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Bank goes 50bps, first sign of possible pause
December 18, 2022
5:14 am
savemoresaveoften
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mordko said

CPP is a weird beast. Not a real thing. Its tax funded (aka mandatory contributions), backed up by the taxpayer, does a lot of redistribution and has infinite duration. It can take a lot of risk because the risk is not theirs. The other 2 in your list are also taxpayer backed.

Works differently if a DB fund is backed up by a business rather than taxpayer. Aren’t they required to have a certain amount in bonds? Same goes for insurers selling annuities.  

They collect the pension dues every year just like any other pension and that is it. Government is NOT there to "back them up", so from that perspective I do not agree its backed by taxpayers.

As for taking a "lot of risk", they are positioned for the future. At their size, its NOT prudent for them to simply "match" cashflow. Look at the OTPP's active vs retire teacher's ratio change over the past 30 years, the pension fund has to "actively grow" their assets as the aging population changes the balance. Same goes with CPP and other pension plans.

Smaller pension plans simply do not have the resources to hire top guns to run their pension for them. Hence they choose to do it simple, which is to invest in bonds cuz thats the easy explanation to all, as in "we match asset to liabilities..."

I imagine each pension plan has its own investment governing statement, that outlines the "allowed" asset mix. Not sure if mandatory fixed income holding is required by law.

December 18, 2022
6:05 am
mordko
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savemoresaveoften said

They collect the pension dues every year just like any other pension and that is it. Government is NOT there to "back them up", so from that perspective I do not agree its backed by taxpayers.

As for taking a "lot of risk", they are positioned for the future. At their size, its NOT prudent for them to simply "match" cashflow. Look at the OTPP's active vs retire teacher's ratio change over the past 30 years, the pension fund has to "actively grow" their assets as the aging population changes the balance. Same goes with CPP and other pension plans.

Smaller pension plans simply do not have the resources to hire top guns to run their pension for them. Hence they choose to do it simple, which is to invest in bonds cuz thats the easy explanation to all, as in "we match asset to liabilities..."

I imagine each pension plan has its own investment governing statement, that outlines the "allowed" asset mix. Not sure if mandatory fixed income holding is required by law.  

Well, insurance companies are not small and when they sell annuities they ARE backed up by bonds. There is no conceptual difference between DB pensions and annuities, except in detail. And insurance companies have the top guns. “Top guns” at Ontario Teachers bought cryptocurrency, so there is that.

Looks like CPP holds 10% credit, 22% marketable & non-marketable bonds. That’s a fair amount in FI.

December 18, 2022
4:08 pm
Loonie
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A number of small pension plans have seen the light and have joined larger ones in order to benefit from better management, risk profile, diversification and profitability.

The main thing that annuities and pension plans have in common is that you put some money in and you get some out, broadly speaking. Other than that, very different.

Teachers can afford a few duds, just as they benefit from high risk successes. Most individuals shouldn't take this risk on their own as a loss would have too much impact. I wish I were a member of the Teachers' pension plan!

December 18, 2022
8:04 pm
mordko
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Yes, that was the line Teachers fund tried to push to the gullible. Back in the real world there is a difference between “high risk, high return” investments and wasting $100M of other peoples’ money on a scam because you didn’t bother with proper due diligence.

December 18, 2022
10:05 pm
Loonie
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I don't know what the due diligence at Teachers consisted of - and neither do you. I have no reason to think it was much different than that done on other risky investments that succeeded.
Everything is very clear, of course, in hindsight, to the armchair observer - especially those who are predisposed to complain about DB pensions.

December 18, 2022
10:21 pm
mordko
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There is obvious difference between commenting on blatant mismanagement of a particular pension plan and “being predisposed to complain about DB pensions”. DB pension plans are awesome for recipients, particularly when all the risk is with the taxpayer.

Due diligence when managing other peoples’ pensions ought to involve not flushing money down the toilet. While mismanagement can happen, $100M is a lot and comments along the lines of “nothing to see there” are concerning.

December 18, 2022
10:53 pm
Norman1
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$100 million is not significant for that pension fund.

