided by the A14 and public transport including the guided busway, a light transport system that connects the campus with the city centre, Cambridge North train station and surrounding villages.

“Cambridge Science Park is the most established life sciences campus in the U.K. and is the perfect location for Oxford to expand its platform into Europe,” said Abby Shapiro, senior vice-president, head of office, retail and life sciences at Oxford, in the release.

“The Cambridge market demonstrates strong demand fundamentals yet suffers from a lack of good quality supply. Unit 310 is of an incredibly high quality and provides a near-term opportunity to crystallize reversionary income on high-standard lab specifications and bring rents up to market levels.

“This ability to tap into the significant demand for laboratory space in the area will enable us to create extra value.”

Oxford accelerates life sciences investments

The transaction comes as Oxford accelerates its life sciences expansion strategy. Oxford currently has a $1.4 billion life sciences portfolio in North America, representing over a million square feet of existing properties. It also has a development pipeline of over two million square feet.

Oxford intends to deploy approximately $2.1 billion in European life sciences over the next five years, as part of its goal to build a $14- to $20-billion global life sciences business.

“Oxford’s initial European focus will be on the U.K., where we are actively seeking opportunities in the ‘Golden Triangle’ and the Greater London area,” Shapiro explained in the release.

“The momentum driving the life sciences sector in the U.K. is supported by the research and start-ups emanating from some of the world’s most prestigious medical universities, the focused funding of the U.K. government and increased levels of venture capital activity.

“Given the relative low levels of existing supply, Oxford will look to utilize our world-class development expertise to help provide the critically needed lab infrastructure required to allow innovative biotech firms to deliver the life-saving therapeutics of tomorrow.”

Other recent Oxford life sciences deals include last month’s acquisition of Foundry31 in the San Francisco Bay Area and the acquisition of Boren Lofts in Seattle.

“As we have grown our platform in North America over the past few years, we have seen the sector evolve and mature and we are now beginning to see the same pattern emerging in Europe,” McNamara said in the announcement.

“We intend to use the learnings and expertise we have built up in the U.S. to fulfil our ambition to replicate that success in Europe.”

Oxford Properties put out a press release on this deal:

Oxford Properties Group (“Oxford”), a leading global real estate investor, asset manager and business builder, has extended its global life sciences platform with the acquisition of 310 Cambridge Science Park, United Kingdom, its first investment in the sector in Europe. Since its first investment in the sector in 2017, building a substantial and dedicated life sciences business has been one of Oxford’s highest conviction investment strategies. This £45 million off-market transaction from the Local Authorities’ Property Fund represents the seventh life sciences asset Oxford has acquired since the start of 2021 that, when accounting for new development opportunities at these properties, accounts for over US$1.3 billion in deployed capital.

The transaction comes as part of an acceleration of Oxford’s established life sciences strategy. Oxford currently has a US$1.1 billion (£0.8 billion) life sciences portfolio in North America, representing over 1 million sq. ft. of high-quality, existing properties, in addition to a development pipeline in excess of 2 million sq. ft. Oxford intends to deploy approximately £1.2 billion in European life sciences over the next five years, as part of its goal to build an US$10-15 billion (£7-11 billion) global life sciences business over time. Oxford’s initial European focus will be on opportunities within the UK, with eventual expansion into other core territories across Europe.

In line with its broader investment strategy, Oxford can access life sciences focused real estate through multiple entry points including direct property acquisitions and developments, investments in platforms and via debt, having previously lent to private equity investors including mezzanine financing for the US$8 billion privatisation of a life sciences real estate firm.

310 Cambridge Science Park provides approximately 59,000 sq. ft. of fully fitted laboratory space and ancillary office accommodation, with around half fitted out as high specification wet labs. The asset is fully let to Astra Zeneca until November 2023, who are then relocating to a new headquarters.

Founded in 1970, Cambridge Science Park is a 152-acre campus located at the northern edge of the City of Cambridge and provides approximately 1.9 million sq. ft. of office, lab and R&D space to 130 occupiers spanning life sciences, pharmaceuticals, technology and engineering. Demonstrating the attractiveness and strength of the demand for the campus, it is currently 100% let. The science park benefits from strong road connections provided by the A14 and public transport including the guided busway, a light transport system that connects the campus with the city centre, Cambridge North train station and surrounding villages.

Recent Oxford life sciences deals include last month’s US$173 million acquisition of Foundry31 in the San Francisco Bay Area and the US$119 million acquisition of Boren Lofts in Seattle.

Jo McNamara, Executive Vice President, Europe and Asia-Pacific at Oxford Properties, commented: “Since our first life sciences investment in 2017 this sector has been one of Oxford’s key global conviction calls. The sector is supported by several structural tailwinds including demographic changes and the convergence of science and technology. Advances in data analytics and AI are accelerating life-changing innovations across biotech, pharmaceuticals, nutrition and medical devices. As a result, both private and governmental funding for promising products and companies has markedly increased in recent years. As this capital is deployed, occupier requirements increase, leading to the availability of little to no space in key global hubs such as the Cambridge Science Park or Kendall Square in Boston, which provide tenants with highly desirable networking and talent pooling ecosystems.”

“As we have grown our platform in North America over the past few years, we have seen the sector evolve and mature and we are now beginning to see the same pattern emerging in Europe. We intend to use the learnings and expertise we have built up in the US to fulfil our ambition to replicate that success in Europe.”

Abby Shapiro, Senior Vice President, Head of Office, Retail & Life Sciences at Oxford Properties, added,“Cambridge Science Park is the most established life sciences campus in the UK and is the perfect location for Oxford to expand its platform into Europe. The Cambridge market demonstrates strong demand fundamentals yet suffers from a lack of good quality supply. Unit 310 is of an incredibly high quality and provides a near-term opportunity to crystalise reversionary income on high-standard lab specifications and bring rents up to market levels. This ability to tap into the significant demand for laboratory space in the area will enable us to create extra value.”

“Oxford’s initial European focus will be on the UK, where we are actively seeking opportunities in the ‘Golden Triangle’ and the Greater London area. The momentum driving the life sciences sector in the UK is supported by the research and start-ups emanating from some of the world’s most prestigious medical universities, the focused funding of the UK government and increased levels of venture capital activity. Given the relative low levels of existing supply, Oxford will look to utilise our world-class development expertise to help provide the critically needed lab infrastructure required to allow innovative biotech firms to deliver the life-saving therapeutics of tomorrow.”

Oxford Properties was advised by Creative Places and CCLA was advised by Cluttons.

