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Circling Back to the Caisse and SARA Fund
A senior pension fund manager at the Caisse asked me to meet him late yesterday afternoon to discuss last Friday's comment on Quebec's absolute return flop.
He didn't want to discuss the content as he's not in charge of hedge
funds but told me he was "extremely disappointed with the form of the
message, the innuendos of fraud and mismanagement" and compared the
comment to "Quebec tabloid sensationalism."
Moreover, he told me
that "in this business, you're only as good as your last trade," and
warned me that "if you keep irritating large Canadian pension funds,
you'll find it difficult to secure employment or get their support for
your projects." He also asked me point blank: "If you were still
consulting for the Caisse would you have written this comment? Would you
have written a similar comment about Teachers', CPPIB or PSPIB?"
As
far as governance is concerned, he reminded me that "the Caisse isn't
managing the public's money and is only accountable to its depositors."
He added: "We don't need to justify who we enter into a business
arrangement with. Not to you, not to anyone except to our depositors. If
you don't understand why the Caisse, Fondaction CSN and Fonds de
solidarité FTQ mandated HR Strategies for this ($175 million) SARA Fund,
then you should have contacted someone to get the appropriate
information before trashing the Caisse and the project."
At this
point, I got irritated and fired back that I did contact people at the
highest level at the Caisse but nobody bothered contacting me back. I
also told him that I didn't appreciate being brought into the Caisse to
be scolded at like a little schoolchild and reminded him that I wrote
several positive comments on the Caisse, Michael Sabia, and still
believe the Caisse is much better now after surviving the $40 billion train wreck in 2008. I also reminded him that when I consulted for the Caisse earlier this year, I delivered on what was asked of me.
I
told him flat out that "I'm not waiting for any Canadian pension fund
to hit my bid but there is no doubt in my mind that someone with my
experience in public and private markets is an asset. I could be an
instigator, hard to manage, but if you put me in the right job with the right
people who aren't going to backstab me (ie. adhere to Ray Dalio's principle #11),
I can add significant value to any pension fund. No doubt about that
whatsoever in my mind which is why I continue to blog here and on Zero Hedge and now have over
2,000 people a day reading me including top financial institutions around the world." I
also told him that I'm proud of my blog and that other senior pension
fund managers are supporting me, sharing valuable insights, as are other
professionals on the buy and sell side.
But I also told him that
I will take his advice and be "less personal and more constructive" on
my blog and "give institutions the benefit of the doubt and stop
assuming gross incompetence, negligence or fraud." I told him that the ugly truth
was that I was angry when I wrote last Friday's comment, probably
shouldn't have hit that "publish post" button, but some of the concerns I
raised are still valid. So, let me set the record straight once and for
all on Quebec's absolute return fund sponsored by the Caisse,
Fondaction CSN and Fonds de solidarité FTQ and managed by HR Strategies:
- While
it's true that the Caisse doesn't need to justify its business
arrangements to me or the media, the truth is that following the 2008
crisis, it's under the microscope and public scrutiny is justifiably
high. If the Caisse, Teachers', OMERS or any public pension fund suffers
a serious deficit, taxpayers are potentially on the hook. It's not as
easy as cutting benefits and raising premiums, if things go very wrong,
the government is legally obligated to comply with the terms of the
collective agreement with public service employees. That's why I'm a
stickler for governance and transparency. - As far as this $175
million SARA Fund is concerned, I believe that it's good for Quebec's
hedge fund industry and fully support that the Caisse, Fondaction CSN
and Fonds de solidarité FTQ give more money to Quebec's established
hedge funds. - But I also have valid concerns and still feel
that the biggest beneficiary of this project is René Perreault and his
boys over at HR Strategies.
Good for them, if I was in their shoes I'd do the exact same thing, but
the optics don't look good, not to mention that some people feel that
HR Strategies didn't treat all the managers fairly in their due
diligence process. - I had previously mentioned that Mario
Therrien's group at the Caisse should have directly invested in these
funds and seeded others. After some thought, I realize that this would
have placed him and his team in an untenable position because Montreal's
finance community is small, so it's easier for the Caisse to mandate HR
or someone else to do this. Also, as far as seeding, the Caisse cannot
take a majority stake of any fund and therefore by definition seeding is
not an option. - Having said this, this was a partnership between
the Caisse, Fondaction CSN and Fonds de solidarité FTQ and therefore
they could have seeded a few funds. The real problem with this venture
was communication. Go back to read this part:
"The
Caisse's participation in the SARA Fund will both provide the
institution with attractive returns relative to the level of risk and
boost the development of Québec's financial expertise. HR Strategies, a
partner the Caisse knows well, has an interesting road map and is
renowned for managing absolute return funds of funds — in addition to
offering very reasonable management fees," said Mario Therrien, Senior Vice-President of Hedge Funds at the Caisse de dépôt et placement du Québec.
"This fund will have a developmental effect on Québec's financial industry.
It will stimulate activity in the sector. Many features, including
its transparency and manager compensation structure, are based on the
best practices of socially responsible finance, helping position
Montréal, Québec's largest city, on this forward-thinking idea," said
Geneviève Morin, Chief Financial and Corporate Development Office at
Fondaction CSN.
"In
addition to relying on the talent we have in Québec's financial
sector, the SARA Fund promotes the emergence of new portfolio managers
and, at the same time, supports Québec entrepreneurship in this
promising sector. In line with our mission, this initiative also meets
the objectives of the major Montréal Finance project," said Gaétan
Morin, Executive Vice-President of Investments at the Fonds de
solidarité FTQ.
