PopMuse: Benefits and Pension http://popmu.se Musings of stuff en-us Copyright 2007-2020 http://creativecommons.org/licenses/by-nc-sa/3.0/ Can Money Printing Trump a Depression? http://pensionpulse.blogspot.com/2020/05/can-money-printing-trump-depression.html http://pensionpulse.blogspot.com/2020/05/can-money-printing-trump-depression.html Sun, 31 May 2020 20:59:47 UTC at Pension Pulse Fred Imbert of CNBC reports stocks extend losses ahead of Trump China news conference:The S&P 500 rose slightly on Friday, erasing losses earlier in the session, as traders breathed a sigh of relief after President Donald Trump signaled no changes to the trade deal with China despite rising tensions.The U.S. equity benchmark finished the session up 0.4%, or 14.58 points, at 3,044.31. The Dow Jones Industrial Average fell 17.53 points, or less than 0.1%, to 25,383.11 as American Express and JPMorgan weighed. The 30-stock index ended the day well off the lows as it was down as much as 368 points at one point. The Nasdaq Composite jumped 1.2%, or 120.88 points, to 9,489.87 as chip stocks rallied.The S&P 500 and the Dow gained 3% on the week, bringing their advance in May to 4.5% and 4.2%, respectively. The tech-heavy Nasdaq rose 1.7% this week, pushing its rally this month to 6.7%.During a much-awaited news conference, Trump said he would take action to eliminate special treatment towards Hong Kong. However, he did not indicate the U.S. would pull out of the phase one trade agreement reached with China earlier this year, easing trader concerns for the time being. “Basically the items he could have talked about he chose not to talk about, but it’s not an end point,” said Julian Emanuel, chief equity and derivatives strategist at BTIG. “It’s a continuation on the way to more tensions.”The iShares PHLX Semiconductor ETF (SOXX) jumped to its session high following the news conference, ending the day 2.5% higher. Marvell Technologies and Nvidia were among the biggest gainers in the ETF, rising 8.8% and 4,6%, respectively.The news conference comes after China approved a national security bill for Hong Kong that experts warn could endanger the city’s “one country, two systems” principle. That principle allows for additional freedoms that mainland China residents don’t have.Tensions between China and the U.S. have risen lately as Trump criticizes the Chinese government’s response to the coronavirus outbreak. U.S. lawmakers have also been critical of China increasing its stronghold over Hong Kong. White House economic advisor Larry Kudlow said Friday that people in Hong Kong are “furious,” adding: “the U.S. government is ... I’ll use the word furious at what China has done in recent days, weeks and months. They have not behaved well and they have lost the trust, I think, of the whole Western world.”JPMorgan strategist Marko Kolanovic, who called the comeback for the market in March, said Thursday evening he was turning more cautious�because of a possible economic clash with China.“A complete breakdown of supply chains and international trade, primarily between the two largest economies (US and China), would justify equities trading drastically lower,” Kolanovic wrote.Paul Christopher, head of global market strategy at Wells Fargo, said he expects more rhetoric from the U.S. regarding Hong Kong and China, noting: “It could end up being a headwind once the market finishes pricing in all of this hopium.”Still, the market has had a massive run on optimism about economic reopening, with the S&P 500 bouncing about 38% off its March low. The benchmark is about 10% below its record high set in February.“The market has discounted the coronavirus very quickly and has correctly predicted the apex of the virus,” said Mike Katz, partner at Seven Points Capital. “Having said all that, prices are up there. The S&P 500 trading above 3,000 is pricing in a full recovery.”“If there is a second wave of the virus that ends up being more detrimental than people think, then I would think the S&P 500 is not valued correctly,” said Katz. Don't you love these guys that make outlandish and ridiculous claims like: “The market has discounted the coronavirus very quickly and has correctly predicted the apex of the virus.”What a bunch of rubbish! The market took the $3 trillion Uncle Fed digitally printed out of thin air and the wolves of Wall Street speculated on stocks and other risk assets.Of course, nobody wants to say this, that in effect the Fed has once again bailed out Wall Street and orchestrated another liquidity bubble which will exacerbate income inequality to levels we haven't seen since the 1920s."Powell Says Fed Policies ‘Absolutely’ Don’t Add to Inequality"That is such a bold face lie & willful denial.The Fed will never admit this because to do so would reveal their entire policy construct to be an absolute shambles.Despicable.https://t.co/rM3UvJfM3X— Sven Henrich (@NorthmanTrader) May 30, 2020Michael Pento is right, money printing is the new mother's milk of stocks:My friend Larry Kudlow always says that Profits are the mother's milk of stocks. That used to be true when we had a real economy. But sadly, that is no longer factual because we now have a global equity market that is totally controlled by central banks. To prove this point, let's look at the last few years of earnings. During the year 2018, the EPS growth for the S&P 500 was 20%; yet the S&P 500 Index was down 7% over that same time-frame.Conversely, during 2019, the S&P 500 EPS growth was a dismal 1%; yet the Index surged by nearly 30%. What could possibly account for such a huge divergence between EPS growth and market performance? We need only to view Fed actions for the simple answer: it was the degree to which our central bank was willing to falsify asset prices.During 2018, the Fed raised the overnight bank lending rate 4x and by a total of 100bps, and at the same time, it increased the amount of its Quantitative Tightening Program from $10 billion per month to $60 billion per month. In sharp contrast, Mr. Powell indicated one month before 2019 began that the Fed would stop raising interest rates; and by early '19 he indicated that the pace of balance sheet runoff was flexible and its termination was in sight. The Fed then announced in July of '19 that it would cease the selling of its assets come August. Most importantly, by the end of the summer, the Fed did a complete 180-degree pivot--it was once gain cutting interest rates and re-engaged with Quantitative Easing. The Fed ended up cutting interest rates by 75bps during 2019.Hence, 2018 was a terrible year for equities despite surging EPS growth. However, 2019 turned out great for stock investors despite having virtually zero earnings expansion. Turning to 2020, the S&P 500 EPS growth rate is projected by FactSet to decline a whopping 15.8% during Q2, and GDP is tracking to shrink by around 25-30% at a seasonally adjusted annualized rate. Adding to the misery, the unemployment rate is projected to reach a depressionary 17%. Nevertheless, the S&P 500 is down a very ordinary and pedestrian 10% YTD. How did the Fed pull off this magic trick yet again? Take a look at what its balance sheet has done so far this year. Mr. Powell has committed to buying everything at this point except stocks. This includes junk bonds, issuing primary loans to businesses, and purchasing corporate bond ETFs. It has so far printed nearly $2.5 trillion in less than two months just to boost equities back to the thermosphere.Because of these actions, the stock market is far more expensive today than it was prior to the start of the Wuhan virus crisis. This is because the ratio of total market cap to GDP has increased. Simply stated, the numerator is down just slightly while the denominator has crashed. Equity market capitalization is reported to be 138% of GDP as of this writing. This is down from the record high of 150% reached at the start of this year. Nevertheless, the current ratio is still extremely high, historically speaking. However, that figure is based on antiquated GDP data. As the new data is reported for Q2, expect the ratio to soar.There are now over 30 million newly unemployed Americans who have lost their jobs in the past six weeks. We have now completely wiped out the 22.7 million new jobs created since the Great Recession ended in June 2009 plus another near 8 million. The damage to US balance sheets is immense, and that debt is accretive to the $71 trillion already oppressing growth. Tremendous psychological injuries have occurred to consumers and corporations, as they are forced to take on new debt due to a dearth of liquidity. For example, listed US companies took on an additional over $300 billion in new debt since March alone. At that pace of corporate debt accumulation—which was already at an all-time high both nominally and in terms of GDP pre-virus--will surge by nearly 25% in just one single year. But what else would you expect when the Fed is promoting more borrowing by providing a huge fat bid for businesses to sell all the debt they need…and more. The stock market has already priced in a "V" shaped recovery in the economy, but the rebound will most likely be of the insipid variety. The question is will stocks care even if economic growth doesn't rebound? It is my view that the economy and EPS will certainly not return to pre-Wuhan virus levels for a very long time.Therefore, the answer to how stocks react to a sluggish economy even after the lockdowns are lifted can be found within the confines of D.C. Will the continued panoply of negative earnings news and economic data cause the Federal government to announce even more fiscal stimulus programs to bail out states and municipalities? And, will the Fed continue to monetize all that debt? I believe the answer to those questions is a resounding yes, but only after we see another crash in asset prices that results from a negative reaction to a failed reopening of the global economy. This is the salient risk during the mid-May through July time-frame. A failed opening can be defined as one in which consumers don't return to normal activities because of balance sheet, unemployment, and wealth effect issues. And, the virus makes a comeback in the context where there is no effective treatment or vaccine yet available.One sentence from the Fed's meeting of April 29, which produced an unusually-horrific statement even for the FOMC, "The Committee expects to maintain this target range (of zero percent interest rates) until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.". In other words, the Fed will be offering free money until the 30 million displaced workers find a job, and inflation runs well above its 2% target on its core PCE favorite metric, which removes all prices that go up—interpretation; expect ZIRP for another decade.We continue to hold 20% gold-related investments, 15% invested in defense, healthcare, and clean energy, and 10% TIPS. Passive Index investing has become a sure way to lower your standard of living, and therefore, we will continue to actively trade the portfolio with a continued vigilance on the cyclical dynamics of growth/recession & inflation/deflation. Is your wealth manager monitoring these changes? Or are they just telling you to hang on to their brand of an index fund that is blindly and passively heading towards the slaughterhouse yet again?That comment was written two weeks ago. In his more recent comment, Pento is adamant that money printing can't Trump a depression:The Atlanta Fed's GDP Now Estimate for Q2 Economic growth is minus 41.9%.Thirty-nine million people filed Initial Jobless Claims in the past nine weeks. Continuing Jobless Claims (including Pandemic Unemployment Assistance) surged to over 31 million individuals.US home construction fell by 30.2% in April.The fiscal deficit in April (which is always a surplus month) was minus $738 billion!Yes, unfortunately, we are in a depression. But that fact is not at all reflected in stocks.The total market capitalization of equities is now back to 140% of GDP. That level is at the ceiling of the ratio's history, and it is purely due to unprecedented central bank actions. However, even that eye-popping level is understating things by a great deal because the ratio is calculated using a denominator based on previously reported GDP data, which has since crashed. But it is critical to note that money printing has its limitations even when governments are buying stocks.Look at a chart comparing the S&P 500 vs. Japanese stocks (EWJ) and China's shares (CNYA).As you can see, the S&P 500 is up 34% in the past 5 years, even though the Fed hasn't yet resorted to buying stocks. For now, it has instead bought everything else, including junk bonds. In contrast, the PBOC and BOJ have purchased everything, including stocks. In the case of Japan, its central bank has been buying equities since 2013, and the Communist/Dictatorship that controls China has commanded the PBOC to support the market since at least 2015. And yet, China's shares are up a paltry 13%, while Japanese stocks have actually made zero progress throughout the past five years. Meanwhile, both of those country's indexes are still 50% off of their all-time highs.The truth is that central bank equity purchases do not at all guarantee there will be a roaring bull market, but they can support stocks even when an economy has become zombified.Indeed, Mr. Powell is breaking records in his attempt to reflate the market. The balance sheet of the Federal Reserve, which is a proxy for the amount of debt monetization undertaken by the central bank, has skyrocketed by $3.2 trillion (from September 2019 through today) --that is a grand total of only eight months. This compares to a $3.7 trillion increase in Fed money printing from the start of the great recession (in December 2007), through 2018--which is a total of over ten years.Nevertheless, the bluffing game is over for central banks, as they can no longer pretend there is a pathway to normalcy. Perhaps this is what the gold market has been sniffing out over the past 20 years. The precious metal has soared by over 500% since 2000, while the S&P 500 has merely doubled in the past two decades. The fact that gold has trounced the S&P proves that the faith in fiat currencies is collapsing, and the Wuhan virus has expedited this process.The current illusion of stock market prosperity has three predicates. The first is that there will be a robust reopening of the economy as the virus dissipates in the context of imminent therapies and vaccines. The second is that inflation is far off in the future, which will enable the Fed to control the level of long-term interest rates much more easily. And, the third is that central banks will have no interest in letting up on the monetary throttle for a very long time. The second and third conditions are indeed far off in the future. However, whether or not we have a successful reopening of the economy depends entirely on the progression of the virus; and that verdict will be known in the very near future.This begs the question: even though the predicted economic depression has arrived, where do markets go from here? We should all understand that in the longer term, a viable economy cannot be engendered through the process of diluting the purchasing power of a currency and falsifying asset prices. But what will happen to stocks while we wait for stagflation to run intractable? To help answer that question, we must monitor the number of new Wuhan virus infections and deaths.The hope is for a viable treatment and/or a vaccine by the fall. On the subject of vaccines, it should be noted that Moderna Pharmaceutical made positive comments about finding an effective and safe vaccine on May 18, which sent the Dow up 900 points. However, it is very disturbing that Moderna only partially released results of an interim Phase 1 trial without any specific data on neutralizing antibody counts; and then conveniently announced a $1.34 billion stock offering the following day. If the company's confidence in the vaccine was robust, then why not wait a few more weeks until the Phase 1 trial data could be fully released, with peer-reviewed status, and then make the secondary offering at a much higher price?It also should be noted that the Wuhan virus is a coronavirus. The common cold is also a type of coronavirus, and so is SARS and MERS. These differ from the influenza virus, and there has never been a vaccine approved for any coronavirus…ever. In addition, vaccines normally take years to develop in order to ensure both their safety and efficacy. Nevertheless, President Trump wants one ready to disseminate in just a few months' timeframe. The President's "operation warp speed" is seeking 100 million vaccine doses by November. But a vaccine not only must not harm people, it also cannot give them a false sense of protection. Despite all this, Moderna has amazingly created its mRNA-1273 vaccine within just two months from the first breakout of this novel virus.In any event, the economy is now in the reopening phase, and it is imperative to analyze the capacity levels within the leisure and hospitality sector to determine how consumers are responding to being let out of lockdown. For example, airlines breakeven at 75% capacity but are currently flying at just around 28%, with bookings plunging by 95%. According to the WSJ, after the 9/11 terrorist attacks, it took three years before airline capacity recovered; eight years before the average fare got back to what it was in 2000, and it was six years before airlines turned profitable once again. Looking at hotels, occupancy on the island of Oahu, for example, during the week ending April 6 was down 90%. Turning to the foodservice industry, regulators are requiring restaurants to open at between 25%-50% capacity; but they need around an 80% capacity level to breakeven.Analyzing the rate of change with this data will be critical to determine how to correctly allocate the portfolio according to the appropriate economic cycle. Our IDEC Model currently has the portfolio positioned in 25% stocks, 15% gold, and 10% TIPs. Our 50% cash hoard is being used to generate income right now until we can determine the quality of the reopening. Much more will be known