Lisa Johnson of the Canadian Press reports on a how Alberta is setting up a new Crown corporation to oversee Alberta’s Heritage Savings rainy day fund: 

Alberta Premier Danielle Smith announced a new Crown corporation Wednesday to oversee the province’s rainy day fund.

The Heritage Fund Opportunities Corporation is to direct policy for the Heritage Savings Trust Fund, which will still be managed by the Alberta Investment Management Corp., or AIMCo.

The new Crown corporation is also mandated to independently manage the investment of new deposits.

Smith said she aims to grow the fund to at least $250 billion by 2050 in order to wean the province off the resource revenue roller-coaster.

“No matter how far into the future, there will come a time that we may be unable to rely on those revenues, and we cannot hide from that reality now,” the premier said in Calgary.

The fund’s assets were valued at $23.4 billion as of September, and the government pledged another $2 billion that is now earmarked for the new corporation’s investments.

Finance Minister Nate Horner said its board can invest that seed funding in a different way than AIMCo, the province’s public pension fund manager.

“That’s beyond AIMCo’s mandate, more in a sovereign wealth (fund) style,” said Horner.

The new Crown corporation will operate at an arm’s length and publicly report results, Smith said.

Horner told The Canadian Press in an earlier interview the goal is not to “de-risk” pet projects that have difficulty getting financing, as Smith has previously mused.

“This will be return-focused,” he said.

The finance minister said the new corporation will create global investment opportunities that wouldn’t have been offered to a manager like AIMCo.

When asked Wednesday whether the new corporation’s goal to support “areas that matter to Albertans” means investing in more Alberta-based assets, Horner said “not necessarily.”

“It’s about leveraging opportunities where those partnerships could provide great opportunity for the province down the road, but that isn’t necessarily the goal,” he said, pointing to the province’s advantages, like its knowledge base in artificial intelligence and water infrastructure.

He said the plan represents a return to the original vision of the heritage fund.

It was created in 1976 by former premier Peter Lougheed to set aside a portion of resource revenues, but subsequent governments have dipped into the piggy bank as needed, particularly when the price of oil crashed.

The Heritage Fund Opportunities Corp. will be chaired by Lougheed’s son Joe, board chair of Calgary Economic Development and a partner at Dentons law firm in Calgary.

Smith’s United Conservative Party government has committed to not skimming interest earnings from the fund to prop up the province’s general revenue.

It estimates that if all the Heritage Fund’s income had been reinvested from the start, it would be worth upwards of $250 billion today, generating more than $20 billion annually.

Opposition NDP finance critic Court Ellingson told reporters in Calgary he supports the government’s efforts to grow the long-neglected savings fund, but the province already has a body in place to do that work.

“We didn’t need a new corporation,” he said.

Wednesday’s announcement comes after Horner sacked the chief executive officer and entire board of directors of AIMCo in November.

Less than two weeks later, the province hired former prime minister Stephen Harper as the new chairman of AIMCo.

In addition to the Heritage Fund, AIMCo also handles about $118 billion in investments for public sector pension plans representing thousands of Albertans, including teachers, police officers and municipal workers.

Barbara Shecter of the National Post also reports Alberta unveils new investment entity with aim to boost Heritage Fund to $250 billion:

The Alberta government is seeding a new investment vehicle with $2 billion as part of a plan to boost the province’s resource investment fund tenfold to at least $250 billion by 2050.

The money to be invested and managed by the new Heritage Fund Opportunities Corporation was previously earmarked for the Alberta Heritage Savings Trust Fund, which was started in 1976 to invest a share of the province’s resource revenue for the future and diversify the economy.

For now, the rest of the nearly $24 billion in the Heritage Fund will continue to be managed by Alberta Investment Management Corp. (AIMCo), a Crown corporation that also manages the pensions of public servants across the province, under the direction of the new corporation. 

“As the investment model is proven, more funds could potentially be moved from AIMCo,” a government spokesperson said.

At a news conference Wednesday, Premier Danielle Smith said the new investment vehicle is necessary, in part, to ensure returns generated by the Heritage Fund are reinvested over a long horizon, allowing the fund to grow larger and faster than it has in the past when this wasn’t always the case. 

Her plan, laid out alongside Finance Minister Nate Horner, is that the fund will have a strong focus on maximizing growth “while supporting areas that matter to Albertans, such as technology, energy, and infrastructure.”

Horner added that some of the investments will be “beyond AIMCo’s mandate,” adding that they will be “more in a sovereign-wealth style,” which could lead to joint investments with other long-term sovereign wealth funds.

However, Smith stressed that the fund will operate at arm’s-length from government.

“It is critical that the Heritage Fund Opportunities Corporation be free to make the right decisions for long-term growth without interference from government, which is why we’ve set it up as an arm’s-length agency,” she said. “A broad group of directors will bring deep financial experience so that it can focus on improving long-term Heritage Fund investment growth outcomes.”

Smith said the new Heritage Fund Opportunities Corporation will be chaired by Joe Loughheed, a Calgary lawyer and son of the former premier who created the Heritage Fund. The goal, she said, is to ultimately create a wealth fund that can forge global partnerships, and will supplement and potentially ultimately replace unpredictable resource revenue.

A document laying out the plans further suggests that a retail investment product could be developed “to allow Albertans to invest directly in the Heritage Fund, subject to public interest and feasibility.”

Sources say Smith’s idea to boost the returns of the Heritage Fund, which she has been speaking about publicly for months, were discussed with AIMCo before her government took the unusual step in November of ousting the entire board and the investment manager’s chief executive, Evan Siddall.

Reasons cited by the government included that rising costs of AIMCo were not commensurate with returns, though this was disputed in a letter sent to Horner by ousted chair Kenneth Kroner.

According to sources familiar with the proposals, AIMCo’s game plan included taking in more money and increasing returns through additional investments in private assets such as infrastructure. 

Following the November purge, Horner installed former prime minister Stephen Harper as AIMCo’s chair and senior civil servant Ray Gilmour was named interim CEO.

A new unpaid position was established on the board for the deputy minister of treasury board and finance as a way “to ensure more consistent communications between AIMCo and Alberta’s government.”

In addition to discussing a Heritage Fund overhaul with AIMCo before the shakeup, Smith’s government was also working with outside consultants, according to news reports.

In May, the Calgary Herald reported that the government had retained a firm called BERG Capital Management, an investment consultant for pensions and sovereign wealth funds that changed its name to PNYX Group, to do a “deep dive” on the Heritage Fund.

Then, in November, after the UCP government passed an order-in-council approving the incorporation of a provincial corporation for the purpose of managing and investing all or a portion of Crown assets, Smith told the Herald that “a hybrid investment strategy” was possible, with pension funds invested in a very conservative way while Heritage funds would be invested in a manner that would allow them to grow tenfold by 2050.

Chris Varcoe of the Calgary Herald also reports Alberta drafts blueprint to grow Heritage Fund to at least $250B by 2050, establish Crown corporation:

It’s never too late to start saving for the future and the Alberta government aims to follow that advice, setting out a blueprint to grow the Heritage Savings Trust Fund to at least $250 billion by 2050.

As part of its strategy, the UCP announced Wednesday the creation of a new Crown corporation that will govern and guide the rainy-day account.

The province wants to grow the fund’s value 10-fold in the coming decades from more than $24 billion today, largely by leaving income inside the account, instead of tapping it once the rain begins to fall and oil prices drop.

However, once the province hits the $250-billion target, a portion of the fund’s annual interest could be used to offset future resource revenue volatility or to invest in infrastructure.

“The best time to plant a tree was 20 years ago, and the second-best time is today,” said Finance Minister Nate Horner, comparing it to the province’s investment goals.

“If we are diligent, and we grow this to $250 (billion) or more, by 2050 we’ll be able to take off $10 billion annually, while continuing to grow the fund and replace at least half of the royalties we receive now.”

The new Heritage Fund Opportunities Corp. (HFOC) will be chaired by Calgary lawyer Joe Lougheed. It will operate at arm’s-length from government to ensure independent decision-making, according to a provincial document.

The Crown corporation will be seeded with $2 billion — money the government previously earmarked during the budget to the Heritage Fund — and will have its own investment objectives and a small management team, Horner said.

Existing Heritage Fund assets currently managed by the Alberta Investment Management Corp. (AIMCo) will remain under its oversight. AIMCo was recently overhauled by the province.

The province says the new corporation will make strategic investments “that maximize growth, while supporting areas that matter to Albertans, such as technology, energy and infrastructure.”

It will also work with other institutional investors and sovereign wealth funds “to access premier investments.”

The corporation’s benchmark return will be the same as AIMCo’s objective — at 9.3 per cent annually — “but my expectations are higher,” Horner said in an interview.

“The $2 billion will be invested by HFOC in a sovereign wealth-style investment — with its own board, with its own governance . . . It’s a different type of investing,” he said, noting it will have longer-term horizons than a pension fund.

 “We’re not going to be involved in any way in making actual investment decisions.”

However, the idea of establishing HFOC and supporting specific sectors has raised Opposition questions.

“We didn’t need this new corporation,” said NDP MLA Court Ellingson.

“We have real concerns about the Heritage Fund being used to invest in projects that otherwise can’t secure financing.”

The Heritage Fund was worth $24.3 billion at the end of September. It was created in the mid-1970s by the Progressive Conservative government of Peter Lougheed — Joe Lougheed’s father — to save growing resource revenue.

However, initial goals that the fund would receive up to 30 per cent of non-renewable resource revenues were dropped by ensuing Alberta governments, often during economic downturns.

Since its creation, more than $45 billion of investment income from the fund has been transferred into the government’s general revenue account for day-to-day spending.

“Fundamentally, the government is going back to the main principle that my father’s government set up in 1976 when they established the Heritage Fund,” Joe Lougheed said in an interview.

“The vision was to grow those assets for future generations of Albertans, such that it would grow to a large pool of assets, which, over time, could reduce the roller-coaster of resource revenue dependency that Alberta, quite frankly, still has.”

The job of the HFOC board will be focused around governance, establishing a new statement of investment policies and goals, such as asset allocation and oversight of risk.

“The next 10, 15, 20 years in Alberta are going to be very, very strong,” added Lougheed.

“When you’re doing well, that’s the time to save money.”

A graphic in the road map document shows that if the current fund expands over time, with a projected annual net return of nine per cent, compounded yearly, it could be worth more than $50 billion by 2032, and top $100 billion by 2040.

Horner says it’s vital for the fund to retain its income, which will let it continue to grow over time.

“I think it’s conservative,” Horner said of the $250-billion target.

“All that it requires — other than diligence — is our government and the governments that follow (to) have the diligence to leave the retained earnings in the fund and be patient.”

University of Calgary economist Trevor Tombe said he’s encouraged to see the province think about its long-term fiscal future and indicate it won’t withdraw earnings from the fund for government spending.

However, he wonders about the language surrounding the HFOC goals of strategic investments being made in areas such as technology, energy or infrastructure, and what that will practically mean.

“The $250-billion goal is reasonable and achievable, but it’s all contingent on returns being sufficiently high,” Tombe said.

“And that makes the decisions that the government takes around the mandate to this new entity, around what its objective is, more important than anything.”

You can read more on Alberta's Heritage Savings Trust Fund here.

Alberta's government put out a publication, "Renewing the Alberta Heritage Savings Trust Fund : a roadmap to securing Alberta’s future" which is available here.

Alright, on Tuesday I discussed AIMCo's latest DEI shakeup and today I am trying to figure out this latest move by the Alberta government and how it will impact AIMCo.

First, before I begin, I posted an update to that comment which I will post below:

Janet French of the CBC reports AIMCo job cuts raise questions about commitment to inclusion, critics say:

Helen Ofosu, a human resources consultant and adjunct psychology professor at Ottawa's Carleton University, says removing leaders in charge of inclusion and diversity sends the message those principles don't matter to the organization.

"That's basically telling people who may be dealing with a disability, being a visibly racialized person, a religious minority — any of those people all of a sudden start to feel like, 'Hmm, what is my place here? Do I matter?' "

 It definitely doesn't send the right signal. Read more here.

Also, someone made a good point on LinkedIn, namely, AIMCo is a large fiduciary that needs to keep track of many companies and use its proxy votes to raise concerns. DEI is a serious concern with any investment, public or private, so why get rid of the Head of DEI?

In other news, AIMCo was named one of Canada’s top employers for young people as well as one of Alberta’s top 85 employers:

Edmonton – The Alberta Investment Management Corporation (AIMCo) is pleased to announce it has been named one of Canada’s Top Employers for Young People as well as one of Alberta’s Top 85 Employers, both distinctions awarded by the Canada’s Top 100 Employers project.

AIMCo was recognized for its fulsome programs to support the professional development of its employees. These include entry-level programs that allow new graduates to gain experience in multiple departments across the organization, and support for all employees to enroll in skills development courses related to their roles. Initiatives such as these reinforce a culture that prioritizes professional development, which in turn drives AIMCo’s overall success. The Canada’s Top 100 Employers project is the largest Canadian editorial endeavour to recognize top-performing workplaces across the country. The project has been running for 25 years and now includes 19 national, regional and special-interest competitions.

For more information about AIMCo’s recognition as a top employer, please click here. 

Well, I think we know who deserves the credit for this but he's gone now.

Now, on to the new Heritage Fund Opportunities Corporation which will be chaired by Joe Lougheed, the son of Alberta's former premier Peter Lougheed who created the Alberta Heritage Savings Fund back in 1976.

I don't know Joe Lougheed (featured above), thought very highly of his father Peter Lougheed and I'm sure he's a smart lawyer and will make an excellent chair of this newly established Crown corporation.

They are going about it the right way, naming a chair first and nominating a board of directors who will then hire a CEO to ramp operations up.

My comments are the same as the NDP finance critic Court Ellingson who said why do they need to create a new Crown corporation?

And God knows I'm no NDPer or Liberal for that matter!

It's common sense, AIMCo is doing a great job at managing the savings of the Alberta Heritage Fund so why create a new and separate Crown corporation to take over?

Apart from being costly, you need to pay new board members and staff which admittedly is negligible over the long run, but is it really necessary?

Don't forget, AIMCo has all the strategic relationships with peers and top funds, it has staff covering every asset class and risk managers and has the same return target as the Heritage Fund. 

So why create a new Crown corporation to take over the Alberta Heritage Savings Fund? 

One person I talked with said "if you look at how Alberta's government is acting, they're gutting AIMCo slowly, firing people, taking away assets, it's awful."

But that doesn't make sense either, why would they want to gut or get rid of AIMCo? 

The problem is they are weakening the organization and the long-term effects are going to to hurt active and retired members.

Of course, I could be wrong, maybe AIMCo will come out of this stronger and this new Crown corporation will be a long-term success but it certainly seems very strange to do all this unless it's part of a master plan to intervene in both these funds (they say they will continue to operate at arm's length but let's see).

I'm curious to see who AIMCo's next CEO will be as well as the new CEO of the new Heritage Fund Opportunities Corporation.

All I know is Alberta and the rest of Canada have much bigger fish to fry, we better brace for impact because February 1st is right around the corner.

Below, Alberta Premier Danielle Smith and Finance Minster Nate Horner announce a new plan forward for the Alberta Heritage Fund.

Next, Canada can work with US President Donald Trump’s administration to reshape global trade and weaken China’s dominance of supply chains, according to Chrystia Freeland, the Canadian politician who’s vying to replace Justin Trudeau as prime minister. 

She spoke with Bloomberg's David Gura about Canada's role in global trade, and reacted to Trump's administration -- including his Treasury Secretary pick Scott Bessent.

Needless to say, I agree with Premier Smith's approach on how to negotiate with the Trump administration to avoid tariffs and worry when I hear our federal government preparing for a protracted trade war and calling for a "pandemic-like relief program" for Canadians which will be impacted by tariffs.

Lastly, Denis Girouard and Stéfane Marion of the National Bank of Canada, take a closer look at Canada's trade balance in the context of the US deficit, to clarify Canada's marginal role in this dynamic, and explain that these uncertainties are not just negative. Current economic and trade tensions offer a unique opportunity for Canada to reassess its industrial policies, notably by strengthening its manufacturing sector and tackling provincial trade barriers, which represent the equivalent of a 21% tariff. 

Great discussion, take the time to watch it.

Sarah Rundell of Top1000Funds reports on why CPP Investments CIO Ed Cass says they are cutting back on emerging markets:

CPP Investments, the C$675.1 billion asset manager for the Canada Pension Plan, has already hit its reduced long-term strategic exposure to emerging markets of 16 per cent in a quick paring back of the allocation from 2023 levels when emerging markets accounted for 22 per cent of assets under management. 

Edwin Cass, chief investment officer at CPP Investments tells Top1000funds.com that although the investor still believes there is both an opportunity to diversify and generate alpha in emerging markets because of inefficiencies, that window of opportunity is narrowing.

“This is changing over time due to a number of factors, including geopolitical risk and improving market efficiency,” he says.

On one hand, deglobalisation can be positive for emerging market investors because it adds to diversification by decoupling relationships between various trading blocs, he explains. However, geopolitical risk is the “flip side” to deglobalisation and brings real complexity.

“We need to understand the impact that deglobalisation and regional trading blocs will have on sectors and specific assets within the countries we invest in. Due diligence and appropriate investor protections become even more important.”

Successful emerging market securities selection during the past several years has been a source of alpha, and he says CPP Investments has found the strongest returns in emerging market infrastructure, notably through investments in toll roads. For example, the asset manager owns toll roads in Mexico, Chile, Indonesia and India that Cass says “are performing well.”

The energy transition also continues to present opportunities. Investments include renewable energy providers, such as Renew Power in India, and Auren Energia, one of Brazil’s largest platforms for renewable energy and energy trading.

However, more expensive active management in emerging markets is important because these markets are less efficient. And successfully navigating the risks is an intense process that relies on an in-country presence resting heavily on “boots on the ground” to stay close to political and regulatory developments and monitor any impact to existing assets.

CPP Investments has opened emerging market offices in Mumbai and São Paulo to allow it to “do its homework,” better understand the businesses it invests in; the environment in which they operate and sensitivity to local risks. Cass explains that offices in emerging markets also allows CPP Investments which manages assets both internally and with external partners to position itself to partner with the best regional and national firms.

“We also spend time building relationships with governments to understand the regulatory environment in the countries where we invest. These local and regional factors are incorporated into our organisation-wide integrated risk framework, which covers a wider variety of investment risks and includes various types of stress tests on our portfolios.”

“Our presence in the regions where we invest combined with our company-wide focus on building relationships with governments and monitoring regulatory changes also enables us to mitigate issues as they arise.”

CPP invests across 56 countries with more than 320 investment partners. Just over 50 per cent of investments are in North America.

If I read this right, CPP Investments is going to start trimming its massive exposure to emerging markets which stood at 16% for base CPP (bulk of assets) and 11% for enhance CPP (all figures from F2024 Annual Report):

 

Most of the exposure in emerging markets is in passive global equity indexes which you can find here and below (click to enlarge):

CPP Investments also has made meaningful investments in infrastructure in India but the bulk of the assets are passive exposures to emerging market equity indexes.

Ed Cass cites two reasons for cutting back exposure: geopolitical risk and increased market efficiency (ie security selection is becoming tougher there).

He doesn't get into details on how much they plan to cut, we will have to monitor that in every subsequent annual report.

He does state that these markets provided meaningful alpha for the Fund over the last several years but provides very little detail on how much alpha was produced there:

Successful emerging market securities selection during the past several years has been a source of alpha, and he says CPP Investments has found the strongest returns in emerging market infrastructure, notably through investments in toll roads. For example, the asset manager owns toll roads in Mexico, Chile, Indonesia and India that Cass says “are performing well.”

He states they need to understand deglobalization and the risks and opportunities that brings and they have boots on the ground in key areas to build relationships and monitor government regulations.

My thinking? It all comes down to US interest rates, the lower they go, the more exposure you want to risk assets including emerging markets.

Conversely, the higher they go, the less exposure you want to emerging markets and other riskier assets.

Interestingly, as US rates normalize, the trend in emerging market equities is lower:

 

Of course, I'm oversimplifying but that's how these funds think in terms of Risk On/ Risk Off and it makes a lot of sense because higher US rates go, less risk you need to take (just buy more long-dated US Treasuries and hold to maturity).

There's another risk in emerging markets and we saw it last year as CDPQ got embroiled in a large bribing scandal in India where three former executives there were accused of taking part in bribing scheme to bribe Indian government officials by US regulators. 