Interestingly, Oxford Properties provides a case study on why it's focusing its attention on life sciences properties:

Growing a meaningfully sized life sciences business is one of Oxford’s top strategic priorities. Positive secular demographic and economic trends, coupled with the exciting convergence of technology and science, support our high conviction in this sector. Oxford believes we can add critically needed new real estate infrastructure that helps leading life sciences, pharmaceutical and biotech companies research, develop and ultimately manufacture the life-saving therapies of tomorrow.

Prior to launching our own end-to-end platform, we built experience deploying capital on significant life sciences real estate transactions, thereby gaining great visibility to existing portfolios and a real understanding of sector financials. In early 2021, we purchased six life sciences assets, three in Boston and three on the West Coast, approximating 1 million square feet of both operational buildings and developable area. We plan to invest significant additional funds in these assets, creating new biotech space and enhancing existing facility experiences.

The speed and scale of these transactions demonstrate how we choose to do business, leveraging our global expertise and hard-earned reputation to secure sectoral experience and partnerships.

These transactions grow our presence in three key global life sciences markets and complement our existing portfolio of assets and significant development pipeline in the sector. Most importantly, they afford us a solid foundation to continue to grow from, as we seek to scale this part of our business in 2021 and beyond.

The details

We began the effort strategically, gaining a foundational understanding of the unique asset class over a multi-year period. We acquired an existing lab building in Boston, 645 Summer Street, through a local partnership. This gave us the opportunity to work hands-on in the design, leasing, and management of an innovation space, learning the unique skills required for supporting this nuanced asset class. In parallel, we have immersed ourselves in the requirements of ground-up development, positioning a well-located Boston site for research and development and lab uses.

Early in 2021, we leveraged our growing expertise to move into this innovative asset class at scale. Within the first quarter of the year, we acquired six distinct life sciences properties across core, value-add and development opportunities in the Greater San Francisco, Seattle and Boston areas. These properties gave us appreciable market share in three key global life sciences clusters while offering opportunity to do what we do best: provide value. We announced these portfolio updates in tandem with a commitment to invest additional funds into the projects, ultimately accounting for over $1B in deployed capital in the sector.

Our West Coast acquisitions demonstrate the strength of local partnerships in advancing Oxford’s work. We acquired the Public Market Emeryville in partnership with City Center Realty Partners, a San Francisco-based real estate developer and investor with great area market expertise. Located within the established life sciences cluster of Emeryville, just outside of San Francisco, the 148,000 square foot mixed-use project includes lab and office space in addition to food and retail. The site also includes land parcels that have the potential to be developed to add new purpose-built lab product – an important capability in a market that currently features almost zero availability for that space. Oxford and CCRP are excited to work together with the community on the potential for this campus, which will continue to be served by the very popular Public Market food hall. Oxford and CCRP will also partner on an expansion and conversion project at Foundry31, another mixed-use site in the Berkeley/Emeryville corridor of San Francisco’s East Bay. Presently leased to food technology companies, the 400,000 square foot existing building offers an additional 216,000 square feet on which the teams will collaborate to create new lab and life sciences offerings.

Our Boston life sciences portfolio is equally distinctive: it encompasses end-to-end innovation offerings, allowing us to serve organizations of all maturities across their evolving lifecycles. We are completing spec builds at the 150,000 square foot 645 Summer Street lab building which perfectly meet the needs of newer biotech customers such as Ikena and Monte Rosa. We manage 33 New York Avenue, a 114,000 square foot state-of-the-art biomanufacturing facility, which accommodates Replimune Group Inc and CRISPR Therapeutics in their sophisticated production efforts. And we’ve begun to explore value-add work at the 150,000 square foot research lab at 1 & 5 Mountain Road, presently leased in their entirety to a global healthcare leader, Sanofi.

The takeaway

The life sciences industry is propelling critical, life-saving work. Unique real estate infrastructure serving the full lifecycle of these customers is required to advance their efforts – and Oxford has the capabilities to provide as few others might. Our global platform and scale enable us to support this innovative group with the required flexibility, optionality, and nuanced expertise. Simply put, we can move in step with the pace of discoveries.

Our journey into this mission-driven asset class has just begun; we continue to explore other emerging North American markets and European opportunities as we work to realize our global strategy.

Clearly Oxford Properties has a sophisticated end-to-end life sciences platform which is growing fast, leveraging off their global expertise and reputation to secure sectoral experience and partnerships.

As Jo McNamara, Oxford’s executive vice-president, Europe and Asia-Pacific, explains:

"The sector is supported by several structural tailwinds including demographic changes and the convergence of science and technology. Advances in data analytics and AI are accelerating life-changing innovations across biotech, pharmaceuticals, nutrition and medical devices. As a result, both private and governmental funding for promising products and companies has markedly increased in recent years."

Advances in AI, computing power, data analytics are accelerating life-changing innovations across biotech, all we have to do is look at how fast pharmaceuticals responded to the global pandemic to come up with several therapeutic vaccines.

The pace of innovation is simply remarkable but in order to deliver these results, these companies need to be renting particular real estate with labs and tailored needs. 

There's also a reason why life-sciences properties are geographically clustered in cities like Boston, San Francisco, San Diego and London, you need to be around world-class universities which attract top students and scientists that then go on to work in the private sector. 

Founded in 1970, the Cambridge Science Park is a 152-acre campus at the northern edge of Cambridge with approximately 1.9 million square feet of office, lab and R&D space. It contains 130 occupiers spanning life sciences, pharmaceuticals, technology and engineering.

Not surprisingly, this science park is fully leased and that brings me to another point, real estate diversification across sectors and geographies is increasingly more important in a post-COVID world.

What else do I like about this deal? Like student housing, life sciences properties aren't cyclical, they are relatively recession proof offering stable income throughout all economic cycles. 

It doesn't mean there are no risks. I gather a strong venture capital cycle will increase demand for these properties whereas as VC bust can impact them in a negative way but overall, these properties offer stable cash flows and they are increasing in value as demand for them grows.

As Abby Shapiro, senior vice-president, head of office, retail and life sciences at Oxford, explains:

“The Cambridge market demonstrates strong demand fundamentals yet suffers from a lack of good quality supply. Unit 310 is of an incredibly high quality and provides a near-term opportunity to crystallize reversionary income on high-standard lab specifications and bring rents up to market levels. This ability to tap into the significant demand for laboratory space in the area will enable us to create extra value.”