during June, and I will analyze how the 20 components of the IDEC Model react to it and then take the appropriate action. Pento is a smart strategist, I don't agree with him on gold or stagflation as I'm in the debt deflation camp but he raises a lot of excellent points and he's not the only one raising cash:Carl Icahn isn’t buying stocks right now. He’s hoarding cash, shorting commercial real estate and preparing for more virus havoc— Bloomberg (@business) May 8, 2020Of course Icahn got grilled on his long Hertz position so he's hungry to make up those losses:Billionaire Icahn exits Hertz with 'significant' loss after bankruptcy filing https://t.co/RHw6FeIPDK— Leo Kolivakis (@PensionPulse) May 28, 2020Still, all eyes remain on the Fed as its balance sheet topped $7 trillion this week:The Federal Reserve's balance sheet rose marginally to $7.1 trillion as of Wednesday, up from $7.04 trillion last week. A large chunk of that growth came from a $33 billion increase in the central bank's emergency lending programs aimed at buying corporate bonds. But that increase in the lending facilities reflects the Treasury Department's equity contributions. Taking that into account, the facilities only saw a $1.2 billion increase in buying of corporate debt exchange-traded funds.Note, however, the rate-of-change is slowing as the increase in debt is exploding, something which doesn't augur well for risk assets going forward:Liquidity withdraw.Lowest weekly Fed stimulus since the market top.Not only that:Public debt increased ~4x the Fed’s $60B in the last 7 days!Largest net decline in Fed assets vs. government debt since the repo crisis started.Debt overhang sucking all new liquidity. pic.twitter.com/lcFjk2PuX5— Otavio (Tavi) Costa (@TaviCosta) May 29, 2020So what will the Fed do? David Mericle, an economist at Goldman Sachs, outlined what he thinks is coming:First he expects the Fed to establish a more consistent quantitative easing program, as the current purchases are done on an ad hoc basis. Mericle says the Fed will settle on a pace of roughly $80 billion to $120 billion in U.S. Treasury securities a month, and $25 billion to $35 billion of mortgage-backed securities.He also expects a change to its forward guidance. Drawing on comments from Governor Lael Brainard, he says the Fed could say it won’t increase interest rates until the economy reaches full employment and 2% inflation. “Waiting to make sure that inflation reaches 2% before raising interest rates would seem roughly consistent with what Fed officials appear to mean by average inflation targeting — aiming for a range of 2-2.5% inflation during the expansion phase of the cycle, while stopping short of a full make-up strategy,” he says.After the Fed clarifies its forward guidance, it could move forward with yield curve control, Mericle says, and it would move to cap interest rates, of shorter maturities, out to a horizon somewhat short of the date when the Fed forecasts its liftoff criteria will be met.Federal Reserve Chair Jerome Powell on Friday said forward guidance and QE are no longer non-standard tools, and said the central bank would comfortable using them.The market isn’t expecting a hike anytime soon, with Eurodollar contracts not pointing to a possibility until 2023.The yield on every Treasury security with a maturity of 10 years or shorter is below 1%, with the 30-year yielding 1.44%.Stocks have benefited from the Fed’s actions, with the S&P 500� up 35% from the March lows.No doubt about it, stocks have rebounded in a huge way since March lows when Bill Ackman came on CNBC to scare the hell out of retail investors as he and his hedge fund buddies loaded up on stocks and other risk assets, and the Fed scared the hell out of bears, inflicting them with monetary coronavirus:And it's tech companies like semis (SMH) but also the most speculative biotech stocks (XBI) which have seen the biggest gains from March lows: Bullish! Buy the breakout in tech, biotech, semis, banks, industrials and other cyclicals -- WHATEVER -- just buy, buy, buy and never fight the Fed.Why the stock market right now is stronger than even the most bullish investors believe - MarketWatch https://t.co/mPWoGMnvMX— Leo Kolivakis (@PensionPulse) May 29, 2020The problem with that logic is the Fed has increased its balance sheet by over $3 trillion and it has received help from its Swiss surrogate which is buying tech shares and it has only managed a bounce of 38% from the March lows?Swiss National Bank Ready To Buy Much More Tech Stocks To Weaken The Franc | Zero Hedge https://t.co/Qb68uHzMd9— Leo Kolivakis (@PensionPulse) May 28, 2020Meanwhile, over in the real economy, corporate profits are sinking and Americans are saving like crazy, scared to death about what lies ahead:Corporate profits drop in first quarter by most since 2008 Great Recession https://t.co/ZBoPaYPEBv— MarketWatch (@MarketWatch) May 28, 2020U.S. savings rate hits record 33% as coronavirus causes Americans to stockpile cash, curb spending https://t.co/K80yNDeRGL— Leo Kolivakis (@PensionPulse) May 29, 2020There is Nothing Normal About the US Savings Rate: https://t.co/vund2wREQa— Leo Kolivakis (@PensionPulse) May 31, 2020Have no fear, the Fed will save the day, BlackRock, Fidelity and Vanguard will save the day, elite hedge funds will save day, just buy stocks, stocks for the long run, they can only go up, up and up!I'm being cynical but the only thing the Fed is doing is making a bunch of obscenely rich people a lot richer and I can't wait to see the real depression when Bezos, Gates, Zuckerberg, Dalio, Simons, Cohen, Griffin, Fink, Musk and a lot of other Forbes billionaires see their net wealth sliced in half or more.That won't happen today as stocks etched out another gain with Nasdaq leading the way but mark my words, we are headed for very big trouble ahead and all because the Fed thinks it can print its way out of any crisis.It can't and when when the real depression hits elites, that's when all hell will break loose.But for now, enjoy the liquidity party and Trump show, it's all very entertaining and helps distract the masses from what really ails America.Lastly, since it is Friday, this made me chuckle:LOL! pic.twitter.com/QbP88F5jpF— GreekFire23 (@GreekFire23) May 29, 2020But on a more serious note, Jeffrey Gundlach asks a great question:Why bother with any taxes at all if Chair Powell is correct that there is no limit to expanding the Fed’s balance sheet? Implicit in his declaration is that the whole tax collection system is a royal waste of resources.— Jeffrey Gundlach (@TruthGundlach) May 30, 2020Below, SBTV speaks with Michael Pento, Founder of Pento Portfolio Strategies, about the worsening state of the global economy. With 30 million people made jobless within weeks, Pento has no doubt that the economic depression is here and it will impact everyone, including pensions. Second, Credit Suisse's Jonathan Golub thinks the rally can't go on much longer. With CNBC's Melissa Lee and the Fast Money traders, Tim Seymour, Guy Adami, Dan Nathan and Pete Najarian.Third, Vanguard is one of the largest active fund companies in the world with $5.7 trillion in assets under management. Greg Davis, chief investment officer at Vanguard, joins "Squawk Box" to discuss investing amid the coronavirus-driven uncertainty.Fourth, Grant's Interest Rate Observer Founder and Editor James Grant and CNBC's Rick Santelli discuss the consequences of unprecedented policy.Fifth, Moody’s Analytics Chief Economist Mark Zandi says investors are too optimistic about a quick economic rebound from the coronavirus pandemic. He explains what policymakers should do to boost the recovery and discusses longer-term changes in the economy.&Sixth, Federal Reserve Chairman Jerome Powell discusses the rollout of the central bank's "Main Street" medium-sized business aid program, saying "we expect to start making loans in a few days." He speaks at a virtual discussion at a Griswold Center for Economic Policy Studies Princeton Reunion Talk event.Seventh, James Pethokoukis, American Enterprise Institute economic policy analyst, and Ron Insana, Schroders North America senior advisor, join 'Power Lunch' to discuss the state of the markets as they wait for President Trump's press conference on US-China relations.Lastly, President Donald Trump holds a news conference from the Rose Garden at the White House discussing US-China relations. Listen to the rhetoric, it's not good. http://creativecommons.org/licenses/by-nc-sa/3.0/ CAAT Pension Plan Gains 16% in 2019 http://pensionpulse.blogspot.com/2020/05/caat-pension-plan-gains-16-in-2019.html http://pensionpulse.blogspot.com/2020/05/caat-pension-plan-gains-16-in-2019.html Fri, 29 May 2020 02:20:58 UTC at Pension Pulse Yaelle Gang of the Canadian Investment Review reports that CAAT pension plan returns 16% in 2019, well-positioned to weather coronavirus storm:The Colleges of Applied Arts and Technology pension plan saw a strong 2019, delivering a 16 per cent return, net of investment management fees, while growing its assets under management to $13.5 billion.“On an absolute basis, all asset classes contributed positively to returns in 2019, with global developed equity, long bonds and real assets being the largest contributors,” said the annual report. “Interest rate and inflation hedging asset classes returned 11 per cent in aggregate, while return-enhancing asset classes returned 20.5 per cent. The plan’s currency hedging policy added 1.8 per cent to returns.” For 2019, the CAAT plan is 118 per cent funded on a going-concern basis.While 2020 markets have gotten off to a bumpy start, the CAAT plan has a long-term perspective. “Even though we are monitoring what’s going on in the marketplace, I don’t have any real concerns from an investment perspective at this time,” says Derek Dobson, chief executive officer of the CAAT plan.He highlights the plan’s fairly large funding reserve and asset smoothing reserve, at $2.9 billion and $0.8 billion, respectively. “And the volatility in the marketplace hasn’t even used up our asset smoothing reserve yet. So we’re still very much [in] a strong, well-funded position.”Further, the plan has a globally well-diversified portfolio, adds Dobson, noting the portfolio is performing as expected. “Clearly, with a 16 per cent net rate of return in 2019, I’m super pleased and proud that our asset mix and our team’s performance is exceeding my expectations.”The CAAT also regularly conducts asset-liability modelling studies to measure its health against different scenarios. These studies have confirmed the plan can weather severe downside situations.For its Jan. 1, 2020 valuation, the plan’s discount rate was lowered from 5.5 per cent to 5.15 per cent to reflect expected lower returns in the future. “The lower discount rate marginally lowers the plan’s 2020 funded status, but increases the likelihood that its funded status will improve in the future because it is more likely that future investment returns will exceed the lower discount rate,” the annual report said.Overall for 2019, Dobson says he’s most proud of the work the CAAT plan has done to expand defined benefit coverage in Canada, noting in 2019, it added more than 10,000 members by welcoming single-employer plans into its DBplus plan. “If we were to look at our purpose, which is to make simple, secure, valuable workplace pensions accessible to all Canadian workplaces, I think we made a major step — or even two or three major steps in 2019 — to contribute to the retirement income security industry.”A little over a month ago, the CAAT Pension released its 2019 results, gaining 16% net and ending the year with $13.5 billion in assets (I waited till now to cover the annual year-in-review webinar):The CAAT Pension Plan’s financial results, released today, confirm that the Plan is well-funded and has ample reserves to weather the recent investment market downturn. The Plan has been steadily building reserves over the past decade, consistent with the focus on benefit security. The CAAT Plan concluded 2019 with a total of $13.5 billion in assets, up from $10.8 billion the previous year. The fund returned 16.0%, net of investment management fees, over the one-year period, and moved its 10-year annualized rate of return net of fees to 10.0%. The health of the Plan is very strong. Based on prudent assumptions about the future, the Plan is 118% funded on a going-concern basis, with a $2.9 billion funding reserve, plus an additional $0.8 billion in asset smoothing reserves to absorb investment market volatility.CAAT also regularly conducts asset-liability modelling studies to measure its health against a variety of diverse economic and demographic scenarios. These studies confirm the Plan will remain strong even under the most severe downside scenarios.“The markets’ response to the COVID-19 pandemic has created near-term investment declines; but the Plan has prepared well for the unexpected,” explains Derek W. Dobson, CEO of the CAAT Plan. “The Plan’s globally diversified asset portfolio has also helped mitigate recent declines in the equity markets.” “The lifetime pensions members have earned are not affected by short-term investment market fluctuations,” adds Dobson. “Our stability and focus on benefit security provide beneficiaries with peace of mind in an uncertain world.”CAAT’s DBplus plan design has made secure defined benefit pensions accessible to more working Canadians in different sectors across the country. More than 15,000 members from 28 new employers have joined CAAT, representing nine industries across the for-profit, not-for-profit, and broader public sectors, and includes the support and participation of 14 different unions. Welcoming more groups of workers from across Canada will continue to strengthen the Plan.Read the complete 2019 CAAT Pension Plan Annual Report, Valuable workplace pensions made simple (PDF).Take the time to carefully read the complete 2019 CAAT Pension Plan Annual Report here, it's very well written and extremely transparent.Yesterday afternoon, I had a chance to discuss CAAT's results and new membership drive with its CEO, Derek Dobson and its CIO, Julie Cays.I want to thank both of them for taking the time to chat with me via Microsoft Teams and also thank John Cappelletti, Special Advisor to the CEO, for setting this up.I began by asking them to go over last year's results. It was an exceptional year and Derek told me the CAAT Plan’s 10 year return is ranked #1 of the 39 funds with market value above $1 billion in the BNY Mellon Canadian Master Trust Universe.Readers of my blog will recall that the Healthcare of Ontario Pension Plan (HOOPP) gained 17% last year, etching out CAAT Pension's return, but it's a much larger pension plan and unlike CAAT, it used a lot more leverage to achieve these incredible gains (CAAT's gains are unlevered not that there's anything wrong with the intelligent use of leverage).What CAAT has in common with HOOPP is its funded status, 118% versus 119%, which is the ultimate measure of success of any pension plan (more on that later).Anyway, below you will find 2019 highlights from the Annual Report:Notice how even though the plan ended the year 118% funded, they still dropped the discount rate to 5.15% (nominal) to reflect lower interest rates and to mitigate risks of lower long-term investment returns.Also, at the end of last year, the plan had $2.9 billion in reserves to protect against investment market declines and demographic shocks.Again, this is prudent management of a pension plan and Derek Dobson is an actuary by training, so he really knows his stuff when it comes to pension plan design and sustainability.Before Derek and I covered new members, Julie Cays briefly discussed last year's results and how she is positioning the portfolio this year in light of the COVID crisis.First, have a look at CAAT's well-diversified asset mix, the net return vs policy benchmark over the last five years, the real return over funding target and last but not least, the net investment returns by asset class relative to benchmark:Let me just say, every pension plan should present these charts and tables above in the same clear, coherent and transparent manner.Looking at its asset mix, you can see that CAAT Pension has more weighting to public equities and bonds relative to its larger Canadian peers which have more of a 50/50 split between public and private markets.In fact, 33% of CAAT's portfolio is in Global Diversified Equity, 10% in Emerging Market Equity, and 23% in nominal long and short-term bonds.My former PSP colleague, Asif Haque, is CAAT's Director of Public Markets, and his job is to find managers which can add alpha over the benchmarks. I noticed he hired another PSP alumni, Razvan Tonea, as a Portfolio Manager to help him oversee external public market managers (they are both at the far end of the picture below along with some of their investment colleagues): In private markets, 9% is invested in Private Equity and 15% in Real Assets which is made up of Real Estate and Infrastructure.Kevin Fahey is the Director of Private Markets and he is standing in the middle above. He's doing an outstanding job growing CAAT's private markets and Julie told me they hired Adam Buzanis to help Kevin with Private Equity investments (I also recommended someone from PSP who had to move back to Toronto for family reasons).What Julie Cays also told me is their Private Equity portfolio is still relatively young and they have "a lot of dry powder" to take advantage of opportunities as they arise.Similar to OPTrust, CAAT tends to focus on middle market funds and smaller funds to build its relationships and they have obviously found solid partnerships across public and private markets.They also co-invest with their partners on larger transactions to reduce fee drag.Anyway, looking at the net investment return by asset class, the biggest gains in 2019 came from Global Developed Equity (+21.1%) followed by Private Equity (+15.5%) and Long-Term Bonds (+13.3%). Real Assets also delivered solid gains, up 11.4% last year.Julie told me it was a great year but the COVID-19 selloff hit them in Q1 but they remain in good shape in term so funded status. "Still, we are focused on the long run and won't change