I can assure you that this rattled the boards of the Maple Eight and many board members raised concerns about investments in India and other emerging markets.

At the end of the day, governance, rule of law and a stable regulatory framework are critical to making large investments in private markets and some countries are a lot more advanced than others in that regard.

In my opinion, this might require a rethink in emerging markets on whether you want to be a direct owner of a platform there or indirect owner of assets through funds even if you pay fees.

On a related topic, CPP Investments and  and MGRV, a leading Korean rental housing provider, recently announced a KRW 500 billion (C$500 million) joint venture to develop rental housing projects in Korea:

CPP Investments will hold 95% of the venture and MGRV will own the remaining 5%.

The joint venture, CPP Investments’ first direct investment in the residential sector in Korea, aims to develop properties in key corridors of Seoul, close to major business districts and leading universities. CPP Investments has committed up to KRW 133 billion (C$133 million) to the joint venture’s seed projects located within Seoul.

“This joint venture offers an excellent opportunity to enter the residential sector in Korea and meet the strong demand for high-quality rental housing in the greater Seoul area where half of Korea’s population resides,” said Sophie van Oosterom, Managing Director, Head of Real Estate at CPP Investments. “We are pleased to work alongside an experienced local partner like MGRV to enter this market segment, which we believe can generate attractive long-term returns for the CPP Fund.”

MGRV CEO Cho Kang-tae said, “this strategic partnership marks a significant step in demonstrating the high growth potential of the Korean rental housing market and MGRV’s competitive operational capabilities on a global scale,” adding, “we will continue to drive the ecosystem innovation in the market by expanding community-centered properties.”

Rental housing market is huge everywhere nowadays, including in Korea. This is a smart long-term investment.

Below, Bloomberg Daybreak Asia podcast explores where opportunities lie in emerging markets with Rahul Chadha, Founder and Chief Investment Officer at Shikhara Investment Management. Plus, a look at how the week's US eco data will play into the Fed's policy path with Rob Haworth, Senior Investment Strategist at US Bank Wealth Management.

Next, Commerce secretary nominee Howard Lutnick was asked about the potential impacts of tariffs at a hearing on Wednesday. Lutnick, who appeared to suggest tariffs could come in phases, pointed to border issues with Canada and Mexico as a ‘short term’ issue. Lutnick cited both fentanyl and undocumented migrants as areas of concern for the Trump administration but did not provide details about his assertions beyond calling for an end of movement of fentanyl into the US.

Lastly, watch FOMC Chair Jerome Powell's presser from earlier today after the Fed kept rates unchanged.

Layan Odeh of Bloomberg reports AIMCo cuts DEI role and 18 other jobs in further shakeup:

Alberta Investment Management Corp. eliminated 19 jobs in non-investment areas, months after the government of the province ordered changes at the pension fund manager and fired its chief executive and the board.

The employee responsible for AIMCo’s diversity, equity and inclusion program is one of the 19, according to people familiar with the matter.

A spokesperson for the firm confirmed the job cuts and said the move hasn’t lessened AIMCo’s commitment to “an equitable and inclusive workplace.”

“All AIMCo colleagues will continue to share the responsibility and accountability for ensuring AIMCo remains diverse, inclusive, innovative and motivating, in keeping with our corporate objectives and core values,” spokeswoman Carolyn Quick said by email.

Alberta Finance Minister Nate Horner stunned AIMCo executives on Nov. 7 by firing chief executive Evan Siddall, other senior executives and the entire board of directors, saying they had allowed expenses to soar to unacceptable levels. The government named Ray Gilmour as interim CEO and installed Stephen Harper, the former Canadian prime minister, as chair.

AIMCo’s investment team, which manages about $169 billion, wasn’t affected by the 19 job cuts.

Jack Farrell of the Canadian Press also reports Alberta pension manager fires 19 employees, including DEI program lead:

Alberta’s public pension manager has laid off 19 employees and cut their positions, including the role of running its diversity, equity and inclusion program.

The Alberta Investment Management Corporation says the company remains committed to an equitable and inclusive workplace.

A company spokesperson declined to say what other specific jobs were cut but says the 19 positions were in non-investment roles.

The company’s board of directors and chief executive officer were fired in November by Alberta Finance Minister Nate Horner, who appointed former prime minister Stephen Harper as board chair.

Horner said at the time that AIMCo’s rising costs, including its number of employees, were unacceptable when compared with its annual investment performance.

AIMCo has about 600 employees with offices in Canada, the United States, Europe and Singapore.

Alright, it's Tuesday, bear with me as I dissect this "big news" out of AIMCo.

It shows you how pathetic things have gotten at AIMCo that such trivial news leaks out and reporters run with it.

The Head of DEI and 18 other employees in non-investment roles were fired and this makes national headlines?

Let me back up and give you my unbridled thoughts.

When the Government of Alberta named Ray Gilmour, a career bureaucrat as interim CEO, they probably quietly told him to cut some fat while he's there. 

So they're starting with the low-hanging fruit, non-investment professionals (for now) and chopping off anything that smells of woke politics.

Am I impressed? Not really. Firing people is easy, trust me, I've seen my fair share of restructuring at banks and pension funds in my short career and experienced the sting of being fired.

The way it typically works however is a bit different.

Typically, the Board hires a CEO who then starts firing senior managers to place his or her people in there and then gives the new managers marching orders to cut a percentage of their workforce.

And they typically hire McKinsey, BCG or some other consultants to produce a report to justify these actions and appease their Board.

Here, we have a bureaucrat who is interim CEO, he doesn't really know what each investment department is doing, who are the outperformers and who are the underperformers and how to properly gauge their value add, so what he does is go after easy "soft" targets, non-investment professionals.

Because you know, the Head of DEI at AIMCo was making big bucks (insert roll eyes here).

I'm being facetious, of course, but the whole thing is so stupid and trivial, it makes AIMCo look bad for no reason.

Don't get me wrong, there might be legitimate reasons to cut the Head of DEI and those 18 other non-investment roles, but the way they are going about this is so wrong on so many levels.

The first order of business at AIMCo should be to appoint the new CEO.

Everything else takes a back seat until they name someone to replace Evan Siddall.

That new CEO is then responsible to hire senior managers or work with existing ones and it's up to them to determine where they need to cut first and where to focus their attention.

And the new CEO will report to AIMCo's Board and will be held accountable for results.

Importantly, you want someone competent at the helm making right decisions and not the Government of Alberta making decisions via their interim CEO.

That's just ridiculous.

From a moral standpoint, I think DEI is extremely important and I'd give most of Canada's large pension investment managers a decent grade on DEI initiatives, but there's no question in my mind that AIMCo was way ahead of the pack in this regard.

That was due to the former CEO, Evan Siddall, who took DEI and all it encompassed very seriously.

The fact that he has Parkinson's Disease and is an advocate for research and awareness undoubtedly shaped his vision of DEI at AIMCo.

Under Evan, DEI was sown into the moral fabric at AIMCo and all senior managers took it seriously.

Will this continue now that he's gone and his Head of DEI was fired? 

My honest answer is I certainly hope so but I'm skeptical and that will hurt morale of employees even more.

Now, I realize DEI isn't everyone's cup of tea and there can definitely be a case made that things went too far to the Left over the last decade, just like responsible investing and some extreme views on the environment.

But at the end of the day, we live in a country called Canada made up of people from different backgrounds and we need to recognize some groups are more vulnerable to discrimination than others.

More importantly, I firmly believe that gender and other diversity is a source of strength for any organization and those that don't take it seriously will lose out because they will be unable to attract the best talent to their workplace.

Now, do we need a Head of DEI at each of our large pension investment managers? I'm not sure, it all depends on whether these people truly add value. If they do, then they are earning their keep.

The same goes for all roles, investment and non-investment.

In my brutal world, either I make money or die, it's that simple, no big fat bonus awaits me at the end of the year if I beat some benchmark.

Every day I wake up, help mommy take care of my child and then start reading furiously, first macro news, then micro and company specific news and chat with friends who are equally keen on markets.

I love it, don't answer to anyone except Miss Market and sometimes she's nice to me, most of the times she's not and I have to figure out ways to beat her at her own game.

But in the world of large pensions and other Crown corporations it's not like that, these organizations have a social responsibility to have a diverse workplace, one that reflects the composition of our country.

Sure, they can ignore DEI completely but to their detriment.

I'm not saying AIMCo is doing this, they are on record stating they will continue taking diversity, equity and inclusion seriously, and I hope they will.

But this wasn't the first order of business at AIMCo and I'm disappointed that their focus is on trivial matters.

Get the right CEO in there, hold them accountable to make tough decisions and add value over the long run.

Reading these articles just annoys me because I feel like AIMCo has no time to waste.

The focus has to be on finding a highly qualified CEO who will build an investment strategy around his or her team and get on with it already.

I know what Trump is doing with DEI in the US. That's politics, we don't need to politicize our pensions. 

Let's focus on making money and taking intelligent risks, and enjoying coming into work, the rest is immaterial.

Alright, let me stop there and feed my toddler his milk, something I enjoy doing after a long day.

Below, Paul Hickey, Bespoke Investment Group co-founder, and Kevin Gordon, Charles Schwab senior investment strategist, joins 'Closing Bell Overtime' to talk the day's market action.

Layan Odeh of Bloomberg reports Ontario Teachers’ CEO sees chance to snap up cheap European assets:

Ontario Teachers’ Pension Plan is turning more attention to European markets as other investors remain fixated on the U.S., its chief executive officer said.

“A lot of the Americans at the moment are actually saying, ‘I only want to be in the US,’” Jo Taylor said in an interview with Bloomberg Television on the sidelines of the World Economic Forum in Davos, Switzerland. “To me, that’s great news — I’ll just fill my boots in Europe.”

His bullish remarks on Europe come as the $255.8 billion (US$178 billion) fund searches for new ways to protect capital after pouring significant money into the US. Taylor also sees opportunity in “active private markets” such as infrastructure, private equity and credit. 

“I’m a great believer in going to hunt where the others don’t want to tread,” he said.

The Toronto-based pension fund had 17% of its investments in Europe, including the UK, as of the end of 2023. That compares with 35% in the US and 35% in Canada.

Freschia Gonzales of Benefits and Pensions Monitor also reports OTPP shifts focus to Europe as CEO notes US investors' local preference:

Ontario Teachers’ Pension Plan (OTPP) is increasing its focus on European markets as other investors concentrate on the US, according to its Chief Executive Officer Jo Taylor.  

Speaking with Bloomberg Television during the World Economic Forum in Davos, Taylor said, “A lot of the Americans at the moment are actually saying, ‘I only want to be in the US.’ To me, that’s great news — I’ll just fill my boots in Europe.”   

The Toronto-based pension fund, valued at $255.8bn, is seeking new ways to protect its capital after significant investments in the US.  

Taylor highlighted opportunities in ‘active private markets,’ including infrastructure, private equity, and credit. He remarked, “I’m a great believer in going to hunt where the others don’t want to tread.”   

In November, OTPP was reportedly considering selling its stakes in five European airports. These include London City, Birmingham, Bristol, Copenhagen, and Brussels.  

The Times estimated the assets to be worth more than £10bn. 

OTPP's ownership stakes range from 25 percent to 70 percent, making its share potentially worth over £3.5bn.    

The prospective sale has prompted minority shareholders to assess their positions, with some considering divestment. 

I listened to the entire Bloomberg interview which was short and to the point.

While the title says he's looking at "snapping up European assets," you need to listen carefully to his comments because they are looking to invest in private equity deals where there's scale so they can co-invest in larger transactions.

Nothing earth-shattering or new there, OTPP has been investing in private equity for a long time with top strategic partners, especially in Europe where Jo notes the regulatory framework and currency relative to the loonie are stable (although the CAD-euro cross rate has weakened recently).

More interestingly, he notes that Davos was focused on AI and data centers but at OTPP they remain focused on climate change and are investing in climate transition assets like electricity transmission (last mile delivery where you need power and new types of power). 

He also notes beyond that they are moving into "disruptive technology" where they are moving into areas beyond AI like alternative fuels (like hydrogen and other fuels). 

They are also very active in venture capital looking at disruptive companies. "We really like technologies that enable other sectors like in healthcare and financial services. We can provide long-term patient capital and in some ways we can be the alternative to an IPO, we can be there for ten years and really help the business to scale."

He ends with some interesting remarks in credit which he thinks is cyclical ("spreads tighten up when everyone is chasing same deals). "In private credit, you really have to be careful you're not putting the same product in the same business, so I wouldn't do private credit with an equity strip in the same company."

He said they look to achieve a balanced portfolio and it's their 35th anniversary this year and he has 340,000 teachers in Ontario and he needs to make sure they're not anxious about their retirement.

Below, this year’s World Economic Forum, OTPP President & CEO, Jo Taylor, sat down with Bloomberg to discuss his outlook for the year ahead, what’s happening across markets, and themes they’re focusing on in their active private markets strategies. These include continuing to invest around the climate transition and embracing disruptive technology, looking beyond AI to transformative technologies that drive change across sectors like financial services and healthcare.

In addition to their significant US investment footprint, diversification is crucial for sustainable growth and balancing their return on risk. Jo highlighted Europe as a strong complement to our North American portfolio, as a region with some good pockets that provide great companies, strong management teams, and the right sort of investment climate. His advice? “Go and hunt where others don’t tread.”

Jo also participated in a panel discussion on the theme of companies staying private for longer, particularly given the growth of private markets globally. He shared his experience from 30 years of investing and how OTPP approaches this, stating: “From our point of view, the question is not just where you see value, but how you create more. A good investment for us means going beyond the original vision when we first got together with the company's management team.”

Third, Tom Lee, Fundstrat managing partner, joins 'Closing Bell' to discuss the market sell-off, his top sector ideas and why he's remaining bullish.

Fourth, the Investment Committee from the Halftime Report debate the risk of the DeepSeek AI news out of China.

Lastly, Chinese AI startup DeepSeek is sending tech stocks plunging as the market digests what its cheaper and more efficient model means for the AI trade. DeepSeek claims it spent only $5.6 million to train its V3 model, compared to the billions spent a year in capital expenditures by the likes of Microsoft and Alphabet. CNBC's Deirdre Bosa sits down with Benchmark General Partner Chetan Puttagunta to discuss how China acheived its AI breakthrough.

Rita Nazareth of Bloomberg reports the S&P 500 sees best start for a President since 1985: 

A relentless rally in stocks took a breather near all-time highs, but the market still notched its best start to a presidential term since Ronald Reagan was sworn in to power in 1985.

While a rout in chipmakers weighed on trading Friday, the S&P 500 still climbed 1.7% this week. That was after President Donald Trump talked up policies to boost the economy and lower taxes, while appearing to soften his stance toward tariffs on China — even as he continued to threaten sweeping action. The dollar saw its biggest weekly drop since November 2023. The MOVE Index of expected Treasury volatility hit the lowest since about mid-December.

“It is early days, but nothing that President Donald Trump has said or done has caused a bad reaction in financial markets,” said Chris Iggo at AXA Investment Managers. “Quite the contrary. It is paying to stay invested.”

A test to that risk-on mode will be next week’s start of the big-tech earnings season. Investors are eager to see whether demand for artificial intelligence will live up to sky-high expectations. The industry was buoyed earlier in the week, with SoftBank Group Corp., OpenAI, and Oracle Corp. forming a $100 billion joint venture to fund AI infrastructure, an effort unveiled with President Trump.

The S&P 500 fell 0.3% Friday. The Nasdaq 100 slid 0.6%. The Dow Jones Industrial Average slipped 0.3%. A Bloomberg gauge of the “Magnificent Seven” megacaps dropped 0.4%. The Russell 2000 retreated 0.3%.

Among corporate highlights, Meta Platforms Inc. climbed on plans to invest as much as $65 billion on AI projects in 2025. Cryptocurrency-linked firms rallied following Trump’s executive order favoring the industry. Nvidia Corp. led losses in big tech. A disappointing forecast from Texas Instruments Inc. sent the shares down 7.5%.

In the run-up to next week’s Federal Reserve decision, bonds rose amid data showing a drop in US consumer sentiment and a slight pullback in the growth pace of business activity — though companies remained upbeat about the outlook. The yield on 10-year Treasuries declined two basis points to 4.62%. The Bloomberg Dollar Spot Index fell 0.5%.

Oil saw its first weekly drop this year, with Trump calling for lower prices, which tends to ease concerns about inflation. Russian President Vladimir Putin said he’s ready to discuss energy issues with the US president.

To David Lefkowitz at UBS Global Wealth Management, while US equities will likely be more volatile this year due to periodic concerns about the return on AI investment spending, tariffs and interest rates, any dip will likely be a buying opportunity.

“In our base case, we expect higher tariffs, but we don’t think they will rise to a level that alters the economic growth trajectory,” he noted.

Wall Street also waded through a slew of economic data on Friday, with the highlight being a drop in US consumer sentiment for the first time in six months. Consumers expect prices will climb at an annual rate of 3.2% over the next five to 10 years. They see costs rising 3.3% over the next year, the highest since May.

After cutting rates three times in late 2024, Fed Chair Jerome Powell and his colleagues are expected to hold rates steady until they see inflation make more downward progress toward their 2% target.

“Given our expectation for a somewhat uneventful Fed pause, we look for a modest Treasury market reaction unless Chair Powell surprises with a dovish press conference,” said Oscar Munoz and Gennadiy Goldberg at TD securities. “We remain long duration and expect the curve to steepen in 2025, but to remain flatter in the near-term.”

To James Egelhof at BNP Paribas Securities Corp., Powell will probably be asked about the tail risk of rate hikes at the press conference.

“We expect him to reply cautiously by indicating they are less likely, but could come into view if needed to secure a soft landing for inflation and growth,” he noted.

With uncertainty swirling around the outlook for inflation and interest rates, there’s been one dependable catalyst keeping Wall Street’s spirits lifted: Corporate America’s bottom line.

The stocks of S&P 500 members that have reported stronger-than-expected profits in the most recent quarter have outperformed the benchmark by an average of 1.5% within a day of the results, according to data compiled by Bloomberg Intelligence.

Only those that account for about one-fifth of the S&P 500’s market capitalization have so far reported. But if the trend holds, it would mark the best post-earnings reaction since 2018, the BI data show.

Corporate Highlights:

• Texas Instruments Inc. shares declined the most in nearly five years after the chipmaker gave a disappointing earnings forecast for the current period, hurt by still-sluggish demand and higher manufacturing costs.

• Tobacco stocks gained as a proposed ban on menthol cigarettes and flavored cigars was withdrawn by the Trump administration.

• Verizon Communications Inc. reported fourth-quarter financial results that beat analysts’ estimates, including gains in new mobile-phone and broadband customers.

• American Express Co. profits increased 12% as well-heeled consumers spent more than analysts expected on their credit cards over the holidays, a tailwind the firm said it expects will continue.

• Boeing Co. suffered another quarter of fresh charges and losses, highlighting the long road ahead for Chief Executive Officer Kelly Ortberg as he tries to stabilize the US aircraft manufacturer.

• Novo Nordisk A/S’s experimental shot delivered as much as 22% weight loss in an early-stage trial, boosting investors’ hopes for the drugmaker’s pipeline.

Alright, apart from President Trump's speech at Davos on Thursday, there wasn't anything major on the geopolitical front.

As expected, the Bank of Japan raised rates 25 basis points on Friday to its highest level in 17 years after consumer price rises accelerated in December:

The move by the Bank of Japan (BOJ) to raise its short-term policy rate to "around 0.5 per cent" comes just hours after the latest economic data showed prices rose last month at the fastest pace in 16 months.

The BOJ's last interest rate hike in July, along with a weak jobs report from the US, caught investors around the world by surprise, which triggered a stock market selloff.

The bank's governor, Kazuo Ueda, signalled this latest rate hike in advance in a bid to avoid another market shock.

According to official figures released on Friday, core consumer prices in Japan increased by 3% in December from a year earlier.

The decision marks the BOJ's first rate hike since July and came just days after Donald Trump returned to the White House.

During the election campaign Trump threatened to impose tariffs on all imports into the US, which could have an impact on exporting countries like Japan.

By raising rates now the bank will have more scope to cut rates in the future if it needs to boost the economy.

The move highlights the central bank's plans to steadily increase rates to around 1% - a level seen as neither boosting or slowing the economy.

The BOJ signalled that interest rates will continue to rise from ultra-low levels.

Neil Newman, the head of strategy at Astris Advisory Japan said: "rates will continue to rise as wages increase, inflation remains above 2% and there is some growth in the economy."