Anyway, I did note Oxford intends to deploy approximately $2.1 billion in European life sciences over the next five years, as part of its goal to build a $14- to $20-billion global life sciences business, and the focus in Europe will be in the UK where they are actively seeking opportunities in the ‘Golden Triangle’ and the Greater London area.

Oxford Properties isn't the only real estate subsidiary focusing on life sciences but in my opinion, it has one of the more sophisticated platforms targeting this sector.

There are others, however. Back in March, I discussed how Ivanhoé Cambridge, CDPQ's large real estate subsidiary, teamed up with Lendlease to build a world-class life science project in Boston Landing.

And other large Canadian pensions are investing in this sector too, although it's not as targeted or concentrated in life sciences per se (see PSP's deal with Aviva to invest up to £250 million in commercial property in Cambridge, UK).

Still, this is a great sector with strong structural tailwinds and I see it becoming an increasingly important part of many institutional real estate portfolios diversifying into all sorts of sectors post-pandemic, not just logistics and multifamily. 

Below, watch a cool promotional video on the Cambridge Science Park, a great asset which OMERS now owns through its real estate subsidiary.

Update: BISNOW reports the need for speed is driving life sciences lab conversion boo:

Life sciences investment jumped 36% nationally in 2020, hitting a record $29.9B despite the pandemic. “Life science space demand is significantly outpacing supply, and conversion projects offer a solution for tenants whose timeline is more immediate.” Tycho Suter, VP of Investments here at Oxford

A subscription is required to read the full article here.

Sarah Min of Chief Investment Officer reports CPPIB and Phoenix Mills will develop a retail center in India:

The Canada Pension Plan Investment Board (CPPIB) is developing a shopping center in the affluent Alipore, Kolkata, neighborhood in India, as part of a new joint venture with mall operator Phoenix Mills. 

India is an important destination for CPPIB, the pension fund said last week. The joint venture will fund the mall with about $77 million (C$93 million), which will be invested in tranches into Mindstone Mall Developers Private. 

After construction is completed in the latter part of 2024, CPPIB will take a 49% equity stake in the retail center. The mall in Kolkata, a business hub with several large technology and banking firms, will be designed by international architects. 

“India is one of the most important markets for us in Asia Pacific and a critical part of our long-term strategy,” Hari Krishna, managing director of real estate in India at CPPIB, said in a statement. 

The pension fund has boots on the ground in the country. In 2015, the $411.7 billion (C$497.2 billion) allocator opens its sixth international office in Mumbai, attracted to the country’s demographics. CPPIB also has offices in Hong Kong, London, Luxembourg, New York, and São Paulo. 

India has a growing middle class. It also has among the world’s fastest-growing workforces, which is poised to be the largest internationally in a couple years. Financing for infrastructure, real estate, and public and private equities is set for more growth. 

It’s not the first time CPPIB has partnered up with Phoenix Mills. Multiple ventures with the mall operator over the past several years are now amounting to more than $360 million (INR 26.2 billion). 

In 2017, the two formed a joint venture to develop mixed-use retail developments across India, investing $110 million into Island Star Mall Developers Private Limited (ISMDPL) for the purpose. 

The two parties are extending their commitments to that venture. Among the assets they own are the Phoenix Marketcity in Whitefield, Bangalore. Through ISMDPL, the two are also developing three retail-led, mixed-use developments at Wakad Pune, a suburb in central India; Hebbal Bangalore in the southern part of the country; and Indore in west central India.

CPP Investments put out a press release on this joint venture:

The Phoenix Mills Limited (PML) and Canada Pension Plan Investment Board (CPP Investments) today announced the execution of definitive documents for a new joint venture to develop a regional retail centre in Alipore, Kolkata.

CPP Investments will commit to investing approximately INR 5.6 billion (C$93 million ) in Mindstone Mall Developers Private Ltd. (Mindstone) in tranches, for an ultimate equity stake of 49%. With the funds invested by CPP Investments and PML, Mindstone will develop a retail centre with a potential leasable area of approximately 1 million sq. ft. The target completion date is for the second half of 2024.

Commenting on the Mindstone deal, Mr. Atul Ruia, Chairman at The Phoenix Mills Limited, said:

“We are pleased to grow our strategic relationship with CPP Investments to establish our footprint in Eastern India. This investment bears testament to the attractive long-term prospects of our robust business model of creating destination consumption hubs in key cities of India. With this asset, we are well on track to more than double our operational retail portfolio by 2024. We remain focused on expanding our portfolio by investing in attractive markets and ensuring timely execution of the projects.”

Commenting on the development, Mr. Shishir Shrivastava, Managing Director at The Phoenix Mills Limited, said:

“Alipore, Kolkata is a premium neighbourhood and the site is strategically located, surrounded by a dense catchment of residential and office space. We believe that the site’s proximity to established and developing micro-markets, through extensive and well-developed civic infrastructure, provides us with ample opportunity to cater to the region’s significant untapped consumption potential. We see this will be a mall for the city of Kolkata and a dominant consumption hub for the state of West Bengal. Our mall will be designed by international architects with large and modern open public spaces that will be integral to the customer experience in Kolkata’s largest retail centre. We intend to host the best of domestic and international brands, representing all categories of consumer wallet spend.”

Hari Krishna, Managing Director, Real Estate – India, CPP Investments, said:

“We are pleased to further expand our relationship with The Phoenix Mills, a pioneer in India’s retail property sector, to develop and own a premium retail centre in an underserved market. With this investment, CPP Investments’ equity commitment to multiple ventures with The Phoenix Mills amounts to over INR 26.2 billion. India is one of the most important markets for us in Asia Pacific and a critical part of our long-term strategy. Working alongside reputed development partners such as The Phoenix Mills allows us to expand our portfolio and enhances our ability to deliver solid long-term risk adjusted returns to CPP contributors and beneficiaries.”

Kolkata is a prominent business hub in Eastern India owing to its strategic location and excellent connectivity. It is home to several large manufacturing and information technology companies along with a well-developed banking sector. The city has witnessed a rapid expansion of residential and commercial development in the last decade. Alipore is an established location with various luxurious high-end residential projects and superior infrastructure.

PML and CPP Investments are also extending their commitments to their current joint venture, Island Star Mall Developers Private Limited (ISMDPL). Both parties have agreed to invest collectively up to INR 8 billion (C$133 million) into ISMDPL in tranches as required, in the ratio of their respective shareholdings. The joint venture was formed in 2017 to develop, own and operate retail-led, mixed-use developments across India. Phoenix Marketcity in Whitefield Bangalore served as the seed asset for the alliance. In addition to owning and operating Phoenix Marketcity, ISMDPL owns – and is currently developing – three retail-led, mixed-use developments at Wakad Pune, Hebbal Bangalore and Indore.