our strategic allocations materially."I told her I see this latest rally in stocks as nothing more than the mother of all bear market rallies as the Fed expanded its balance sheet by $3 trillion and she agreed and remains very cautious.In fact, what's striking to me is profits in private companies are evaporating but the Fed's liquidity induced madness is leading to the zombification of public markets:Corporate profits drop in first quarter by most since 2008 Great Recession https://t.co/ZBoPaYPEBv— MarketWatch (@MarketWatch) May 28, 2020Other central banks are adding fuel to the fire, buying tech shares indiscriminately:Swiss National Bank Ready To Buy Much More Tech Stocks To Weaken The Franc | Zero Hedge https://t.co/Qb68uHzMd9— Leo Kolivakis (@PensionPulse) May 28, 2020That's a topic for tomorrow's market comment, let me get back to CAAT Pension.Derek Dobson and I spoke about growing and diversifying the Plan's new members which is part of its three strategic initiatives and part of a three-year strategic plan they adopted last year:What Derek said was they added 15,000 members to CAAT's DB Plus through nine mergers, offering "cost certainty to employers" and "secure lifetime benefits at stable and appropriate contribution rates" for new members.From these 15,000 new members, 10,000 were split among those that came from DC/ Group RRSP and the other half were DB plan mergers. The remaining 5,000 were inactive members.I believe Derek told me it was easier to integrate DB plan members but whatever the case, CAAT is offering its pension plan management services to employers across Canada and in a post-COVID world, I would seriously reach out to them and learn as much as possible on DB Plus.Derek told me they are focusing on the people, processes and systems and will be ready for a major expansion come July 1st. So far, they have been more "reactive" allowing employers to come to them but very soon, they will be more proactive and solicit new members who are looking to offer their employees a solid, secure, affordable DB plan.He said the goal is to grow membership to 300,000 members from the current 61,000 members by 2027 and to grow assets to $70 billion from the current $13.5 billion during that timeframe.That might sound like a lofty goal but I wish Derek and the entire CAAT team much success because they are actually offering something unique it employers across Canada.OPTrust Select is a defined benefit (DB) offering, designed to enhance retirement security to employees who work for charitable, not-for-profit in Ontario but it's not across Canada.Trans-Canada Capital is a subsidiary of Air Canada offering pension expertise to corporate and public DB plans but it's still in its early days.I told Derek I personally know some high net worth blog readers of mine who despise annuities and would love to join a well-diversified DB plan but there's nothing available as of now. He said they're not there yet but it might come in the future.Look, if CPPIB offered me a way to enhance my CPP above and beyond what the government legislated, I'd jump on the opportunity. Most Canadians would.All this to say, I think CAAT Pension will grow by leaps and bounds over the next ten years and their success will translate into more retirement security for many Canadians looking to retire in dignity.Again, take the time to read the complete 2019 CAAT Pension Plan Annual Report here, it's very transparent and well written and covers everything from Plan Funding to Investments.The only thing CAAT Pension and HOOPP don't provide is full transparency on executive compensation which is a big no-no in my book (every pension in Canada should publish executive compensation in their annual report without exception and I don't care if it's private or non-profit).Below, take the time to listen to CAAT's president & CEO Derek Dobson discuss the annual year-in-review webinar on benefit security.Derek is an exceptional communicator and extremely well-informed on pension design and funding. He offers a great overview and I also embedded highlights from the 2019 year.I thank him and Julie Cays for taking the time to talk to me yesterday and if there's anything I need to edit, just let me know. http://creativecommons.org/licenses/by-nc-sa/3.0/ CPPIB Gains 3.1% in Fiscal 2020 http://pensionpulse.blogspot.com/2020/05/cppib-gains-31-in-fiscal-2020.html http://pensionpulse.blogspot.com/2020/05/cppib-gains-31-in-fiscal-2020.html Thu, 28 May 2020 20:00:29 UTC at Pension Pulse Pete Evans of CBC News reports CPP adds $17 billion to assets now worth more than $409 billion despite the pandemic:The Canada Pension Plan earned a return of 3.1 per cent after expenses during the financial year ended March 31, the board that manages the fund's money reported Tuesday.Net assets for Canada's national pension plan totalled $409.6 billion as of the end of March, up from $392 billion at the end of the previous financial year.The $17.6-billion year-over-year increase included $12.1 billion in net income from its investments. The other $5.5 billion came from contributions of more than 20 million Canadian workers covered by the plan.In the past five years, investment returns have added $123 billion to the fund's assets, the Canada Pension Plan Investment Board said Tuesday.While the plan made money for the year as a whole, the fourth quarter was a challenging one because of COVID-19. The fund said fixed-income assets did well as investors fled for safety, but values of stock-based investments fell."Despite severe downward pressure in our final quarter, the fund's 12.6 per cent return on a 2019 calendar-year basis combined with the relative resilience of our diversified portfolio helped cushion the impact," chief executive officer Mark Machin said."Amid the significant number of concerns many Canadians have today, the sustainability of the fund is one thing they shouldn't worry about. The fund's long-term returns continue to help ensure the security of Canadians' retirement benefits."A three per cent return may not sound impressive, but Michel Leduc, a senior investment executive with the fund, said in an interview that the fund's financial performance in the middle of a serious economic crisis is a testament to its strategy. The CPP measures its own performance against a series of market-based benchmarks, the main one being the Reference Portfolio. That reference portfolio declined by 3.1 per cent in the past year, the same amount that CPP increased by.'Quite resilient'Leduc noted that the Dow Jones Industrial Average lost 23 per cent in the first three months of this year, its worst quarterly performance in its 135-year history.If the CPP were just to have matched the stock market, "the fund would be would be $23 billion smaller today," he said. "You've got to look at in the context of going through an economic shock which we know we're going to go through from time to time…. To preserve $23 billion … I would say to Canadians that their fund is quite resilient and the active management put the fund in that safe harbour."The Chief Actuary of Canada audits the CPP every three years to assess its ability to cover its obligations. At the last review in December 2018, the chief actuary deemed the CPP was on track to meet its obligations for the next 75 years at least, assuming the fund can earn a return of 3.95 per cent above inflation. The CPPIB has achieved a real return of eight per cent, on average, over the past 10 years, and 6.1 per cent over the past five.Buying opportunitiesLeduc said the current downturn could lead to some attractive buying opportunities for CPP, but that doesn't mean the fund is running off on a buying spree without making sure that any investments fit the long-term objectives."We're one of the few institutional investors around the world that can pretty much acquire anything," he said. "We will look at opportunities, very carefully, but it's not the Wild West … we're not going out and buying everything."While on track in terms of performance, the CPP has faced some criticism for the amount of money it spends on costs as it has grown and expanded over the years.While its total value has quadrupled from $96 billion to $409 billion since 2006, that growth has come with added costs, as CPPIB now employs 1,824 employees around the world — 11 times more than the 164 it did back then. It only had one office then; today it has nine, including two in the U.S., two in Europe, two in Asia, one in Brazil and one in Australia. That growth has come at a cost: CPPIB incurred more than $1.2 billion in expenses last year. That's about 30 cents out of every $100 invested, a slightly lower ratio than the previous year's level of 32 cents.All told, CPP racked up $3.4 billion in expenses, management fees and transaction costs last year. That's up from $3.2 billion the year before.CPP said it 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."Barbara Shecter of the National Post also reports that CPPIB's post-pandemic returns unlikely to match past decade's:The coronavirus pandemic and the economic fallout from efforts to contain it will have a long-term effect on the Canada Pension Plan Investment Board’s $409.6 billion fund, CPPIB chief executive Mark Machin said Tuesday, after the fund posted its worst annual performance since the financial crisis in 2009.“I don’t expect as good returns in the next 10 years as they have been in the last 10 years,” Machin said in an interview after the CPP fund posted a 3.1 per cent annual return for the year ended March 31, a period that also contained punishingly low oil prices and deep interest rate cuts.While there was a positive return for the fiscal year, that was largely due to strong investment gains in the first nine months. Among CPPIB’s holdings, energy and resources were hit particularly hard, posting the worst performance of the year at -23.4 per cent, compared to -0.6 per cent a year earlier.Over the past 10 years, the fund’s net rate of return is 9.9 per cent, and $235.2 billion has been generated in net investment income after costs.Machin said CPPIB, which invests on behalf of the Canada Pension Plan, doesn’t intend to make big changes to the portfolio despite the recent market conditions, which were described in the fund’s results as “devastating.” He noted that diversification of geography and asset classes helped weather the latest crisis. “While there was nowhere to hide in the world, some countries were coming out of it as others were going into it,” he said, noting that countries in Asia and even Europe began to ease economic restrictions while North American was locking down to try to slow the spread of COVID-19.Flights to safety, including government bonds, also boosted parts of the portfolio. This shifted specified weightings, which caused CPPIB to rebalance the portfolio, in part by buying lower-priced equity and credit investments and selling sovereign bonds.Machin said the pension management organization is keeping a close eye on geopolitical developments around the world, such as trade tensions between the United States and China, some of which pre-dated the pandemic. “Those tensions are very real and it’s not just tensions with the U.S., it’s tensions with a lot of places around the world,” he said.“We need to be aware of where policy is today, where policy may go tomorrow, and how that’s going to impact those two economies and economies around the world, and companies, and sectors, and markets. It’s important for us to really understand where things might go on all of those fronts.”For the time being, though, CPPIB remains committed to increasing its exposure to emerging markets including China, he said. Investments in emerging markets totalled $87.6 billion, or 21.4 per cent of total assets, at the end of fiscal 2020. That was up from $77.9 billion, or 19.9 per cent of assets a year earlier.Machin said less than 11 per cent of the CPPIB portfolio is invested in China, which is about one-third of the amount invested in the United States. Before the pandemic hit, the huge and booming Chinese economy was seen as a major draw for the Canadian fund. A year ago, Machin told the Financial Post he expected the portfolio allocation to China to be in the “mid-teens” by 2025, in keeping with the strategy of boosting the representation of emerging markets including India, China, and Brazil to 33 per cent in that timeframe. He indicated no change to that strategy during Tuesday’s interview, and noted that equities had declined by far less in China than in Canada, the U.S., or the United Kingdom.For the fiscal year, CPPIB’s investments in China — where key holdings include a long-term stake in e-commerce company Alibaba — produced returns of 9.8 per cent, he added.The fund’s overall growth to $409.6 billion in fiscal 2020 was driven by $12.1 billion in net income and $5.5 billion in net CPP contributions.Finally, Paula Sambo of Bloomberg News reports CPPIB has its worst year since 2009 as virus hits stock returns:Canada Pension Plan Investment Board returned 3.1 per cent for the fiscal year, its worst showing since the financial crisis, as the selloff in equity markets and energy in February and March hurt the fund.Net assets were $409.6 billion as of March 31, the fund’s fiscal year-end. That represented growth of $17.6 billion, consisting of of $12.1 billion in net income from investments and $5.5 billion in new contributions, CPPIB said in a statement Tuesday.The numbers mean Canada’s largest pension fund suffered about $15.8 billion in investment losses in the first three months of 2020. The fund had reported $27.9 billion in investment gains for the nine months ended Dec. 31. “Despite severe downward pressure in our final quarter, the fund’s 12.6 per cent return on a 2019 calendar-year basis, combined with the relative resilience of our diversified portfolio, helped cushion the impact,” Chief Executive Officer Mark Machin said in the statement. The fund’s 10-year and five-year annualized net nominal returns were 9.9 per cent and 7.7 per cent, respectively, which “should give Canadians comfort that, even with periodic shocks, their pensions ultimately draw from decades of steady performance,” Machin said.The fund’s 3.1 per cent investment gain outperformed its benchmark portfolio’s 3.1 per cent loss, which equates to a value-added return of $23.4 billion for the year, after deducting all costs, the fund said.Losses in ResourcesCPPIB is designed to serve contributors and beneficiaries for decades, so long-term results are a more appropriate measure of performance than quarterly or annual cycles, the fund said.“The COVID-19 pandemic poses a massive challenge for health, societies and economies globally. Amid the significant number of concerns many Canadians have today, the sustainability of the fund is one thing they shouldn’t worry about,” Machin said.The fund’s holdings of Canadian public equities lost 12.2 per cent for the year and emerging markets stocks dropped 9.1 per cent, while foreign stocks generated a return of 1.6 per cent.All credit investments returned 0.5 per cent and real estate returned 5.1 per cent, while infrastructure dropped one per cent. Canadian private equity investments lost 5.1 per cent, while foreign PE returned six per cent. Energy and resources lost 23.4 per cent.Caisse de Depot et Placement du Quebec returned 10.4 per cent in 2019 as stocks and fixed income shielded Canada’s second-largest pension fund manager from a poor performance in real estate. Ontario Teachers’ Pension Plan delivered a 10.4 per cent return last year, lagging its 12.2 per cent benchmark. The failure to beat the hurdle tends to happen when public equities have exceptional returns, Teachers said.Ontario Municipal Employees Retirement System returned 11.9 per cent on its investments last year, pushing assets to $109 billion. The pension fund cut its stock holdings last year and added to its infrastructure bets.CPPIB put out a press release on its fiscal 2020 results and while I won't post it all because it's too long, this is the critical part:Canada Pension Plan Investment Board (CPP Investments) ended its fiscal year on March 31, 2020, with net assets of $409.6 billion, compared to $392.0 billion at the end of fiscal 2019. The $17.6 billion increase in net assets consisted of $12.1 billion in net income after all CPP Investments costs and $5.5 billion in net Canada Pension Plan (CPP) contributions.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 9.9% and 7.7%, respectively. For the fiscal year, the Fund returned 3.1% net of all CPP Investments costs.Steady gains from global active investment programs over the first three quarters of the fiscal year pushed Fund performance forward. Fixed income investments performed well in the fourth quarter, reflecting investors’ search for safer investments and the expectation for lower interest rates across major markets. However, the steep decline in global equity markets in March 2020 had a significant effect on results as the financial impacts of the COVID-19 pandemic tore through virtually every economy. “Our long-term returns of 9.9% over 10 years should give Canadians comfort that, even with periodic shocks, their pensions ultimately draw from decades of steady performance,” said Mark Machin, President & Chief Executive Officer, CPP Investments. “Despite severe downward pressure in our final quarter, the Fund’s 12.6% return on a 2019 calendar-year basis combined with the relative resilience of our diversified portfolio, helped cushion the impact.”In the five-year period up to and including fiscal 2020, CPP Investments has contributed $123.4 billion in cumulative net income to the Fund after CPP Investments costs. Since CPP Investments’ inception in 1999, it has contributed $259.7 billion on a net basis.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.