"We look for another 25-basis point hike in six months," said Stefan Angrick, a Japan economist at Moody's Analytics.

Last year, the BOJ raised the cost of borrowing for the first time since 2007 after rates had been kept down for years as the country struggled with stagnant price growth.

That hike meant that there were no longer any countries left with negative interest rates.

When negative rates are in force people have to pay to deposit money in a bank. They have been used by several countries as a way of encouraging people to spend their money rather than putting it in a bank.

Following are excerpts from BOJ Governor Kazuo Ueda's comments at his post-meeting news conference, which was conducted in Japanese, as translated by Reuters:

WAGE HIKE"Many firms are saying they will continue to raise wages ... Various data shows the U.S. economy is in firm shape. Markets have been stable as the broad direction of Trump's policies become clearer. While import price growth is subdued on a year-on-year basis, the weak yen is pushing up import costs."
POLICY RATE"There's no change to our view of raising our policy rate and adjusting the degree of monetary support if the economy and prices move in line with our forecasts." "The timing and pace of adjusting monetary support will depend on economic and price developments at the time. We don't have any preset idea. We will make a decision at each policy meeting by looking at economic and price developments as well as risks." SHARP UPGRADE IN INFLATION FORECASTS"The rise in underlying inflation is moderate. I don't think we are seriously behind the curve in dealing with inflation."IMPACT OF TRUMP'S TARIFF POLICIES"There's very high uncertainty on the scale of tariffs. Once there is more clarity, we will take that into our forecasts and reflect them in deciding policy."

"It's necessary to raise interest rates in accordance with developments in the economy and prices. We also need to see how our rate hikes affect the economy. It's therefore appropriate to gradually raise interest rates in several stages, while carefully examining the impact of our moves."TERMINAL RATE"There's no change to our view on the neutral rate, which in our estimate is spread in a wide band. The estimated band hasn't changed much. In terms of the distance to the neutral rate, it's true it has shortened after raising rates to 0.5%. But there's still quite some distance."

"The BOJ's estimate shows the neutral rate, in nominal terms, is in a range of 1%-2.5%. There's still some distance to that range, given the short-term rate is 0.5%. Of course, we need to deepen analyses on where the neutral rate is as this could be affected by demographics and structural changes in the economy. We'll try our best. But it's hard to know this real time."ON WHETHER JAPAN IS STILL IN DEFLATION"The government has a slightly different definition of deflation compared with ours, as we focus on sustainably achieving our 2% inflation target... In terms of the common definition of deflation, which is for an economy to avert falling prices, it seems like Japan has moved away from this quite a bit. Of course, the risk of Japan returning to deflation again in the long run is not zero. But the chance seems quite low." "The sharp rise in inflation during fiscal 2025 is mostly due to cost-push pressures expected in the first half of that year, which is likely to dissipate in the latter half. As such, if wages rise steadily, we can expect real wages to turn positive."DOWNGRADE IN POTENTIAL GROWTH ESTIMATE"Simply put, it's because of labour shortages... The downgrade is small and so the impact, if any, on our neutral rate estimate will be minimal."ON WHETHER THE BOJ SEES 0.75% AS A BARRIER IN RAISING RATES"We don't have any sense of a 'barrier' in mind. But when rates approach neutral or slightly exceed that level, there will be some kind of reaction to the economy such as declines in housing investment. We'll try to respond before the impact becomes very large. But we will be gradually testing the waters in finding out."

 While I do not see runaway inflation in Japan, it's important to keep an eye on developments there because higher yields in Japan mean higher yields in the rest of the world and that doesn't bode well for risk assets.

Right now, the BoJ is behind the inflation curve as real yields are deeply negative.

Higher yields in Japan are lending support to the yen which gained some ground this week but remains very weak relative to the USD which is why inflation is picking up:

Are we going to get another unwinding of the yen carry trade which clobbers risk assets? I doubt it since the Bank of Japan is carefully telegraphing its moves to avoid any financial crisis but I sure hope they get ahead of the inflation curve there and I'm not convinced they have.

This upcoming week the Fed and Bank of Canada are announcing the next policy rate move on Wednesday.

The Fed will likely hold rates steady at an unsteady moment and the Bank of Canada is widely expected to cut by 25 basis points as tariff threat looms.

Central banks add noise to the equation but it's critically important to track their latest moves and policy changes.

In the US stock market this week, the big moves I tracked were Netflix earlier this week and Twilio today following stellar earnings reports:

Both these charts are in "beast mode" and have been ripping higher, quite incredible (you buy any dip that goes to 10-week moving average).

In fact, I track a lot of stocks across the risk spectrum and so far January is all RISK ON.

What can derail this market? Higher rates and/ or a severe recession which is why you need to pay attention to central banks and any potential fallout if a trade war develops.

But to be truthful, potential higher rates worry me more than a trade war right now.

And before I forget, have a look at this chart showing US home buying conditions have collapsed to levels never seen in 65 years:

SHOCKING: Home buying conditions have collapsed to levels NEVER seen in 65 years pic.twitter.com/KfcG97eqSS

— Bravos Research (@bravosresearch) January 23, 2025

This doesn't bode well for the US economy!

Anyways, next week we get more mega cap tech earnings from Microsoft, Meta and Apple later in the week.

Below, Masahiko Loo, senior fixed income strategist at State Street Global Advisors, says there could be an interest rate hike in September.

Also, The Bank of Japan (BOJ) raised interest rates on Friday (Jan 24) to their highest since the 2008 global financial crisis and revised up its inflation forecasts, underscoring its confidence that rising wages will keep inflation stable. Economics professor Sayuri Shirai from Keio University, who is also a former BOJ board member, tells CNA’s East Asia Tonight Japan is facing a dilemma as domestic consumption is stagnant and inflation is high.

PSP Investments just announced Patrick Charbonneau will be the next CIO and Yannick Beaudoin will replace him as President and CEO of the Canada Growth Fund Investment Management:

Montréal, Québec (January 23, 2025) – The Public Sector Pension Investment Board (PSP Investments) today announced the appointment of Patrick Charbonneau to the role of Chief Investment Officer (CIO) of PSP Investments and Yannick Beaudoin as President and Chief Executive Officer (CEO) of Canada Growth Fund Investment Management (CGFIM), effective February 3, 2025.  

“The appointment of Patrick Charbonneau as CIO reflects our ongoing commitment to strategic leadership and investment acumen. Patrick is an exceptional leader with a deep understanding of our mission and priorities. His expertise and vision will strengthen PSP’s ability to deliver long-term value for our beneficiaries and advance our strategic objectives in the years ahead.” said Deborah K. Orida, President and Chief Executive Officer, PSP Investments.  

With 18 years at PSP Investments, including six years as a founding senior member of the London office, Patrick brings deep expertise in private markets and a global perspective to his new role. He has over 20 years of experience in the infrastructure sector and was instrumental in building the organization’s infrastructure portfolio and team since inception of the infrastructure asset class in 2006. In his role as CIO, Patrick will oversee PSP Investments’ portfolio design and beta management activities, the fund’s overall investment strategy and the treasury function.

“Yannick’s experience and successful track-record—building direct investment platforms, working with entrepreneurs, and managing a diversity of stakeholders—positions him well to lead CGFIM. Since CGFIM’s inception, Patrick has been instrumental in quickly setting up CGFIM and ensuring it was active quickly, operates at arm’s length from government, and committing capital through fiscally prudent investment decisions. Patrick and the team have since closed nine market-leading investments across Canada that represent more than C$2B of capital committed to date. Yannick and the CGFIM team will continue to build on this momentum and lead the organization into the next stage of its maturity and impact.” added Ms. Orida.  

Yannick joined PSP Investments’ Natural Resources team in Montreal in 2012. Throughout this tenure, he has demonstrated exceptional leadership in building investment portfolios from the ground up and in cultivating strong stakeholder relationships. As Head of Asia Pacific and Europe, Yannick oversaw a growing Natural Resources portfolio of over $8 billion and global transaction opportunities that included controlling direct investments alongside local operating partners. Yannick led a diverse team of investment professionals and has significant experience in asset management and investment oversight, having participated on multiple Boards of Directors since 2013. As President and CEO of CGFIM, Yannick will be responsible for CGF’s investment strategy and execution, in accordance with CGF’s independent and arm’s length investment mandate.  

About PSP Investments 
The Public Sector Pension Investment Board (PSP Investments) is one of Canada’s largest pension investors with $264.9 billion of net assets under management as of March 31, 2024. It manages a diversified global portfolio composed of investments in capital markets, private equity, real estate, infrastructure, natural resources, and credit investments. Established in 1999, PSP Investments manages and invests amounts transferred to it by the Government of Canada for the pension plans of the federal public service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force. Headquartered in Ottawa, PSP Investments has its principal business office in Montréal and offices in New York, London and Hong Kong. For more information, visit investpsp.com or follow us on LinkedIn. 

About Canada Growth Fund (CGF) 
CGF is a $15 billion arm’s length investment vehicle that helps attract private capital to build Canada’s economy by using investment instruments that absorb certain risks, in order to encourage private investment in low carbon projects, technologies, businesses, and supply chains. Further information on CGF’s mandate, strategic objectives, investment selection criteria, scope of investment activities, and range of investment instruments can be found on www.cgf-fcc.ca.  

About Canada Growth Fund Investment Management (CGFIM) 
In Budget 2023, the Government of Canada announced that PSP Investments, through a wholly owned subsidiary, would act as investment manager for CGF. Canada Growth Fund Investment Management has been incorporated to act as the independent and exclusive investment manager of CGF.

Alright, big news coming out of PSP Investments today so let me get right to it.

It was barely a year and a half ago that Patrick Charboneau was named the Head of the Canada Growth Fund and now he's replacing Eduard van Gelderen as CIO of PSP Investments.

Am I surprised? Yes and no. I sort of knew Patrick was in the running and was likely going to be named next CIO before the holidays but until you see it in print, anything can happen.

Now it's official so I can share with you my thoughts.

First, congratulations to Patrick, this is a huge vote of confidence for him from Deb Orida and he earned it.

Was I surprised he was named CIO? A bit from the standpoint that I always saw him as an infrastructure expert and thought he would make a great leader of Real Assets, replacing  Patrick Samson.

The position of CIO is very different, he needs to think total portfolio, not just transactions and really oversee all the teams across public and private markets.

From that standpoint, he definitely lacks the experience of an Eduard van Gelderen.

He also lacks the experience of Marlene Puffer, Ziad Hindo, Nicole Musicco or Geoffrey Rubin, all names that were being thrown around.

But you know what Patrick Charbonneau has that all these people don't have?

He has Deb Orida's trust and ultimately that's what counts more than anything else.

Deb is someone who thinks 20 times before making a critical decision and she needs to trust her CIO implicitly.

For whatever reason, and this admittedly is my perception, she didn't trust Eduard van Gelderen, perceived him as a threat, maybe was intimidated by his knowledge, experience and board relationships, so she needed to place someone in this important role she trusts.

Patrick has delivered for her, he successfully launched the Canada Growth Fund and was doing a great job heading it, so much so that I heard Chrystia Freeland loved him and wasn't pleased when news broke out he was going to be moved to CIO role.

But Ms. Freeland is no longer our finance minister so she has no say now and the Government of Canada will change in the coming months.

So, Patrick Charbonneau is PSP's new CIO and while he lacks CIO experience, he's a top professional and a great leader who is well respected among peers and colleagues (including the former CIO).

He knows his strengths and weaknesses so he will surround himself with people he trusts to help him navigate that role and really champion the total portfolio approach.

Again, the role of a CIO is very different from role of Head of Canada Growth Fund or even Head of Infrastructure, you really need to think, live, eat and breathe total portfolio 24/7.

Patrick knows this, he's been around long enough, he can navigate the terrain.

I don't know him well but people I know and trust tell me he's a very nice guy and consummate professional. One person told me "he will do well in that role."

He will also play a critical role with PSP's members and the Government of Canada (Treasury Board) and there I have no doubt he will be superb (another reason why Deb trusts him in that role).

Alright, let me wrap it up but before I do, I also want to congratulate Yannick Beaudoin for being named President and Chief Executive Officer (CEO) of Canada Growth Fund Investment Management (CGFIM).

I don't know him well but he has done a great job at the Natural Resources team and is taking on a very important role.

No doubt in my mind that Deb Orida trusts him implicitly as well for this important role.

Only thing that irks me a bit is whether the Conservatives will support this initiative if they gain power but I don't see any reason as to why not, especially if the mandate is being fulfilled properly.

Still, the Canada Growth Fund does have a political dimension so you never know.

Alright, quick comments today on this important announcement.

Feel free to agree or disagree with me and email me if you have anything to add.

Below, President Donald Trump virtually addresses participants at the World Economic Forum's Annual Meeting in Davos on Thursday. 

Take the time to watch this and you might want to fast forward to minute 41 where he torpedoes Canada.

Bert Clark, president and CEO of IMCO, wrote a comment on LinkedIn on whether beating the market be the primary focus of most investors:

2024 was a tough year for investors trying to “beat the market.”

US indexes have come to be dominated by a small number of stocks – the so-called “Magnificent 7” (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla). At the start of 2024, these stocks made up around 28% of the S&P 500, already reflecting a high level of concentration that made the decision of whether to market weight, underweight or overweight these stocks critical for US public equity investors. Overweighting stocks that already dominate the index would have felt odd from a concentration risk perspective. But by the end of 2024, the Magnificent 7 represented 34% of the value of the S&P 500. This is the highest level of concentration in the largest names since 1963. Investors who did not choose to overweight the Magnificent 7 would have struggled to beat the index because these dominant stocks outperformed the index by 23%!

Investors in private assets with public market benchmarks would also have struggled with net value add in 2024. The S&P 500 was up 25% in 2024. The S&P Mid Cap index was up 13.9%. And the S&P Utilities index was up 23.4%. Most private assets don't tend to rise that much in a single year, due to appraisal-based lagged valuations.

In years like this, it is good to remember that the primary objective of most investors is not “beating the market.” Most investors are looking to generate total returns at a level of risk that they are comfortable with. Total returns pay the bills. And risk can lead to stress, regret or worse, the requirement to increase contributions or delay withdrawals. Net value add is rarely the main game. It is a bonus.

The good news is, while it is hard for most investors to reliably generate net value add, there are investment strategies that have tended to reliably generate better risk adjusted long-term total returns. And many larger institutional investors are well placed to pursue these strategies. They include focusing on asset mix and diversification, reducing costs, and staying invested for the long-term. At IMCO, these are the things we focus on.

The challenge of generating net value add

Net value add (outperforming the markets) is really challenging to generate on a consistent basis. So, 2024 wasn't that odd a year in this regard.

The S&P SPIVA semi-annual report tracks the performance of many retail funds across multiple geographies and market segments. It has consistently found that most actively managed funds have underperformed their benchmarks over short- and long-term periods, and across geographies. Institutional public equity funds have tended to have a better track record than retail funds (in part, because of lower fees), although most of them have also struggled to generate net value add in certain market segments (especially US large cap public equities).

Even the biggest pensions that have long investment time horizons and the benefits of scale have only tended to generate modest total portfolio net value add over the long term. A study by CEM Benchmarking found that the average annual net value add of the largest pension funds was 26bps over 20 years. This is certainly a modest amount, especially relative to the kinds of total returns those funds were seeking to meet their liabilities. (It’s worth noting that the study also found that larger funds were able to generate better risk adjusted returns than smaller funds. This is especially important for most funds whose purpose is to generate long-term, stable returns to meet liabilities).

Net value add is difficult to achieve in public markets and challenging to measure in private markets. For most investors it contributes only a small amount to total returns – which is (or ought to be) their primary concern. This doesn't mean that net value add isn’t worth pursuing. But it does suggest that it should only be pursued in a focused way, in areas where investors have a real advantage. And investors should be careful to ensure that the pursuit of net value add does not distract from or undercut the strategies discussed below that can reliably impact total portfolio returns and risk.

Where to focus if total returns and risk are the priorities

Asset Mix and Portfolio Diversification

Asset mix has been estimated to drive as much as 90% of overall portfolio risks and returns. This is why it's important investors spend time ensuring they are invested in the right asset mix, before trying to outperform within individual asset classes. It's almost impossible to outrun a bad asset mix with outperformance at the asset class level.

The right asset mix for most large institutional investors is a diversified portfolio which includes asset classes like bonds, credit, public and private equity, and real assets (like infrastructure and real estate). US Dollar exposure can also be an important part of a diversified asset mix.

Diversification was described by the inventor of modern portfolio theory, Harry Markowitz, as “the only free lunch in investing.” There is no catch, no downside. By combining asset classes that are uncorrelated (whose returns do not move up and down in unison), investors can build portfolios that have better risk return characteristics than portfolios that are concentrated in fewer, correlated assets classes.

The risk mitigating benefits of diversification are especially important for investors (such as pension plans) who may need to increase contributions or delay or reduce withdrawals when returns are insufficient to keep up with liabilities. For these investors, their goal is both to generate long-term returns and avoid disruptive periods of underperformance.

Diversification is also important for investors with net outflows (almost all investors have or will have outflows at some point). Diversifying their asset mix helps reduce the chance that they will be forced to sell assets at depressed prices to meet outflow requirements. Selling when things are down crystallizes losses and can completely undermine strategies like investing more in riskier assets, such as equities, to benefit from their tendency to generate higher returns over the long-term (notwithstanding their near-term volatility).

A key aspect of diversification involves avoiding "big bets” – large allocations to single asset classes, market segments, individual investments or strategies (e.g., borrowing on short term basis to enhance returns) – because surprises are all too common in investing.

Entire segments of the market have endured prolonged downturns. The Japanese market peaked in 1989 and then took 34 years to reach that level again. The Nasdaq peaked in 2000 and then took 15 years to reach this level after the dot com crash. Oil hit a high of US$146 per barrel in 2009 and is still nowhere near that level. The European bank index is still 70% below its 2007 pre-GFC peak. The S&P metals and mining industry index is still below its peak at the height of the 2000s so-called “commodity supercycle.” US office real estate has generated returns of -4.6%, on average, over the last 5 years. Even the relatively safer US 30-year Treasuries have generated -7.25% returns over the last 5 years. Big bets on any of these market segments would have been a good reminder of why diversification is important.

Big bets on individual companies are also inadvisable for most investors. There is regular turnover of winners in competitive economies, like the US. For example, only one (Microsoft) of the biggest 10 companies in the S&P 500 25 years ago is in the top 10 today; only one (Bank of America) of the biggest 10 banks in the world 25 years ago is in the top 10 today; three (Tesla, BYD and Xiaomi) of the 5 biggest car companies in the world did not exist 25 years ago. Unless long term investors can reliably identity when dominant companies will be replaced by the next generation of winners, they should avoid big bets on individual companies.

Too much focus on generating net value add can draw investors into making big bets that put total returns at risk. Big bets can lead to big regrets. Focusing on asset mix and diversification are the keys to better risk adjusted long term returns.

Costs

Costs are something investors can control – to larger and smaller degrees – and they directly impact net returns.

There are many things that directly impact returns and risk that investors cannot control: interest rates, equity market returns, the relative performance of individual companies and market segments, exchange rates, geopolitics and asset class correlations. All investors can do in relation to these things is take a view on them, arrange their portfolios accordingly, monitor them and adjust as necessary. The ability to directly impact net returns through cost measures is something that can be controlled, so every investor needs to consider and act on costs, to the extent that they can.

One of the most powerful ways for institutional investors to drive down costs is through consolidation to achieve scale, which is exactly why IMCO was created.

Data from CEM Benchmarking has established that reducing costs through scale has the same ability to improve pension fund returns as active management. Large investors can use their size to negotiate preferential terms with external partners, internalize some investment activities, spread costs over a larger base and identify where to pursue active and passive strategies.

CEM’s findings are extremely powerful. It means that smaller pensions would be much better served by pursuing consolidation than seeking to generate net value add. Reducing costs has guaranteed benefits. Seeking returns through outperformance has no guarantees.

Staying invested for the long-term

Staying invested is one of the more powerful investment strategies. Staying invested allows the power of compounding to work its magic. $1,000 invested in the S&P 500 25 years ago would be worth about $6,800 today. But these results would only have been possible if the investor stayed invested that entire time. $1,000 invested over that same timeframe would have only grown to about $1,450 if an investor missed the 25 best days in the market.

To stay invested, investors need to avoid the temptation of trying to time the markets. Things that seem obvious often don’t turn out as one might expect. One might have thought a global pandemic and the highest inflation in years would make for challenging investment conditions. And yet the total returns of the S&P 500 have been 90.38% in the four years since February 2020.