About CPP Investments

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 March 31, 2021, the Fund totalled C$497.2 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedIn, Facebook or Twitter.

About The Phoenix Mills Limited (PML) 

PML (BSE: 503100 | NSE: PHOENIXLTD) is a leading retail mall developer and operator in India and is the pioneer of retail-led, mixed-use developments in India with completed development of over 17.5 million square feet spread across retail, hospitality, commercial, and residential asset classes. The company has an operational retail portfolio of approximately 7.0 million square feet of retail space spread across 9 operational malls in 6 gateway cities of India. The company is further developing 5 malls with over 6.0 million square feet of retail space in 5 gateway cities of India. Besides retail, the company has an operating commercial office portfolio with gross leasable area of 1.5 million square feet and plans to add approximately 5.0 million sq. feet of commercial office across existing retail properties going forward. For more information, please visit www.thephoenixmills.com or follow us on LinkedIn.

Alright, it might seem odd to many of you reading this that CPP Investments is developing a retail mall in India which just suffered a catastrophic outbreak of COVID-19. 

Things are improving on that front. On Monday, Delhi recorded 648 fresh Covid cases, the lowest since March 18, and 86 new deaths. According to a health bulletin, the positivity rate in the national capital also fell below 1%.

Also, India's Serum Institute will increase production of the AstraZeneca-Oxford COVID-19 vaccine by nearly 40 per cent in June, officials said on Monday, in a step toward alleviating a shortage that has worsened the country's battle with the illness.

The increase in vaccine production can't come soon enough. Only about three per cent of India's population is fully vaccinated and about 12 per cent have got the first shot and are waiting for the second. State governments, including in the capital Delhi, have reported an acute shortage of vaccines and some are inoculating only the elderly and front-line workers. 

In a country like India, there are enormous challenges to preventing the spread of coronavirus.

But life is going on and institutional investors like CPP Investments are investing for the long run in India, playing important secular tailwinds.

The world's second most-populous nation is growing fast and so is its middle and upper class.

These are consumers which are looking to spend their gains on cars, clothes, furniture, and services.

When you take the long view, it makes sense to invest in India's malls because there is a growing population, people there are relatively young, they will be shopping online but most of them will be going to the mall to shop directly.

Teaming up with a great local partner like The Phoenix Mills Limited (PML) which CPP Investments is already working with to develop, own and operate retail-led, mixed-use developments across India, pretty much ensures the success of this deal.

The Phoenix Mills is India's largest retail led mixed-use developer:

• The Phoenix Mills Ltd has carved a niche for itself in the Indian real estate sector, be it mega retail malls, entertainment complexes, commercial spaces or hospitality units.

• It's operations span across most aspects of real estate development; planning, execution, marketing, management, maintenance & sales.

• The group has real estate assets in Mumbai, Bengaluru, Chennai, Pune, Raipur, Agra, Indore, Lucknow, Bareilly & Ahmedabad.

You can read more about this company here.

Just to give you an idea about this company and its assets, last year in the middle of a pandemic, it launched a 1 million sqft mall in Lucknow, called Phoenix Palassio:

“Phoenix Palassio is the first mall to become operational of the five that we are developing as a part of our ongoing expansion of over 5 million sqft across Lucknow, Pune, Bengaluru, Indore, and Ahmedabad,” said The Phoenix Mills non-executive chairman Atul Ruia.“This expansion will see us double our mall portfolio by 2024.

The new mall opens as India is gradually emerging from its coronavirus lockdown, meaning many visitors to the property may be entering a mall for the first time in months. With the pandemic in mind, Palassio has launched with minimal contact services, social distancing markers, UV bag screening, sanitized shopping trolleys, multiple convenient hand sanitizer locations and contactless payment points throughout the stores and parking areas.

“We are confident that as the nation unlocks, rigorous compliance with government guidelines and global best practices in retail will set the tone for the sector’s revival,” said Ruia.

The mall opened fully leased, with well-known international and local brands taking space, including some who making their debut in Lucknow.

This mall sounds better than anything we have here in Canada or the US, and I'm basing this on images I've seen on the internet and stories like this (see clip below).

All this to say that CPP Investments has a great local partner in The Phoenix Mills, one which they will build on in years to come as India grows.

And Canadians can now say they are proud owners of malls and mix- use properties in India.  

Pretty cool, the world is a lot smaller than we think. 

Below, take a tour of the Phoenix Palassio, the biggest mall in Lucknow. 

Also, Phoenix Marketcity is the largest shopping mall in India, situated in Kurla, Mumbai. It was also developed by The Phoenix Mills.

Lastly, watch a clip on The City of Seven Wonders, Kolkata. The city is known for its prime business, commercial and financial hub of eastern India . Kolkata is Highly visited city & Tourist hotspot of India. 

I can't wait to see the new mall Pheonix Mills is building in Alipore, Kolkata, it will be beautiful and a great asset for CPP Investments and its beneficiaries.

• Ontario Municipal Employees’ Retirement System (Omers) was one of the first Canadian pension funds to calculate its investment portfolio’s carbon footprint.
• It was a labour-intensive process, partly because half the C$105bn pension fund is directly invested into real assets and emissions data is hard to source.
• Omers is committed to reducing carbon intensity within its portfolio by 20% by 2025, but chooses not to set longer-term goals, such as net zero by 2050.

Canada’s big public pension funds are widely viewed as global leaders in both direct and responsible investing. Ontario Municipal Employees’ Retirement System, which manages at least 90% of its C$105bn ($87bn) of assets in-house, is a member of this influential group and has underscored its sustainability credentials in various ways.

Most recently, Omers committed in its annual report in late February to reducing the carbon intensity of its portfolio by 20% by 2025, after completing its first ever total portfolio carbon footprinting exercise.

The methodology for the analysis was based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and includes scope 1 and 2 emissions. The former are direct GHG emissions and the latter indirect ones from the purchase of power, heat or steam.

The footprint – calculated for C$80bn of public and private assets as of 31 December 2019 – was 58 tonnes of carbon dioxide equivalent (tCO2e). And the weighted average carbon intensity was 199 tCO2e per million Canadian dollars in revenue.