“The COVID-19 pandemic poses a massive challenge for health, societies and economies globally. Amid the significant number of concerns many Canadians have today, the sustainability of the Fund is one thing they shouldn’t worry about,” said Mr. Machin. “The Fund’s long-term returns continue to help ensure the security of Canadians’ retirement benefits.”Alright, I reached out to Mark Machin and Michel Leduc yesterday and wanted to go over their results but Mark was busy with various media obligations so Michel was kind enough to step in and have a brief chat with me.Michel told me the last quarter of their fiscal year was a reminder that "economic shocks will happen from time to time" which is why they focus on the long term and building a resilient portfolio.He noted that the Dow Jones Industrial Average lost 23% in Q1 (last quarter of CPPIB's fiscal year), its worst quarterly performance in its 135-year history.However, despite the massive shock, CPPIB was still able to deliver a 3.1% gain in fiscal 2020, handily outperforming its benchmark which lost 3.1% over the same period."This speaks to our active management and diversification which leads to a resilient portfolio. As you know, our comparative advantages are our long horizon, scale, the certainty of our assets, strong culture, partnering capability and our Total Portfolio Approach to investing. All these elements were critical to our success in 2020."Indeed, while 3.1% gain doesn't sound like a lot, especially when compared to its peers which reported their results based on the 2019 calendar year, the truth is they are extremely impressive relative to its Reference Portfolio (benchmark portfolio).Moreover, CPPIB gained 12.6% on a 2019 calendar-year basis, which is in line with what its large peers like the Caisse reported.But its the relative performance to its Reference Portfolio which is striking. Michel told me its Reference Portfolio which is made up of� 85% S&P global mid and large cap stocks and 15% nominal bonds issued by Canadian governments, lost 3.1% over the same period (base CPP benchmark; additional CPP benchmark gained 0.7%; for details, see answer to question 12 here).I bluntly asked him whether it's prudent to have a benchmark made up of 85% global stocks and he said this benchmark was based on consultations with their provincial and federal stewards, reflects their long-term liabilities and the fact that base CPP is partially, not fully funded. Moreover, the benchmark was adopted slowly over the last five years shifting from 70/30 to 75/25 to 80/20 to finally 85/15.Michel told me in light of COVID-19, they had to rewrite the entire Fiscal 2020 Annual Report, which is no easy feat as it takes months to prepare it (you can read the highlights here).I would definitely read Dr. Heather Munroe-Blum's report on page 2 as well as Mark Machin's message on page 5.One thing I noted is CPPIB's senior managers continue to execute on their 2025 strategy approved by the Board two years ago. As Mark notes: "We remain confident in the long-term trends that underpin our convictions and strategy."It's important to note that CPPIB measures its success over a very long period, which is why you see them emphasizing 5 and 10-year results.Michel Leduc also emphasized that CPPIB's active management approach, which some have wrongly criticized, and has added significant dollar vaue add over the last ten years.As Mark Machin notes in his message:Our dollar value-added (DVA) compared with our Reference Portfolios for the fiscal year was $23.5 billion as a result of the continued resilience of many of our investment programs. DVA is a volatile measure, and so again we look at our results over a longer horizon. Since inception of our active management strategy, we have now delivered $52.6 billion in compounded DVA. Our long-term returns are expected to exceed what the Fund needs to remain sustainable. I say that with confidence because this year the Fund’s sustainability was independently validated by the Office of the Chief Actuary. And while that report was produced prior to the COVID-19 pandemic, it does account for financial market volatility, changes to long-term demographic trends, and so on. The Chief Actuary’s latest assumption is that, over the 75years following 2018, the base CPP account is on track to 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%. As of this year, CPP Investments’ average annual real rate of return over a 10-year period is 8.1%.But as Mark also notes, returns are coming down across all asset classes so that will put pressure on the Fund to remain very disciplined and make sure they add value wherever they can.I told Michel, private equity has reached its Minsky moment, there is a paradigm shift going on in real estate, infrastructure assets related to transportation (airports, ports, toll roads) are also getting hit and hedge funds continue to underperform.He didn't deny they took their lumps on Neiman Marcus and that is why diversification across geographies, sectors and vintage years is so important.When I asked him about the drop in revenues at Highway 407 which CPPIB has a controlling stake, he replied: "No doubt about it, revenues dropped dramatically because of the forced lockdown but let me ask you something, when they reopen the economy, do you think people will be driving into work or taking public transit?".I said it depends as many premiere tech companies are telling their employees they can "work from home forever" and as I stated in my comment last week on the paradigm shift in real estate, the competition for top talent is heating up and tech companies typically set new trends, so I expect working from home will become the new normal (it's also better for a sustainable economy).Michel told me their thematic investing team is in charge of figuring out the next big trends and they are the team which will capitalize on shifts in consumer behavior in a post-COVID world. Of course this team figured out logistics properties was a hot area to invest in long before the pandemic hit, and that is an important secular trend which will remain with us for decades.He gave me another example of grocery stores which safely do online delivery and how this is an emerging trend which will stay with us.The most important things Michel Leduc wanted to highlight were these:They improved their processes dedicated to fair value in private marketsThey use independent auditors to determine whether their fair value is robust and these auditors often find that their valuations are very conservative in private markets.It's important to note 25% of the Fund is invested in Private Equity, 11% in Real Estate, and 9% in Infrastructure so determining fair value in these private markets is extremely important and anything remotely shady can lead to a serious credibility issue.In fact, Neil Beaumont, Senior Managing Director & Chief Financial and Risk Officer, explains how they assess and determine the fair value of their investments here (also see below).As far as the Fund returns by asset class, here they are for fiscal 2019 and fiscal 2020:As you can see, the best returns were in marketable government bonds (+16%) followed by Emerging and Foreign Private Equity (+8% and +6% respectively). Energy and resources got hit the hardest (-23%) but it's the performance in Infrastructure (-1% vs +14% last fiscal year) which really stands out.This tells me they aggressively wrote down some infrastructure assets this fiscal year (Highway 407, ports, airports) and will wait till next fiscal year to reevaluate them once revenues start coming back.I expect the exact same thing will occur across all of Canada's large pensions which are heavily invested in private markets.Lastly, here is a summary table of compensation of some of the senior managers:Yes, Mark Machin made close to $6 million but he's running the most important pension fund in Canada and he and his senior managers featured below have delivered outstanding long-term results.That's all from me. Admittedly, this comment is long but I tried to cover the most important things.Please take the time to read CPPIB's entire Fiscal 2020 Annual Report, which is very well written (if pressed for time, you can read the highlights here).I thank Michel Leduc, Senior Managing Director & Global Head of Public Affairs and Communications, for taking the time to chat with me yesterday and invite him to have lunch at Milos the next time he's in Montreal (hopefully Mark Machin can join us and this COVID nightmare will be behind us).Below, in fiscal 2020, CPPIB's net assets grew to $409.6 billion, comprising $12.1 billion in net income and $5.5 billion in net CPP contributions received. Despite the market conditions in their fourth quarter, the Fund earned a net annual return of 3.1%, after all costs. Listen to Mark Machin, President & CEO, discuss their results.Machin discussed the fund's fiscal year-end results, the impact of the coronavirus pandemic on its portfolio holdings, and the outlook for commercial real estate with Bloomberg's Erik Schatzker on "Bloomberg Markets: European Close."He also talked about the latest quarter with BNN Bloomberg's Amanda Lang stating "there was nowhere to hide". “There were some remarkable opportunities. I think a lot of things have come back right now, so they’re not massive, burning opportunities given how much the force of government and central bank support has really put huge amounts of liquidity back into markets.”Lastly, fair value assessments are some of the most important pieces of information that CPPIB's senior managers use to manage the Fund’s assets. Neil Beaumont, Senior Managing Director & Chief Financial and Risk Officer, explains how they assess and determine the fair value of their investments. Take the time to watch this, it's important to understand they don't "fudge" the numbers. http://creativecommons.org/licenses/by-nc-sa/3.0/ Pandemic Unemployment Aid Intensifies Debate Over Classifying Gig Workers https://www.employeebenefitsblog.com/2020/05/pandemic-unemployment-aid-intensifies-debate-over-classifying-gig-workers-covid/ https://www.employeebenefitsblog.com/2020/05/pandemic-unemployment-aid-intensifies-debate-over-classifying-gig-workers-covid/ Thu, 28 May 2020 14:24:41 UTC Michelle S. Strowhiro at Employee Benefits Blog The federal Pandemic Unemployment Assistance program extends relief to workers and employees who don’t have access to state benefits, but it will almost certainly put pressure on gig economy companies to start paying into state unemployment insurance funds as government resources continue to diminish due to COVID-19, attorneys say. Michelle S. Strowhiro, partner at McDermott... Continue Reading http://creativecommons.org/licenses/by-nc-sa/3.0/ Proposed Jobs Credit Act Would Significantly Expand CARES Act Employee Retention Tax Credits https://www.employeebenefitsblog.com/2020/05/proposed-jobs-credit-act-would-significantly-expand-cares-act-employee-retention-tax-credits/ https://www.employeebenefitsblog.com/2020/05/proposed-jobs-credit-act-would-significantly-expand-cares-act-employee-retention-tax-credits/ Wed, 27 May 2020 15:15:40 UTC Brian Tiemann, Sarah L. Engle, Andrew Liazos and David Fuller at Employee Benefits Blog A bill titled Jumpstarting Our Businesses’ Success Credit Act of 2020, which would make significant changes to the employee retention tax credits available under the CARES Act, is currently under consideration in the US House of Representatives. In this article, we outline the proposed changes, which are generally designed to increase the availability, scope and... Continue Reading http://creativecommons.org/licenses/by-nc-sa/3.0/ Top Funds' Activity in Q1 2020 http://pensionpulse.blogspot.com/2020/05/top-funds-activity-in-q1-2020.html http://pensionpulse.blogspot.com/2020/05/top-funds-activity-in-q1-2020.html Wed, 27 May 2020 15:01:17 UTC at Pension Pulse Jason Orestes of The Street reports Amazon is clearly what hedge funds are betting on these days:Amazon has been a major beneficiary of the Covid-19 chaos, and hedge funds have taken notice.The fastest bear market in history saw a 30% plummet followed by a rapid 30% rebound. But there has been a large bifurcation in this rally. While many stocks remain significantly depressed on the year, tech has flourished. The Nasdaq is actually up year to date, and megacap tech, buoyed by stay-at-home orders and an inexorable trend of work-from-home (WFH) policy becoming the norm, has reaped much of these gains.Amazon’s 32% return has outpaced all FAANG + Microsoft names save Netflix (39%), but more importantly, Amazon has transmuted its tech designation to that of the ultimate “essential” business. The coronavirus pandemic has exposed the fragility of many business models, but it’s managed to do the opposite for Amazon. When something is fragile, it suffers or breaks under stress or change; when something is antifragile, it actually gains from uncertainty and disruption. Amazon has shown itself to be perhaps the ultimate antifragile business. Already a superior trillion-dollar enterprise during normal times, its delivery and Amazon Web Services businesses (think WFH) will benefit from the new paradigm that coronavirus has ushered in. It appears hedge funds by and large agree. Amazon is the largest position as of the end of the first quarter for many top funds such as David Tepper’s Appaloosa, Alex Sacerdote’s Whale Rock and Stanley Druckenmiller’s family office. And of all the megacap tech names, it was the only one that saw an increase in shares held across both institutions and hedge funds, per 13F data from WhaleWisdom.Of 13F-filing hedge funds ($100 million or more in assets under management), Amazon is held by 40% of them, and is a top-10 holding of 21%. This ranks second to only Microsoft, which is held by 43% of them and is a top-10 holding of 25%. However, Amazon's institutional and hedge fund share count holdings increased by 1.82% and 4.73%, respectively, as opposed to Microsoft’s mixed bag (-3.85% and +0.7%, respectively). Netflix was the only other FAANG member to see an increase in holdings across both institutions and hedge funds, albeit much more tepidly so than Amazon, with a +0.23%, and +0.93% increase, respectively. Apple (-3.69%, +.39%) and Google (-3.45%, +.29%) saw surprisingly high institutional reductions in the first quarter, and Facebook was a wash between the two (-1.07%, +1.2%).Amazon’s rocketing favorability can also be seen by its weighting increase across hedge funds. The table below shows the top-10 stocks by summed percentage holdings across 13F-filing hedge funds. This is a way to glean insight into the overall conviction hedge funds have across symbols that adjusts for portfolio size. That's because if only a handful of massive funds bought huge positions in Amazon, it would show in the aggregate stats as a major uptick in shares held, but wouldn’t speak to the breadth or weighting of the stock by all funds. Using this method, however, a $10 billion fund with 10% of its assets in Amazon ($1B) is measured the same as a $100 million fund with 10% of its portfolio in it ($10M).Even by this metric, no one saw as big an uptick as Amazon. Microsoft still holds the total top honor, however, Amazon’s 57% increase in summed portfolio weighting outdistanced all others. At a 42% increase, Microsoft came in second for greater weighting, and somewhat curiously Allergan came in 3rd with a 40% rise. The increase across other FAANG names was muted, and Netflix doesn’t even make the list.The smart money consensus is clear: Amazon is the ultimate all-weather company.No doubt about it, Amazon shares (AMZN) have been flying high during this pandemic and some even think Jeff Bezos will become the world's first trillionaire in six years:Could Jeff Bezos really become the world's first trillionaire by 2026? (via @CNBCMakeIt) https://t.co/Pa0A2EqYeX— CNBC (@CNBC) May 24, 2020What do I think? I think Bezos is already obscenely wealthy and there's no chance he will be the world's first trillionaire in six years, especially if the US government goes after his company to break up its monopoly power (don't laugh, that's the biggest risk Amazon faces and Bezos knows it which is why he is lobbying Washington like crazy).Anyways, it's that time of the year again� when we get a sneak peek into the portfolios of the world's top funds. What is interesting this time around is we get to see who bought the big coronavirus dip and what they bought and sold last quarter.Zero Hedge did a good job going over what top funds bought and sold last quarter during the chaos:Warren Buffett’s�Berkshire Hathaway which as we reported last night slashed its Goldman position by 84% and trimmed its JPM shares as the pandemic started to roil financial markets, before liquidating its entire airline portfolio.Larry Robbins’s�Glenview and Zeke Capital�Advisors, a money manager for ultra-wealthy families, were among those that drastically cut equity positions according to Bloomberg. Glenview slashed its stock market exposure during the first quarter, disclosing it held U.S.-traded equities with a stock market value of $3.7 billion at March 31, down from $11.4 billion at year end.Tiger Global Management�trimmed its stake in alternative asset manager�Apollo Global Management for the first time in five quarters, even as Bill Ackman built a $25 million stake in private equity powerhouse�Blackstone Group during the quarterManagers were mixed on�Facebook in the quarter.