Morningstar has documented the challenge and consequences of the market timing efforts of many retail investors. Their 2024 Mind the Gap report documents how most investors earn less than the funds in which they invest because they contribute and withdraw funds at the wrong times. They effectively buy high and sell low in their efforts to time things right.

In addition to avoiding temptation, sound liquidity management is critical to staying invested. Investors need to understand their liquidity requirements and have reliable sources to meet demands, including during stressed markets. Being forced to sell when assets are at depressed values crystallizes losses.

Focus on the main game

2024 was a tough year for active investors. But this is nothing new. Net value add is difficult to generate and should only be pursued where investors have a real advantage, and never to the extent that it puts overall returns at risk.

Fortunately, net value add is not the main game for most investors. Total returns and risks are the things that matter most. And some investors – particularly large investors with stable outflows – are really well placed to pursue strategies that have reliably contributed to better total returns and risk over the long term. They are focusing on asset mix and diversification, controlling costs and staying invested.

Recall, I started my Outlook 2025 with Bert Clark's article in the National Post on how the S&P 500’s performance in 2024 made investing look easy.

Here he delves deeper on the challenge of net value add and goes over the advantages of large institutional investors like IMCO.

I suspect IMCO trailed its benchmark last year and it will not be the only one as public equities roared led by the stellar performance of the S&P 500.

But the point of a pension fund isn't to beat the S&P 500 consistently every year --a feat even the best hedge funds cannot do -- but to make sure they have more than enough assets to meet long-dated liabilities by achieving the highest possible risk-adjusted return every year without huge swings (jeopardizing the stability of the contribution rate).

Have there been years where large pension funds are down 20% or more?

Yes, the 2008 crisis comes to mind, it wasn't an easy time.

But these years are rare, most of the time stocks and bonds are up and so are pension funds.

What can make the next few years more challenging is persistent, sticky inflation which rebounds and drives rates higher, forcing the Fed to hike again.

This was something I discussed in my Outlook 2025 and the macro environment is harder than ever to forecast.

Markets are never easy to forecast but this year especially will be challenging.

Earlier today, I reposted this comment from Jean Boivin, Head of BlackRock's Investment Institute and Global Head of Research there where he discusses potential risks:

 He states:

We’re starting 2025 with a pro-risk stance but keep an eye on three key investment risks to our view.

The first trigger: whether or not the incoming U.S. administration takes a market-friendly approach to achieve goals like improving growth and reducing budget deficits. We look through noisy headlines around policy and focus on how policy changes take shape this year.

The second trigger: deteriorating investor sentiment due to earnings misses or lofty tech valuations. The “magnificent seven” of mostly tech companies are still expected to drive earnings this year as they lead the AI buildout. Their lead should narrow as resilient consumer spending and potential deregulation support earnings beyond tech. Any misses could renew investor concern over whether big AI capital spending will pay off and if high valuations are justified

The third trigger: elevated vulnerabilities in financial markets, like a sudden jump in bond yields. The unusual yield jump since the Federal Reserve started cutting rates underscores this is a very different environment. See the chart below. The refinancing of corporate debt at higher interest rates is another risk.

Read more in our weekly market commentary here.

I must admit, it's the third trigger which makes me very nervous because if the 10-year US Treasury yield pops above 5% and keeps heading higher, I expect risk assets to get clobbered.

Hopefully this will not happen but what Bert Clark should have also told you is what happens to returns when investors miss the carnage, not just when they participate in the best days (they do significantly better).

Honestly, what worries me is the bubble in everything keeps going, deregulation will benefit big banks but also incite them to take more risk and that never ends well.

Also, a young generation that bets everything on crypto, Tesla, Nvidia, quantum computing stocks or the latest fad and has literally never lived or experienced a severe and prolonged bear market.

"In a bull market, everyone is a financial genius" the late economist John Kenneth Galbraith used to say.

Investing has never looked so easy, momentum strategies and taking concentrated bets are still the way to go but this will all end in tears. 

More proof that this is coming to an end?

Clients of Seth Klarman’s Baupost Group pulled roughly $7 billion from the hedge fund in the past three years, losing patience with the famed value investor after a decade of lackluster returns. 

When large investors pull money from Seth Klarman -- aka Mr Margin of Safety -- you know we are reaching an inflection point in markets.

Or maybe not, maybe the S&P 500 will be up another 26% this year driven by Mag 7, 8, 9 if you add Broadcom and Netflix to the mix.

We shall see but remember this, no matter what the stock market does, your pension fund managing your retirement better be highly diversified and well managed. 

The rest is irrelevant.

Below, JPMorgan Chase chairman and CEO Jamie Dimon joins 'Squawk Box' to discuss the second Trump administration, why he's 'cautiously pessimistic' about the U.S. economy, impact of Trump's tariff proposals and EOs, state of the global markets, impact of the strong dollar, his relationship with Elon Musk, investing landscape, future of DEI in corporate America, his thoughts on the crypto industry, succession plans at JPMorgan, and more.

And Goldman Sachs chairman and CEO David Solomon joins 'Squawk Box' to discuss the state of the economy, latest market trends, regulatory landscape under the new Trump administration, impact of Trump's tariff proposals, his thoughts on crypto, future of DEI in corporate America, and more.

Barbara Shecter of the National Post wrote a comment asking whether the Canadian pension model can survive a new era of politicization:

Rachel Reeves, the U.K.’s new chancellor of the exchequer, had a goal in mind when she flew to Toronto last August to meet with the heads of some of Canada’s largest pension funds.

“I want British schemes to learn lessons from the Canadian model and fire up the U.K. economy, which would deliver better returns for savers and unlock billions of pounds of investment,” Reeves told U.S. investors in New York on the first leg of her trip, according to the Financial Times.

Reeves had at least half of the equation right. The informal group of large institutional investors known as the Maple 8, which includes the Ontario Teachers’ Pension Plan and the Canada Pension Plan Investment Board, has been envied globally over the past decade-plus for their ability to earn world-class returns through a diverse blend of investment strategies. But the group’s unique achievement has been a model that shelters the funds from government influence when it comes to investment decisions.

In other words, the funds aren’t there to fire up the economy or pursue the political cause of the day — they are there to invest for their beneficiaries, full-stop.

That fundamental advantage came under pressure at home like never before in 2024, raising concerns that it’s only a matter of time before Canada’s biggest funds are forced to make concessions to government. It’s a threat pension veterans aren’t taking lightly.

“Governments need cash. They are turning over every stone to look for it, but the (pension) money is not theirs for the taking,” Mark Wiseman, the former chief executive of the CPPIB, said in a recent interview with the Financial Post. “It’s the retirement savings of millions of Canadians — no different than the monies in their bank accounts and RRSPs.”

Developments over the past couple of years have prompted pioneers of the Canadian pension model, including Wiseman and Claude Lamoureux, the first CEO of the Ontario Teachers’ Pension Plan, to pen articles sounding the alarm and warning that the survival of vaunted model was at risk.

Ottawa triggered the concerns when it stated explicitly in the fall economic statement in 2023 that it wanted major pensions to invest more in Canada, a longstanding ambition of Justin Trudeau’s Liberal government. That prompted dozens of business leaders from industries ranging from telecom to transportation to sign an open letter in 2024 calling on the government to create new rules and incentives to reverse a decline in domestic investment. Last year, the government pushed ahead to try to meet its objectives while assuaging some of the concerns in the pensions industry, creating a task force led by former Bank of Canada governor Stephen Poloz to shepherd the process.

But Lamoureux and others argued the approach is the wrong way to improve the country’s economic prospects.

“The federal government should ask itself how we (can) create champions, not where our champion pension plans should invest,” he said.

Proponents of the Canadian pension model were already on high alert when, in November, Alberta’s government — which was already contemplating pulling out of the Canada Pension Plan — reached into Alberta Investment Management Corp. (AIMCo), the province’s main public asset manager, and fired the entire board and chief executive before installing former Prime Minister Stephen Harper as chairman and putting a government bureaucrat permanently on the board of directors.

The shakeup stoked fears that the Alberta government wants a more direct hand in how AIMCo invests.

Months before that overhaul unfolded, the Global Risk Institute published a paper with a blunt warning: directing pension funds to invest more at home would “undermine careful risk-return calibrations, compromise existing governance functions, and expose pension plan members to potential financial losses.”

Wiseman, meanwhile, had warned at a summer conference that pulling pensions away from their core mission could be a slippery slope, even if it begins with the gentle ask from governments facing down deficits and sluggish economic outlooks.

By the end of the year, there were signs the federal government was getting the message. Lost amid the drama surrounding the resignation of finance minister Chrystia Freeland in December, the Liberals’ fall economic statement tabled the same day tempered some concerns that Ottawa will tell pensions where to invest their money.

Instead, it promised to examine raising a 10 per cent ownership cap on municipal utilities and potentially re-thinking airport land lease agreements to allow pensions to invest in the development of surrounding vacant land. In addition, it pledged that pensions would no longer be subject to a cap of 30 per cent control of companies they invest in.

Those small steps, combined with the upheaval and a potential change in government in Ottawa, have tamped down concern for some about the immediate threats to the Canadian pension model. But the fear is not gone.

“Nothing is ever totally out of the woods,” said Keith Ambachtscheer, a veteran pension expert and one of the authors of the June GRI paper. “(But) Ottawa has bigger things to worry about than pension fund investing.”

While Ambachtscheer was willing to declare the Canadian pension model “alive and well,” for now, Lamoureux said the political chaos has just introduced another level of uncertainty.

One of the major concerns that arose last year was that established fund managers such as the Canada Pension Plan Investment Board and AIMCo could be made to carry dual mandates like the Caisse de dépôt et placement du Québec. A rarity among the Maple 8, the Caisse’s investment decisions must consider both maximizing risk-adjusted returns for beneficiaries and contributions to Quebec’s economic development.

There are worries some kind of dual mandate could be coming to AIMCo soon, based on comments Alberta Premier Danielle Smith has made and the November leadership purge.

Speaking at a Calgary Chamber of Commerce event in the fall of 2023, for example, Smith said the province’s Heritage Savings Trust Fund, managed by AIMCo, could become more like a sovereign wealth fund and invest in projects that are having difficulty securing financing elsewhere.

That didn’t sit well with Gil McGowan, president of Alberta’s Federation of Labour, who said thousands of AFL members are concerned their retirement money, managed by AIMCo, could end up being used to support the government-favoured projects, such as in the oil and gas sector, that might not be in retirees’ best interests economically.

“Risking the retirement security of that many people with a Quebec-style dual mandate would be bad enough — but what the UCP (United Conservative Party) government in Alberta has in mind is actually worse,” McGowan said via email in December. “They’re not just talking about using pension funds to promote Alberta-based economic growth and job creation (a la Quebec), they’re talking about using the money (other people’s money!) to prop up oil and gas businesses that are finding it more difficult to raise cash from international investors and capital markets.”

Lamoureux, too, said it would be a mistake for governments to demand a dual mandate, adding that institutional investors subject to such mandates, like the Caisse, tend to underperform those that aren’t — even when both beat their established benchmarks.

The Caisse ranked last among the Maple 8, for example, in a global pension fund ranking by data platform Global SWF that measured the compound annual growth rates of single-year investment returns between 2013 and 2022.

Lamoureux said the benefits of the Canadian pension model are in the data. Teachers’, the pension plan he was instrumental in creating in its current form, had an $8 billion deficit when it was run by the province of Ontario. Both returns and funding status across Canada’s largest funds including Teachers’ have much improved since governments opened up globetrotting investment potential by removing rules that limited foreign investment first to 20 per cent and then 30 per cent.

“Canada, according to UBS, represents 2.5 per cent of the world capitalization, the U.S. 60 per cent. Where you should invest is easy to answer,” Lamoureux said. “Would the Teachers’ pension fund be 100-per-cent-plus funded if we had not been allowed to invest (or use derivatives) more outside Canada?”

But even some critics of the perceived interference with Canada’s successful pensions say it’s not entirely unfounded for the government to question why the multi-billion funds aren’t investing more at home.

Domestic allocation has been declining for years, said Alex Beath, a former senior research associate at CEM Benchmarking, an independent provider of comparative performance data for institutional investors including pensions.

In public markets, Canadian pension funds reduced their holdings in domestic companies to less than four per cent of their total assets at the end of 2023 from 28 per cent in 2000, according to the open letter signed by 90 business leaders in March. The letter also said the country’s eight largest pensions have invested some $88 billion in China, more than the roughly $81 billion they had in Canadian public and private companies combined.

This trend is not unique to Canada; shrinking domestic allocations have also been the reality in the United Kingdom. Nevertheless, there are arguments governments can make as a result, according to Beath.

“Big DB (defined benefit) pension funds are tax exempt investors, (so) the Canadian government and population is in some sense spending an extraordinary amount of money helping subsidize them,” he said. “(Perhaps) that investment comes with a quid pro quo, left unsaid, that some of that expense should be invested back domestically.”

The pensions could find a reprieve from such questioning if Trudeau’s minority government falls this year. Opposition parties have pledged to bring down the government as soon as a prorogued Parliament resumes in March. And if Conservative Party of Canada leader Pierre Poilievre comes to power, the trend toward more government involvement in pensions could even be reversed, said a former senior pension executive who spoke on condition of anonymity in order to discuss the delicate situation in Ottawa. 

“The federal Conservatives seem to have a better grasp of the principle (of independence),” the former executive said.

Indeed, senior pension officials have privately complained for years that Trudeau’s government has failed to heed what they were told about how public-private investment vehicles such as the Canada Infrastructure Bank should be structured and governed to encourage investments by institutional investors. Even more frustratingly for the pensions was that the lack of investment by institutional investors led to the government taking a heavier hand.

The Global Risk Institute’s paper from last summer touched on this theme, suggesting a way to create the conditions to entice large-scale investment without government interference in pension fund allocation — a strategy that could deliver the kind of economic boost the U.K.’s chancellor of the exchequer described during in her summer visit to North America.

If Canadian governments want more investment dollars from large institutional investors like pensions, including Canadian ones, the paper said, an easy way to make that happen would be to make available the types of assets they shop around the world to buy: large-scale infrastructure projects from airports and toll roads to ports and railroads, to utilities and transmission grids.

“Government initiatives that reduce the barriers to domestic investing by facilitating access to strategic asset classes will not only retain and attract capital from Canadian pension funds but also bring in additional capital from the much larger pool of foreign investors,” the authors concluded.

It would be an elegant solution for Canada because it would fulfill the government’s objectives of boosting domestic investment without fiddling with the Canadian pension model or spooking institutional investors in Canada or abroad.

“Canada lacks infrastructure investment opportunities relative to other countries,” said Ambachtscheer, one of the report’s authors. “Canadian funds would be happy to invest in Canadian investment opportunities if they existed.”

Great article by Barbara Shecter who gathered insights from the usual suspects -- Wiseman, Lamoureux and Ambachtscheer -- but left out the most important commentator, Mr. Pension Pulse.

Sometimes I feel like Jack Nicholson in "A Few Good Men": You want the truth on Canada's Maple Eight? You can't handle the truth!

In all seriousness, this is a good article but there are passages in here where I would vehemently disagree with Wiseman, Lamoureux and Ambachtscheer and other passages where I agree with them.

First, stop putting down CDPQ and its dual mandate and stop comparing pension fund returns when you're comparing apples to oranges.

AIMCo, BCI and CDPQ do not have the same asset mix as OTPP and CPP Investments or OMERS which allocate more to privates and it's simply not right comparing their returns over the long run (Lamoureux knows better).

Moreover, the true measure of success of any pension plan/ fund is the funded status of the plans they serve and by this measure all of them are doing great.

And if you really want to pick a winner over the last 20 years, I'd argue that HOOPP which only recently started investing in infrastructure performed the best in terms of long-term return and funded status (blew the competition away).

But again, they are all winners in my book, even CDPQ with its dual mandate.

Would Quebecers have been better off if we had invested our pension savings in the Canada Pension Plan managed by CPP Investments?

No doubt returns would have been better since inception of CPP Investments in 1999 (CDPQ goes back to the 60s) because asset mix was different. But CDPQ also contributes directly to Quebec's economy so there are other things you need to take into consideration and run a proper cost benefit analysis.

In other words, while I'm not a huge proponent of CDPQ's dual mandate, especially for AIMCo and other funds, I understand its purpose and if done properly with proper governance and full transparency, it can indeed be a useful tool.

What are some of the other things that caught my attention above?

Mark Wiseman is right, it's not the government's money, it belongs to members, retired and active, but he forgets that these funds are backstopped by governments and they indeed have a lot of say in the way they manage their activities.

I've said it before, while political storms may be gathering on the Maple Eight, the real issue is as these funds become bigger, more powerful and pay their senior members hefty compensation by any standard, they will attract attention from governments.

In my humble opinion, it's up to Canada's Maple Eight to manage these relationships very carefully and if they think for one second that they can tell governments to buzz off and claim they are independent from all demands, well, they're sorely mistaken.

I might not like what Alberta did to AIMCo but let's call a spade a spade here, the government there basically showed the CEO and most board members the door and there was nothing AIMCo's members can do about it.

In fact, some of AIMCo's members brought this on so now they have to live with the consequences.

My point is this can happen in Ontario, Quebec and British Columbia and while it's highly unlikely, never say never.

At the end of the day, the so-called "independence" Canada's Maple Eight enjoy is illusory, the governments -- provincial and federal -- can step in at any time to rip that governance model down as they did in Alberta.

Is it the right thing to do? Of course not but it doesn't mean it can't be done.

Also, note while the federal government listened to Stephen Poloz and implemented some much needed recommendations to help Canada's large pension funds invest more domestically, it also told them they need to provide more transparency on geographic and sector allocations to OSFI, the federal banking, insurance and pensions regulator.

I would also like to remind my readers that while fiscal profligacy shouldn't give governments a pass to raid our asset rich pensions, if we ever experience a Greece type crisis, the bond vigilantes will have their say (at a minimum, pension benefits will get slashed).

What else? Alex Beath is right that our large DB pensions are tax-exempt investors so there is an argument to be made to invest more domestically but I prefer the insights from PSP's former CEO Neil Cunningham on what we can do with the  $9 billion PSPP surplus to help invest more in Canada.

In other words, we have a lot of smart people out there above and beyond Wiseman, Lamoureux and Ambachtscheer and we need to listen to all their views.

Alright, now that I got all this off my chest, I still like Barbara Shecter and she wrote a great comment above but next time, come to Mr. Pension Pulse and I'll share the truth and nothing but the truth.

Time to enjoy my evening, it looks like President Trump wasted no time handing out goodies to his powerful buddies (see here and here and a lot more embedded in the 200+ executive orders he signed over the last 24 hours). 

I guess that's all part of Making America Great Again. -:)

Below, earlier today, Alberta Premier Danielle Smith spoke with reporters from Washington, D.C., the day after the inauguration of US President Donald Trump. She emphasizes diplomacy rather than retaliatory tariffs as the best path forward.

I might not like her pension policy toward AIMCo but let me be clear, she is by far the best politician in Canada and knows how to negotiate properly and secure the best interests of Albertans and Canadians. 

Also, Lee Munson, president and chief investment officer of Portfolio Wealth Advisors, joins Yahoo Morning Brief to share his insight on Trump's tariff plans, predicting they’re likely a "bluff."

"I think the idea that we're going to slap on these big horrible tariffs that are going to push inflation higher — I don't think I buy it," Munson says. Among other reasons for his skepticism, Munson notes that the Trump administration doesn't have enough of a plan for China to carry out the tariff plan successfully.

Munson also shares his top trade picks, including aerospace and cybersecurity defense.

Hakyung Kim and Lisa Kalai Han of CNBC report Dow surges more than 300 points, S&P 500 posts best week since period following Trump's election:

Stocks climbed Friday, as the three major averages posted their first weekly gain of the new year.

The Dow Jones Industrial Average added 334.70 points, or 0.78%, to end at 43,487.83. The S&P 500 gained 1% to 5,996.66, and the Nasdaq Composite advanced 1.51% to 19,630.20.

Big tech stocks were higher on the day, with shares of Tesla popping 3%. Chipmaking giant Nvidia jumped 3.1%, while Alphabet shares added more than 1%.

For the week, the Dow and S&P 500 advanced 3.7% and 2.9%, respectively. Both indexes posted their biggest weekly advance since the week of the U.S. presidential election in November. The Nasdaq climbed 2.5% week to date for its best one-week performance since early December.