The Ontario Teachers' Pension Plan is around $240 billion in net assets. That $100 million was a 0.042% allocation. Not material.

If someone has a $500,000 stock portfolio, she too can take a few 0.042% flyers ($208) on some high risk/high reward investments without sinking their retirement plans.

Losing money happens all the time with equity investments because businesses do fail. It doesn't mean there was fraud or no due diligence.

As Loonie said, it is always so clear to the armchair observer after the fact.

December 18, 2022
11:27 pm
Loonie
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@Mordko:
Your negative views on DB pensions are not limited to one investment that went bad at Teachers. Your references to "taxpayers" are confusing at best, misleading or wrong at worst.

I'm sure that whoever approved the decision to make this investment wished they hadn't, but I don't think anyone has to lose any sleep over your criticism. It's one of the most successful pension plans anywhere. That's why it can afford to take a few risks that you might not approve of and I would never consider. They still have billions to invest, much of it from previous successes.

I am certain that CPP has been investing in all kinds of things I wouldn't approve of and would consider far too risky. Occasionally I look at their list, and sometimes turn up my nose. But I recognize that, overall, they are doing a great job and that I am not in a position to second guess them. I am happy to receive my indexed deposit every month.
One of the reasons we don't invest in the stock market etc is because pension plan managers do that for us, leaving us free to invest very conservatively in income sources that we do understand.
.

December 19, 2022
4:32 am
Bill
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I believe there was a time when the Ontario gov't (taxpayers) "guaranteed" the teachers' pensions, I think that's gone now, maybe someone else knows more about this.

Also if for some reason the world economy crashed and CPP fund cratered I'd guess the gov't (taxpayers) would get involved. That's the way I took the comments anyway.

December 19, 2022
5:08 am
savemoresaveoften
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Bill said
I believe there was a time when the Ontario gov't (taxpayers) "guaranteed" the teachers' pensions, I think that's gone now, maybe someone else knows more about this.

Also if for some reason the world economy crashed and CPP fund cratered I'd guess the gov't (taxpayers) would get involved. That's the way I took the comments anyway.  

That if true for OTPP would have been may be 30 years ago, before the days when they became actively and “professional” managed. OTPP’s success prompted CPP to go similar route.

As for government backstopping CPP, that’s just an implied assumption similar to BNS and Tangerine.

DB plans are great for the employees but very costly for the company, not sure who still offers it for new employees. I think even bank’s new employees have been DC only for a while.

December 19, 2022
5:49 am
mordko
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When teachers’ pension funds in Newfoundland and Alberta went under water, federal and provincial taxpayers covered the costs. There is mo scenario where this wouldn’t happen in Ontario.

Losing a small percentage of investments in the market wouldn’t be an issue at all. Thats normal. The problem is that $100M was mismanaged rather than invested. Taking a huge pile of cash in taxpayer backed money and setting it on fire is not OK. Them saying “nothing to see” is even more concerning. Only became known after the scheme went belly up. An audit didn’t expose the problems so quite likely its a tip of the iceberg. Its an actively managed fund with a lot of cash apparently sitting in private equity. This is the type of investment that has been covering up the losses in 2022.

Whatever they do with the money isn’t in any way an indicator that RRBs are somehow a bad investment, let alone bonds in general. That’s reaching even without the recent mismanagement issues.

December 19, 2022
5:57 am
savemoresaveoften
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mordko said
When teachers’ pension funds in Newfoundland and Alberta went under water, federal and provincial taxpayers covered the costs. There is mo scenario where this wouldn’t happen in Ontario.

Losing a small percentage of investments in the market wouldn’t be an issue at all. Thats normal. The problem is that $100M was mismanaged rather than invested. Taking a huge pile of cash in taxpayer backed money and setting it on fire is not OK. Them saying “nothing to see” is even more concerning. Only became known after the scheme went belly up. An audit didn’t expose the problems so quite likely its a tip of the iceberg. Its an actively managed fund with a lot of cash apparently sitting in private equity. This is the type of investment that has been covering up the losses in 2022.

Whatever they do with the money isn’t in any way an indicator that RRBs are somehow a bad investment, let alone bonds in general. That’s reaching even without the recent mismanagement issues.  

