Ontario Teachers’ Pension Plan posts 4-per-cent annual return as rate-sensitive investments gain
Ontario Teachers’ Pension Plan reported a 4-per-cent return in 2022, helped by a conscious shift toward investments in assets that are sensitive to higher interest rates in a year market volatility spurred widespread losses in public markets.
Teachers’ annual return beat its internal benchmark of 2.3 per cent, and its net assets increased to $247.2-billion. Over 10 years, Teachers has returned 8.5 per cent, and the plan was considered fully funded at year-end.
Pension plans faced a tough year in 2022 as high inflation and rapidly rising interest rates created volatility in markets. But pension fund managers found refuge in the large portfolios of investments they have built in privately held assets such as infrastructure and private equity, which were more stable, as well as commodities and natural resources that are highly sensitive to interest rates and had a boom year.
Teachers, which manages the pensions of Ontario’s 336,000 active and retired teachers, has ramped up its investments in several of those asset classes, and started to move back into fixed-income securities as interest rates rose. Chief executive officer Jo Taylor has been vocal about the need to be brave in the plan’s investment choices in order to find stable returns in a tumultuous market.
“On a relative basis they’re good results. A lot of our peers find it more challenging to get it to positive territory,” Mr. Taylor said in an interview. “I think we’ve been very much living to that agility principle in the last two years by making bold choices around which areas we think we can make returns.”
On Monday, OPSEU Pension Trust announced a net investment loss of 2.2 per cent for 2022, bringing its 10-year average return to 7.8 per cent. And in recent weeks, Ontario Municipal Employees Retirement System said it returned 4.2 per cent in 2022, while Caisse de dépôt et placement du Québec lost 5.6 per cent. But wide variations in the plans’ portfolios and membership make them difficult to compare directly.
As the recent collapse of Silicon Valley Bank creates new paroxysms in markets, Mr. Taylor said he expects the immediate impact on Teachers from the banking crisis will be “really, nil.” But as the fallout unfolds, he said the widespread uncertainty it creates could start to make deals more difficult if banks pull back on lending and financing for mergers.
“What’s really the issue? I think it’s wider confidence in markets,” Mr. Taylor said. “And then secondly, will it actually mean that some of our banking partners are a little more cautious about being active at the moment on helping us with transactions?”
Last year, Teachers put more money into fixed-income assets, starting to rebuild a portfolio that it had reduced when interest rates fell to ultralow levels after the onset of the COVID-19 pandemic. The plan pushed further into credit, setting up a private credit team in London, and chief investment officer Ziad Hindo said “there is clearly more room for us to grow that asset class” even after it reached its largest share of Teachers’ portfolio at year-end, at 14 per cent of assets or $35-billion.
Teachers has also significantly increased its infrastructure portfolio in recent years. Those investments are in assets such as toll roads, airports, digital infrastructure and power generation that tend to have predictable cash flows tied to inflation. Last year, infrastructure assets delivered some of the strongest returns for Teachers, gaining 18.7 per cent, which beat a 15.1-per-cent benchmark.
Investments in commodities and natural resources returned 19.5 per cent and 29.6 per cent, respectively, though those assets make up smaller slices of the overall portfolio.
Private equity gained 6.1 per cent, surpassing a benchmark loss of 3.9 per cent, helped by foreign currency gains from a strengthening U.S. dollar.
Teachers underperformed in public stocks and bonds as well as real estate. Public equities lost 12.5 per cent, which was worse than a benchmark loss of 10.2 per cent. Bonds lost 5.9 per cent.
And the $28.1-billion real estate portfolio lost 3.5 per cent, missing its benchmark of a 6.7-per-cent gain as valuations on its Canadian retail and office portfolios fell, affecting capitalization rates. Teachers owns Cadillac Fairview, which has a high concentration of retail and office properties in Canada, which underperformed last year.
Mr. Hindo said retail sales productivity levels at many properties are back to pre-COVID levels, “so they’ve recovered quite well.” But the recent decision by Nordstrom Inc. to wind down its Canadian operations creates renewed pressure on malls, including three major properties owned by Cadillac Fairview where the luxury retailer was an anchor tenant.