�D1 Capital piled into the social-media giant, boosting its stake by 70%, and Soroban Capital Partners and�Baupost Group�started new positions. On the other side of the trade were Coatue Management�and�Viking Global Investors which both slashed their holdings. Facebook slumped 19% in the first quarter as its advertising business took a hit in the crisis.Aaron Cowen's Suvretta Capital Management acquired shares in several consumer-focused chains. The list includes a $55 million bet on TJX Cos., parent to TJ Maxx discount stores.Below, courtesy of Bloomberg, is a summary of what some of the most popular hedge funds did during the most turbulent quarter for capital markets since the financial crisis:ADAGE CAPITALTop new buys: SO, MNTA, AMTD, SAFM, OSK, GLD, CX, REGN, ATRC, OGETop exits: MMM, JCI, VST, SWX, SCHW, ECL, USB, SPG, MDU, AMRNBoosted stakes in: HON, LMT, TGT, LLY, ROST, AMZN, TEL, TJX, DG, SRPTCut stakes in: RTX, BAC, JPM, BURL, T, BA, AAP, BRK/B, MA, UABALYASNY ASSET MANAGEMENTTop new buys: ATVI, LOW, DG, INTC, JPM, CHTR, TTWO, ICE, PFE, TFCTop exits: AIG, PNC, BAC, UNP, ETN, FB, BA, RTX, SPGI, MKLBoosted stakes in: NFLX, BSX, QGEN, JD, AMTD, ABBV, LM, KBR, HAS, LMTCut stakes in: XOM, LHX, AJG, CRM, AAP, DE, ESS, AXP, ZEN, GSBAUPOST GROUPTop new buys: GOOG, FB, HDS, ET, XPO, SPRTop exits: BMY, SYF, NUAN, ERI, MDRIQBoosted stakes in: EBAY, HPQ, MCK, CARS, QRVO, NXST, LBTYKCut stakes in: LNG, UNVR, PCG, ABC, AKBABERKSHIRE HATHAWAYTop exits: TRV, PSXBoosted stakes in: PNC, UAL, DALCut stakes in: JPM, GS, GM, LUV, AAL, SYF, AXTA, SIRI, SU, VRSNBRIDGEWATER ASSOCIATESTop new buys: UNH, MCD, LMT, PM, PEP, ACN, SPGI, ABT, HON, FISTop exits: JPM, BAC, WFC, C, USB, GS, MS, BLK, PNC, ADSBoosted stakes in: HD, SHW, LOW, ZTO, TAL, GDS, PDD, ORLY, WUBA, IQCut stakes in: SPY, VWO, IVV, EWZ, IEMG, HYG, EWT, VEA, EFA, IEFACOATUE MANAGEMENTTop new buys: JD, TSLA, CRWD, CREE, LRCX, ZM, FIT, CGC, BBBY, DDDTop exits: ATVI, WDAY, EA, XRX, ILMN, CRM, V, PDD, INTU, SCHWBoosted stakes in: NKE, DDOG, NFLX, PTON, MU, AMZN, PYPL, GDOT, GLUU, DTCut stakes in: NOW, MA, LBRDK, TWTR, ADBE, BABA, FB, RNG, MSFT, SHOPCORSAIR CAPITAL MANAGEMENTTop new buys: VRT, QQQ, AAPL, CHNG, CC, PSEC, BBCPTop exits: IWM, IWO, MDY, EQH, AER, ALLY, CASH, DSSI, LTHM, SBLKBoosted stakes in: MSFT, SPY, GOOG, SMIT, CUBI, INFO, CHDN, PRSP, IQV, HMHCCut stakes in: SPXC, KRA, FMC, HGV, LAUR, RHP, PLYA, VOYA, TROX, AONCORVEX MANAGEMENTTop new buys: CRM, BABA, ATVI, UNP, VMC, MPC, GLD, NFLX, MTCH, CNCTop exits: FSCT, RTX, TMUS, TWLOBoosted stakes in: ZEN, ATUS, AMZN, MGMCut stakes in: FANG, MSGS, ADBED1 CAPITAL PARTNERSTop new buys: DHR, MSFT, LYV, AZO, MU, PPD, NKE, UNH, USB, BACTop exits: NOW, ARMK, CHWY, NVST, CRM, EXASBoosted stakes in: ORLY, DIS, FB, FIS, LVS, JD, HLT, GOOGL, LIN, BABACut stakes in: NFLX, AMZN, TME, CCC, RACEDUQUESNE FAMILY OFFICETop new buys: PYPL, IQV, QCOM, TAL, EDU, LVS, TME, LKTop exits: IWM, EEM, JPM, HDB, FDX, PNC, WFC, AEM, MPC, SNAPBoosted stakes in: AMZN, NFLX, BABA, FB, GOOGL, ALNY, JD, FIS, NOW, ADBECut stakes in: GE, INDA, MSFT, FCX, HD, SE, ABT, COUP, PLAN, SNEEMINENCE CAPITALTop new buys: GLD, VRT, HDS, QSR, CHNG, PANW, MAR, BKNG, DD, SEETop exits: PGR, EA, TTWO, MNST, PYPL, DPZ, WW, LB, NVST, EQIXBoosted stakes in: MS, AVTR, HAE, RCL, PINS, SHAK, DHI, ABG, UBER, NEWRCut stakes in: BABA, GDDY, SCHW, NTNX, CI, CF, IQV, RJF, ICE, CNCENGAGED CAPITALCut stakes in: APOG, NCR, INWKFIR TREETop new buys: DELL, CMCSA, DIS, EXC, FLT, SHLL, THCA, GIX, NFIN, PICTop exits: VER, JNJ, LHX, SATS, RTX, VVNT, PAE, VRT, DKNG, IBoosted stakes in: TMUS, ANTM, TRNE, LCA, SLMCut stakes in: LAUR, CTXS, BKNG, CNC, CHAP, FPAC, MSFT, OACGREENLIGHT CAPITALTop new buys: CHNG, CCK, CNC, MO, PAYX, AXP, GS, DHR, BRK/B, DISTop exits: GM, DXC, SGMS, SATS, TPX, CEIXBoosted stakes in: CNX, BHF, AERCut stakes in: CC, ADNT, ATUS, TGP, XELAICAHNTop new buys: DKBoosted stakes in: OXY, WBT, NWL, HTZ, LNGIMPALA ASSET MANAGEMENTTop new buys: TGT, SIX, CSX, VMC, AAWW, MA, AMZN, FDX, EXP, FUNTop exits: HES, GD, FCX, CAT, CLR, XOP, HD, WAB, TRN, PIIBoosted stakes in: KSU, MSFT, PCAR, KNX, TTWO, KBH, NVR, HOG, UFI, LPXCut stakes in: RIO, SBLK, QCOM, WYNNJANA PARTNERSTop new buys: HI, NEWRTop exits: ZBH, WMGIBoosted stakes in: AXTA, JACK, BLMNCut stakes in: CAG, ELY, SPY, HDSLAKEWOOD CAPITAL MANAGEMENTTop new buys: MA, HCA, NSP, APO, AGNC, MCD, AMZN, CB, ICE, KFYTop exits: CDK, ON, ATUS, SLV, GLD, MAS, RTX, FDX, KSS, BMCHBoosted stakes in: WRK, GTS, BIDU, DELL, ANTM, CWK, FB, BCCut stakes in: C, CIT, ALLY, GS, ATH, CMCSA, WH, COF, WUBA, GOOGLLANSDOWNETop new buys: NSC, ONEM, DAR, VTIQ, AGI, NKETop exits: AAL, TXN, GRUB, CVE, CNQ, GSBoosted stakes in: FSLR, ETN, MU, RTX, SMMT, ADI, IQ, REGI, EGO, LRCXCut stakes in: DAL, UAL, TSM, GE, DHT, TT, BABALONG PONDTop new buys: RHP, MGM, AVB, VAC, JLL, CPT, CUZ, ESS, MLCO, MAATop exits: VTR, OC, DIA, LOW, LEN, CONE, PEAK, ALX, CTRE, EPRBoosted stakes in: WH, FR, PEB, AIV, JBGS, KRC, HGV, RRR, HLT, MSGSCut stakes in: DHI, VNO, H, PGRE, SBRA, HPPMAGNETAR FINANCIALTop new buys: WLTW, HPQ, ETFC, MEET, DLPH, BROG, IOTS, DLR, PPD, TERPTop exits: SPY, MPLX, NVS, CCC, SDC, ANTM, MMPBoosted stakes in: QGEN, PFE, WMB, KMI, EPD, BSX, PRGO, ABBV, CHNG, BMYCut stakes in: CZR, TIF, AMTD, WBC, ET, WMGI, PACB, LH, PAA, UBERMAVERICK CAPITALTop new buys: ONEM, AMZN, MNTA, ALKS, BX, GME, DECK, ARMK, WEN, JACKTop exits: WLK, INTC, AGCO, WDC, NKE, TAK, DEO, MKC, KSS, GISBoosted stakes in: QSR, HUM, MSFT, FB, KKR, FLT, NKTR, FTDR, PEP, ADBECut stakes in: MNST, DXC, GOOG, CNC, TMUS, LOW, BABA, ALNY, STNE, NFLXMELVIN CAPITAL MANAGEMENTTop new buys: AZO, MSFT, DPZ, DRI, JD, LB, EFX, ADI, DECK, WENTop exits: ATUS, AWI, TEAM, SEAS, SE, BILL, CHWYBoosted stakes in: AMZN, EXPE, BABA, TTWO, FIS, EDU, FISV, NFLX, IAA, FICOCut stakes in: WYNN, PLAN, MA, RACE, PUM, ADBE, NOW, DLTR, IQV, LKOAKTREE CAPITAL MANAGEMENTTop new buys: TMHC, BIDU, LBTYK, PBR, SRLP, ERI, WMB, BATL, MELI, SQMTop exits: YPF, YETI, HUYA, VRS, FPI, XOGBoosted stakes in: BABA, SMCI, AFYA, TV, INDA, CX, LOMA, VEON, TEO, PAMCut stakes in: IBN, BRFS, CEO, BCEI, MXOMEGA�ADVISORSTop new buys: JPM, NBR, FB, LEETop exits: UAL, DD, NRG, UNH, CCL, FANG, HES, DOW, GLD, WFCBoosted stakes in: FOE, COOP, CNC, RTIX, AMCX, STKL, VICI, FLMN, NAVI, OCNCut stakes in: FISV, GOOGL, C, CIM, ASH, TRN, GTNSOROBAN CAPITALTop new buys: AMZN, NOC, MSFT, LHX, FB, QSR, SNETop exits: MAR, NXPI, HLT, RTX, AXTABoosted stakes in: CSXCut stakes in: BABA, NSC, UNP, GOOGL, GRASOROS CAPITAL MANAGEMENTTop new buys: AMZN, AAPL, V, TMUS, BKNG, STZ, CDK, LRCX, HDS, IACTop exits: TSG, BABA, FB, CRM, AMT, PYPL, PANW, AMD, C, FCXCut stakes in: GLD, GOOGL, ATUS, IBN, CHTR, YNDX, ORCCSOROS FUND MANAGEMENTTop new buys: TDG, XLU, MUB, LM, LQD, TMUS, ARMK, TCO, NI, LNTTop exits: MDLZ, ADM, EPC, KDP, JPM, NLY, C, BAC, ALLY, NRGBoosted stakes in: PTON, ATVI, ETFC, ALC, WMGI, DHI, AMTD, EQH, BK, ALLCut stakes in: LBRDK, VICI, GOOGL, ENR, NLOK, VST, UNH, BGCP, TIF, CZRSTARBOARDTop new buys: CVLT, MMSI, GDOT, ACIW, REZITop exits: SPY, IWR, MGMBoosted stakes in: BOX, GCP, MD, EBAYCut stakes in: CERNTEMASEK HOLDINGSTop new buys: BILL, BEAM, VRT, VMW, FSLY, UBERTop exits: BP, TOTBoosted stakes in: MA, DDOG, HDB, PYPL, TMO, BGNE, VCut stakes in: BABA, INFO, RDS/B, NIO, UNVR, WORK, STNE, VNET, TOUR, TALTHIRD POINTTop new buys: DIS, CHTR, ROP, TEL, SERV, SHWTop exits: CPB, BSX, FOXA, FIVE, AMTD, BKI, SCHW, GO, XP, GTTBoosted stakes in: AMZN, CNC, RACE, SHYCut stakes in: BAX, RTX, BURL, CRM, IQV, ADBE, DHR, AVTR, FIS, SNETIGER GLOBALTop new buys: ATH, PTON, DNKTop exits: WORK, VXXBoosted stakes in: WDAY, RNG, BABA, DDOG, PLAN, EDU, CRM, ADBE, MA, CVNACut stakes in: APO, TDG, UBER, FLT, SPOT, GOOGL, AMZN, ZEN, PYPL, SMARTUDOR INVESTMENTTop new buys: GLIBA, PYPL, AAPL, MAA, SBBX, DEI, KO, CERN, SOXX, GLTop exits: IBKC, NNN, USB, LKQ, JCI, TAK, ESS, EXR, EQR, FLTBoosted stakes in: LM, RTX, AMTD, ETFC, MSFT, PJT, EQIX, AMZN, MTCH, TTWOCut stakes in: SPY, CZR, TIF, EBAY, XLF, MPC, EW, PSX, TIP, STZVIKING GLOBAL INVESTORSTop new buys: JPM, AXP, WDAY, CME, MU, ORLY, A, PGR, LVS, CHNGTop exits: MNST, SQ, MET, UNH, ATVI, EQH, TXT, MCK, COUP, MIDDBoosted stakes in: CMCSA, MSFT, FIS, CI, GOOGL, CNC, IR, AON, BSX, NSCCut stakes in: FB, NOW, ANTM, UBER, ADPT, MELI, CRM, NFLX, MOH, GOOSWHALE ROCK CAPITAL MANAGEMENTTop new buys: ZM, DOCU, JD, INTC, MU, ZS, LRCX, ATVI, NVDA, AAPLTop exits: MTCH, MRVL, WDAY, SNAP, CRUS, GRMN, MELI, RVLVBoosted stakes in: AMZN, TSLA, MSFT, CRWD, DDOG, FTNT, BILL, SHOP, FIVN, NOWCut stakes in: COUP, DIS, FB, STNE, CVNA, CDAY, W, TSM, BABA, MIMEIt's funny, I didn't see Twilio (TWLO) on this list and it's the stock that impressed me the most since March, even more than Zoom:I also read an interesting article on why Elliott Management might be in big trouble. Paul Singer's fund bought the iShares iBoxx Investment Grade Corp Bond ETF (LQD), the iShares iBoxx High Yield Corp Bond ETF (HYG) call options, the Energy Select Sector SPDR ETF (XLE) call options, and Tesla PRN and Dropbox put optionsAccumulating XLE call options might have impacted Elliott’s return in the second quarter of 2020. In April, WTI crude oil prices turned negative. As a result, the entire energy sector’s stock prices collapsed.Who knows? I wouldn't bet big against Paul Singer, I'm sure he will bounce back if he underperformed in Q2 (remains to be seen; you can view his top stock holdings here).Now, before we go further, keep in mind this data is lagged by 45 days and there was a huge bounce from the March 23rd low when Bill Ackman went on CNBC to scare the bejesus out of retail investors (while he and his hedge fund buddies were loading up on stocks).There really is one chart on my mind these days:The mighty Nasdaq has been the main beneficiary of the Fed's massive liquidity. Perhaps this is why some retail traders are crushing hedge funds again:Retail Investors Are Crushing Hedge Funds Again | Zero Hedge https://t.co/bjGi1Ux4kz— Leo Kolivakis (@PensionPulse) May 25, 2020 Many Americans used part of their coronavirus stimulus check to trade stocks @CNBC https://t.co/uakAf8vLHr— Leo Kolivakis (@PensionPulse) May 24, 2020 But if I told you there will be 40 million Americans unemployed and tech stocks would be registering record highs, you'd think I'm nuts but that's where we are at.It's great for Jeff Bezos, Bill Gates, Larry Ellison, Larry Page, Sergey Brin, Mark Zucckerberg, Elon Musk and hedge fund gurus and retail traders playing their stocks, not so good for most Americans who don't own stocks and are now facing immense hardshipThis is a liquidity-driven bear market rally, the mother of all bear market rallies and make no mistake, it will come to a bad end:Bear market rally or new bull? Breaking down the market after another winning week https://t.co/rn20wNA2Si— Leo Kolivakis (@PensionPulse) May 25, 2020 Why the Economy Is Headed for a Post-Coronavirus Depression https://t.co/KEHlkIFziE— Leo Kolivakis (@PensionPulse) May 23, 2020 So, you can follow the gurus and buy more Amazon or you can pay attention to Warren Buffett, Leon Black and other smart investors and wait for all this liquidity-driven silliness to come to an end.� And trust me, this party will come to an end:Viral video shows large crowd gathered with apparent lack of social distancing on Memorial Day weekend in Missouri. https://t.co/uz8MJ7yoiO pic.twitter.com/DJ7QOEJGTA— ABC News (@ABC) May 25, 2020 The young idiots are having fun now but when the full force and fury of the pandemic and the depression hits them, it won't be fun, it will be hell.My advice? Hunker down and ignore what hedge fund gurus bought and sold last quarter, that big bounce was the easy money, hard times await us.Anyway, markets are closed due to Memorial Day so have fun looking at the latest quarterly activity of top funds listed below.The links take you straight to their top holdings and then click on the column head "Change (%)" to see where they increased and decreased their holdings (you have to click once or twice to see).Top multi-strategy and event driven hedge fundsAs 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 LP2) Citadel Advisors 3) Balyasny Asset Management4) Point72 Asset Management (Steve Cohen)5) Peak6 Investments6) Kingdon Capital Management7) Millennium Management8) Farallon Capital Management9) HBK Investments10) Highbridge Capital Management11) Highland Capital Management12) Hudson Bay Capital Management13) Pentwater Capital Management14) Sculptor Capital Management (formerly known as Och-Ziff Capital Management) 15) ExodusPoint Capital Management16) Carlson Capital Management17) Magnetar Capital18) Whitebox Advisors19) QVT Financial�20) Paloma Partners21) Weiss Multi-Strategy Advisors22) York Capital ManagementTop Global Macro Hedge Funds and Family OfficesThese 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 Management2) Icahn Associates3) Duquesne Family Office (Stanley Druckenmiller)4) Bridgewater Associates5) 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 Management11) Element Capital12) Bill and Melinda Gates Foundation Trust (Michael Larson, the man behind Gates)Top Quant and Market Neutral Hedge FundsThese 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 Group2) Renaissance Technologies3) DE Shaw & Co.4) Two Sigma Investments5) Cubist Systematic Strategies (a quant division of Point72)6) Numeric Investors now part of Man Group7) Analytic Investors8) AQR Capital Management9) Dimensional Fund Advisors 10) Quantitative Investment Management 11) Oxford Asset Management12) PDT Partners13) Angelo Gordon14) Quantitative Systematic Strategies15) Quantitative Investment Management16) Bayesian Capital Management17) SABA Capital Management18) Quadrature Capital19) Simplex TradingTop Deep Value, Activist, Event Driven and Distressed Debt FundsThese 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 Hathaway3) TCI Fund Management4) Baron Partners Fund (click here to view other Baron funds)5) BHR Capital6) Fisher Asset Management7) Baupost Group8) Fairfax Financial Holdings9) Fairholme Capital 10) Gotham Asset Management 11) Fir Tree Partners12) Elliott Associates13) Jana Partners14) Miller Value Partners (Bill Miller)15) Highfields Capital Management�16) Eminence Capital 17) Pershing Square Capital Management18) New Mountain Vantage� Advisers19) Atlantic Investment Management20) Polaris Capital Management21) Third Point22) Marcato Capital Management23) Glenview Capital Management24) Apollo Management25) Avenue Capital26) Armistice Capital27) Blue Harbor Group28) Brigade Capital Management29) Caspian Capital30) Kerrisdale Advisers31) Knighthead Capital Management32) Relational Investors33) Roystone Capital Management34) Scopia Capital Management35) Schneider Capital Management 36) ValueAct Capital37) Vulcan Value Partners 38) Okumus Fund Management39) Eagle Capital Management40) Sasco Capital41) Lyrical Asset Management42) Gabelli Funds43) Brave Warrior Advisors44) Matrix Asset Advisors45) Jet Capital46) Conatus Capital Management47) Starboard Value 48) Pzena Investment Management49) Trian Fund ManagementTop Long/Short Hedge FundsThese 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 Management2) Viking Global Investors3) Greenlight Capital4) Maverick Capital5) Pointstate Capital Partners�6) Marathon Asset Management7) Tiger Global Management (Chase Coleman)8) Coatue Management9) D1 Capital Partners10) Artis Capital Management11) Fox Point Capital Management12) Jabre Capital Partners13) Lone Pine Capital14) Paulson & Co.15) Bronson Point Management16) Hoplite Capital Management17) LSV Asset Management18) Hussman Strategic Advisors19) Cantillon Capital Management 20) Brookside Capital Management21) Blue Ridge Capital22) Iridian Asset Management23) Clough Capital Partners24) GLG Partners LP25) Cadence Capital Management26) Honeycomb Asset Management27) New Mountain Vantage28) Penserra Capital Management29) Eminence Capital30) Steadfast Capital Management31) Brookside Capital Management32) PAR Capital Capital Management33) Gilder, Gagnon, Howe & Co34) Brahman Capital35) Bridger Management�36) Kensico Capital Management 37) Kynikos Associates38) Soroban Capital Partners39) Passport Capital40) Pennant Capital Management41) Mason Capital Management42) Tide Point Capital Management 43) Sirios Capital Management�44) Hayman Capital Management45) Highside Capital Management46) Tremblant Capital Group47) Decade Capital Management48) Suvretta Capital Management49) Bloom Tree Partners 50) Cadian Capital Management51) Matrix Capital Management52) Senvest Partners53) Falcon Edge Capital Management54) Park West Asset Management55) Melvin Capital Partners56) Owl Creek Asset Management57) Portolan Capital Management58) Proxima Capital Management59) Tourbillon Capital Partners60) Impala Asset Management61) Valinor Management62) Marshall Wace63) Light Street Capital Management64) Rock Springs Capital Management65) Rubric Capital Management66) Whale Rock Capital 67) Skye Global Management68) York Capital Management69) Zweig-Dimenna AssociatesTop Sector and Specialized FundsI 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 Advisors3) Perceptive Advisors 4) Broadfin Capital5) Healthcor Management6) Orbimed Advisors7) Deerfield Management8) BB Biotech AG9) Birchview Capital10) Ghost Tree Capital 11) Sectoral Asset Management12) Oracle Investment Management 13) Palo Alto Investors14) Consonance Capital Management15) Camber Capital Management16) Redmile Group17) RTW Investments18) Bridger Capital Management19) Boxer Capital20) Bridgeway Capital Management21) Cohen & Steers22) Cardinal Capital Management23) Munder Capital Management24) Diamondhill Capital Management�25) Cortina Asset Management26) Geneva Capital Management27) Criterion Capital Management 28) Daruma Capital Management29) 12 West Capital Management30) RA Capital Management31) Sarissa Capital Management32) Rock Springs Capital Management33) Senzar Asset Management34) Southeastern Asset Management35) Sphera Funds 36) Tang Capital Management37) Thomson Horstmann & Bryant38) Ecor1 Capital39) Opaleye Management40) NEA Management Company41) Great Point Partners42) Tekla Capital Management43) Van Berkom and AssociatesMutual Funds and Asset ManagersMutual 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) Fidelity2) BlackRock Inc3) Wellington Management4) AQR Capital Management5) Sands Capital Management6) Brookfield Asset Management7) Dodge & Cox8) Eaton Vance Management9) Grantham, Mayo, Van Otterloo & Co.10) Geode Capital Management11) Goldman Sachs Group12) JP Morgan Chase & Co.13) Morgan Stanley14) Manulife Asset Management15) RCM Capital Management16) UBS Asset Management17) Barclays Global Investor18) Epoch Investment Partners19) Thornburg Investment Management20) Kornitzer Capital Management 21) Batterymarch Financial Management22) Tocqueville Asset Management23) Neuberger Berman24) Winslow Capital Management25) Herndon Capital Management26) Artisan Partners 27) Great West Life Insurance Management28) Lazard Asset Management�29) Janus Capital Management 30) Franklin Resources31) Capital Research Global Investors32) T. Rowe Price 33) First Eagle Investment Management34) Frontier Capital Management35) Akre Capital Management36) Brandywine Global37) Brown Capital Management38) Victory Capital Management39) Orbis 40) ARK Investment ManagementCanadian Asset ManagersHere are a few Canadian funds I track closely:1) Addenda Capital2) Letko, Brosseau and Associates3) Fiera Capital Corporation4) West Face Capital5) Hexavest6) 1832 Asset Management7) Jarislowsky, Fraser8) Connor, Clark & Lunn Investment Management9) TD Asset Management10) CIBC Asset Management11) Beutel, Goodman & Co12) Greystone Managed Investments13) Mackenzie Financial Corporation14) Great West Life Assurance Co15) Guardian Capital16) Scotia Capital17) AGF Investments18) Montrusco Bolton19) CI Investments 20) Venator Capital Management21) Van Berkom and Associates22) Formula Growth23) Hillsdale Investment ManagementPension Funds, Endowment Funds, and Sovereign Wealth FundsLast but not least, I the track activity of some pension funds, endowment and sovereign wealth funds. I like to focus on funds that invest in top hedge funds and have internal alpha managers. Below, a sample of pension and endowment funds I track closely:1) Alberta Investment Management Corporation (AIMco)2) Ontario Teachers' Pension Plan 3) Canada Pension Plan Investment Board4) Caisse de d�p�t et placement du Qu�bec5) OMERS Administration Corp.6) British Columbia Investment Management Corporation (BCI)7) Public Sector Pension Investment Board (PSP Investments)8) PGGM Investments9) APG All Pensions Group10) California Public Employees Retirement System (CalPERS)11) California State Teachers Retirement System (CalSTRS)12) New York State Common Fund13) New York State Teachers Retirement System14) State Board of Administration of Florida Retirement System15) State of Wisconsin Investment Board16) State of New Jersey Common Pension Fund17) Public Employees Retirement System of Ohio18) STRS Ohio19) Teacher Retirement System of Texas 20) Virginia Retirement Systems21) TIAA CREF investment Management22) Harvard Management Co.23) Norges Bank24) Nordea Investment Management25) Korea Investment Corp.26) Singapore Temasek Holdings�27) Yale Endowment Fund Below, once more, take the time to listen to Stanley Druckenmiller, Chairman & CEO, Duquesne Family Office LLC, discuss today's market strategies with the moderator Scott Bessent.If you still want to buy FAANG stocks after watching this, be my guest, just don't come crying to be when stocks head south and make lower lows than in March.And Invesco’s Kristina Hooper warns the coronavirus is not the biggest threat to the market.She sees flaring US-China trade tensions potentially doing the most harm to stocks.