The February announcement came soon after eight of Canada’s biggest pension plans called on companies and investors to provide consistent and complete ESG information to strengthen investment decision-making and better assess and manage their ESG risk exposures. Omers was a key driver of this initiative. Its chief executive Blake Hutcheson hosted the initial ‘virtual cocktail’ in April last year, says Michael Kelly, head of the fund’s sustainability committee.

Omers has also been ramping up its focus on the social aspects of ESG investing, Kelly told Capital Monitor during an in-depth interview last month.

But central to the discussion was the fund’s first ever exercise to measure its portfolio’s carbon footprint. 

Scope of coverage

“It was a six- to nine-month process, and it was pretty labour-intensive,” Kelly says, adding that it involved a team of around a dozen people internally. “But we will redo it every year and we think it’ll get easier.

“Many companies measure the carbon footprints of their own operations. But we own hundreds of companies in a portfolio. So we engaged external advisers to help us.”

The scope of coverage by asset class is as follows:

• Capital markets: public equities and private debt investments with a market value of greater than C$100,000 and all single name equity derivatives. Exclusions include government bonds, cash and short-term notes, FX and interest rate products as well as some externally managed funds with low visibility.
• Infrastructure: all private investments with a market value of greater than  C$100m.
• Private equity: all private investments with a market value of greater than C$100m.
• Real estate: all property assets across multiple asset types: office, retail, multi-residential, hotels and industrial, excluding non-strategic assets.

To help analyse the public market assets, such as listed stocks and bonds, Omers engaged Trucost, a carbon data and measurement provider. Where emissions data was not available, Trucost provided estimates based on its own calculations.

According to Omers’ website: “Trucost collects the disclosure of GHG emissions for a large universe of public companies globally. In the absence of disclosure, Trucost uses its proprietary Environmentally Extended Input-Output model, which combines industry-specific environmental impact data with quantitative macroeconomic data to estimate emissions.”

On the private market side, Omers had to source the data itself because it isn’t necessarily publicly available, Kelly says. That was a major task, because about half of the fund’s balance sheet sits in direct holdings of real assets, such as the UK’s Thames Water or the Port of Melbourne in Australia (see pie chart below).

“We have access to [such data] through our seats on company boards or otherwise through our ownership interest,” Kelly adds. Individuals covering different asset classes helped do deeper dives into Omers’ investment holdings. 

The fund also hired PwC to audit the findings in the period between when it set the carbon-reduction goal in December and announced it in March.

Another firm that closely contributed to the process is sustainability consultancy ERM. Omers and fellow Canadian fund Alberta Investment Management Corporation jointly hold a majority stake in the London-based firm, which they have now agreed to sell to private equity firm KKR.

“[The portfolio carbon footprint] will still be somewhat labour-intensive [to calculate in the future], but it’s important enough that we want to do it,” Kelly says. “It’s the only way that we can track how we’re doing against our goal on carbon reduction. We’ll see year-over-year if the progress is moving towards that and, if not, we’ll have to course-correct.” 

Shorter-term commitments preferred

When Omers decided internally on the carbon reduction target in December, Kelly says, only one major Canadian pension plan – CDPQ – had publicly set such a goal. Since then, two others – British Columbia Investment Management Corporation and Ontario Teachers’ Pension Plan– have done so.

However, Omers has not set a longer-term net-zero-emissions objective for its portfolio. It has preferred to make a more feasible, shorter-term commitment that is aligned with the Paris Climate Agreement, Kelly explains. This legally binding international treaty aims to limit global warming to well below 2 degrees Celsius and preferably to 1.5, compared to pre-industrial levels.

“Our thinking was that we wanted something that explicitly governs our behaviour today and for the next five years,” Kelly says. There has already been a slight drop in its overall energy-sector exposure, for instance (see table below). 

“[But] we’ll look at the longer-term commitments as well,” he adds. For instance, Omers could potentially use of tools such as carbon offsets to abate any remaining emissions in the portfolio.

Certainly, there are concerns that many organisations are announcing net-zero targets without really having an idea of how they are likely to achieve them. Indeed, the chairman and CEO of Brazilian cosmetics group Natura admitted as much about his company’s own targets, in a recent interview with Capital Monitor. 

Measuring impact

Of course, measuring the ultimate impact of sustainable investments is no easy task, as Kelly acknowledges.

“When you’re going into an investment, it’s hard to quantify some of these factors, because they don’t lend themselves to the kind of spreadsheet analysis you’d normally do around revenue growth and that sort of thing,” he says. “But for us as a pension plan, they are still financial metrics – just not as quantifiable as others.” Kelly did not provide any specific examples.

To some extent the true impact value of an investment will be priced in, he suggests.

For example, the value of renewable energy assets is rising because of supply and demand and as result of the transition to cleaner sources of power. “Assets that, let’s say, have better ESG metrics or ESG ‘hygiene’ are attracting more interest than assets that don’t,” Kelly says.

“The proof will be in the exit value of some of these assets, and the next institutional investor that’s buying them we know will be looking even harder at ESG factors than maybe they are today,” he adds. “The easiest way to assess this is in asset pricing.” 

Standardisation required

Of course, pricing sustainable assets appropriately will become a great deal easier when there are widely adopted standards of ESG disclosure and ratings. That is what drove the so-called ‘Maple eight’ Canadian pension fund CEOs to publicly set out their stance on this issue.

“We felt we needed better information on both climate and ESG factors generally,” Kelly says. Hence the call for more standardised disclosure and advocating for TCFD for climate reporting and for Sustainability Accounting Standards Board (SASB) for broader ESG issues, he adds. 

“There’s a lot happening in the space. The World Economic Forum has come out with standards, for example. And now the IFRS is developing the International Sustainability Standards Board, which I think will incorporate SASB and some of the other groups emerging.”

Kelly sees the IFRS as being an influential initiative and that is likely to make a major announcement at the UN Climate Change Conference in Glasgow in November.

Ultimately, companies need to be addressing climate risk more in their annual reports, he adds.

“The more standardised the disclosure process is, the easier it will be for smaller companies to understand what they’re being asked to do,” says Kelly. “Right now, maybe it’s overwhelming, because if you’re not in this space all the time you’re not sure which disclosure programme to follow.” 

Getting more social

While climate risk is a big focus of Omers’ investment strategy – partly because of its large exposure to the energy sector – the fund is taking note of the S in ESG too.

The social aspect of sustainable investing is increasingly coming to the fore, says Kelly. The Covid-19 pandemic has notably shone the spotlight on issues such as social inequality and community relations.

In 2018, Omers had defined what it means by E, S and G for its portfolio managers as they seek to integrate these factors into the portfolio, Kelly says. “I’m looking at our policy around the S part," he adds. "We think about things like labour practices, government and community relations, inclusion and diversity, health and safety.”

