Canada's Pension Funds Perform, at a Cost?

Please read my latest entry and post your comments here:

http://pensionpulse.blogspot.com/2010/04/canadas-pension-funds-perform-at-cost.html

Thank you,

Leo Kolivakis

Comments

[Leo Kolivakis]

Another buddy of mine questioned the methodology of comparing US and Canadian funds:

"How much of that better return is a result of being invested mostly in Canada as Canadian markets have performed better? Currency, real estate, I'm not sure of bonds, equity etc. But I am leaning that the better performance was not a result of better management but rather a beta to the Cdn market." (turns out, he's right)

Regardless of the methodology of this comparison, we both agreed that this article is self-serving drivel.

[three chord sloth]

To me, a pension fund outsider, it seems like the Canadian model of keeping the management of pension funds in-house has an obvious advantage. The guy running the pension fund is dependent upon it for his retirement. That ought to sharpen his senses at the least.

So I would support that model, with one important caveat -- if the fund underperforms, the pensions decline. If the government sector wants to manage their own future, fine... just don't come back later and say, "Oops! We messed up and need more money." If they want to take responsibilty, then take responsibility -- full responsibility. The taxpayers are off the hook for any future shortfalls.

[Leo Kolivakis]

I don't think David Denison is relying on his CPP to retire off of. His pension is being managed privately. In fact, senior public pension fund managers do not invest in the funds they manage. They have no skin in the game, no high water mark, no clawbacks and they collect huge bonuses (here in Canada) based on four year rolling returns, even when they get whacked hard like in 2008. Only the Caisse was smart enough not to dole out any bonuses whatsoever following 2008's disastrous performance.

[Leo Kolivakis]

Some excellent feedback from a senior pension fund manager, which I share with you:

The myth-making has been underway for some years, and is largely succeeding. The sell side and service providers are feeding well off of these mega fee payers (lawyers, pension consultants), and the media has chosen its celebrity organizations. There is wholly inadequate financial reporting (banks have been opaque and helped set the standard for transparency on everything except things that count), and so much misinformation as a result, that all arguments appear to be supported.

The various spooks in the industry are now populating the think tanks and academia, funded as you note by the industry, and they are reported upon by the media as unbiased experts.

Let's admit, the pension aristocracy is doing a great job for itself, and is coexisting so far with the private sector better than one might expect. The question is whether this aristocracy is better than the traditional ones in money management. It probably is.

You are on the right track to put sunlight onto the goings on, Pension Pulse should be renamed Pension Conscience, for the industry lacks one, too much money to be made by people who are worth less to allow conscience to survive on its own.

But for now, the new paradigm has the ecosystem of support which will make changes of consequence very difficult. As Claude so arrogantly said shut up, he reflects the sense of new entitlement that follows from winning the game. The momentum favours public sector asset management, and will continue for longer than is should, as these things tend to.

As for me, I can see that the fight for common sense had a brief moment of possible success after the derivative led credit fiasco. That moment passed. So for now, being in the game, influencing and keeping some sense of restraint and proportion to all of the ambitions out there is the only contribution I can see making, which of course is an unsung hero type role few find satisfying. But there is still room for positive impact. Such is the difficult and delicate role of a true fiduciary.