- On
the specific point of promoting the emergence of new portfolio
managers, the SARA Fund is a complete failure. There is no doubt about
that in my mind and I should know because I've met most of the
established and emerging fund managers in Montreal (meeting yet another
excellent fund this morning that received no money from HR Strategies). - The
real tragedy in all this is that seeding hedge funds doesn't have to be
a "risky venture" and if done properly, it can pay off huge for pension
funds, their beneficiaries, and create employment in Quebec's financial industry which we desperately need. Importantly, when you seed new
funds, the multiplier effect of new employment is disproportionately
much bigger than when you give money to established funds. And all of
three Quebec institutions that funded this venture know this. - I
recommend that the three limited partners sit down and discuss the
creation of a new fund which specifically targets seeding new Quebec
hedge funds. I'd be more than happy to sit with them to discuss this
seeding project but they already know what needs to be done and how to
go about doing it properly. If we're going to say we're "proud
Quebecers" then let's start acting that way and promoting our own home
grown talent.
On that note, I said what I had to say on Quebec's absolute return fund.
I will continue to blog, trade stocks and meet managers because that's
what I enjoy doing. I will take the advice of this senior pension fund
manager and others and remain professional and less personal, giving
institutions the benefit of the doubt, but I also expect the same in
return. I know I can be a real "pension prick" at times, but the goal of
my blog is to stimulate interesting discussion and promote best
governance standards so that beneficiaries and the public are at ease
that public pension funds are managed in everyone's best interest.
That's the single most important reason why I continue to blog even
though it has limited my professional career.
***Feedback***
One of my readers was kind enough to share these thoughts:
First, I think that you have nothing to apologize for. The reason
that everyone reads you is because (a) You write well; (b) You say
things that many wish to say but cannot (mainly for economic reasons);
and (c) you provide a very helpful exchange of ideas and information
flow.Second, the points you raise about
seeding emerging managers is a very valid one. As we all know, there are
numerous studies out there that show that the value-added from
investing in many funds is when they are small/startup/emerging. That
sub $500 million bracket is where the value is. (Disclaimer: we have a
FoHF that invests in sub $500 mil HFs).Third,
if you did not write provocative pieces, you would likely be ignored by
the Caisse and others. I will share with you a few others that like you
are lone voices in the wilderness. Perhaps you should form a guild??!Keep up the great work.
Another reader shared these thoughts:
twitter/blogs allows for few to inform many, w/o mediation of editors/publishers beholden to advertisers (which are more than likely the hegemons and plutarchs)media more and more abt the readers/electorate/mainstreet, less and less abt the larger political/corp/govt orgs
I thank these readers and others who appreciate my contributions.
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Leo,
These people will roll you for a dollar or even just a laugh...you know it in your heart and in your head.
jm was correct (from a previous post) be aware of the rabid wolves you run with...but also be aware that all wolves aren't bad, some are just protecting their own ;-)
Leo:
Keep up the good writing. If you stick with well reasoned honest opinions then you will be fine. The fact that you step on a few thin egos is probably more of a good thing than a bad thing.
Leo,
Those of us that have built businesses in the the real world, producing things of real value that people use or require every day, are fed up with all the bullshit and "mark to unicorn" accounting and "financial innovation" that the majority of folks in the financial sector keep shoving down our throats when we look at our investment portfolios.
The bottom line is this, we will get true price discovery one way or another. If it has to be through a de facto gold standard forced upon all markets, so be it. The bottom line remains, people who bring products of real value to the market place and have seen their salaries decline, purchasing power decline, as well as negative real interest rates on their savings and investments are fed up with financial fucknuts extracting real massive amounts of real wealth to live high on the hog while adding nothing of real value and increasing the uncertainty of all markets through their financial "innovation".
From were I sit, we have seen nothing but a tremendous acceleration in capital misallocation and true capital destruction since embarking on "fixing" the world's financial and monetary systems in 2008.
Please, continue to stand your ground. The fucking haircuts are coming, if you maintain credibility there is chance you will be spared.
Looking forward to Bastille Day this year.
Dude, it's not about how you perform, it's about how well you cover the asses of those above you. I wish that wasn't the case but it is. Doing the same in the medical field has caused me great career difficulties. I wish you good luck and in an honest high functioning environment I am sure you will do well. That means small firms. good luck Leo, but you have to limit your customer base if you will have success.
dcb,
"it's about how well you cover the asses of those above you"
So true! I don't mind covering their asses when I know they got my back, but the truth is where money and egos are involved, loyalty is thin.
my owm personal view is that the people who reach most of these positions are sociopaths (note these don't have to be serial killers). I think it is a sort of self selecting group in that way, and then it becomes the norm of the culture and they see nothing wrong with it. I believe the behaviors of many actors in the financial crisis proves the point, although I havent seen studies. (I'd like to do some). Studies do show the rich lack empathy which is a crucial trait in a sociopath.
It takes asociopath to create mortgage bonds you know will fail, buy insurance on them and basically bring down the entire financial system for your own gain. by also betting against the companies that inusre them. Dont forget you also have one of the biggest prop desks in the western hemisphere to carry it out. Plus enough friends in high places so you know you won't be going to jail!!
these people pay you the big bucks to tell them what they want to hear so they can validate their own position and income to others. that's the way the game works
So what is the exchange rate for your integrity now? You are saying that you will write puff pieces and hide fraud as long as the compensation is proper.
Another reader shared these thoughts:
twitter/blogs allows for few to inform many, w/o mediation of editors/publishers beholden to advertisers (which are more than likely the hegemons and plutarchs) media more and more abt the readers/electorate/mainstreet, less and less abt the larger political/corp/govt orgs***Feedback***
One of my readers was kind enough to share these thoughts:
I thank this reader and others who appreciate my contributions.