Those gains come after investors received back-to-back reports showing inflationary pressures softening somewhat. The core consumer price index rose less than expected year on year, and the producer price index also had a smaller-than-anticipated increase for December. The 10-year Treasury yield pulled back sharply as hopes for multiple rate cuts this year rose.

The better-than-expected economic data earlier this week has helped “revive the goldilocks narrative for equities, and likely prompted some re-risking,” Barclays strategist Emmanuel Cau wrote in a Friday note.

Strong earnings from major banks also boosted stocks this week, as they tried to shake off December doldrums that carried over into the start of 2025. Shares of Goldman Sachs and Citigroup were each roughly 12% higher on the week, while JPMorgan Chase added 8% in the period.

Investors are also looking ahead to next week, as Donald Trump is set to be inaugurated as president for the second time. Stocks rallied right after his November electoral victory, as investors bet on deregulation and lower taxes.

Karen Friar and Hamza Shaban of Yahoo Finance also report the Dow leads weekly stock market rally ahead of Trump inauguration:

US stocks jumped on Friday amid a tech stock revival as investors assessed a week of key data and earnings reports alongside potential policy shifts under a Trump administration.

The Dow Jones Industrial Average (^DJI) gained 0.8% while the S&P 500 (^GSPC) rose 1%, coming off a losing day for the major gauges. The tech-heavy Nasdaq Composite (^IXIC) put on 1.5% as Nvidia (NVDA) and Tesla (TSLA) shares nudged back into the green.

Markets have turned upbeat as investors take stock of recent days' big bank earnings and inflation readings, which have resuscitated bets on interest-rate cuts. Stocks posted big weekly wins after a major rally on Wednesday, while the 10-year Treasury yield (^TNX) pulled back to trade around 4.6% on Friday.

The Dow finished up 3.7 for the week. The S&P recorded a 2.9% gain, while the Nasdaq closed 2.4% ahead of last week.

Housing starts climbed faster than forecast in December, and US industrial production outstripped estimates. The data out Friday added to a picture of strength in the US economy, buoying rate optimism.

Meanwhile, techs were staging a comeback, with Apple (AAPL) stock up 0.7% in afternoon trading after booking its worst loss since August. Chipmakers such as Micron (MU) joined Nvidia in making gains, while Coinbase (COIN) was among crypto-linked names getting a boost as bitcoin (BTC-USD) continued its advance above $100,000.

Minds are also on potential policy upheaval on the last day of trading before Donald Trump begins his second term as president. Fears are that his plans for tariffs, taxes, and debt — as aired by Treasury pick Scott Bessent on Thursday — could inflame inflation. Inauguration day is Monday, when markets will be closed to mark the Martin Luther King Jr. holiday.

China's economy, an adversary for Trump, grew more than expected last year, topping Beijing's 5% target after a stimulus blitz. But Asia stocks lost ground on Friday as investors weigh the potential hit from promised hefty tariffs.

This was a big week: inflation readings came in lower than expected sending bond yields lower, banks reported solid earnings and Big Tech came back in a big way at the end of the week.

In other words, a continuation of 2024 and it seems like the Goldilocks narrative for equities is back in play.

Lower inflation, lower yields, Fed should continue cutting despite strong economy, just buy big banks and big tech shares.

And let there be no doubt, the charts on big US banks remain bullish:

The fundamentals in the US economy remain solid, President-elect Trump and his administration have a clear agenda to deregulate, so why not invest in big banks?

But it wasn't just Financials that performed well this week, Energy, Materials, Industrials, Real Estate and Utilities all had a terrific week (click here for data):

My reading of this is inflation remains sticky despite coming in better than expected but clearly the drop in bond yields helped interest rate sensitive sectors this week.

The weakest sector was Healthcare which was flat as shares of Eli Lilly weighed on the sector after the company reported weak Q4 sales:

Also in healthcare, shares of Novo Nordisk -- maker of Ozempic -- made a new 52-week low today after the company's latest trial for a higher-dose Wegovy showed it helps patients shed more weight but not enough to dethrone Eli Lilly's Zepbound:

However, there's more to this story. Everyone is fretting Medicare to negotiate prices on 15 drugs, including Ozempic, but this is actually a good thing as lower prices will boost sales.

Biotech stocks continued to sell off this week and there are interesting opportunities shaping out there, especially if rates continue to decline in the near term:

What else? The recent sell-off in Apple shares looks like another buying opportunity but Nvidia and Tesla shares make me nervous here:

Still, it's all about earnings, if they beat, these stocks will continue to do well.

Alright, there is a lot more to cover in markets and next week I am paying attention to what the Bank of Japan will do because that can push up US yields.

Below, Tom Lee, Fundstrat managing partner, joins 'Closing Bell' to discuss his January playbook and his read on December's CPI report.

Next, Warren Pies, 3Fourteen Research co-founder, joins 'Closing Bell' to discuss the markets, the return of the bull rally and the Fed's next move.

Third, Dan Niles, founder of Niles Investment Management, says he expects AI spending to go through a "digestion phase" this year. Niles shares his views on why some of the Magnificent Seven tech stocks, such as Microsoft and Nvidia, are not among his top picks for 2025. He speaks with Haslinda Amin and Mark Cranfield on Bloomberg Television.

Fourth, Dan Ives, Global Head of Technology Research at Wedbush Securities, discusses the impact of rising bond yields and the strong dollar on tech stocks. Despite these pressures, he believes tech stocks have the potential to move higher this year, driven by strong consumer spending and the AI revolution.

Fifth, Gina Sanchez, Lido Advisors chief market strategist, joins 'Power Lunch' to discuss stock plays for three stocks.

Lastly, David Rosenberg, founder and president of Rosenberg Research has a bearish call on the equity markets as he says a huge headwind could impact certain future returns.

Mark Johnson wrote a comment for the Hub stating Canada’s public pension funds may be a global success story, but political storm clouds are gathering:

They are the demigods of our corporate world. They manage over $2 trillion of our retirement money, with investments and influence that span the globe. But they’re starting to attract political attention. And with that comes debate.

Bestriding our financial community, the eight largest public pension funds in Canada are known by the adulatory nickname “the Maple Eight.” Among them are AIMCo, BCI, CPP Investment Board, OMERS, and PSP.

These pension funds are touted as shining examples of well-run and high-performing pension funds and are often held up as models for other countries. Recently, the U.K.’s chancellor of the exchequer made a special trip to Toronto to study the Canadian model of pension governance and pitch them on more investment in her homeland.

Known for the “Canadian Model” of fund governance—active investing strategies run by internal managers, diverse asset portfolios, and arm’s length relations with government—the Maple Eight invest our retirement savings in everything from airports to office towers, EV battery factories to shopping malls.

But are they becoming political problems for their government masters? Look closely at the political weather reports and you’ll see storm patterns developing.

The westerly winds from Alberta

The Alberta government pulled rank over AIMCo in November when it suddenly turfed the AIMCo board of directors, its CEO, and other executives, allegedly for unacceptable cost increases, poor investment returns, and disagreements over direction. In came former prime minister Stephen Harper as board chair and Ray Gilmour, a top public servant, as interim CEO. Who knows what the future holds, but it’ll be significantly different than the status quo.

Even though momentum on this front has stalled, Alberta is also still reviewing that province’s membership in the Canada Pension Plan. If they move forward, Alberta leaving the CPP to set up its own plan would be a massive lift and shift. It would also be a tectonic change to the Canadian Pension Plan (CPP) and its manager, the CPP Investment Board (CPPIB).

The CPP Fund will soon hold $1 trillion of our money. How much is too much?

The CPP Fund is now a global financial titan. Others may disagree, but in my view, it’s a Canadian success story. In the past twenty years, the CPP Fund grew from $70.5 billion to $675.1 billion today, with that number predicted to hit $1 trillion in the next eight years. But must it hold that much of our money for its core mission of ensuring the sustainability of CPP benefits?

According to the latest annual report, the CPP Fund today has almost $200 billion in excess of earlier projections. In 2015, Canada’s chief actuary predicted that the CPP Fund would hold $625 billion by 2031, more than enough to finance the CPP into the 2090s. That projection has been twice revised upward to just over $1 trillion, an eye-watering upswing of $375 billion in just a few years.

If holding $625 billion by 2031 was enough to finance CPP benefits until the end of this century, then why do we need over $1 trillion? That’s a gargantuan surplus owned by Canadians who live outside Quebec.

Moreover, as it stands, the CPP Fund spins off a surplus of tens of billions each year.

All this at a time of crumbling schools, a starved military, and lousy public transit to name a few problems that money can actually address–to say nothing of financially-strapped households. Would you keep contributing to your flush RRSP if your roof needed repairs?

To be clear, politicians should not direct the CPPIB where to invest the money; but we may need to wholly withdraw a large dividend from the CPP Fund itself in the form of increased benefits, lower premiums, or a general return to government or Canadian citizens themselves.

As I’ve written before at The Hub, a debate about the size of the CPP Fund and what we should do with any surplus is overdue and healthy, not heretical.

Other issues are breaking out 

A sampling of the debate over a pension fund surplus may be the current punch-up between Treasury Board President Anita Anand and federal public sector unions over a $1.9 billion surplus in the PSP Fund that was shifted to government coffers because it exceeded permitted limits. Anand accused the union of spreading “completely inaccurate” information. The union shot back, accusing her of raiding their members’ retirement fund. The final use of this surplus remains to be debated, but it’ll get hotly political.

Another of the Maple Eight to sail into rough waters is OMERS, Ontario’s big retirement fund for municipal employees. In October, the provincial government ordered a sweeping governance review of OMERS that will examine its top-level decision-making structures and practices. Things must have been pretty bad to get the responsible minister to order a governance review of an arm’s length pension fund. (Leo here: umm, NO!!)

And political winds may now be shifting on broader issues like ESG and domestic investment levels. Pension funds are among the most powerful spearheads for the ESG movement that may now be at odds with current political momentum, likely caused by President Trump’s oil and coal policies. Time will tell how far and fast things shift, but the big pension funds will need to adjust accordingly.

If that’s not enough, the pension funds’ foreign investment levels are now being questioned. In March, over ninety business leaders issued a public letter calling for more domestic investment by Canada’s pension funds. Of the roughly $2 trillion under their control, 80 percent is invested outside Canada, a massive outflow of money from our economy.

There may be very sound reasons for this. As a relatively small economy, we simply don’t have enough high-quality opportunities in which to responsibly invest the amounts of money we’re talking about. The debate continues.

By nature, the debate will be political

Importantly, our pensions have been managed successfully. But success also brings needed attention, especially when it involves other people’s money.

Issues are piling up. Three of the eight–AIMCo, PSP, and OMERS–are in high-profile imbroglios about governance and funding. The CPP Fund is overfed and overstuffed. And it could take a torpedo hit if Alberta withdraws from the CPP. Canadians are demanding that these funds invest more at home, and in April, the feds tasked former Bank of Canada governor Stephen Poloz to generate ideas to persuade pension funds to invest more domestically.

Whether pension fund managers like it or not, the debate now sits at the popular and political levels. The Maple Eight will need to reconcile themselves to this new reality, brave the weather, and navigate the way ahead.

Let me begin by stating that I don't know Mark Johnson but I read this article and feel compelled to tackle it because he got so much wrong here and some things right.

Nowadays, almost anyone can publish anything on our large pension investment managers and the public reads it and thinks it's written by a pension expert.

Where do I begin? First, there will be no Alberta Pension Plan, ever.

Get that out of your head, Albertans will never vote to leave the Canada Pension Plan.

Never mind the Quebec Pension Plan and CDPQ and its dual mandate, not going to happen in Alberta, ever, just like Alberta will never separate from Canada.

What did happen in Alberta is the government there effectively killed AIMCo's governance when it fired its CEO and its board late last year.

It remains to be seen how this all plays out but in my opinion, the government there bungled it up. AIMCo will never be the same again, there will be political pressure to invest more at home, compensation will take a beating and along with all this meddling, AIMCo's returns will suffer over the long run.

That's my two cents, hope I am wrong but there wasn't much thought that went into this "shakeup at AIMCo."

Just remember this: when governments meddle in pension funds, it's always a disaster in the making and nobody will be held accountable for the poor performance over the long run.

Having said this, compensation at the Maple Eight is being scrutinized (as it rightly should be) and while some former pension fund heavyweights think politicians should leave pension funds alone, at the end of the day, politicians have right to ask for more transparency and accountability.

Importantly, there is this myth that Canada's pension funds can operate at arm's length and do whatever they want and that's completely and utterly false.

If you piss off the political powers that are a major stakeholder, act too arrogant, be prepared for major consequences. 

Again, there is a fine line between asking for more transparency and accountability and meddling directly into where Canada's large pension funds invest.

Other things Mark Johnson got wrong on CPP Investments and OMERS.

CPP Investments is a success story, I agree with him there, but it's been managing assets of base CPP for years which is a partially funded plan. Only recently did it start managing assets for enhanced CPP which is a fully funded plan.

Not to bore you with the actuarial details but base CPP is where they can take on a lot more equity risk (public and private) and enhanced CPP is where they can't and need to invest more conservatively.

Yes, there are more than enough assets to meet future liabilities but that doesn't mean the Fund is too big, it simply means there are more than enough assets to meet future liabilities at the present time.

It's up to the politicians to decide what to do with any "surplus" but with CPP, they need 2/3 of the finance ministers to agree on any changes.

Can they raid the CPP Fund to pay down debt? In theory yes, in practice highly unlikely as the optics look terrible and no politician would dare do such a bonehead move.

I would much prefer they increase CPP benefits if the Fund continues doing well in the future but in my experience, it's always best to have a cushion because when the next financial crisis/ major recession strikes, the Fund will need that money to capitalize on opportunities.

That brings me to PSP Investments where the federal government can do what it wants. 

As I recently explained, PSAC got it wrong on the Public Sector Pension Plan surplus, it has no say in what the federal government can do with that money because members are not -- I repeat not -- sharing the risk of that plan equally.

There are legitimate questions on what should be done with that $9 billion surplus and I agree with PSP's former CEO Neil Cunningham that a lot more thought needs to go into what to do with that surplus.

But it's up to the federal government to decide what to do with that surplus, not PSAC or anyone else.

On OMERS' governance review, I covered it in detail here, it has nothing to do with the way the plan is being managed but with whether it really needs two boards.

Mark Johnson got that completely wrong.

What else? On investing domestically, Stephen Poloz's task force came up with great recommendations after consultations with pension funds and other stakeholders and they were embedded in the fall economic statement.

In short, I think Mark Johnson raises some valid concerns but he got a lot wrong in his comment.

Below, Aaron Wealth Management explains three big changes to CPP and OAS in 2025.

James Bradshaw of the Globe and Mail reports Oxford Properties sells 50% stake in $1.2-billion European warehouse portfolio to AustralianSuper:

Oxford Properties Group is selling a 50-per-cent stake in a $1.2-billion portfolio of European warehouses to AustralianSuper, forming a joint venture with Australia’s largest pension fund manager to help ramp up its exposure to logistics and industrial properties.

In addition to buying half of Oxford’s warehouse assets, AustralianSuper will become a co-owner of M7 Real Estate, a European investment manager focused on the logistics sector that Oxford acquired in 2021.

Oxford Properties is the real estate arm of the Ontario Municipal Employees Retirement System (OMERS), the $134-billion pension fund manager that invests on behalf of more than 600,000 members who have worked for municipalities, school boards, transit systems and electrical utilities, among other employers.

The largest allocation of Oxford’s investments – roughly a third of its assets – is now in the logistics sector. The company is investing heavily in infrastructure that serves an expanding digital economy, and warehouses and related properties have performed relatively well in a period that has seen office and retail real estate hit hard by shifting habits around work and shopping.

The portfolio AustralianSuper is buying into is worth about €840-million ($1.2-billion) and comprises 76 urban logistics and distribution warehouses in Western Europe with 730,000 square metres of space. Oxford and AustralianSuper said the warehouses are near key distribution hubs in the United Kingdom, Denmark, France, Germany, the Netherlands and Spain. The properties are roughly 90-per-cent occupied.

“I think logistics will remain a cornerstone certainly of our European strategy,” Oxford chief investment officer Chad Remis said in an interview.

Logistics, which is broadly the business of storing and transporting goods, is a sector that has grown in popularity among large investors in recent years. That has made it more competitive, but the European logistics market is attractive to Oxford partly because it is more fragmented than in countries such as the United States, Mr. Remis said. More onerous regulations in Europe also make it harder to develop new properties, which means that buying the right properties in the right locations can potentially give investors such as Oxford an edge.

The M7 team has “incredibly deep relationships and understanding and ability to attract the types of buildings and the types of returns that we’re seeking. We’ve been building a pipeline for the last six to 12 months and are just going to go execute on that pipeline.”

Oxford has built its portfolio over the past few years while streamlining M7 from a company with 230 staff in 14 countries to 150 people focused on six core markets and managing €5.5-billion ($8.1-billion) worth of assets. The process to bring in an institutional partner with capital to help the business grow was launched in earnest last year, and Oxford ultimately chose AustralianSuper.

The two partners are aiming to boost the portfolio’s gross asset value to €4.5-billion ($6.7-billion) over a period of three to five years.

The partnership “brings a significant and, importantly, a like-minded capital partner alongside us into both the M7 portfolio and the M7 Real Estate platform … while providing fresh capital from both partners to grow the platform as we enter into a new real estate cycle,” Joanne McNamara, Oxford’s head of Europe, said in a statement.

Paul Clark, AustralianSuper’s head of European real assets, said in a news release that the pension fund manager has been tracking the urban logistics and distribution sector in Europe “for several years to find the right portfolio that meets our ambitions.”

On Monday, Oxford Properties put out a press release on this deal:

• AustralianSuper and Oxford aim to grow the venture to €4.5 billion in three to five years
• The portfolio comprises c.730,000 sqm of high-quality urban logistics and distribution warehouses across 76 assets in western Europe
• As part of the new strategic partnership, AustralianSuper will also co-own the M7 Real Estate platform with Oxford

LONDON 

AustralianSuper, Australia’s largest superannuation fund, and Oxford Properties Group (“Oxford”), a leading global real estate investor, developer and manager, today announce a new strategic partnership that aims to build a significant industrial and logistics venture across Europe, which will be managed by M7 Real Estate. AustralianSuper has acquired a 50% stake in Oxford’s c. €840 million European industrial and logistics portfolio (the “Portfolio”) and in M7 Real Estate, the market leading European investment and asset management business that was acquired by Oxford in 2021.

The joint venture is the first between AustralianSuper and Oxford and brings together two like-minded global institutional investors managing a combined €270billion of long-term capital on behalf of over four million pension fund members.

The partnership will provide further capital to fund the growth of the Portfolio, known as the European Supply Chain Income Partnership (“ESCIP”), with a target of up to €4.5 billion GAV of high-quality ‘last mile’ and mid-box warehouses over the next three to five years.

The Portfolio currently comprises c.730,000 sqm high-quality urban logistics and distribution warehouses across 76 assets. The properties are well located in 19 of the most strategic urban ‘last mile’ and distribution hubs in the UK, Denmark, France, Germany, the Netherlands and Spain. With a diversified base of more than 200 tenants, the Portfolio is well-positioned to capitalise on increased occupier demand and rental growth throughout western Europe.

M7 Real Estate, as investment and asset manager, will be tasked to source and execute on new opportunities for the strategy targeting income-led exposure across the pan-European supply chain, with a continued focus on both smaller, multi-tenanted, core+ or value-add assets located near large cities and population centres, alongside a core+ mid-box strategy seeking investments into larger distribution and warehouse assets in key logistics corridors, throughout the six target markets of the venture.

The assets have strong environmental credentials and are focussed in submarkets that are characterised by acute supply demand tension, with 53% weighting to urban assets by estimated rental value (“ERV”). In the UK these include London and the South-East (19% of total ERV) and the Midlands (14%), as well as Paris (15%), Copenhagen (11%) and Barcelona (8.2%) in mainland Europe.

The Portfolio is c. 90% occupied and delivers a highly diverse and defensive income stream secured against 214 tenants, across a range of business types and geographies. No single tenant represents more than 5% of the total in-place rent.

Paul Clark, Head of European Real Assets at AustralianSuper, commented: “We believe urban logistics and distribution represents one the most compelling sector opportunities in European real estate today, and have been tracking the sector for several years to find the right portfolio that meets our ambitions, with strong fundamentals and significant growth potential. We are delighted to partner with the Oxford and M7 teams, investors with proven track records operating and growing high-quality logistics portfolios, to scale the ESCIP platform together using our collective expertise, generating long-term performance for members.”