“The pandemic has largely been isolated and neutralized because of all the monetary policy support that the Fed has provided,” she told CNBC’s “Trading Nation” on Friday. “That really has decoupled the economy from the stock market.”Unlike the pandemic, Hooper contends a tariff war resurgence would be a direct hit to the market.“As we saw in late 2018 and 2019, the tariff war was very, very problematic. It created a big headwind for stocks [and] a bigger headwind than for the overall economy, ” she said. “That could be happening again this time around.” http://creativecommons.org/licenses/by-nc-sa/3.0/ US Public Pensions Less Than 60% Funded? http://pensionpulse.blogspot.com/2020/05/us-public-pensions-less-than-60-funded.html http://pensionpulse.blogspot.com/2020/05/us-public-pensions-less-than-60-funded.html Tue, 26 May 2020 21:04:41 UTC at Pension Pulse Steffan Navedo-Perez of Chief Investment Officer reports that Goldman Sachs estimates public pensions are now less than 60% funded on average:Average funding ratios for public pension funds have declined to 60% and below, down from 74% before the crisis, according to Goldman Sachs Senior Pension Strategist Michael Moran.In an interview with Yahoo Finance, Moran discussed the most prominent issue pension funds will face: hitting their return targets. Usually set at about 7%, today’s extremely low interest rates will make that all the more difficult to attain in the future. “What potentially changes [with public pension funds] is how they think about asset allocation and liquidity going forward,” Moran said. “Many of these plans have a 6.5% to 7% nominal return target, and I think many of them are questioning, ‘How do I hit that target in an environment where 30-year Treasury bond yields are below 1.5%.’” “It just becomes more challenging and I think they’ll have to become more nimble, more tactical, certainly many of them have moved to alternatives over the past number of years, and I think that just accelerates going forward,” he said.Hitting their return targets becomes even more difficult to achieve as local governments restrict their spending as a result of constrained budgets, which mean less money being funneled into the pension plans they’re associated with. “A big issue for the public sector is not just what’s going on with their asset portfolios … [but also] what’s going on with state and local finances,” Moran said. “Because, as we have a recession, as state revenues decline, their ability to fund their pensions becomes a lot more challenged.”The fiscal distress facing these local governments will make it more difficult for pensions to stay solvent, as it had in the past, Moran explained.“Our work would indicate that coming into the year, public pensions were in aggregate funded about 72-73%, that has now dropped to below 60%,” he said.“When we look at previous recessions—the period after September 11, or the period after the global financial crisis, for several years, many state and local governments under-contributed to their plans because they had budgetary stress and I think that’s going to be a key concern going forward,” he explained. “Their ability to make contributions, not just in 2020, but really over the next couple of years.”Mike Moran isn't telling me anything I didn't already know and neither is Lance Roberts who wrote a lengthy comment on the arrival of the "unavoidable pension crisis".The coming US public pension crisis is something I wrote about last year and the pandemic only accelerated the deterioration in their funded status.It's simple. Just keep these points in mind:Pensions are all about managing assets and liabilities.The duration of pension liabilities is a lot bigger than the duration of pension assets because liabilities go out 75+ years at a typical pension.This effectively means a drop in long-term interest rates will increase liabilities A LOT MORE than any increase in assets, so even when assets recover, as long as rates remain at record lows, underfunded pensions are in big trouble.The perfect storm for pensions (all pensions) is when assets get hit and rates drop precipitously, but again, it's the drop in rates which really hurts pensions.Unlike corporate plans, US public pensions use a very high discount rate (not market rates) to discount their future liabilities. Many have lowered their discount rate from 8% to 7% but it remains way too high.In order for US public pensions to make up for the shortfall, contribution rates have to up (ie. discount rate needs to be lowered), benefits have to be cut or both.On top of this, many states have not topped up their public pensions because they are fiscally challenged but all this does is make the problem a lot worse over the years.Public pension deficits are path dependent, meaning the starting point matters. If these US public pensions were 70% funded prior to the COVID-19 crisis, they were taking a lot of equity risk and now they're 60% funded. In fact, in October 2019, the Fed warned US public pensions reaching for yield that they will run into trouble, and they have.In Canada, large pension plans are fully funded because they got the governance and risk sharing right. They manage public and private assets internally because they got the compensation right and if they ever run into trouble, they have adopted conditional inflation protection to get their plan back to fully funded status. Conditional inflation protection ensures the risk of the plan is equally split between retired and active members, effectively ensuring intergenerational equity.Now, where do we stand? The yield on the 10-year US Treasury note stands just under 0.7%.This means to make their 7% return target, US public pensions need to take more risks across public and private markets.Stocks are very volatile, as we have seen over the last two quarters, so expect pensions to invest more in private equity, real estate, infrastructure and hedge funds.The problem? Private equity has reached its Minsky moment and there is a paradigm shift going on in real estate. Infrastructure assets related to transportation (airports, ports, toll roads) are also getting hit and hedge funds continue to underperform.What about private debt or credit funds? I guess if you're taking a big stake in Apollo's new fund you will be fine but some areas of private debt worry me as we haven't yet felt the solvency crisis.The other problem with US public pensions is their compensation structure doesn't allow them to hire more qualified people to do more co-investments in private equity, lowering the fee drag.Always going via funds is expensive and it impacts long-term performance.The truth is Canadian pensions have seen better performance from their large co-investments than their fund investments in the last few years and this won't change.Anyway, I can go on and on about US public pensions but I've said enough. While I know they positively contribute to the overall economy, there is no US pension festivus and when the going really gets tough, expect massive US public pension bailouts.Below, Mike Moran, Senior Pension Strategist at Goldman Sachs Asset Management joins Yahoo Finance's Alexis Christoforous and Brian Sozzi to discuss what pension managers are doing right now to ensure they're able to fund plans going forward.And yours truly recently updated Ed Harrison and Real Vision viewers on the state of the global pension system with a specific focus on whether state pension funds will go bankrupt or get bailed out (filmed on April 24, 2020). http://creativecommons.org/licenses/by-nc-sa/3.0/ IRS Issues Relaxed Cafeteria Plan Rules https://www.employeebenefitsblog.com/2020/05/irs-issues-relaxed-cafeteria-plan-rules/ https://www.employeebenefitsblog.com/2020/05/irs-issues-relaxed-cafeteria-plan-rules/ Tue, 26 May 2020 15:18:06 UTC Judith Wethall and Jacob Mattinson at Employee Benefits Blog To help cafeteria plan participants address challenges arising from the COVID-19 crisis, the Internal Revenue Service recently issued guidance allowing employers to make a number of participant-friendly changes under their cafeteria plans. While employer adoption of these more flexible rules is voluntary, plan sponsors should work with third-party administrators, insurance providers and legal advisors to... Continue Reading http://creativecommons.org/licenses/by-nc-sa/3.0/ IMCO's Big Stake in Apollo's New Fund http://pensionpulse.blogspot.com/2020/05/imcos-big-stake-in-apollos-new-fund.html http://pensionpulse.blogspot.com/2020/05/imcos-big-stake-in-apollos-new-fund.html Sat, 23 May 2020 22:09:00 UTC at Pension Pulse Christine Idzelis of Institutional Investor reports that Apollo took just two months to raise a credit fund that seeks to profit from tumultuous markets — and it got a swift and significant contribution from Canadian pension manager IMCO:When Apollo Global Management approached the Investment Management Corp. of Ontario about a credit fund it was raising in the market tumult caused by the coronavirus, the Canadian pension manger was ready to be nimble — even with its staff dispersed and working from home since mid-March.“It was clearly in the maelstrom, in the midst of the market chaos,” Christian Hensley, IMCO’s senior managing director of equities and credit, said Thursday in an interview. “Apollo reached out as we had been in close contact with them about a number of opportunities.” Demand from institutional investors drove the speedy fundraising of Apollo Accord Fund III B, a credit fund that closed on $1.75 billion in commitments within about eight weeks, according to a statement from the alternative asset manager Thursday. IMCO said it committed $250 million to the fund, moving “very quickly” to benefit from “dislocated opportunities as they arise.” Apollo, a New York-based private equity firm known for distressed investing, said it saw significant opportunity during the first quarter as the novel virus wreaked havoc on markets. The Accord fund focuses on “mispriced credit risk,” John Zito, Apollo’s deputy chief investment officer of credit and co-head of global corporate credit, said in the firm’s statement.IMCO said the new fund will seek to buy debt that has dropped in price for “non-economic reasons” as investors feel pressure to sell due to liquidity concerns when markets are dislocated. Apollo Accord Fund III B may invest in the debt of companies that are fundamentally sound, but whose credit prices have been dragged down by broad market selloffs during the crisis, Hensley explained.“This is about liquidity-driven dislocations,” James Zelter, Apollo’s co-president and CIO for credit, said in an interview. “If you go back to the dark days of March, we quickly drew down all the remaining capital in Accord III and executed on our mandate. It became very apparent that there was appetite for III B.”IMCO, which managed CAD$70.3 billion (about $50 billion) of assets at the end of December, plans to expand its credit investing. The Toronto-based pension manager expects to increase its credit assets to CAD$8 billion in the next five years, from CAD$3 billion currently, said Hensley. His group was well-positioned to quickly commit to Apollo, he said, because it had the liquidity it needed as well as the technology to conduct meetings online. At times, Hensley said he felt like he belonged to a call center when working from home in the early days of pandemic. “You get out of bed, you get ready in the morning, you turn on your screen, you hit a button, and you’re in a meeting,” he said. As the crisis was unfolding, Hensley said he hit that button repeatedly until suddenly it was past dinner time. “We were cranking away to react to — and be productive in — the market that we saw.” IMCO relied on Zoom during the fundraising process for Apollo Accord Fund III B, according to Hensley. “It’s been a different experience,” he said. “We were fortunate for having had the opportunity previously to have met with the portfolio managers.” In some ways, he found the online technology helped make the investment analysis more efficient when considering a commitment to the fund.“We could accelerate the process because we could invite our risk teams, our legal teams, our accounting teams, our performance measurement and attribution teams to the same calls all at the same time,” Hensley said. “We could run in parallel because we knew this was an important inflection point in the market.” While online meetings have proved productive, IMCO has been considering what working in the office might safely look like as economies begin to reopen during the pandemic.“Our senior management team has been meeting regularly thinking about ways to transition back to a new normal,” Hensley said. “We want to make sure we’re respectful of people’s individual wishes, but also the constraints of government and the virus itself.”My advice to the folks at IMCO is to get used to the new normal and think about the repercussions on your portfolio, especially real estate where there is a paradigm shift taking place.Truth is you can do due diligence on any fund working remotely. Yes, it's not perfect but you can certainly do it and on a fund like Apollo, it's even easier because they're a brand name with a stellar track record.IMCO put out a press release on this investment:The Investment Management Corporation of Ontario (IMCO) has committed US$250 million to Apollo Global Management, Inc.’s new Accord Fund III Series B (“The Fund”), in a Fund designed to enter the market during periods of dislocation and illiquidity. The Fund will focus on credits that have traded down due to liquidity-driven selling and non-economic reasons. IMCO’s Global Credit team closed the commitment on April 23, 2020, making it IMCO’s first investment with an Apollo-managed fund, one of the world’s largest alternative investment managers.