In fact, Omers is putting a greater focus on diversity and inclusion beyond its investment strategy too – in respect of its contracts with service providers. It wants to know that the people working on its accounts are representative of the communities they live in. Plus the law firms the fund uses give annual reporting on their inclusion and diversity issues, says Kelly.

Such action taken by respected and influential asset owners can only help drive improvements in sustainable investing best practice. 

This is an excellent interview with Michael Kelly, OMERS Chief Legal & Corporate Affairs Officer who also chairs the Sustainable Investing Committee, which oversees OMERS approach to matters such as environmental, social and governance (ESG) integration in its investing activities.

Michael has big responsibilities at OMERS but he also has a great team which includes Katharine Preston, Vice President, Sustainable Investing:

Katharine joined OMERS in 2019 as VP – Sustainable Investing. Her responsibilities include: helping OMERS evolve its sustainable investing practices; and liaising with OMERS investment, risk and communications teams on matters such as ESG integration, climate risk, and stakeholder communications and reporting.

Prior to joining OMERS, Katharine served as Director, Responsible Investing at OPTrust, an Ontario-based public sector pension plan. At OPTrust, Katharine was instrumental in defining a strategy for integrating ESG factors into investment practices and leading the development of a Climate Change Action Plan. Earlier in her career, she held positions with Innovest Strategic Value Advisors (now part of MSCI), and Stantec Inc.

Katharine holds a Bachelor of Engineering, Civil and Environmental Engineering from McGill University, and an MBA from the Schulich School of Business, York University. She also holds a Certificate in Fundamentals of Alternative Investments from the Chartered Alternative Investment Management Analyst Association (CAIA).

Recall, in April, I went over how OMERS is targeting a 20% carbon intensity reduction by 2025.

Blake Hutcheson, OMERS' President and CEO.shared this with me:

• Last year, OMERS undertook its first total portfolio carbon footprinting exercise based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). "We set out target reduction date at 2025 to make it tangible for all our employees."
  
• But even before they undertook their carbon footprinting exercise, OMERS was already spearheading change in its portfolio. Blake told me he spent 10 years as head of Oxford Properties and under his watch, they became a leader in sustainable investing. "We had a dedicated team that was set up 10 years ago focusing on sustainable investing and we quickly became leaders consistently ranking high on the Global Real Estate Sustainability Benchmark (GRESB) and 90% of our buildings have achieved an industry-leading green building certification for their region and asset class." (see Oxford's Sustainability Report here).
• Importantly, Blake added this: "It's a win, win, win. A win for our clients, a win for our investors and a win for our employees and it pays dividends over the long run."
• In Infrastructure, he mentioned Bruce Power which they own 50% of and it provides 35% of the energy to Ontario (clean energy). He also mentioned OMERS important investment in Leeward Renewable Energy (see my coverage here).
• I asked him about Private Equity where they have investments in 20 portfolio companies and he explained their sustainable investment policy applies to all their public and private investments. 
• He told me Michael Kelly who is OMERS Chief Legal & Corporate Affairs Officer also chairs the Sustainable Investing Committee which oversees OMERS approach to matters such as environmental, social and governance (ESG) integration in its investing activities. Katharine Preston who joined OMERS two years ago as Vice President, Sustainable Investing reports to Mr. Kelly. In her role, she assists OMERS with evolving its sustainable investing practices and liaises with OMERS investment, risk and communications teams on matters such as ESG integration, climate risk, and stakeholder communications and reporting (she's great, met her two years ago at a conference in Mont-Tremblant). 
• Blake also told me OMERS is part of the the Investor’s Leadership Network (ILN) which is taking the lead on sustainable investing. He spoke highly of Charles Emond, CDPQ's CEO who is the co-chair at the ILN CEO Council (along with Jean Raby) and said this is an important organization to bring about critical change to sustainable investing (see my recent conversation with Charles Emond  here).

I remember Blake spoke highly of Michael Kelly and told me we should arrange a chat one day. 

When I read the above interview with him, I get the clear sense they undertook a "labour-intensive" process to really measure their GHG emissions across public and private companies.

That's not easy, especially on the private side (48% of their total assets are private) where they had to source the data itself because it isn’t necessarily publicly available. 

They gained access to this data through their seats on company boards or through their ownership interest and also  hired PwC to audit the findings in the period between when it set the carbon-reduction goal in December and announced it in March. 

Moreover, ERM, the leading environmental and sustainability advisor globally which AIMCo and OMERS recently sold to KKR, contributed to the process.

As Michael Kelly notes:

“[The portfolio carbon footprint] will still be somewhat labor-intensive [to calculate in the future], but it’s important enough that we want to do it,” Kelly says. “It’s the only way that we can track how we’re doing against our goal on carbon reduction. We’ll see year-over-year if the progress is moving towards that and, if not, we’ll have to course-correct.”  

Importantly, this isn't a science, it's an evolving process and it's hard work, which is why I applaud OMERS for taking this deep dive in its portfolio to see where it can reduce its carbon footprint.

While the targets are short-term, Kelly also talked about long-term targets:

“Our thinking was that we wanted something that explicitly governs our behaviour today and for the next five years,” Kelly says. There has already been a slight drop in its overall energy-sector exposure, for instance.

“[But] we’ll look at the longer-term commitments as well,” he adds. For instance, Omers could potentially use of tools such as carbon offsets to abate any remaining emissions in the portfolio.  

While there was a slight drop in its overall energy exposure, I caution my readers, Canada's large pensions are not divesting from energy and actually boosted their stakes in the last quarter of 2020.

In my opinion, there's way too much focus on energy and the narrative of the debate is all wrong.

Energy companies are not only important contributors to Canada's prosperity, they are vital to the world's growth and I personally want to see a healthy allocation to this sector as long as it's warranted and the risk-adjusted returns are there. I prefer engaging with these companies than divesting from them.

What else? I like the fact that OMERS is committed to the social aspect of sustainable investing.

Today, I was reading something BCG put out on how private equity can catch up on diversity: 

Collectively, private-equity-owned firms make up a powerful economic force. In the US, they generate about 5% of GDP and in 2019 employed almost 9 million people. So in the push for business to increase diversity, equity, and inclusion (DEI), these firms could make a big difference. Yet PE-owned companies are behind their publicly traded counterparts in taking action. This needs to change.