Joanne McNamara, Executive Vice President, Head of Europe at Oxford Properties, commented: “This strategic partnership with AustralianSuper brings a significant and, importantly, a like-minded capital partner alongside us into both the M7 portfolio and the M7 Real Estate platform.  This creates full alignment between all three parties from day one, while providing fresh capital from both partners to grow the platform as we enter into a new real estate cycle. We believe there are exciting prospects in this high conviction strategy, a major pillar of Oxford’s capital deployment ambitions in the region for 2025, with a compelling pipeline of investment opportunities which we expect to announce in short order.”

David Ebbrell, CEO of M7 Real Estate, commented: “Since its foundation M7 Real Estate has been a go-to partner for some of the world’s largest and most respected real estate investors wishing to access the European multi let and urban logistics sector. 

“Having been acquired by Oxford Properties in 2021 and enjoyed a very successful partnership over the past four years, we are very excited at the prospect of now working alongside AustralianSuper as well.  Not only is AustralianSuper’s investment into our business another huge endorsement of M7 Real Estate’s team, its expertise and long track record of creating value, the support of Australia’s largest superannuation fund also brings with it a commitment to invest significantly through our platform alongside Oxford Properties into the European industrial and logistics sector over the next few years, helping us achieve our own ambitions for growth.”

The transaction is expected to complete at the end of Q1 of 2025 and is conditional, amongst other things, on customary regulatory approvals. Eastdil Secured and Ashurst advised Oxford on the transaction.

This is a great partnership formed between Oxford Properties, OMERS' real estate subsidiary, and AustralianSuper, Australia's largest superannuation fund, to invest in European logistics properties.

The properties are sourced and managed by M7 Real Estate, the European logistics platform acquired by Oxford back in 2021.

Together, they are looking to grow the venture to €4.5 billion in three to five years.

Keep in mind, OMERS manages third party funds and typically partners up with like-minded investors so this deal is right up their alley with a well-known Australian fund with similar vision and long investment horizon.

Logistics properties whether in Europe or elsewhere remain coveted assets but the backup in yields and threat of an economic recession has impacted their value in the near term.

Still, over the long run, these remain great assets playing on the digitization of the economy and consumer strength.

In other logistics news. Ivanhoe Cambridge, CDPQ's real estate subsidiary announced this on LinkedIn:

PLP, our logistics platform in partnership with Macquarie Asset Management and The Peel Group, has acquired Astley Business Park, a prime 19-acre development site in Wigan, UK. With planning consent secured, PLP will develop a 360,000 sq ft logistics park comprising four best-in-class warehousing units. The site boasts excellent transport connectivity and is conveniently located near central Manchester.

“This acquisition confirms our commitment to European logistics, a major focus of our strategic plan”, said Ajay Phull, Managing Director, Real Estate, at Ivanhoé Cambridge. “We are developing cutting-edge logistics facilities near major urban centers and forging strategic partnerships to meet the rising demand for efficient delivery solutions. This investment aligns with our ESG goals, ensuring long-term resilience and value in our portfolio”.

Details on this deal can be found here.

Lastly, at the beginning of the month, IPE Real Assets reported that NBIM bought a 45% stake in $3.3bn US logistics portfolio from CPP Investments:

Norges Bank Investment Management (NBIM) has acquired Canada Pension Plan Investment Board’s 45% stake in a $3.26bn (€3.17bn) US logistics portfolio, with Goodman Group maintaining its 55% ownership in the portfolio.

The manager of the NOK19.73trn (€1.68trn) Norwegian Government Pension Fund Global said it has paid $1.07bn for 45% of the 1.3m sqm portfolio which has $888m in existing debt.

The US logistics portfolio comprises 48 buildings in southern California, New Jersey and Pennsylvania and five land plots.

Per Løken, the global head of unlisted real estate at NBIM, said: “We are excited about growing our logistics real estate exposure and entering into a partnership with Goodman.

“This investment aligns with our long-term strategy, and we think now is a good time to invest.” 

Edward Lerum, the head of global logistics real estate at NBIM, said: “The portfolio exemplifies high-quality buildings in excellent locations.

“We have long-term conviction in the investment, and we also see appealing growth potential, given the restrictions on new supply in these locations.” 

CPP Investments put out this press release on this deal:

• CPP Investments to realize $2.2B in net proceeds, crystalizing strong returns over the life of the investment
• CPP Investments and Goodman Group remain partnered on other global ventures

Toronto, Canada/ Sydney, Australia (Jan 3, 2025) – Canada Pension Plan Investment Board (CPP Investments) is expected to realize approximately US$2.2B in net proceeds from its investment in Goodman North American Partnership (GNAP). This represents the realization of the strong performance and success of the partnership. Goodman and CPP Investments retain partnerships across several markets.

“The success of GNAP has provided us with an opportunity to lock in strong returns for the CPP Fund and is emblematic of our ongoing partnership with Goodman,” said Max Biagosch, Global Head of Real Assets & Head of Europe for CPP Investments. “The proceeds from this transaction also give us the ability to redeploy capital towards new investment opportunities as our portfolio continues to grow and evolve alongside the global market.”

GNAP was established as a 45-55 partnership between CPP Investments and Australia’s Goodman Group, respectively, in 2012, with a mandate to invest in high-quality logistics and industrial property in key North American markets.

“We are proud of the success we’ve had with CPP Investments in GNAP across our global Partnerships,” said Greg Goodman, Goodman Group CEO. We look forward to maintaining our strong working relationship across asset classes and geographies.”

That $2.2B in net proceeds will help boost the returns of CPP Investments' real estate portfolio as this fiscal year closes. 

Goodman now gets to own these assets with NBIM which manages GPIF's monster assets.

CPP Investments also announced that it has agreed to sell its 49% interest in four real estate joint venture projects with Chinese real estate company Longfor Group Holdings (Longfor) to an affiliate of Dajia Insurance Group. Net proceeds to CPP Investments from the sale would be approximately C$235 million before closing adjustments.

Alright, that wraps it up but it's been a busy start of the year in logistics deals at Canada's large pension investment managers. 

Below, Real Asset Media focuses on the outlook for European logistic markets with the latest GARBE PYRAMID MAP for mid-2024 providing an overview of prime rents and yields for the 116 most important European submarkets for logistics properties in 24 countries.

Josh Saul and Emma Sanchez of Bloomberg report that KKR and PSP to buy AEP Transmission stake for $2.8 billion (all figures in US dollars):

American Electric Power Co. agreed to sell a minority stake in its transmission business to KKR & Co. and Canada’s PSP Investments for $2.8 billion. 

The investment firms will acquire a roughly 20% interest in AEP’s Ohio, Indiana and Michigan transmission companies, the companies said in a statement Thursday.

KKR and PSP, which formed a 50-50 partnership for the acquisition, are investing in transmission as electricity use in the US is expected to surge, thanks to data centers and artificial intelligence. 

“Areas such as Ohio and Indiana are experiencing growth that has not been seen for decades,” AEP Chief Executive Officer Bill Fehrman said in the company’s own statement.

AEP’s transmission system has 40,000 miles (64,000 kilometers) of wires and is the largest in the US, according to its website. 

AEP will use the proceeds from the sale to help pay for its five-year, $54 billion spending plan that includes investing in transmission and distribution projects.

Utilities across the US are raising capital and increasing investments as power demand rises. FirstEnergy Corp. earlier this year completed the sale of an additional 30% stake in its transmission unit to an affiliate of investment firm Brookfield Asset Management for $3.5 billion.

AEP’s sale is expected to close in the second half of 2025. J.P. Morgan Securities and Morgan Lewis & Bockius LLP advised AEP on the deal. Moelis, Morgan Stanley and Simpson Thacher advised KKR and PSP.

Last week, PSP Investments put out this press release in this deal:

• Investment to support modernization of infrastructure and increased reliability
• Strategic partnership comes as need for reliable power soars in the U.S.
  

New York, January 9, 2025 – Today, investment funds managed by KKR, a leading global investment firm, and the Public Sector Pension Investment Board (“PSP Investments”), one of Canada’s largest pension investors, announced an agreement to acquire a 19.9% interest in American Electric Power’s (“AEP”) Ohio and Indiana & Michigan transmission companies for $2.82 billion. Founded in 1906 and one of the largest electric utilities in the U.S., AEP has pioneered the country’s energy system through the delivery of safe, reliable and affordable energy for millions of homes. The investment will support AEP’s ability to meet increasing customer demand and enhance grid reliability. KKR and PSP Investments have formed a 50/50 strategic partnership to pursue the acquisition.

AEP is a fully regulated electric utility that serves 5.6 million retail and wholesale customers across 11 states. Ohio, Indiana and Michigan are among AEP’s fastest-growing service territories driven primarily by the strong American manufacturing industry and newer sources of load growth. The investment by KKR and PSP Investments in these two transmission companies will support AEP’s previously announced five-year capital plan to benefit customers.

“We are thrilled to strategically partner with the best-in-class leader in transmission in the U.S., and are impressed with AEP’s deep operational capabilities, highly experienced leadership team, and its history of innovation,” said Kathleen Lawler, Managing Director, KKR. “KKR’s infrastructure business has a long track record of investing behind the energy transition and electrification opportunities, and this investment in AEP sits squarely at the intersection of these two trends. The simplicity and stability of the asset, coupled with the robust demand for electricity, make AEP’s transmission assets an ideal investment for KKR.”

“We are delighted to form this partnership with AEP to support its ambitious growth plan to build much needed transmission infrastructure in a region that is undergoing significant tailwinds from digitalization and reshoring of critical manufacturing,” said Michael Rosenfeld, Managing Director, Infrastructure Investments, PSP Investments. “This investment marks an important milestone in PSP Infrastructure’s roll out of its High Inflation Correlated Infrastructure (“HICI”) strategy, which is predicated on investing in North American core infrastructure assets that exhibit a defensive and predictable inflation-linked cashflow profile.”  

“We are pleased to launch this strategic partnership with two of the world’s premier global infrastructure investors. KKR and PSP are experienced investors in the utilities and energy space with a proven track record of successful infrastructure investments,” said Bill Fehrman, AEP president and chief executive officer. “This transaction allows AEP to efficiently finance a growing segment of our business and enhances our ability to serve growing customer demand and provide reliable service to our customers.”

Upon the closing of the transaction, AEP will remain the majority owner and operator of the transmission assets. KKR is funding this investment from its core infrastructure strategy.

Moelis and Morgan Stanley served as financial advisors and Simpson Thacher & Bartlett served as legal advisor to KKR and PSP Investments.

About KKR

KKR is a leading global investment firm that offers alternative asset management as well as capital markets and insurance solutions. KKR aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and supporting growth in its portfolio companies and communities. KKR sponsors investment funds that invest in private equity, credit and real assets and has strategic partners that manage hedge funds. KKR’s insurance subsidiaries offer retirement, life and reinsurance products under the management of Global Atlantic Financial Group. References to KKR’s investments may include the activities of its sponsored funds and insurance subsidiaries. For additional information about KKR & Co. Inc. (NYSE: KKR), please visit KKR’s website at www.kkr.com. For additional information about Global Atlantic Financial Group, please visit Global Atlantic Financial Group’s website at www.globalatlantic.com.

About PSP Investments

The Public Sector Pension Investment Board (PSP Investments) is one of Canada's largest pension investors with $264.9 billion of net assets under management as of March 31, 2024. It manages a diversified global portfolio composed of investments in capital markets, private equity, real estate, infrastructure, natural resources, and credit investments. Established in 1999, PSP Investments manages and invests amounts transferred to it by the Government of Canada for the pension plans of the federal public service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force. Headquartered in Ottawa, PSP Investments has its principal business office in Montréal and offices in New York, London and Hong Kong. For more information, visit investpsp.com or follow us on LinkedIn. 

American Electric Power (AEP) also put out a press release on this deal worth reading:

Columbus, Ohio, Jan. 9, 2025 – American Electric Power (Nasdaq: AEP) today announced a definitive agreement for a strategic partnership between KKR and PSP Investments to acquire a 19.9% equity interest in the company’s Ohio and Indiana & Michigan Transmission Companies (Transcos) for $2.82 billion. The Transcos are transmission-only, Federal Energy Regulatory Commission (FERC) regulated utilities that build, own and operate transmission infrastructure.

The transaction multiple of 30.3 times LTM P/E is highly attractive and is a significant premium to AEP’s current stock price. The 19.9% minority equity interest represents approximately 5% of AEP’s total transmission rate base.

This transaction allows AEP to efficiently finance a growing segment of its business in the Midwest and enhance its ability to serve growing customer demand and provide reliable service. The proceeds will support AEP’s five-year, $54 billion capital growth plan, which includes investments in transmission, distribution and generation projects and will offset a significant amount of AEP’s $5.35 billion equity financing needs through 2029. Upon closing, the transaction will immediately be accretive to AEP’s earnings and credit profile.

“Executing on our five-year capital plan is critical to meeting growing energy demand and bolstering reliability for our customers. Electricity demand is anticipated to grow significantly in AEP’s footprint by the end of the decade,” said Bill Fehrman, AEP president and chief executive officer. “Areas such as Ohio and Indiana are experiencing growth that has not been seen for decades. This transaction allows us to address a portion of our capital needs efficiently and at a very attractive valuation, benefiting our customers and supporting economic development in our states.”

Fehrman continued, “We are pleased to launch this strategic partnership with two of the world’s premier global infrastructure investors. KKR and PSP Investments are experienced investors in the utilities and energy space with a proven track record of successful infrastructure investments. This transaction allows AEP to maintain a controlling interest in our valuable transmission assets, which we will support through growth and modernization initiatives.”

Customers and employees will not experience any changes as a result of this transaction. Long term, states and customers should benefit from the increased economic development opportunities enabled by investment in the transmission system. AEP’s employees will continue to operate and maintain the Transcos’ assets.

The transaction requires approval from FERC and clearance from the Committee on Foreign Investment in the United States. The transaction is expected to close in the second half of 2025.

J.P. Morgan Securities LLC is serving as exclusive financial advisor to AEP. Morgan Lewis & Bockius LLP is serving as legal counsel to AEP. 

Here are the quick points:

• PSP is co-investing alongside strategic partner KKR in a 50/50 strategic partnership to acquire a 20% stake in AEP's Ohio, Indiana and Michigan transmission companies for $2.82 billion.
• The investment will be used to support AEP’s previously announced five-year capital plan to benefit customers. 
• “Areas such as Ohio and Indiana are experiencing growth that has not been seen for decades,” AEP Chief Executive Officer Bill Fehrman said in the company’s own statement. 
•  Utilities across the US are raising capital and increasing investments as power demand rises (think EVs, data centers, manufacturing, and electrification of everything).

Electricity transmission assets are in high demand and Canada's large pension investment managers are well known to be big players (OTPP has a significant allocation in this space).

With this deal, PSP has acquired assets in a rapidly growing area of the US where demand for electricity is growing fast.

I also think it's important to note what Michael Rosenfeld, Managing Director, Infrastructure Investments, PSP Investments, states:

“We are delighted to form this partnership with AEP to support its ambitious growth plan to build much needed transmission infrastructure in a region that is undergoing significant tailwinds from digitalization and reshoring of critical manufacturing. This investment marks an important milestone in PSP Infrastructure’s roll out of its High Inflation Correlated Infrastructure (“HICI”) strategy, which is predicated on investing in North American core infrastructure assets that exhibit a defensive and predictable inflation-linked cashflow profile.”   

The key thing here is these assets have inflation-protection embedded in them and this is a way to hedge against inflation.

Remember, PSP's members, just like those at other Canadian pension plans, enjoy indexed pension benefits so their benefits are adjusted every year to the cost of living.

There aren't many assets that offer you long-term inflation protection (basically real estate and infrastructure) and pension investment managers need to protect against the rising cost of inflation.

All this to say it's a great investment with a world-class strategic partner and one that will help PSP protect its members from inflation.

A few notes before concluding.

Patrick Samson, former SVP and Head of Real Assets at PSP, has left the organization and you can read his LinkedIn comment on his departure here.  

As shown below, Alexandre Roy, former Senior Managing Director, Total Fund Management has been promoted to SVP and Chief Risk Officer and Justin Nightgale, former Managing Director and Head of Public Equity has been promoted to the role of SMD and Head of Global Alpha:

No news on whether Patrick Samson will be replaced but Michael Rosenfeld is doing a great job managing PSP's Infrastructure portfolio and I heard good things about Louis G. Véronneau, Senior Managing Director and Global Head of Real Estate Investments from members.

Also no news yet if Eduard van Gelderen will be replaced but I heard there were some big names being thrown around to fill that role (if it gets filled).

We shall see, I honestly don't have time to track all the changes in the ranks of Canada's large pension investment managers, I'm focused on markets and making money every single day.

Below, Bloomberg interviews Brandon Freiman, KKR's head of North American Infrastructure on why it and PSP is acquiring a big stake in AEP's Ohio, Indiana and Michigan transmission companies.

Also, AEP's President and CEO Bill Fehrman offers simple career advice for those starting out as well as his thoughts on culture. 

Great advice and insights here from someone who has been in the energy business for over 40 years.

Freschia Gonzalez of Wealth Professional reports that CPP Investments to exit Calpine stake, expects US$2.6bn in proceeds:

CPP Investments has announced the sale of its entire 15.75 percent stake in US power producer Calpine Corporation (Calpine) to Constellation Energy (Constellation).

The sale forms part of Constellation's acquisition of Calpine. The transaction is expected to generate approximately US$700m in cash and US$1.9bn in Constellation stock for CPP Investments.

The investment in Calpine was made in 2018 through a co-investment with Energy Capital Partners (ECP) and Access Industries.

Bill Rogers, managing director and head of Sustainable Energies at CPP Investments, expressed satisfaction with the outcome, stating, “We are pleased by the success of our investment in Calpine and view this transaction as an excellent opportunity to realize strong returns for the CPP Fund.”

He also highlighted CPP Investments' anticipation of Constellation's growth, enhanced by the increased scale and cash flow from the combination.

The merger will expand the footprint of the combined company across the continental US.

Texas, the fastest-growing market for power demand, will see a significantly larger presence, alongside other key markets such as California, Delaware, New York, Pennsylvania, and Virginia.

Rogers described Calpine as an example of CPP Investments' strategy, stating, “Calpine serves as a good example of CPP Investments' approach to investing across the energy spectrum.”

He explained that the approach involves investing in companies critical to delivering affordable, reliable power while supporting their progress toward decarbonising their portfolios.

The transaction is expected to close in the second half of 2025, subject to customary closing conditions and approvals from regulatory agencies.

These include the Federal Energy Regulatory Commission, the Department of Justice, the New York Public Service Commission, and the Public Utility Commission of Texas, among others.

Last week, Ryan Gould, Dinesh Nair, Matthew Monks and David Carnevali of Bloomberg reported that Constellation Energy nears US$30 billion deal for Calpine:

Constellation Energy Corp. is nearing an acquisition of Calpine Corp., people familiar with the matter said, in what would be one of the biggest ever deals in the power generation sector.

Baltimore-based Constellation is in discussions with Calpine’s private equity owners about the terms of a transaction that could value the company at about US$30 billion including debt, according to the people. A deal may be announced in the coming weeks, they said.

Energy Capital Partners, CPP Investments and Access Industries agreed to take Calpine private in 2017 in a deal valued at more than US$17 billion including debt. Shares in Constellation have doubled in New York trading over the last 12 months. They dropped as much as 11 per cent Wednesday on news of the potential Calpine transaction, giving Constellation a market value of about US$72 billion.

Founded in the 1980s, Calpine runs almost 80 facilities across 22 states and Canada, according to its website. The company generates electricity from natural gas and geothermal resources that helps power roughly 27 million homes every year.

After decades of flat power demand in the United States, the need for electricity is skyrocketing thanks to data centres running artificial intelligence operations, new factories and the electrification of everything from cars to home heating. U.S. demand for electricity will surge almost 16 per cent over the next five years, according to a December report for Grid Strategies.

Constellation’s deliberations over a deal for Calpine are ongoing and could still be delayed or falter, the people said, asking not to be identified discussing confidential information. The final price of a deal could still change, they said.

Representatives for Constellation and CPP declined to comment. Representatives for ECP, Access Industries and Calpine couldn’t immediately be reached for comment or didn’t immediately provide comment.