“Our participation in this fund demonstrates how nimble our team can be in seeking valuable opportunities for our clients,” said Jennifer Hartviksen, Managing Director, Global Credit. Hartviksen noted that the process, from analysis to fund close, took approximately one month, indicating how well-matched IMCO’s capabilities are with Apollo’s proven ability to take advantage of market dislocations. “This is an example of IMCO adapting to market conditions and exploiting our liquidity very quickly so that clients have access to dislocated opportunities as they arise,” she said.IMCO recently launched its Global Credit program as a separate asset class to provide higher risk-adjusted returns than traditional fixed income, and to contribute additional diversification benefits to a total portfolio for clients. “As our program scales, we are initially relying on experienced strategic partners,” said Christian Hensley, Senior Managing Director, Private Equities and Credit. “The investment in this Fund is an example of the types of opportunities we’re pursuing — investments with sponsors that we believe have deep expertise, delivering diversifying and differentiating exposures, who are transparent, opportunistic, and value-oriented.”Apollo’s fundamentals-approach and sector-specific expertise allows for selective deployment during periods of both market stability and volatility, in line with IMCO’s Global Credit strategy. The Fund’s judicious use of hedges, designed to address fundamental risks, is well suited for IMCO’s long investment horizon.Let me be straight up, Apollo is one of the best credit funds in the world. IMCO jumped on the opportunity and took a significant stake in this new fund it's raising, and I would have done the exact same thing.Why? There will be no V-shaped economic recovery. The Fed is only addressing liquidity concerns and fueling another tech bubble in the Nasdaq but when solvency issues arise, and they will, then Apollo and other top distressed debt funds (Avenue Capital, Bain Credit, Blackstone, Oaktree, Lone Star, etc) will be very busy buying distressed debt for pennies on the dollar.The bankruptcy could come as soon as Friday night. It would make Hertz one of the highest-profile corporate defaults yet stemming from the coronavirus pandemic’s impact on American travelers. https://t.co/kmUFxJRn4Y— Edward Harrison (@edwardnh) May 22, 2020My former BCA Research and Caisse colleague, Brian Romanchuk, wrote an excellent blog comment on the incoherence of yield curve control. Take the time to read it here but this is his conclusion:Barring a miracle cure for COVID-19, the United States is drifting into a multi-year period of extremely depressed activity. There does not appear to be capacity to eradicate the virus, nor are older consumers or office workers willing to take meaningful health risks to benefit capitalism. Unless there is a magical transformation in the attitudes of the ruling elites, the fiscal policy response will remain reactive, and ineffectual. The Fed is the only entity in the United States that takes any responsibility for the effectiveness of policy, and so we should expect to see greater leaps in its policy framework.Although yield curve control is the most likely next step, negative interest rates cannot be ruled out. Health worries might strengthen the hand of those advocating the abolishing of paper money, removing one institutional barrier to negative interest rates.Brian gets it, this coronavirus isn't going away, too many investors are smoking vaccine pipe dreams and the credit funds are sitting on a lot of dry powder, patiently waiting to scoop in when the solvency crisis hits.More than a third of people who contract the coronavirus are likely asymptomatic and don’t report symptoms, according to the CDC. The agency issued new guidance this week: https://t.co/TJrUI1h5wg pic.twitter.com/c5bZ2XQBot— WebMD (@WebMD) May 22, 2020Interestingly, earlier this month, Apollo pivoted its buyout fund almost entirely into distressed mode as its co-founder Leon Black doesn’t anticipate that companies controlled by the firm will use the Fed’s main street lending program during the coronavirus pandemic: Apollo Global Management’s massive buyout fund has shifted its strategy to gain ownership of companies in distress during the coronavirus crisis, according to co-founder Josh Harris.Apollo’s $25 billion private equity fund has shifted “almost entirely” to a distressed strategy under which it aims to gain control of companies buy investing in their debt, Harris said during the firm’s first-quarter earnings call Friday. “We’ve seen the pace of that fund go up significantly in the last month and a half.” The destruction caused by the coronavirus pandemic is likely to lead to an economic cycle that looks more like an “L” than a “V,” according to Harris. While the Federal Reserve’s emergency intervention has helped markets function during the crisis, he said the economy is “really hurting” and could see gross domestic product drop 30 percent in the second quarter. “There’s a lot of companies that have no revenues,” said Harris. “Ultimately, a lot of the leverage that existed in the system is too high for cash flows that don’t exist over a medium term.” Apollo’s own portfolio has been hurt in the pandemic. The value of its private equity funds dropped 21.6 percent during the first quarter, according to the firm’s earnings report.None of the companies controlled by Apollo or its funds will be using the federal government’s Payment Protection Program as aid during the coronavirus crisis, Leon Black, the firm’s co-founder and chief executive officer, said during the earnings call.“Similarly, although we are still reviewing the guidance recently announced by the Federal Reserve, we do not anticipate that the main street lending program will provide any relief or financial assistance to companies controlled by us or our funds,” he said. Meanwhile, Apollo’s $25 billion buyout fund is only about a third invested, according to Black. He said “even with outsized opportunities, it’s probably going to be at least 18 to 24 months before we’re out fundraising again.”Black expects to see “a lot more distressed opportunities” over the next two years, drawing a comparison to the period surrounding the great financial crisis.Right after the “market dislocation” thirteen years ago, Apollo’s private equity fund VII was two-thirds invested in distressed, he said, compared with less than five percent for its next fund. “That is the bandwidth vis-�-vis distressed-for-control that can come out of the private equity funds.” I wouldn't bet against Leon Black. Two years ago, in a highly publicized article, Bloomberg depicted him as the "most feared man in private equity", a ruthless leader who made a fortune by buying struggling businesses with huge piles of debt at bargain-basement prices, imposing austerity measures on the staff, and extracting huge dividend payments and management fees.No doubt about it, Leon Black isn't someone you want to cross, and he has made his fortune during recessions buying up deals his rivals wouldn't touch. He has also had his share of controversy. Last year, he got into hot water for his past ties to Jeffrey Epstein, who was charged with sex trafficking and was forced to send a company-wide email to Apollo employees in which he explained that he was unaware of Epstein’s alleged criminal behavior. But these articles on Black should be taken with a grain of salt. He and his wife, Debra, run a successful foundation and they donate huge sums to charitable causes, donating to arts and most recently $20 million to help employees at hospitals in New York City, which have been hit hard by the coronavirus pandemic.Unbeknownst to me at the time, my introduction to Leon Black happened over 35 years ago when I was a young teenager asking my father, a psychiatrist, if rich people get depressed."Of course they do, depression hits everyone from all socioeconomic backgrounds," my father said. "Did I ever tell you the story of the CEO of United Brands Company who committed suicide in 1975 by jumping out of the 44th floor of the Pan Am Building in New York City? You were just four-years-old when it happened but I remember it well, it was tragic."Little did I know that CEO was Eli M. Black, Leon Black's father. That's not something easy for anyone to go through and so when people call him ruthless and "the most feared man in private equity," I ignore it. At the time of his father's death, Black was completing his MBA from Harvard University. Prior to that, he had received a BA in Philosophy and History from Dartmouth College in 1973 and that tells me he's extremely intelligent and well educated (I like people who studied philosophy and history, it shows me they're deep thinkers, like Isaiah Berlin and Charles Taylor). From 1977 to 1990, Leon Black was employed by investment bank Drexel Burnham Lambert, where he served as managing director, head of the Mergers & Acquisitions Group, and co-head of the Corporate Finance Department. Black was regarded as "junk bond king" Michael Milken's right-hand man at Drexel (a great mentor and friend).In 1990, he co-founded, on the heels of the collapse of Drexel Burnham Lambert, the private equity firm Apollo Global Management. Apollo is one of the world’s largest alternative investment managers, managing over $300 billion in assets for the world's most sophisticated investors.Like Blackstone, KKR, Carlyle and others, it has publicly traded shares which have bounced back nicely since March:Would I buy the shares? I'd much rather invest in its funds. These are the very best credit managers in the world and they deliver solid returns.Christian Hensley, IMCO’s Senior Managing Director of Equities and Credit, is a very sharp guy. Along with Jennifer Hartviksen, Managing Director of Global Credit, their focus is on finding opportunities and keeping a long-term view (read their insights here).Partnering up with Apollo is exactly what they should be doing, finding the very best partners to help them carry out their mandate. They need scale and they need the right partners to successfully deploy massive pools of capital fairly quickly when opportunities arise.Below, Christian Hensley, Senior Managing Director of Equities and Credit, at Investment Management Corp. of Ontario, discusses the Canadian pension fund's investment into a Apollo Global Management Inc. dislocation fund. He speaks with Bloomberg's Amanda Lang and Shery Ahn on "Bloomberg Markets."Listen carefully to Christian, he states they want to grow the global credit portfolio up to $8 billion and they need the right partners to find the right opportunities all over the world.And two years ago, Bloomberg's Sonali Basak reported that during the past 10 years, Leon Black has grown assets at Apollo Global Management Inc. sixfold to more than $320 billion, while Black himself has amassed a personal fortune of $9.5 billion. A Bloomberg Businessweek article examined why Black has become the most feared man in private equity. Last year, Leon Black, chairman and chief executive officer at Apollo Global Management, examined the prospect of a US economic downturn. He spoke with David Rubenstein at the Bloomberg Invest New York conference.David Rubenstein also interviewed Leon Black at SuperReturn International 2019 and I embedded this conversation too as it's well worth watching. Note how he says their worst fund returns 10% net and their best fund 45% but they underwrite looking for a 20% net return. That's incredible and shows you if you're locking up money with the right partners, it's well worth it. I also like what he said about hating business school.Lastly, CNBC's Scott Wapner talks with Avenue Capital CEO and chairman Marc Lasry about new deals he's working on and what he foresees for the US economy. Lasry says it's going to be a hard couple of years and we will be in a recession for awhile. http://creativecommons.org/licenses/by-nc-sa/3.0/ A Paradigm Shift For Real Estate? http://pensionpulse.blogspot.com/2020/05/a-paradigm-shift-for-real-estate.html http://pensionpulse.blogspot.com/2020/05/a-paradigm-shift-for-real-estate.html Fri, 22 May 2020 13:28:56 UTC at Pension Pulse Matthew Haag of the New York Times reports Manhattan faces a reckoning if working from home becomes the norm:Before the coronavirus crisis, three of New York City’s largest commercial tenants — Barclays, JP Morgan Chase and Morgan Stanley — had tens of thousands of workers in towers across Manhattan. Now, as the city wrestles with when and how to reopen, executives at all three firms have decided that it is highly unlikely that all their workers will ever return to those buildings.The research firm Nielsen has arrived at a similar conclusion. Even after the crisis has passed, its 3,000 workers in the city will no longer need to be in the office full-time and can instead work from home most of the week.The real estate company Halstead has 32 branches across the city and region. But its chief executive, who now conducts business over video calls, is mulling reducing its footprint.Manhattan has the largest business district in the country, and its office towers have long been a symbol of the city’s global dominance. With hundreds of thousands of office workers, the commercial tenants have given rise to a vast ecosystem, from public transit to restaurants to shops. They have also funneled huge amounts of taxes into state and city coffers.But now, as the pandemic eases its grip, companies are considering not just how to safely bring back employees, but whether all of them need to come back at all. They were forced by the crisis to figure out how to function productively with workers operating from home — and realized unexpectedly that it was not all bad.If that’s the case, they are now wondering whether it’s worth continuing to spend as much money on Manhattan’s exorbitant commercial rents. They are also mindful that public health considerations might make the packed workplaces of the recent past less viable. “Is it really necessary?” said Diane M. Ramirez, the chief executive of Halstead, which has more than a thousand agents in the New York region. “I’m thinking long and hard about it. Looking forward, are people going to want to crowd into offices?’’Of course, the demise of the Manhattan office market has been predicted for decades, especially after the Sept. 11, 2001, attacks. Owners of office towers, including two of the largest landlords in the city, Vornado Realty Trust and Empire State Realty Trust, said they were confident that after this crisis, companies would value in-person communication more than ever. That’s especially the case given how isolated some workers have felt since the shutdown began in March, the landlords said.The number of workers who actually prefer to be in an office because of the opportunity for social interaction is an unknown factor. Still, when the dust settles, New York City could face a real estate reckoning.David Kenny, the chief executive at Nielsen, said the company plans to convert its New York offices to team meeting spaces where workers gather maybe once or twice a week.“If you are coming and working at your desk, you certainly could do that from home,” Mr. Kenny said. “We have leases that are coming due, and it’s absolutely driving those kinds of decisions.’’“I have done an about-face on this,” he added.Barclays, JP Morgan Chase and Morgan Stanley are part of a banking industry that has long been a pillar of the city’s economy, with more than 20,000 employees. Collectively, they lease more than 10 million square feet in New York — roughly all the office space in downtown Nashville. Jes Staley, the chief executive of Barclays, the British bank, said that “the notion of putting 7,000 people in a building may be a thing of the past.”The company is studying jobs that would be most adaptable to working remotely, a spokesman said, and some employees could be required to show up in person only on an as-needed basis.James Gorman, the Morgan Stanley chief executive, declined a request for an interview. But he told Bloomberg that the company had “proven we can operate with no footprint. That tells you an enormous amount about where people need to be physically.”In a recent email to employees, JP Morgan Chase, which until last year had been the largest office tenant in New York City, said the company was reviewing how many people would be allowed to return. More than 180,000 Chase employees have been working from home.Other major companies, including Facebook and Google, have extended work-from-home policies through the end of the year, raising the prospect that some may never return to the office. Twitter, which has hundreds of employees in its New York office in the Chelsea neighborhood of Manhattan, told all its employees on Tuesday that they could work remotely forever if they want to and if their position allows for it.Warren Buffett, the chairman of Berkshire Hathaway and one of the country’s most prominent corporate leaders, predicted that the pandemic would lead many companies to embrace remote working arrangements. “A lot of people have learned that they can work at home,” Mr. Buffett said recently during his annual investors meeting.New York City has withstood and emerged stronger from a number of catastrophes and setbacks — the 1918 Spanish Flu, the Great Depression, the 1970s financial crisis and the 2001 terrorist attacks. Each time, people proclaimed the city would forever change — after 9/11, who would want to work or live in Lower Manhattan? — but each time the prognostications fizzled. But this moment feels substantially different, according to some corporate executives. The economy is in a sustained nosedive, with unemployment reaching levels not seen since the Great Depression. Many companies are in financial trouble and may look to shrink their real estate as a way to cut expenses. More fundamentally, if social distancing remains a key to public health, how can companies safely ask every worker to come back?“If you got two and a half million people in Brooklyn, why is it rational or efficient for all those people to schlep into Manhattan and work every day?” said Jed Walentas, who runs the real estate company Two Trees Management. “That’s how we used to do it yesterday. It’s not rational now.”Still, workers do much more than fill cubicles.Entire economies were molded around the vast flow of people to and from offices, from the rush-hour schedules of subways, buses and commuter rails to the construction of new buildings to the survival of corner bodegas. Restaurants, bars, grocery stores and shops depend on workers for their survival.Real estate taxes provide about a third of New York’s revenue, helping pay for basic services like the police, trash pickup and street repairs. Falling tax revenue would worsen the city’s financial crisis and hinder its recovery.“I get worried that the less money that is coming in, then we can pay less in taxes and less in services, and it becomes a vicious cycle,” said Brian Steinwurtzel, the co-chief executive at GFP Real Estate, the largest owner and manager of small tenant office and retail buildings in the city.Chinatown in Manhattan typifies the bond between office workers and surrounding neighborhoods. While Chinatown attracts tourists, many restaurants and stores rely just as much if not more on workers who typically pour in every day from the Financial District and nearby courthouses and municipal buildings.“It is not dramatic to say that we don’t know if Chinatown is going to be here when we come out of this,” said Jan Lee, 54, who owns two mixed-use buildings in the neighborhood, including one that his grandfather bought in 1924.One of his three commercial tenants, a makeup store, has not paid rent since January. None of them, including two formerly busy restaurants, have paid May rent. Mr. Lee has a roughly $250,000 property tax bill due on July 1 that he cannot afford to pay.“We have lost millions of dollars,” he said, “and millions of trips that people were taking to spend their lunch hour here.”At Aux Epices, a Malaysian and French bistro in Chinatown, Mei Chau, the chef and owner, used to serve up to 50 people at lunch, mostly workers from nearby office buildings.On Friday, she reopened the restaurant for takeout lunch. No one showed up.