“Mall anchors has never been an easy story, particularly for the larger malls, but it’s something that Cadillac Fairview has had to deal with multiple times in the past, whether it was Sears or Target, so they’re pretty good at turning that space around and reconfiguring it in a profitable way,” Mr. Hindo said.
Biden's first veto: Stops block of ESG retirement climate investment – USA TODAY
WASHINGTON — President Joe Biden issued his first veto Monday after Congress voted to block a Labor Department rule allowing retirement plans to weigh the long-term impacts of social factors and climate change on investments — a move Republicans say is a “woke” policy that hurts retirees’ pockets.
“I just signed this veto because the legislation passed by the Congress would put at risk retirement savings of individuals across the country,” Biden said in a video posted to Twitter. “They couldn’t take into consideration investments that would be impacted by climate impacted by overpaying executives.”
Senate Republicans, along with two Democrats, voted on the measure March 1, needing only a simple majority for it to pass. Sens. Jon Tester, D-Mont., and Joe Manchin, D-W.Va., who are both up for reelection next year in Republican states, voted with Republicans.
The GOP-controlled House of Representatives voted on the legislation last month. In a message to the House, Biden said “Retirement plan fiduciaries should be able to consider any factor that maximizes financial returns for retirees across the country.
“That is not controversial – that is common sense,” he said.
Ahead of the bill going to his desk, Biden said he would veto it. A two-thirds majority of Congress would be needed to override Biden’s veto.
President Donald Trump vetoed 10 bills, while President Barack Obama vetoed 12 bills.
What is ESG?
Environmental, social and governance or ESG for short, is an investing strategy that takes into account businesses’ environmental and social risks as part of a wider financial analysis.
It is popular with major pension funds that invest the retirements of millions of workers as well as retail investors.
Republicans call ESG ‘woke’
Republican lawmakers and conservative advocacy groups have decried the ESG rule.
Florida Gov. Ron DeSantis, who will likely run for the 2024 GOP presidential nomination, has become a leader in the anti-ESG movement.
Many conservative states, such as Florida, Texas and West Virginia have launched investigations because of the rule.
Conservative advocacy groups backed by right-wing donors have mounted a campaign in statehouses across the country. They say that ESG is just another example of “woke” influence on big business.
Reach Rebecca Morin at Twitter @RebeccaMorin_
Biden issues his first veto on retirement investment resolution – CNN
President Joe Biden issued the first veto of his presidency Monday on a resolution to overturn a retirement investment rule that allows managers of retirement funds to consider the impact of climate change and other environmental, social and governance factors when picking investments.
Republican lawmakers led the push to pass the resolution through Congress, arguing the rule is “woke” policy that pushes a liberal agenda on Americans and will hurt retirees’ bottom lines, while Democrats say it’s not about ideology and will help investors.
The resolution, which would rescind a Department of Labor rule, passed both chambers of Congress with Democratic Sens. Joe Manchin of West Virginia and Jon Tester of Montana voting with Republicans in the Senate.
“I just signed this veto because legislation passed by the Congress would put at risk the retirement savings of individuals across the country. They couldn’t take into consideration investments that wouldn’t be impacted by climate, impacted by overpaying executives, and that’s why I decided to veto it – it makes sense to veto it,” Biden said in a video posted to social media Monday afternoon.
Biden is seen signing the veto in the video, taken in the Oval Office earlier Monday.
The veto makes good on Biden’s frequent promise to veto legislation passed by the GOP-controlled House he disagrees with. Even before Republicans took control of that chamber, Biden often mentioned his ability to nix their priorities. “The good news is I’ll have a veto pen,” he told a group of donors in Chicago just days before November’s midterm elections.
Opponents of the rule could try to override Biden’s veto, but at this point it appears unlikely they could get the two-thirds majority needed in each chamber to do so.
Biden’s first presidential veto reflects the reality of a changed political order in Washington with Republicans now in control of the House after they won back the chamber from Democrats in the 2022 midterm elections.
Previously, Democrats controlled both the House and the Senate. Now, the president’s party only has a majority in the Senate.
Most legislation passed by the current GOP-controlled House will not be able to pass the Democratic-controlled Senate. But the resolution to overturn the investment rule only needed a simple majority to pass in the Senate. Republican lawmakers advanced it under the Congressional Review Act, which allows Congress to roll back regulations from the executive branch without needing to clear the 60-vote threshold in the Senate that is necessary for most legislation.