When Constellation was spun off from Exelon Corp. in 2022, chief executive Joe Dominguez said he was interested in growing the company through mergers and acquisitions. The following year, Constellation paid US$1.75 billion for NRG Energy Inc.’s 44 per cent stake in a Texas nuclear plant.

The value of deals in the power generation sector rose by a third last year to about US$129 billion, data compiled by Bloomberg show. Among the largest transactions was a takeover of Atlantica Sustainable Infrastructure Plc by ECP and a group of co-investors.

On Friday, CPP Investments released this statement on the Calpine sale to Constellation energy:

Toronto, CANADA (January 10, 2025) – CPP Investments today announced the sale of its entire stake in U.S. power producer Calpine Corporation (Calpine) to Constellation Energy (Constellation), as part of Constellation’s acquisition of Calpine. Net proceeds to CPP Investments are expected to be approximately US$700 million in cash and US$1.9 billion in Constellation stock.

CPP Investments holds a 15.75% ownership position in Calpine through a co-investment made alongside Energy Capital Partners (ECP) and Access Industries in 2018.

“We are pleased by the success of our investment in Calpine and view this transaction as an excellent opportunity to realize strong returns for the CPP Fund,” said Bill Rogers, Managing Director, Head of Sustainable Energies at CPP Investments. “We look forward to participating in Constellation’s future growth, enhanced by the increased scale and cash flow resulting from this combination.”

The combined company’s footprint will span the continental U.S. and include a significantly expanded presence in Texas, the fastest growing market for power demand, as well as other key strategic markets, including California, Delaware, New York, Pennsylvania and Virginia.

“Calpine serves as a good example of CPP Investments’ approach to investing across the energy spectrum, which is to invest in companies that play a critical role in delivering affordable, reliable power while helping them progress towards the decarbonisation of their portfolios,” Rogers added.

The transaction is expected to close in the second half of 2025, subject to the satisfaction of customary closing conditions and regulatory approvals from the Federal Energy Regulatory Commission, the Department of Justice, the New York Public Service Commission, the Public Utility Commission of Texas, and other regulatory agencies.

CPP Investments’ Sustainable Energies group is active across the global energy system, with net assets totaling approximately C$34.2 billion as at March 31, 2024, including investments in renewables, conventional energy, carbon capture and storage, distributed and energy services, and emerging and disruptive technologies.

About CPP Investments

Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that manages the Fund in the best interest of the more than 22 million contributors and beneficiaries of the Canada Pension Plan. In order to build diversified portfolios of assets, investments are made around the world in public equities, private equities, real estate, infrastructure and fixed income. Headquartered in Toronto, with offices in Hong Kong, London, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At September 30, 2024, the Fund totaled C$675.1 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedIn, Instagram or on X @CPPInvestments.

Constellation Energy also put out a press release on this mega merger:

BALTIMORE and HOUSTON (Jan. 10, 2025) — Constellation (Nasdaq: CEG) and Calpine Corp. today announced they have entered into a definitive agreement under which Constellation will acquire Calpine in a cash and stock transaction valued at an equity purchase price of approximately $16.4 billion, composed of 50 million shares of Constellation stock and $4.5 billion in cash plus the assumption of approximately $12.7 billion of Calpine net debt. After accounting for cash that is expected to be generated by Calpine between signing and the expected closing date, as well as the value of tax attributes at Calpine, the net purchase price is $26.6 billion, reflecting an attractive acquisition multiple of 7.9x 2026 EV/EBITDA.

The agreement creates the nation’s largest clean energy provider, opening opportunities to serve more customers coast-to-coast with a broader array of energy and sustainability products. Already the nation’s largest producer of 24/7 emissions-free electricity, Constellation will add Calpine, the largest U.S. producer of energy from low-emission natural gas generation and an expanded renewable energy portfolio, including the largest geothermal generation operation in the U.S. The combination also forms the nation’s leading competitive retail electric supplier, providing 2.5 million customers with a broader array of customized energy and sustainability solutions and new product offerings to help them manage energy costs and achieve their sustainability goals.

“This acquisition will help us better serve our customers across America, from families to businesses and utilities,” said Joe Dominguez, president and CEO, Constellation. “By combining Constellation’s unmatched expertise in zero-emission nuclear energy with Calpine’s industry-leading, best-in-class, low-carbon natural gas and geothermal generation fleets, we will be able to offer the broadest array of energy products and services available in the industry. Both companies have been at the forefront of America’s transition to cleaner, more reliable and secure energy, and those shared values will guide us as we pursue investments in new and existing clean technologies to meet rising demand. What makes this combination even more special is it brings together two world-class teams, with the most talented women and men in the industry, who share a noble passion for safety, sustainability, operational excellence and helping America’s families, businesses and communities thrive and grow. We look forward to welcoming the Calpine team upon closing of this transaction.”

Calpine’s low-emission natural gas plants will play a key role in maintaining grid reliability for decades to come as customers transition to cleaner energy sources. Both companies have been early investors in carbon sequestration technology to help ensure America’s abundant natural gas can continue to reliably power customers. At the same time, Constellation will invest in adding more zero-emission energy to the grid by extending the life of existing clean energy sources, exploring new advanced nuclear projects, investing in renewables and increasing the output of existing nuclear plants, in addition to restarting the Crane Clean Energy Center in Pennsylvania. 

Andrew Novotny, president and CEO of Calpine, said, “This is an incredible opportunity to bring together top tier generation fleets, leading retail customer businesses and the best people in our industry to help drive a stronger American economy for a cleaner, healthier and more sustainable future. Together, we will be better positioned to bring accelerated investment in everything from zero-emission nuclear to battery storage that will power our economy in a way that puts people and our environment first. It’s a win for every American family and business in our newly combined footprint that wants clean and reliable energy. ECP’s commitment to these goals over the last seven years was critical to the progress we have made as a company and to laying a foundation for future growth.” 

Tyler Reeder, president & managing partner of ECP, said, “Since acquiring Calpine in 2018, we have focused on unlocking value and driving future potential growth avenues for the business, which we believe have been recognized through this combination. We truly cannot thank the Calpine team enough for their partnership and are excited to support their continued contributions to the Constellation team. Following the closing of the transaction, we will remain committed as a shareholder of Constellation, reflecting our high confidence in the continued value and growth potential created by this combination.” 

The transaction will deliver benefits to Constellation’s owners, with expected immediate adjusted (non-GAAP) operating earnings per share (EPS) accretion of more than 20% in 2026 and at least $2 per share of EPS accretion in future years. The transaction is projected to add more than $2 billion (non-GAAP) of free cash flow annually, creating strategic capital and scale to reinvest in the business. Constellation’s base earnings outlook is expected to continue growing at a double-digit rate through the decade. Constellation remains committed to a strong, investment-grade balance sheet with current ratings expected to be affirmed by S&P and Moody’s.

Strategic Benefits:

• Creates the cleanest and most reliable generation portfolio in the U.S., with a diverse, coast-to-coast portfolio of zero- and low-emission generation assets and expands Constellation’s footprint in the fastest growing area of demand for power: Together, Constellation and Calpine will have nearly 60 gigawatts of capacity from zero- and low-emission sources, including nuclear, natural gas, geothermal, hydro, wind, solar, cogeneration and battery storage. The combined company’s footprint will span the continental U.S. and include a significantly expanded presence in Texas, the fastest growing market for power demand, as well as other key strategic states, including California, Delaware, New York, Pennsylvania and Virginia.
  
  
• Combines best-in-class retail and commercial businesses with a premier customer solutions platform, establishing a coast-to-coast presence and providing opportunities to serve more customers with a broader array of energy and sustainability products to meet increasing demand: The transaction will expand Constellation’s industry-leading customer solutions business to position the combined company as the leading U.S. retail electricity supplier, helping 2.5 million homes and businesses nationwide achieve their energy and sustainability needs. The combined company will offer customers a broader array of reliable energy solutions, including new product offerings that can integrate nuclear, renewable and natural gas technologies tailored to customers’ unique needs. Customers also will enjoy more predictability and competitive prices as a result of the two companies’ complementary generation assets, load, fuel diversity, geographies and product offerings.
  
  
• Reinforces Constellation’s position as the largest clean energy producer with the lowest carbon emissions intensity in the U.S.: Constellation is already the top clean energy producer in the U.S., providing 10% of the nation’s emissions-free energy. Joining Calpine with Constellation broadens this position by increasing Constellation’s renewable portfolio, including the Geysers facility in Northern California, the largest geothermal generator in the U.S. The combined company is poised for further growth, enhanced by its increased scale and cash flow.
  
  
• Joins proven, experienced, best-in-class teams with strong cultures of safety, operating excellence and commitment to serving customers, communities and the country. Constellation and Calpine’s people share a passion for powering America’s families and businesses with energy that is reliable, clean and available whenever it’s needed. Both companies are innovators recognized across the industry for operating at the highest levels of safety, efficiency and reliability, and for offering competitive products that allow customers to cost-effectively meet their energy needs. After closing, Calpine CEO Andrew Novotny will bring his decades of energy expertise and leadership to Constellation and continue to lead the Calpine business.
  
  
• Strengthens shared commitment to supporting clean, healthy and growing communities through workforce development, philanthropy and community investment: Together, the combined company will increase its positive impact, serving as an economic engine for local communities through jobs, tax payments and other economic activity. The combined company will continue its commitment to communities through more than $21.1 million in combined annual Foundation, corporate and employee philanthropy, in addition to thousands of employee volunteer hours, with a focus on economically disadvantaged communities.

Additional Transaction Details

The cash and stock transaction will have a value of approximately $16.4 billion, composed of 50 million shares of Constellation stock using the trailing 20-day VWAP of $237.98 and $4.5 billion in cash plus the assumption of approximately $12.7 billion of Calpine net debt. Constellation expects to fund the cash portion of the transaction through a combination of cash on hand and cash flow generated by Calpine in the period between signing and closing of the transaction (that will be assumed at closing).

Reflecting their confidence in Constellation’s growth and value creation through this acquisition, Calpine’s significant shareholders, including ECP, Canada Pension Plan Investments (CPP Investments) and Access Industries, have agreed to an 18-month lock-up with respect to their equity ownership of Constellation common stock, subject to an agreed upon schedule for potential sales.

The transaction is expected to close within 12 months of signing, subject to the satisfaction of customary closing conditions, including the expiration or termination of the waiting period pursuant to the Hart-Scott-Rodino Act, and regulatory approvals from the Federal Energy Regulatory Commission, the Canadian Competition Bureau, the New York Public Service Commission, the Public Utility Commission of Texas and other regulatory agencies.

Following the close of the transaction, Constellation will continue to be headquartered in Baltimore and will continue to maintain a significant presence in Houston, where Calpine is currently headquartered.

Advisors

Lazard is serving as financial advisor to Constellation. J.P. Morgan Securities LLC is also serving as financial advisor to Constellation, and Kirkland & Ellis is serving as legal counsel.

Evercore served as lead financial advisor to Calpine. Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC., and Barclays US are serving as additional financial advisors to Calpine and ECP, and Latham & Watkins and White & Case are serving as legal counsel.

Conference Call and Webcast Information

Constellation will host a conference call today, Jan. 10, 2025, at 8:30 a.m. Eastern Time to discuss this announcement.

The live audio webcast of the conference call, including presentation slides, will be available at https://investors.constellationenergy.com.

# # #

About Constellation

A Fortune 200 company headquartered in Baltimore, Constellation Energy Corporation (Nasdaq: CEG) is the nation’s largest producer of clean, emissions-free energy and a leading supplier of energy products and services to businesses, homes, community aggregations and public sector customers across the continental United States, including three fourths of Fortune 100 companies. With annual output that is nearly 90% carbon-free, our hydro, wind and solar facilities paired with the nation’s largest nuclear fleet have the generating capacity to power the equivalent of 16 million homes, providing about 10% of the nation’s clean energy. We are further accelerating the nation’s transition to a carbon-free future by helping our customers reach their sustainability goals, setting our own ambitious goal of achieving 100% carbon-free generation by 2040, and by investing in promising emerging technologies to eliminate carbon emissions across all sectors of the economy. Follow Constellation on LinkedIn and X.

About Calpine

Calpine Corporation is America’s largest generator of electricity from natural gas and geothermal resources with operations in competitive power markets. Our fleet of 79 energy facilities in operation represents over 27,000 megawatts of generation capacity. Through wholesale power operations and our retail businesses, we serve customers in 22 states and Canada. Our clean, efficient, modern and flexible fleet uses advanced technologies to generate power in a low-carbon and environmentally responsible manner. We are uniquely positioned to benefit from the secular trends affecting our industry, including the abundant and affordable supply of clean natural gas, environmental regulation, aging power generation infrastructure and the increasing need for dispatchable power plants to successfully integrate intermittent renewables into the grid.

If you would like to learn more about Calpine follow us: Twitter.com/Calpine or Linkedin.com/Calpine

About Energy Capital Partners (ECP)

Energy Capital Partners (ECP), founded in 2005, is a leading equity and credit investor across energy transition, electrification and decarbonization infrastructure assets. The ECP team, comprised of 90 people with 800 years of collective industry experience, deep expertise and extensive relationships, has consummated more than 100 equity (representing nearly $60 billion of enterprise value) and over 20 credit transactions since inception. In 2024, ECP combined with London listed Bridgepoint Group Plc (LSE: BPT.L) to create a global leader in value added middle-market investing with a combined $73 billion of assets under management across private equity, credit and infrastructure. For more information, visit www.ecpgp.com and www.bridgepoint.eu.

Alright, we are kicking off the year with a pretty big deal, the sale of Calpine to Constellation Energy for a cash and stock deal valuing Calpine at $16.4 billion (all figures in USD).

That means CPP Investments will make roughly $2.6 billion in proceeds and part of those proceeds are in Constellation Energy stock which is locked up for 18 months (the transaction is expected to generate approximately US$700m in cash and US$1.9bn in Constellation stock for CPP Investments).

If you read the press releases above, especially the last one from Constellation Energy, you see why this truly is a great deal for all parties involved.

Importantly, the agreement creates America's largest clean energy provider, opening opportunities to serve more customers coast-to-coast with a broader array of energy and sustainability products. 

Calpine is the largest US producer of energy from low-emission natural gas generation and Constellation is the nation’s largest producer of 24/7 emissions-free electricity. 

Talk about synergies. 

This acquisition will further propel Constellation into the top spot of clean energy provider, benefiting its clients and investors.

As stated above, the combined company’s footprint will span the continental US and include a significantly expanded presence in Texas, the fastest growing market for power demand, as well as other key strategic markets, including California, Delaware, New York, Pennsylvania and Virginia.

For CPP Investments, it once again proves the importance of strategic partnerships and how acquiring a stake in Calpine in 2018 through a co-investment with Energy Capital Partners (ECP) and Access Industries proved to be very profitable and timely. 

Bill Rogers, Managing Director, Head of Sustainable Energies at CPP Investments states this:

We are pleased by the success of our investment in Calpine and view this transaction as an excellent opportunity to realize strong returns for the CPP Fund. We look forward to participating in Constellation’s future growth, enhanced by the increased scale and cash flow resulting from this combination.

Calpine serves as a good example of CPP Investments’ approach to investing across the energy spectrum, which is to invest in companies that play a critical role in delivering affordable, reliable power while helping them progress towards the decarbonisation of their portfolios.

And Tyler Reeder, president & managing partner of ECP, said:

Since acquiring Calpine in 2018, we have focused on unlocking value and driving future potential growth avenues for the business, which we believe have been recognized through this combination. We truly cannot thank the Calpine team enough for their partnership and are excited to support their continued contributions to the Constellation team. Following the closing of the transaction, we will remain committed as a shareholder of Constellation, reflecting our high confidence in the continued value and growth potential created by this combination.

That pretty much says it all.

In other related news, CPP Investments announced today that it is forming a joint venture with leading Brazilian real estate developer Cyrela:

Toronto, CANADA and São Paulo, BRAZIL (Jan 13, 2025) – Canada Pension Plan Investment Board (CPP Investments) announced today that it has signed a joint venture agreement with Cyrela Brazil Realty (Cyrela), the largest residential real estate developer in Brazil. Cyrela’s fund management subsidiary, Cy.Capital, will act as the manager of the investment vehicle.

CPP Investments and Cyrela have established an investment target of 1.7 billion reais (C$400 million), on an equal partnership basis, to develop residential condominiums in São Paulo, Brazil’s largest city, targeting over 6 billion reais (C$1.44B) in potential sales value over the next several years.

“The residential market in São Paulo has strong fundamentals, supported by favorable demographics, low unemployment level and resilient household income growth in the city,” said Ricardo Szlejf, Managing Director, Head of Real Assets, Latin America, for CPP Investments. “We are pleased to expand our long-term partnership with Cyrela, a premier real estate developer in Brazil, to develop high-quality residential projects that we believe will deliver strong, risk-adjusted returns to CPP contributors and beneficiaries.”

Today’s announcement extends a successful partnership between CPP Investments and Cyrela dating to 2019, which also includes a joint venture with Cyrela and Greystar to develop multifamily properties in São Paulo.

“We are proud to count CPP Investments as one of our key investment partners and are excited about the opportunity to further expand what has been a very productive working relationship,” said Gustavo Vaz, CEO of Cy.Capital.

Alright, let me wrap it up there.

Below, Joseph Dominguez, Constellation Energy CEO, joins 'Squawk on the Street' to discuss the company's acquisition of Calpine, the chief executive's confidence in the deal and more

And John Graham, President and CEO of CPP Investments, recently sat down with David Blood, whose Generation Investment Management (with co-founder Al Gore) has repositioned sustainability as an opportunity to drive outsized returns through its approach to deal ideation, underwriting and pricing. This conversation was part of CPP Investments’ inaugural Sustainability Forum for employees. 

Great conversation, take the time to listen to it, David Blood is a very interesting person with an interesting background, he shares a lot of insights here.

Bert Clark, President and CEO of Investment Management Corporation of Ontario, wrote a comment for the Financial Post over the holidays stating the S&P 500’s performance in 2024 made investing look easy, so why bother with strategy:

The S&P 500 has been on something of a tear. Total returns so far this year (as of Dec. 23), have been 26 per cent. That’s on top of total returns of 26 per cent in 2023.

This is the kind of investment performance that can make some investors wonder whether Warren Buffet was right when he suggested that, for most people, the best thing to do is own the S&P 500 index.

Whether this is the right investment strategy for an investor is something they would need to decide. This is in no way meant to challenge Buffet’s investment perspective. Or, for that matter, to suggest an alternative strategy for individual investors.

But recency bias can be powerful. So, with the S&P 500 up as much as it has been over the past few years, it is a good time to recall why a strategy that involves only investing in that index would require real patience and conviction at times, and why many investors stick with much more diversified strategies.

The S&P 500 has been a great long-term investment: $1,000 invested there 50 years ago would be worth approximately $360,000 today. That beats a 60/40 portfolio made up of the S&P 500 and 10-year U.S. Treasury bonds, which would have only grown to approximately $136,000 over that same period. And it beats an investment in other developed markets, such as the MSCI EAFE (Europe, Australasia and the Far East), which would have only grown to approximately $60,000.

However, a lot can get lost in long-term performance numbers, specifically the episodic and very large drawdowns the S&P 500 has experienced, and its underperformance relative to more balanced portfolios and other markets over a number of multi-year periods.

For example, investors who had 100 per cent of their portfolio invested in the S&P 500 in September 2000 would have lost 45 per cent over the following two years, about twice that of an investor in a 60/40 portfolio. It would have then taken the 100 per cent S&P 500 investor more than six years to recover their losses and almost 20 years to catch up to the 60/40 investor.

This was not the only period of S&P 500 underperformance relative to a 60/40 portfolio: In the late 1970s, it had more than three years of worse performance; in the early 1980s, it had about six years of worse performance; and in the late 1980s, it had more than seven years of worse performance.

Today, investing in the market cap (as opposed to equal weighted) version of the S&P 500 index involves a big bet on the continued strong performance of a small number of companies. The last time the Top 10 companies in the S&P 500 represented as large a percentage of the index as they do today (36 per cent) was in 1964. None of the Top 10 companies in 1964 are in the Top 10 today. In fact, three went bankrupt (General Motors Co., Sears Holdings Corp. and Eastman Kodak Co.) and two merged into other companies (Gulf Oil Corp. and Texaco Inc).