How you know the $100MM was mismanaged before it even blew up ?? Just because its does not work out makes it "mismanaged" ?? Maybe you and TommyT shares the same crystal ball ? 🙂

Are you a teacher ? You sound so upset about the 100M. Are you equally upset when you lose $500 ? We all make some mistakes, no matter how smart one is. And its easy to point fingers after the fact, and that actually works both for glory and bust. Why not complain saying why they did not buy TSLA when it was a $1 a share, and then sell it at $350 at the peak...

December 19, 2022
6:43 am
mordko
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savemoresaveoften said

How you know the $100MM was mismanaged before it even blew up ?? Just because its does not work out makes it "mismanaged" ?? Maybe you and TommyT shares the same crystal ball ? 🙂

Are you a teacher ? You sound so upset about the 100M. Are you equally upset when you lose $500 ? We all make some mistakes, no matter how smart one is. And its easy to point fingers after the fact, and that actually works both for glory and bust. Why not complain saying why they did not buy TSLA when it was a $1 a share, and then sell it at $350 at the peak...  

I did not know they invested in a Crypto platform in the Bahamas which didn’t have a real accounting system and was tied to a hedge fund which wouldn’t have been allowed in a responsible jurisdiction. They did not publicize it. Why? Because it stinks.

I do not even consider throwing money away like that. Wouldn’t cross my mind. There are a lot of charities which could really, really do with $100M if they have too much $s.

I am a taxpayer. When mismanagement became known as a result of the scam blowing up, the fund managers said “nothing to see there”. That’s very concerning.

December 19, 2022
8:21 am
lifeonanisland
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Totally agree with Mordko. Fine, trivialize the "small" amount of $100M. But to suggest that rolling the dice with any amount of its members' retirement funds on a crazy, unregulated Ponzi scheme is anything but mismanagement is ludicrous.

December 19, 2022
8:36 am
savemoresaveoften
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lifeonanisland said
Totally agree with Mordko. Fine, trivialize the "small" amount of $100M. But to suggest that rolling the dice with any amount of its members' retirement funds on a crazy, unregulated Ponzi scheme is anything but mismanagement is ludicrous.  

Neither u nor Mordko knew its shady or going to blow up.
Hindsight always 20/20, keep that in mind be it investing or criticizing others.

December 19, 2022
8:42 am
lifeonanisland
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savemoresaveoften said

Neither u nor Mordko knew its shady or going to blow up.
Hindsight always 20/20, keep that in mind be it investing or criticizing others.  

Don't tell me what I knew or didn't know. I've known since inception that crypto is a scam -- it's not like I've decided that since the FTX debacle, which was entirely predictable. As for criticizing others, I did nothing of the sort. I agreed with Mordko. Seems like you're the one criticizing. So get off the high horse.

December 19, 2022
8:55 am
cgouimet
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I take it you guys don't want to get together for a pint of cheer for the Holidays?

CGO
December 19, 2022
8:56 am
lifeonanisland
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cgouimet said
I take it you guys don't want to get together for a pint of cheer for the Holidays?  

You'd be right about that...

December 19, 2022
1:13 pm
Bill
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Nothing wrong with investing in scams, enjoy a brief ride and get out quickly has worked for me. But I have to agree, seems a little off for a pension fund (i.e. tasked with long-term payouts of pensions) to invest in something where the general consensus is still unclear whether or not there's substance underneath.

December 19, 2022
2:50 pm
AltaRed
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This was an investment in the exchange rather than crypto-currency itself. It is like investing in a pipeline rather than the oil companies that produce oil and gas. The exchange is supposed to be purely transactional making money off fees and would normally be a far safer investment than the product itself.

What happened here was a failure to do complete due diligence. OTPP was never given access to all the financial data including audit data and that should have been a red flag. Anyone with a solid business should have no issue disclosing all the details. Me thinks a few individuals at OTPP won't be getting bonuses this year.

I agree with others this is not material to the pension plan. Daily swings in capital markets would cause more swings than that. What is material is the reputational effect of poor decision making processes.

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