Opponents of the rule have argued that it politicizes retirement investments and that the Biden administration is using it as a way to promote a liberal agenda.
Republican Sen. John Barrasso of Wyoming said at a news conference earlier this year, “What’s happened here is the woke and weaponized bureaucracy at the Department of Labor has come out with new regulations on retirement funds, and they want retirement funds to be invested in things that are consistent with their very liberal, left-wing agenda.”
Supporters of the rule argue that it is not a mandate – it allows, but does not require, the consideration of environmental, social and governance factors in investment selection.
Senate Majority Leader Chuck Schumer said in defense of the rule that Republicans are “using the same tired attacks we’ve heard for a while now that this is more wokeness. … But Republicans are missing or ignoring an important point: Nothing in the (Labor Department) rule imposes a mandate.”
“This isn’t about ideological preference, it’s about looking at the biggest picture possible for investments to minimize risk and maximize returns,” he said, noting it’s a narrow rule that is “literally allowing the free market to do its work.”
The statement of administration policy warning that Biden would veto the measure if presented with it similarly states, “the 2022 rule is not a mandate – it does not require any fiduciary to make investment decisions based solely on ESG factors. The rule simply makes sure that retirement plan fiduciaries must engage in a risk and return analysis of their investment decisions and recognizes that these factors can be relevant to that analysis.”
This story has been updated with additional developments.
Exclusive-Credit Suisse tells staff plans for investment banking to be informed later -memo – Yahoo Canada Finance
By Engen Tham and Julie Zhu
SHANGHAI/HONG KONG (Reuters) -Credit Suisse told staff its wealth assets are operationally separate from UBS for now, but once they merged clients might want to consider moving some assets to another bank if concentration was a concern, according to an internal memo.
The memo, dated Sunday and seen by Reuters, gave talking points to Credit Suisse staff for client conversations after a historic Swiss-backed acquisition of the troubled bank by UBS Group.
“For now, assets are still legally separated. Once that changes, you (clients) may of course want to consider moving some of your assets to another bank if concentration is a concern,” the memo said.
That response was suggested to Credit Suisse staff if they were asked by clients what they should do if they were also a UBS client and wanted to avoid too much asset concentration, which can be a concern for wealthy customers.
In a package orchestrated by Swiss regulators on Sunday, UBS will pay 3 billion Swiss francs ($3.23 billion) for 167-year-old Credit Suisse and assume up to $5.4 billion in losses.
UBS will become the undisputed global leader in managing money for the wealthy through the takeover of its main rival, triggering some concerns about concentration risks for clients.
Credit Suisse also told staff to inform clients that plans for its investment banking business will be communicated in due course as details of its acquisition by UBS were still being worked out, according to the memo.
“We do not expect there to be any disruption to client services. We are fully focused on ensuring a smooth transition and seamless experience for our valued clients and customers,” a Credit Suisse spokesperson said.
Credit Suisse is also going ahead with its annual Asia Investment Conference in Hong Kong, starting on Tuesday, the spokesperson said, adding the event, however, would now be closed to media.
In a separate memo on Sunday, the bank told employees that its day-to-day operations were unaffected after it agreed to the UBS takeover.
“Our branches and our global offices will remain open, and all colleagues are expected to and should continue to come to work,” Credit Suisse said in the memo sent globally and seen by Reuters.
Reuters reported on Friday, citing sources, that a number of major banks including Societe Generale SA and Deutsche Bank AG were restricting new trades involving Credit Suisse or its securities.
Regarding counterparties having stopped business with Credit Suisse, the bank said in the client talking points memo that it believed the transaction “will help to restore confidence to the financial markets more broadly.”
Market players remain concerned about the next moves at Credit Suisse and the impact on employees, investors and clients.
UBS Chairman Colm Kelleher told a media conference that it would wind down Credit Suisse’s investment bank, which has thousands of employees worldwide. UBS said it expected annual cost savings of some $7 billion by 2027.
(Reporting by Engen Tham in Shgnghai and Julie Zhu in Hong Kong; Additional reporting by Scott Murdoch in Sydney; Editing by Sumeet Chatterjee, Himani Sarkar and Jamie Freed)
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