“I have had a hard time, and I know I’ll have a hard time,” she said.Landlords, developers and business owners were hopeful just a few weeks ago that the economy could largely reopen in June.But the reality, they now concede, is that late summer or early fall seems more realistic for a partial reopening, while a true reopening — something that might resemble a bustling New York — will not surface until there is a vaccine or effective therapeutics. Still, some developers are dubious that the sudden shift in work environments will become permanent in any significant way. Anthony E. Malkin, the chief executive of Empire State Realty Trust, the owner of the Empire State Building and eight other properties in Manhattan, said New York’s appeal — a diverse and educated work force and large industries, including a fast-growing technology sector — would drive an economic rebound and a desire for office space. “The absence of social contact through which people are living today is not sustainable,” Mr. Malkin said. “Can you pay the bills from home? Can you process things from home? Yes. But can you work as a team from home? Very challenging.” Mary Ann Tighe, the chief executive of CBRE’s New York Tri-State Region, the commercial real estate firm, said offices would undoubtedly change, with a mix of employees working remotely. But workers will still want to interact face to face. “This isn’t the nature of office work,” Ms. Tighe said, referring to work-from-home arrangements.Steven Roth, chairman of Vornado Realty Trust, one of the largest commercial landlords in the city, said on a company earnings call this month: “We do not believe working from home will become a trend that will impair office demand and property values. The socialization and collaboration of the traditional office is the winning ticket.”But driven by safety or financial considerations — or both — many companies, big and small, are rethinking the future of work.Small Planet, a small software developer in Brooklyn, said about half its work force is likely to continue working remotely even after the city reopens.“The world is going to be different when we come out of quarantine, and our habits and how we use office space will absolutely be different,” said Gavin Fraser, the company’s chief executive. “It really took the lockdown, if you will, to accelerate those trends.”Real estate is the most important private market asset class large Canadian and global investors invest in. It has delivered steady and high risk-adjusted returns and has provided pensions with steady cash flows over the years.I recently covered how coronavirus has infected various segments of real estate. Much like the stock market, anything related to travel, tourism and brick and mortar retail has been clobbered and anything related to e-commerce has thrived.This morning, Yahoo Finance’s Alexis Christoforous and Brian Sozzi spoke with Fundamental Equity Managing Director Nora Creedon about how the real estate industry can make a comeback after COVID-19:How real estate will change after COVID-19 https://t.co/zqbdm4M3Mo via @YahooFinance— Leo Kolivakis (@PensionPulse) May 21, 2020Creedon rightly notes there is a bifurcation going on in real estate where logistics properties are in high demand and hotels and malls are getting hit hard. She covers a lot more and I embedded the interview below because she offers great insights.As far as office space, she said "humans are social creatures which thrive on interactions" but admitted every company is rethinking its real estate footprint.She also said the impacts of these shifts as they play out are way beyond the office and will hit multifamily as well.Think about it? Why live in a condo in downtown Manhattan, Toronto, or whatever major city if you don't need to physically be at work every day? The whole point of living downtown especially for young millennials was to have the ease of living nearby work and experience the nightlife of the city.Coronavirus has killed this way of life. Sure, some people still prefer living downtown but a lot of people will prefer moving as far away as possible from highly dense areas.The new reality is it doesn't matter where you live as long as you log in and produce the work that is required. The most important thing in the new normal isn't living near where you work, it's having access to a great internet connection.Ari Levy of CNBC reports working from home is here to stay, even when the economy reopens:We asked experts in various fields for their best predictions on what the world will look like when the coronavirus pandemic finally recedes. In this segment of our series, ”The Next Normal,” we examine what happens when office life reopens and what becomes of remote work. ***While President Donald Trump pushes states to allow businesses to reopen, companies in technology, financial services, insurance and other industries that can successfully function over internet lines are choosing to keep their people home.Long commutes have been replaced with heavy Zoom use, and workers in big cities are in no hurry to sit on crowded subways and buses during rush hour. Corporate leaders are waiting for some reliable combination of mass testing, therapeutics, contact tracing and possibly even a vaccine, before they’ll consider it a worthwhile risk to send employees back into the traditional workplace. Another consideration is child care, and with schools closed across much of the country and summer camps unlikely to proceed as planned, kids are likely to be at home during the day at least for the next few months.Facebook said last week that most of its employees will be allowed to work from home through the end of 2020. Google parent-company Alphabet plans to open offices for up to 15% of workers as early as June, but the majority of people who can work from home will continue to do so, perhaps through the end of the year.“We’re going to see this come back more slowly than you might have expected,” said Liz Fealy, who runs the global workforce advisory group at consulting firm EY. “Especially in organizations where people believe employees can be equally productive at home.”A staggered returnFealy said that she’s hearing companies talk about a variety of different ways to start sending employees back when they believe it’s safe.One general theme is a staggered return, with people coming to the office in waves based on individual risk levels, and increasing in numbers as contact tracing improves. Another approach could be “clustering employees on teams” so if there’s an infection it’s easier to identify who is most exposed and needs to be quarantined. Corporations are already looking to employ phone-based contact tracing to help track employees who have been in close proximity at the office, then use that information to inform workers who may have been exposed and ask them to self-quarantine. Across the 198 global offices of Fidelity National Information Services, a financial technology company, roughly 95% of employees are working from home. Chief Risk Officer Greg Montana doesn’t see that lasting forever, but he says there’s no returning to the pre-coronavirus days of packed buildings. From his home setup in Jacksonville, Florida, Montana told CNBC that the first phase of a return to the office will be for those employees who are itching to get back, either because they feel isolated in their current confines and yearn for human contact or because they’re struggling to be productive. Even that small initial wave is unlikely to begin until late in the third quarter or early in the fourth, Montana said.“We are really focused on the health and well-being of our employees,” said Montana, who’s part of a 40-person crisis management team that’s meeting twice a week to work on the company’s reentry plan.Montana said that FIS wants to make sure employees are getting temperature checks, masks are readily available and deep-cleaning processes are in place for meeting rooms. The company is also putting together procedures for travel, so employees can go to a website, type in the desired destination and determine if it’s advisable to make the trip. In the meantime, the company has been issuing virtual private network licenses to employees so they can access the network remotely and offering wireless hotspots to those who lack reliable home Wi-Fi.“If you’re able to be productive at home, we want to get you what you need to be productive,” Montana said.At consumer products giant Newell Brands, parent company of Sharpie, Coleman, Rubbermaid and Crock-Pot, Samantha Charleston is leading the return-to-office task force. Charleston, a vice president in human resources, told CNBC by email that she’s working with local leaders across each of Newell’s regions to determine how and when to begin the return process, taking into account government recommendations, office readiness and input from employees gathered through weekly surveys.Like FIS, Newell is content to take its time, as Covid-19 breakouts continue to emerge in various parts of the U.S.“For the time being, Newell Brands is continuing our remote work structure for the majority of the office population,” Charleston wrote. “The repatriation process back to the office will be slow to make sure we take every safety consideration on behalf of our employees.”Remote tools are explodingExperts say that even when the coronavirus is in the rearview mirror, many of us will still be working from home.Now that so many companies have been forced to function with a remote staff and to adopt technologies that enable collaboration from a distance, they’ve already made the necessary investments, and they know they can save money on office and real estate costs. According to Global Workplace Analytics, employers can save $11,000 a year for every employee who works remotely half the time.In addition to Zoom, Slack and Microsoft Teams, products like design software Figma and knowledge-sharing tool Guru have seen growth accelerate as companies cobble together a suite of work-from-home products. Alex Konanykhin said his company, TransparentBusiness, which helps customers securely manage remote workforces, has seen an 800% increase in subscriptions since March 1. Some companies are also paying for remote mental health services and online learning sites for employees. And they’ve seen positive results.“In some cases, productivity has accelerated,” Charleston said. “A benefit of the new situation is it has given employees an outlet to try new things, think differently, share ideas and find solutions.”Chris Bedi, chief information officer of IT automation software provider ServiceNow, says the terms remote work and work from home are going to disappear. “There’s just work, and it’s work from anywhere,” said Bedi, in an interview last week. He said that the talent war will also fundamentally change, because employers will quickly realize that they can start hiring anywhere and attract a whole new set of prospects. And even though there’s a level of Zoom fatigue that’s setting in from nonstop video calls, the travel market is forever changed, he predicts. “The concept of getting on a plane for six hours for a two-hour meeting and being jet lagged, people are going to go — why?” Bedi said.‘Zero pressure’Jeff Snyder, founder of Inspira Marketing Group, said his company approved the purchase of external monitors so the 90 employees with desk jobs could easily get up and running at home. Inspira has an additional 300-plus employees who work in the field doing event-based marketing, a business he says has been “crushed.”Snyder said his human resources team has been actively reconfiguring the offices in Connecticut, New York and Chicago to allow for social distancing and cap the number of people that can be present at a time when they do start coming back. The company has also ordered 10,000 masks.Despite all the available safety measures, Snyder’s not expecting many employees to rush through the door at their first opportunity.“We know it’s not a light switch where all the sudden it’s game on,” he said. “There’s going to be zero pressure forcing people to come back.”My take? Working from home is here to stay and smart employers will not only embrace it, they will plan everything around it and thrive over the next decade.Tech companies like Twitter, Google, and Salesforce will let their employees work from home for as long as they need but other companies in all spheres of the economy are doing it too.There is a fundamental paradigm shift going on and in the nature of work and there are good and bad points to all this:People don't need to stress every morning to commute into work. They can sleep a lot better and wake up to log in to work.One data analytics person I know told me his entire team is set up to work from home and he's never going back to the office again. "Too risky for me, maybe some of the younger analysts but definitely not me. Don't need to, can do all my work from home and I'm more efficient because I don't get interrupted or get called into meetings."Of course, others hate it, kids drive them crazy, they can't focus, feel isolated and generally don't like the new normal. It's also true that you miss office interactions and spontaneous creativity.Working from home however will allow companies to hire the best people no matter their race, gender and disability. The competition for talent, especially tech talent, is fierce. Millennials prefer working from home and they like companies that are flexible and provide a good work-life balance.But this shift also opens up the possibility of further globalizing the service sector. Goldman Sachs recently said it will honour job and internship offers to 1,460 Indian graduates and students this summer, the equivalent of a quarter of its workforce in the country, forging ahead with expansion plans despite uncertainties due to the Covid-19 pandemic. Who's to say Goldman (and others) won't hire cheaper offshore labor to do jobs they are currently paying professionals a lot more to do?So, if companies are going to hire more people with disabilities, that's good but if they use this new normal of working from home to offshore service sector jobs, that's not good as it exacerbates inequality and it's deflationary.Tech companies are increasingly shifting to work remotely and they are major anchor tenants of top office buildings so if they are doing this permanently, there's big trouble ahead for office buildings.There's a lot of thinking that needs to go into this new normal. If I was the CEO of CPPIB or any major Canadian pension, I'd get my best senior analysts to figure out a few things from the fallout of the pandemic:Where are we most exposed across public and private markets?Are recent trends transient or permanent? If permanent how do we adapt?�From an ESG perspective, what are the pros and cons? Do we have the requisite skill set to understand all the risks and are we taking a holistic view to understand the repercussions across individual portfolios and our total portfolio?�I have no doubt every major pension is asking a lot of questions and giving mandates to top external consultants and working with its partners across public and private markets to get an informational edge.It's very hard to extrapolate trends into the future but my thinking remains working from home is here to stay, competition for talent will heat up and any organization which isn't prepared, will be a laggard.Real estate is undergoing a paradigm shift. Long gone are the days of schlepping into an office, waiting with hundreds of others to get into an elevator to go work at some cramped open office space.Will there be ramifications on multifamily real estate? Undoubtedly there will but maybe not right away until people gauge how their company is rethinking its real estate footprint.The long-term risks to pensions? There are plenty and it will affect everyone.There will also be negative impacts on other asset classes. For example, if people are working from home, it will impact revenues from CPPIB's highway 407 as well as CDPQ's new REM project. I can list a hundred other investments from other pensions which will be impacted.In other words, this is a major, major shift and you need top minds to figure out how it will impact the entire pension portfolio.I've only presented one side of the argument and I know there are some who think this is positive for commercial real estate but if I was a developer, I'd shift my attention away from offices, malls and even condos and focus exclusively on logistics.Then again, I was thinking why not create satellite offices in each major suburb which are designed in a way that respects social distancing and allows those that want to still go into an office the possibility to interact with others.In other words, you don't need one major building downtown with all your employees, spread them out into smaller satellite offices according to where they live.But again, why do this if people prefer working from home? Most companies won't invest a dime in developing satellite offices if their employees are just fine working from home.All I can say is there's a lot to think about when it comes to the death of the office: What was the point of offices anyway? https://t.co/n6oZi98SDh From @1843mag— The Economist (@TheEconomist) May 16, 2020Is there a paradigm shift going on in real estate? You bet, this goes way beyond Amazon and logistics properties, there are wide ramifications across public and private markets.Below, Yahoo Finance’s Alexis Christoforous and Brian Sozzi speak with Fundamental Equity Managing Director Nora Creedon about how the real estate industry can make a comeback after COVID-19.Ms. Creedon is very intelligent and she knows her stuff, offers great insights.Also, the pandemic is reshaping the workplace, which is now more flexible and remote. Owen Thomas, CEO of Boston Properties, joins "Squawk Box" to discuss whether it could have a lasting impact on the commercial real estate market. Great discussion, listen carefully to this exchange.Lastly, trader Karen Finerman on the future for commercial real estate. With CNBC's Melissa Lee and the Fast Money traders, Guy Adami, Tim Seymour and Steve Grasso. http://creativecommons.org/licenses/by-nc-sa/3.0/