PE-backed companies certainly have a significant opportunity to lead in diversity and inclusion. The nature of PE portfolio companies—their ownership structure, focus on near-term action, and smaller size, all of which allow them to be more nimble—could prove a big advantage in accelerating change.

In fact, when these firms do implement DEI programs, they have an even more positive impact on all employees than in publicly traded companies. For example, BCG analysis found that at PE-owned firms, about two times as many white men reported personal benefit from diversity initiatives than at publicly traded companies.

Given the diversity dividends—from increased resilience to enhanced innovation—as well as the risks of inaction, such as reputational damage and an inability to retain top talent, PE firms need to lead the way.

You can read the rest of the comment here. 

For me, any organization (public or private) that refuses to take diversity & inclusion seriously at all its levels will be left behind.

It's as simple as that. The world is changing, more people than ever are on social media, they have heightened awareness and concerns about these topics and rightfully so, they all want and demand equal opportunity and equal representation.

There's a moral aspect to this too, we can't talk about a "just society" when we don't make sure we are giving everyone the respect and opportunities they deserve in spite of their religion, color of their skin, gender, disability or sexual orientation. 

Alright, let me wrap it up there. I did notice BCI put out its 2020 ESG Annual Report.

Take the time to read it here, it's excellent.

You can also read about sustainable investing at OMERS here.

Unfortunately, I can't cover it all here, I do my best but there's way too much to cover, so take the time to read more about how Canada's large pensions are addressing ESG investing. 

As I keep stating, they're all doing a great job but it is an evolving process, one that will only gain strength and momentum in the coming years.

Below, a fairly recent ICPM interview with Kim Thomassin, Executive Vice-President and Head of Sustainable Investments at CDPQ. 

I also embedded another ICPM interview with Barb Zvan, the Inaugural President and Chief Executive Officer of the University Pension Plan Ontario (UPP) and former Chief Risk and Strategy Officer for the Ontario Teachers' Pension Plan.

Great interviews, take the time to watch therm. Kim and Barb have done a lot to advance sustainable investing in Canada, having co-authored the final report from the Expert Panel on Sustainable Finance along with Tiff Macklem and Andy Chrisholm. 

If Canada's large pensions are taking the lead on ESG investing, it's in large part because of the monumental work of these two ladies that worked very hard to provide the right framework and foundations so everyone can start taking sustainable investing more seriously.

Inflation data is a highlight of the week ahead, as investors focus on economic news in the void between earnings season and the next Fed meeting.

May’s consumer price index is reported Thursday, and it could be hot after it surged at a 4.2% annual pace in April. Inflation is viewed as an important trigger that could cause the Fed to step back from its easy policies, if rising prices appear to be hotter and more persistent than expected.

Stocks were slightly higher in the past week, but the meme stocks were hot. AMC Entertainment gained another 100% and was up 2,700% since January.

Energy was the best performing major sector, gaining more than 6% as oil prices jumped nearly 5% in the past week. REITs were the second best performer, up 2.6%, followed by technology, up 1%.

But it’s the meme stocks that took the headlines, and also contributed to concerns about froth in the stock market.

“People think this is new. It completely isn’t,” Satori Fund founder Dan Niles said of the trading frenzy. He noted there was similar froth in individual stock names in 1999, when companies added dotcom to their names to attract investor attention.

“What’s new is the fact that these traders are armed with stimulus checks. They can organize more easily on things like WallStreetBets, they can work from home, and there’s no-cost trading. Those are the differences,” Niles said on CNBC.

“So, if it gets people interested in investing, that’s great. What I don’t like is when you have people sort of taking out mortgages on their home, and putting themselves at risk if the thing collapsed,” he added. “You want to be able to invest what you can afford to lose if you’re going to play in something like this.”

Steve Massocca, managing director at Wedbush, said the trading in names like GameStop and Bed Bath and Beyond is one of the things that has made him more cautious on the market. He said the high valuations on the meme names are unlikely to last. “It’s going to be around as long as cicadas are,” he said.

Watching the inflation signs

Massocca said investors should stay focused on things like inflation, since that could be what makes the Federal Reserve reverse its easy policy. The Fed has so far said it sees the higher inflation readings as transitory.

May CPI follows a 4.2% year-over-year pace for April.

“I’m getting nervous. I’m seeing signs of a top. I’m systematically raising cash. I think the market looks too expensive,” Massocca said. “We’re going to shake off the dust from Covid. The economy is going to be very, very good and as a rule, I think monetary policy is going to respond to some degree.”

He said the memes mania is just one sign, but the spark for a sell off could be anything including a hawkish comment from the Fed.

“Who knows what it is, but the kindling is building and as soon as a match hits it, the market is setting up for a 7% to10% pullback at some point,” he said. “Who knows what starts it ... One of the candidates very likely will be some kind of reductions in monetary policy.”

Fear of the Fed stepping back from its easy policy has been hanging over the market.

Friday’s May jobs report was being watched closely, but the lower than expected job gains reinforced that the Fed could continue to hold off on policy changes for the time being. There were 559,000 jobs added in May, well below the 671,000 expected.

Now the CPI report is the next point of focus, ahead of the Fed’s June 15-16 meeting. The question is, will it be so hot that the Fed may have to reassess its view about the temporary nature of inflation, or could it show that price increases are peaking?

“There’s inflation out there. You can see it everywhere,” said Massocca.

Taper talk

The market has been expecting the Fed to begin to talk about unwinding its bond buying later this year, with many strategists targeting the Fed’s Jackson Hole symposium at the end of August. The Fed is expected to first discuss cutting back its purchases months ahead of taking action. Then it will slowly reduce its buying.

After that, it could consider interest rate hikes, now not expected by the market until 2023.

Niles said the meme stock trend has been fueled in part by the Fed. The markets are awash in liquidity as the Fed keeps rates at zero and maintains its monthly purchases of at least $120 billion in Treasury and mortgage securities.

“When the Fed backs off of that with tapering, I think that’s when you can go in and say, ‘OK’ we can potentially go after and short some of these highly valued names because that’s when the free money disappears and you actually start to contract some of that free money,” he said. “That’s when things start to get dangerous to the downside.”

For now, Niles said he’s staying away from the names that are heavily sought by retail investors or have large short interest and are targeted by Wall Street. “You want to stay away from this stuff now unless you’re doing it in very small size,” he said.

There are just a few earnings in the week ahead. One of the handful of names reporting is meme name GameStop on Wednesday. Campbell Soup also reports that day, and Chewy reports Thursday.

G-7 finance ministers meet this weekend, and President Joe Biden will attend a meeting of the organization’s leaders in Cornwall, England on Friday.

