Measuring the Financial Sustainability of the Canada Pension Plan

January, 2012 - "Given the long-term nature of the Plan, the fact that its stewards are the federal, provincial and territorial governments, and the strong governance and accountability framework of the Plan, it is unlikely that the Plan would become insolvent. Therefore, if the Plan’s financial sustainability is to be measured based on its asset excess or shortfall, it should be done so on an open group basis that reflects the partially funded nature of the Plan, that is, its reliance on both future contributions and invested assets as means of financing its future expenditures. The inclusion of future contributions and benefits with respect to both current and future contributors in the assessment of the Plan’s financial status shows that the Plan is able to meet its financial obligations and is sustainable over the long term."

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ECB Policies Ease Euro Area Funding Pressures

Commentary Highlights:

  • Recent ECB measures have eased bank funding stress in the Euro area.
  • However, downside risk is significant and bond prices remain under pressure, not least because of uncertainty over the Greek debt exchange.
  • Nevertheless, while no panacea, ECB liquidity support to banks is positive for stabilising European financial markets and creating the conditions for growth, and averts a direr outcome for the Euro area.

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Pension Breakdown - How The Finance Ministers Bungled Pension Reform

Canada’s pension Crisis has been the subject of debate for the past couple of years. More than 11 million Canadian workers don’t have a workplace pension plan. And public pension plans—Old Age Security and the Canada Pension Plan—that everyone has, don’t provide enough for people to live on in retirement. To make matters worse, most Canadians are not making up for their lack of a pension plan by saving for retirement on their own. Less than one-third of people entitled to contribute to RRSPs actually do so. There is now more than $600 billion in unused RRSP contribution room being carried forward. And only about one-third of Canadian households are currently saving at levels that will generate sufficient income to cover their non-discretionary expenses in retirement.

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Making a voluntary Greek debt exchange work

According to an understanding reached at the summit of European heads of government on October 26, 2011, the Greek government, within the next few months, will attempt to persuade private creditors holding about EUR 200bn in its bonds to voluntarily take a 50 percent reduction of the face value of their bonds.

However, according to calculations by J.P. Morgan, only about EUR 120 bn of Greek government bonds are held by large institutional investors such as banks, pension funds, and insurance companies. This leaves up to EUR 80 bn in the hands of asset managers, sovereign wealth funds, and some retail investors. For the most part, these holders are seeking to maximize returns and have no desire to build reputations as co-operators with the Eurozone governments. The fact that roughly EUR 120 bn worth of bonds will be tendered by the big holders regulated means that Greece will come out of the exchange with a reduced debt load and will be better able to pay its creditors. Under those conditions, the question for the non-institutional investors is this: Why tender, especially if the exchange is voluntary in the sense that Greece is expected to continue its debt service to non-tendering creditors after the exchange?

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Standard & Poor’s Indices Versus Active Funds Scorecard - Mid-Year 2011

The Standard & Poor’s Indices Versus Active Funds (SPIVA) Scorecard provides performance comparisons corrected for survivorship bias, equal- and asset-weighted peer averages and measures of style consistency for actively managed U.S. equity, international equity and fixed income mutual funds.

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Standard & Poor’s Indices Versus Active Funds Scorecard (SPIVA® Canada)

Domestic Equities: In 2010, only 19.6% of Canadian Equity active funds were able to outperform the S&P/TSX Composite Index. In contrast, 32.6% of the Canadian Small/Mid Cap Equity active funds beat the S&P/TSX Completion Index. In the Canadian-focused equity category, 28.6% of active funds outpaced the blended index, composed of 50% S&P/TSX Composite, 25% S&P 500 and 25% S&P EPAC (Europe Pacific Asia Composite) LargeMidCap.

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Testimony of Michael W. Masters Managing Member / Portfolio Manager Masters Capital Management, LLC

May 20, 2008 - "You have asked the question, 'Are Institutional Investors contributing to food and energy price inflation?' And my unequivocal answer is 'YES.' In this testimony I will explain that Institutional Investors are one of, if not the primary, factors affecting commodities prices today. Clearly, there are many factors that contribute to price determination in the commodities markets; I am here to expose a fast-growing yet virtually unnoticed factor, and one that presents a problem that can be expediently corrected through legislative policy action."

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The battle for the heart and soul of the ECB - Open Europe

"As Bundesbank President Jens Weidmann vividly put it last Thursday:

“It is like an alcoholic saying that 'I need to get a bottle tonight. Starting tomorrow I will be clean and abide by the rules, but I need the bottle tonight'. I don't think it is sensible to give the alcoholic the bottle. He won't have an incentive to solve the problem.”

"Through its bond-buying programme and bank liquidity provisions, ECB exposure to Portugal, Italy, Ireland, Greece and Spain (PIIGS) has reached €706bn, up from €444bn in the early summer. That is a €262bn, over a 50% increase, in only six months. This highlights the reliance on the ECB and the increasing severity of the crisis. Though the perception in the media and elsewhere is quite different, it also points to the fact that the ECB has been far from inactive over the past few months, and yet eurozone leaders have not used the time bought by ECB intervention to find a solution to the crisis. This trend does not bode well for those who call on the ECB to intervene further."

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Industry Study - Pension Plans: The 2012 Phenomenon

All things considered, DBRS continues to view the pension situation as manageable for most companies; this does not negate the reality that a sizable defined-benefit pension plan represents a very long-term obligation for a company, with inherent risks and uncertainties that could lead to funding pressures at inopportune times. Specifically, cyclical companies that are pressured by recessionary conditions are likely to also experi- ence additional pension funding pressure at the same critical time as investment returns sour and discount rates remain low. Because DBRS closely monitors these plans and takes their challenges into consideration on an ongoing basis, it would be unusual for a short-term swing in fortunes to result in a rating change unless this occurred in combination with other meaningful challenges.

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