Week ahead calendar

Monday

Earnings: Vail Resorts, Marvell Tech, Stitch Fix, Coupa Software

3:00 p.m. Consumer credit

Tuesday

Earnings: Thor Industries, Casey’s General Stores

6:00 a.m. NFIB small business survey

8:30 a.m. International trade

10:00 a.m. JOLTS

10:00 a.m. Quarterly Financial Report

Wednesday

Earnings: Campbell Soup, GameStop, Brown-Forman, United Natural Foods, RH, Bradley

10:00 a.m. Wholesale trade

Thursday

Earnings: Chewy, Dave & Buster’s, Signet Jewelers, John Wiley

8:30 a.m. Initial claims

8:30 a.m. CPI

10:00 a.m. Quarterly Services Survey

2:00 p.m. Federal budget

Friday

10:00 a.m. Consumer sentiment

It's been another wild week on Wall Street where we saw the meme stock frenzy of last week go into overdrive.

Once again, it was shares of AMC Entertainment (AMC) that took center stage after soaring last week, but there were others too like BlackBerry shares which also soared this week on massive volume before falling on Friday:

I'm convinced that the meme stock frenzy has nothing to do with retail investors, whether here or in India and Korea, and everything to do with Wall Street sharks pumping and dumping shares at will. 

On Thursday afternoon, I tweeted this out on how to quickly spot a pump and dump scam:

$AMC$BB How to quickly spot a pump & dump scam, just check the volume, if it's abnormally massive relative to 30-day average, chances are the sharks are pumping it hard and they'll dump it harder! To wit, BlackBerry and AMC shares are the most active stocks today by far: pic.twitter.com/aq9p2mwk84

— Leo Kolivakis (@PensionPulse) June 3, 2021

Of course, the pumpers on StockTwits hate it when I post this stuff (these boards are infiltrated by hedge funds pumping stocks), but I've seen so many of these pump & dump scams over the past year that it's really not too difficult to spot them. 

By the way, we saw the exact same thing in BlackBerry shares in late January when they spiked at $28.77 on massive volume before they fell back to earth (and volume dried up):

The same thing happened to AMC's shares recently but on a much larger scale as they more than quintupled in price over the last two weeks, reaching a high of $72.62 earlier this week:

Again, it's not retail driving this frenzy, it's institutions, high frequency trading hedge funds, asset managers, bank prop trading desks and pure greed and wild speculation on a scale we haven't seen since 1999.

And it's Vanguard, BlackRock and other ETF providers who made a killing on AMC shares, not day traders:

Five Investors Hit $4.9 Billion AMC Stock Jackpot https://t.co/H0UWicOz1k via @IBDinvestors

— Leo Kolivakis (@PensionPulse) June 4, 2021

All this speculative nonsense is distracting investors from the economy and markets. 

In his latest Portfolio Strategy Incubator, Martin Roberge of Canaccord Genuity states this:

On Tuesday, we published the June 2021 edition of the Quantitative Strategist. One key highlight of the report is the confirmation that Q2 GDPs will likely mark “peak growth”. Already, the first panel of our Chart of the Week shows that growth in world central banks’ balance sheet has crested which means that global manufacturing PMIs will likely peak this summer. Also, global policy rates (second panel) are off from what should be secular lows and send a similar message. Interestingly, few investors seem aware that over the 23 rate-change decisions made by world central banks YTD, 19 were rate hikes and 4 were rate cuts. The net result is that investors should expect global growth to downshift in H2 which should lead to more volatility in risk assets. This is especially true if the Fed begins to taper its balance sheet preemptively. Today’s softer-than-expected payroll report is buying the Fed some time but a strong nonfarm payroll report in both July and August could force the Fed’s hand, especially if inflation continues to be sticky. Circle August 26-28 in your calendar, which is when the Jackson Hole Symposium is held. This is when the Fed could announce a tapering.

Interestingly, Francois Trahan of Trahan Macro Research just published a Macro Intern Guide 2021, going over key concepts every incoming intern should be made aware of.

You can view it here but I will bring this to your attention as it shows peak LEIs are coming later this year:

Whether or not cyclical shares continue outperforming this year remains to be seen but as global growth continues to gain momentum, these sectors should keep doing well.

Nevertheless, longer term, slower growth is ahead because the fiscal thrust will turn into a fiscal drag, something Harvinder Kalirai, Chief Fixed Income & Currency Strategist at Alpine Macro noted on Linkedin earlier today:

Yes, Biden's infrastructure plan will help but the bulk of the fiscal thrust is over and once the fiscal drag comes in, we can expect slower growth for a long time.

That's why I can't understand those who keep beating the inflation drum, they're barking up the wrong tree once again confusing cyclical inflation for structural inflation.

What about McDonald's, Walmart increasing wages? Big deal, there is no wage inflation going on!

Economist James Galbraith wrote a great comment on the deeper anxieties of inflation hawks where he calls them out as they keep doubling down even though the evidence doesn't point to lasting inflation. 

The US bond market doesn't seem concerned about inflation and for good reason, it's non-existent:

Sure, CPI inflation might continue to surprise investors this week but this is transient, period. 

Also, I think the US dollar bears have a tough case to make, I'm quite confident the greenback is bottoming out here and if it comes roaring back, it will also quell any cyclical inflation pressures (higher USD, lower import, energy and commodity prices): 

As far as the Nasdaq, Dow and S&P 500, it's sideways actions as shares of Apple and Microsoft go nowhere but I did notice NVIDIA (NVDA) made an all-time high today:

Goes to show you, when in doubt, buy the big dips on NVIDIA, that's what Vanguard, BlackRock and Fidelity did and it paid off for them.

Alright, let me wrap it up there.

Below, Trey Collins, the host of the Trey’s Trades channel on YouTube, said that he believes the fundamental value of the company’s shares will be between $20 and $25 at the end of 2021.

Also, CNBC's Seema Mody reports on comments made by AMC CEO Adam Aron as the stock continues its volatile trading frenzy. 

Fourth, the 'Halftime Report' traders discuss Tom Lee of Fundstrat's call for the S&P to hit 4,400 in the first half and what today's jobs report means for the markets. 

Lastly, Kristina Hooper of Invesco says it's likely the Fed is heading in the direction of tapering and their "early and often" communication will help the markets feel comfortable with the idea. 

The Fed is already tapering, draining $485 billion in liquidity via reverse repos, undoing four months of QE. It's just keeping hush about that but market pros are paying attention.