It is also important to remember that, while the U.S. public equity markets have been a good investment over the past 50 years, non-U.S. public equity markets have generated better returns over various multi-year periods. For example, between 1985 and 1989, the S&P 500 underperformed the MSCI EAFA (Europe, Australasia and Far East) index by 13.82 per cent a year, on average. And the S&P 500 again underperformed that index between 2000 and 2009 by 2.65 per cent a year, on average.

For all of these reasons, an all-S&P 500 investment strategy would, at times, require real psychological stamina on the part of individual investors. For many institutional investors, an all-S&P 500 strategy could result in drawdowns and periods of underperformance that would be hard to manage when more balanced, less volatile, strategies are possible.

Many institutional investors are not trying to generate the highest returns possible over the short term. They are trying to generate long-term, stable returns to cover a specific liability (such as pension obligations), while minimizing return volatility. Significant near-term return volatility can be hard to manage and require increased contributions. And this can result in intergenerational unfairness if those contributing need to pay more than prior generations because the fund was invested in a strategy that was unnecessarily concentrated and risky.

This is why, despite the extremely strong performance of the S&P 500, many investors still opt for more diversified investment strategies, combining non-U.S. assets, as well as government bonds, credit, real estate, infrastructure and public and private asset classes. And at times like these, with the S&P 500 continuing to generate outstanding returns, it is good to remember why.

It's time to start the new year and the article above is my lead article for a lot of reasons.

It's important to understand the objective of a pension fund isn't to beat the S&P 500 every single year -- a feat that even the best hedge funds in the world can't do -- it's to make sure there are more than enough assets to meet long-dated liabilities and that they're taking intelligent risks across public and private markets to make sure the returns aren't very volatile (keeps contribution rate stable).

The other thing we need to keep in mind (as noted by Bert Clark above) is the S&P 500 is coming off two extraordinary years with back-to-back 26% total return gains.

While this is great news for equity investors, the reality is a handful of large tech companies have led the rally.

In particular, the Magnificent Seven led the S&P 500 to these two extraordinary years and therein lies the problem, concentration risk is at its highest level ever in the index:

And if you include Broadcom and call it the Magnificent Eight (I would as it surpassed a trillion market cap), concentration risk is even higher.

All this to say, if you're wondering what will happen to the S&P 500 this year, you really need to make a call on mega cap tech shares and that comes down to making a call on rates.

The recent backup in interest rates doesn't portend well for tech stocks and the overall market.

This morning's red hot US jobs report confirmed that the US economy is growing nicely and nowhere near a recession.

Obviously, if the US labour market remains strong, rates will remain elevated and this favours value over growth stocks, small caps over large caps, short duration over long duration bonds.

But the real danger this year is inflation: will it rebound in the latter half of the year as wage inflation picks up, forcing the Fed to raise rates again or will it subside more if employment starts slowing down or China hits a hard landing?

There are so many moving parts to the macro background including the new Trump administration and policies it will implement that adds more uncertainty to the political and economic outlook.

On inflation, there are two camps. Some strategists like Francois Trahan of Trahan Macro Research, see a real risk it rebounds in the second half of the year, forcing the Fed to raise rates.

Francois had a very detailed conference call earlier this week titled "The Great Inflation Comeback Of 2025" where he went into detail on why he thinks the US economy will continue to do well, inflation pressures will pick up and the Fed will be forced to respond by raising rates:

 

Trahan sees inflation creeping back and the new Administration's policies could exacerbate this trend, forcing the Fed to respond. 

Not surprisingly, he sees the yield curve flattening as short rates rise and sees three dominant themes for this year and explains where he sees opportunities:

I'm just giving you a glimpse of what he covered so take the time to delve into his conference call as he covers a lot more material.

But while Trahan sees a pickup in inflationary pressures, other strategists see it waning further and think the market isn't pricing in enough rate cuts.

Joaquín Kritz Lara, Chief Economist and Strategist at Numera Analytics sees inflation pressures subsiding, allowing the Fed to continue cutting rates as the economy slows:

 It is is worth repeating this part:

What about unemployment? In a late cycle, the Fed stance depends mainly on macro conditions. The Fed’s hawkish signal reflects bullish growth perceptions, leading them to expect no change in the unemployment rate in 2025 – a view shared by the market. This is where our view deviates significantly from consensus. As we can see in F5, we expect cyclical conditions to weaken in 2025-26, as consumers and businesses run out of sources of support.

If growth disappoints and layoffs rise, this increases the incentive to cut. This is particularly true considering Fed policy remains highly contractionary. We can see this in F6, which plots real policy rates to our estimate of the US ‘neutral’ rate of interest (i.e. the rate consistent with full employment and trend inflation). While the neutral rate rose in 2023 and 2024 in response to higher productivity, the interest gap is very high by historical standards.

To be sure, the neutral estimate carries significant uncertainty, but it does suggests that the Fed has plenty of room to maneuver before it fuels inflation. This has key implications for the interest rate outlook. If inflation stays contained and unemployment rises, this translates into a very high probability of further Fed easing. In particular, our models point to 4+ cuts this year, with an 81% chance that the FOMC cuts rates by more than they and markets anticipate.

I must admit, I'm stunned the US economy is still firing on all cylinders because credit card debt is at an all-time high, consumers are tapped out but yes, they still have a job and are holding on, for now.

Will Trump slap on tariffs and deport thousands of illegals migrants?

Honestly, I'm not sure how his administration will proceed but I can tell you from past experience, the market will not like it, and it will force him to rethink his policies.

My friends who just visited Miami/ Fort-Lauderdale tell me restaurants were packed, prices are insanely high, and it sure doesn't look like the US economy is slowing.

But that's a microcosm of the US economy, one where drug cartels and hedge fund managers flush with cash skew reality.

Moreover, even though today's jobs report suggests the US economy remains very strong, not everyone is convinced good times lie ahead:

CRE delinquencies keep climbing. Small banks account for 70% of CRE lending. Will we see another wave of distress among the regional banks? pic.twitter.com/jj822qhice

— Peter Berezin (@PeterBerezinBCA) January 10, 2025

Battle of the alternative indicators for payrolls pic.twitter.com/ObE5ula5Nf

— Peter Berezin (@PeterBerezinBCA) January 10, 2025

Hard to find anything bad with this employment report. The only blemishes I noticed was that prime-age male employment declined and most of the job growth was amongst part-time workers. The big question now is whether the recent rise in bond yields undermines the labour market.

— Peter Berezin (@PeterBerezinBCA) January 10, 2025

Hard to see how construction employment can continue to hold up if units under construction keeps sliding. pic.twitter.com/HISZVJ9CTC

— Peter Berezin (@PeterBerezinBCA) January 10, 2025

The point we should all consider is with rates rising, housing activity will slow, the US economy is vulnerable to a slowdown, something even Trahan noted in his conference call.

Right now, the yield on the 10-year is close to its October 2023 high of 5%:

And inflation pressures have yet to pick up convincingly, this is all about the term premium, uncertainty about policy and fears of a budget deficit run amok.

If rates remain elevated, no doubt about it, stocks will get hit, beginning with high duration tech stocks and anything speculative.

This week was a taste of what's to come if rates don't come down to 3%.

Mega cap tech stocks got hit but the real carnage this week was in highly speculative quantum computing stocks where the bubble is deflating fast as well as small and mid cap biotech shares:

It goes without saying that higher for longer will not be good for private markets and that's why you saw many private equity stocks also get slammed hard today.

Private equity, real estate remain areas of concern, infrastructure and private credit have some inflation protection and floating rate protection but even there valuations remain stretched and any crisis or slowdown will impact private credit as well.

All this to say 2025 will present many challenges to investors, volatility will reign and everyone will be transfixed on every monthly jobs and CPI report trying to figure out the Fed's next move.

Whether or not we get higher growth and inflation, stagflation (inflation and lower growth) or a classic recession with lower inflation develops remains to be seen but you need to be prepared and pay attention to everything, including a potential credit crisis from private markets.

What else worries me? A significant slowdown in China which by definition is deflationary and will clobber risk assets all over the world.

Anyway, I kept my outlook short this year, forecasting the macro environment isn't easy, far from it, and many strategists/ economists including yours truly have been wrong the last couple of years.

Let me wrap it up and wish all of you once again a Happy and Healthy New Year. 

I am also thinking of people out in Los Angeles as the fires there decimate and ravage entire cities, just terrible to see the devastation on the news.

Below, Mike Wilson, CIO and Chief US Equity Strategist at Morgan Stanley, offers his outlook for investors in the year ahead and explains why he believes short-duration assets and cash are still viable options until earnings breadth improves. Mike speaks with Tom Keene and Paul Sweeney on Bloomberg Radio.

Next, Jeremy Siegel, Wharton professor emeritus, joins 'Closing Bell' to discuss the market's reaction to Friday's jobs report, the subsequent bond market reaction, and much more.

Third, Peter Boockvar, Bleakley Financial Group chief investment officer, joins 'Fast Money' to talk the market's reaction to the jobs report and possibility of less rate cuts.

Fourth, Rick Heitzmann, First Mark Capital founder, joins 'Closing Bell' to discuss how Heitzmann is thinking about the venture capital space, when investors will see more initial public offerings, and much more.

Fifth, Avery Sheffield, VantageRock senior portfolio manager and CIO, joins 'Closing Bell' to discuss the corners of the market where opportunity exists.

Lastly, 'Fast Money' traders look at the market action after better-than-expected jobs report.

ReNew Canada reports Hydro One to acquire 48% interest in the East-West Tie Line project:

Hydro One announced that its wholly-owned subsidiary, Hydro One Networks Inc., has entered into an agreement to purchase an approximately 48 per cent interest in the East-West Tie Limited Partnership from affiliates of OMERS Infrastructure Management Inc. (OMERS) and Enbridge Transmission Holdings Inc. (Enbridge).

The East-West Tie Limited Partnership owns the East-West Tie Line, a 450-kilometre, 230 kV double-circuit transmission line, regulated by the Ontario Energy Board (OEB), spanning from Wawa to Thunder Bay, along the north shore of Lake Superior.

Hydro One has agreed to purchase its interest in the partnership for $257 million in cash, subject to customary adjustments. The transaction results in a partnership with the remaining owners of the East-West Tie Line – the Bamkushwada Limited Partnership, a consortium of six First Nations, and affiliates of NextEra Energy Canada, LP who own approximately 3.5 per cent and 48 per cent respectively.

“Hydro One has a long history of owning and operating transmission infrastructure in northern Ontario,” said David Lebeter, president and CEO, Hydro One. “By investing in this critical transmission infrastructure, we not only support the reliable delivery of electricity but also contribute to the long-term economic opportunities and shared prosperity in the region.”

“We are very proud of our 12-year partnership with co-shareholders and our collaboration with First Nations to develop and operationalize the East-West Tie,” said Michael Hill, executive vice president and Global Head of OMERS Infrastructure. “Hydro One, a prominent Canadian company that already owns and operates more than 90 per cent of Ontario’s transmission network, was considered the best strategic partner to support the company’s continued reliable operations.”

“Enbridge is pleased to have participated alongside our partners in developing and bringing into service the East-West Tie project, with a focus on Indigenous inclusion and participation,” said Matthew Akman, executive vice president, Corporate Strategy and President, Power, Enbridge. “Enbridge has enjoyed a strong relationship with NextEra, OMERS and the Bamkushwada Limited Partnership and believe Hydro One’s experience and ownership of other Ontario transmission assets will provide value to the partnership.”

The East-West Tie Line was built in partnership with the Bamkushwada Limited Partnership, which is jointly owned by Fort William First Nation, Michipicoten First Nation, Biigtigong Nishnaabeg (Ojibways of the Pic River First Nation), Pays Plat First Nation, Netmizaaggamig Nishnaabeg (Pic Mobert First Nation) and Red Rock Indian Band.

The line has an OEB-approved rate base of approximately $880 million (100 per cent basis) and connects northwest Ontario communities and industries to Ontario’s electricity grid. The transaction is conditional upon satisfaction of customary closing conditions.

CIBC Capital Markets acted as exclusive financial advisor and Gowling WLG acted as external legal counsel to Hydro One in connection with the transaction. TD Securities acted as exclusive financial advisor and Torys LLP acted as external legal counsel to OMERS and Enbridge in connection with the transaction.

Northern Ontario Business also reports Hydro One wins bid to build Wawa-Porcupine transmission line:

The province has decided who will build a 260-kilometre transmission line to boost Northern Ontario. 

Hydro One won the bid to build the new Wawa-to-Porcupine transmission line, which is expected to go into service in 2030, the province announced Dec. 17. Hydro One has a 50-50 partnership with Wabun Tribal Council for the project. 

“Our government is supporting the incredible growth in Timmins and across northeastern Ontario by accelerating the development of a new transmission line that will power new homes, businesses and mines,” said Stephen Lecce, minister of energy and electrification, in a news release.

“Our focus on ensuring  access to reliable and affordable energy is key to ensuring business across the north remain competitive, especially as demand for Ontario’s responsibly sourced metals and critical minerals  grows.”

The new line will run 260 kilometres from the Wawa Transformer Station south of the township to the Porcupine Transformer Station in Timmins.

Hydro One's site in Timmins is amid an $80-million upgrade to replace switches, system protection and telecommunication equipment. When the upgrades are finished — which is expected to be around 2026 — it's expected that there will be strengthened reliability and resiliency in the electricity network in Timmins and area.

The new transmission line project is one of the recommendations in an Independent Electricity System Operator (IESO) report. It made suggestions to improve reliability for existing and future loads in the Timmins area, and increase power transfer capability from Sudbury to supply future loads in the Sault Ste. Marie area and northwest regions.

By 2025, the IESO predicts the electricity demand in northeastern Ontario will grow by 540 megawatts, which is a spike of 28 per cent. The forecast includes new mining developments and industrial loads in the region.

Timmins MPP and Minister of Mines George Pirie says the line is a critical step to power the future of Timmins and mining in the region.

“As Timmins continues to thrive as a key hub for mining and economic activity, ensuring greater access to clean and reliable energy is vital to meet the region’s increasing energy needs that will power the mines of tomorrow, which benefits all of Ontario," he said.

Wabun Tribal Council represents six Treaty 9 First Nations in Northern Ontario, and five of them — Mattagami, Brunswick House, Matachewan, Flying Post, and Chapleau Ojibwe — are involved in the project partnership.

"This project not only provides value to our communities as owners of renewable infrastructure but increases the transmission capacity in the Ontario hydro grid system that is desperately needed. We  look forward to working with the Ministry of Energy and Electrification and other stakeholders as we  plan and build the hydro line over the next four years," said Jason Batise, Wabun Tribal Council's executive director.

Wabun's bid for the project was backed by Timmins Mayor Michelle Boileau, who also supported the competing bid by Transmission Infrastructure Partnerships 9 (TIP-9 coalition) that included Taykwa Tagamou Nation, Michipicoten First Nation, Chapleau Cree First Nation and Missanabie Cree First Nation.

Five Nations Energy also supported the Hydro One bid.

Boileau said the announcement allows the region to proactively plan.

"Access to a stable and reliable energy source will allow local businesses to remain competitive and support the increase in demand from supply chain growth and other target sector expansion," she said in the release.

And earlier today, Link2Build Ontario reports the province prioritizes construction of new northeastern transmission line:

The Ontario government has been the green light to Hydro One to seek all necessary approvals and build a new transmission line in Northeastern Ontario.

The new transmission line is scheduled to come into service in 2030 and will run approximately 260 kilometres from the Wawa Transformer Station to the Porcupine Transformer Station, located in the Timmins area.

“Our government is supporting the incredible growth in Timmins and across Northeastern Ontario by accelerating the development of a new transmission line that will power new homes, businesses and mines,” said Energy Minister Stephen Lecce. “Our focus on ensuring access to reliable and affordable energy is key to ensuring business across the north remain competitive, especially as demand for Ontario’s responsibly sourced metals and critical minerals grows.”

According to Ontario’s Independent Electricity System Operator, electricity demand in Northeastern Ontario is forecast to grow by 28 percent by 2035. This includes new mining developments and industrial loads.

To help meet this growing demand for energy, the government has issued an order-in-council declaring this new transmission line a provincial priority. This will streamline the Ontario Energy Board’s regulatory approval process for this line.

The new transmission line is a significant opportunity to build economic partnerships and advance reconciliation with First Nation and Métis communities, which is key to successful energy infrastructure development in the province.

Hydro One is working with Indigenous communities on early planning and partnership opportunities for the project, and First Nations have the opportunity to invest in a 50 percent equity stake in the transmission line component of the project once complete through Hydro One’s Equity Partnership model.

"On behalf of the Chiefs of the Wabun Tribal Council, we are so pleased with Ontario’s decision to award the Wawa-Porcupine Transmission Line project to our partnership with Hydro One,” said Executive Director Jason Batise. “This project not only provides value to our communities as owners of renewable infrastructure but also increases the transmission capacity in the Ontario hydro grid system that is desperately needed."

Last year, the province also announced two new transmission lines that will run between Sault Ste. Marie and Sudbury to help meet the growing demand for energy across Northeastern Ontario and power the production of green steel at Algoma Steel in Sault Ste Marie.

Last week, OMERS Infrastructure issued this press release on the deal to sell its stake in East-West Tie Limited Partnership:

Toronto, December 19, 2024 - Hydro One Limited (Hydro One) announced today that its wholly-owned subsidiary, Hydro One Networks Inc., has entered into an agreement to purchase an approximately 48 per cent interest in the East-West Tie Limited Partnership from affiliates of OMERS Infrastructure Management Inc. (OMERS) and Enbridge Transmission Holdings Inc. (Enbridge). The East-West Tie Limited Partnership owns the East-West Tie Line, a 450-kilometre, 230 kV double-circuit transmission line, regulated by the Ontario Energy Board (OEB), spanning from Wawa to Thunder Bay, along the north shore of Lake Superior.

Hydro One has agreed to purchase its interest in the partnership for $257 million in cash, subject to customary adjustments. The transaction results in a partnership with the remaining owners of the East-West Tie Line – the Bamkushwada Limited Partnership, a consortium of six First Nations, and affiliates of NextEra Energy Canada, LP who own approximately 3.5 per cent and 48 per cent respectively.

“Hydro One has a long history of owning and operating transmission infrastructure in northern Ontario,” said David Lebeter, President and CEO, Hydro One. “By investing in this critical transmission infrastructure, we not only support the reliable delivery of electricity but also contribute to the long-term economic opportunities and shared prosperity in the region.”

“We are very proud of our 12-year partnership with co-shareholders and our collaboration with First Nations to develop and operationalize the East-West Tie,” said Michael Hill, Executive Vice President and Global Head of OMERS Infrastructure. “Hydro One, a prominent Canadian company that already owns and operates more than 90 per cent of Ontario's transmission network, was considered the best strategic partner to support the company’s continued reliable operations.”

“Enbridge is pleased to have participated alongside our partners in developing and bringing into service the East-West Tie project, with a focus on Indigenous inclusion and participation,” said Matthew Akman, Executive Vice President, Corporate Strategy and President, Power, Enbridge. "Enbridge has enjoyed a strong relationship with NextEra, OMERS and the Bamkushwada Limited Partnership and believe Hydro One's experience and ownership of other Ontario transmission assets will provide value to the partnership."

The East-West Tie Line was built in partnership with the Bamkushwada Limited Partnership, which is jointly owned by Fort William First Nation, Michipicoten First Nation, Biigtigong Nishnaabeg (Ojibways of the Pic River First Nation), Pays Plat First Nation, Netmizaaggamig Nishnaabeg (Pic Mobert First Nation) and Red Rock Indian Band.

The line has an OEB-approved rate base of approximately $880 million (100 per cent basis) and connects northwest Ontario communities and industries to Ontario’s electricity grid. The transaction is conditional upon satisfaction of customary closing conditions.

CIBC Capital Markets acted as exclusive financial advisor and Gowling WLG acted as external legal counsel to Hydro One in connection with the transaction. TD Securities acted as exclusive financial advisor and Torys LLP acted as external legal counsel to OMERS and Enbridge in connection with the transaction.

Alright, Christmas is right around the corner, another year blew by and will end on this OMERS deal which is a good one for OMERS, Hydro One and the province of Ontario which is prioritizing access to affordable and reliable energy.

As stated above, the East-West Tie Limited Partnership owns the East-West Tie Line, a 450-kilometre, 230 kV double-circuit transmission line, regulated by the Ontario Energy Board (OEB), spanning from Wawa to Thunder Bay, along the north shore of Lake Superior.

It was built in partnership with the Bamkushwada Limited Partnership, which is jointly owned by Fort William First Nation, Michipicoten First Nation, Biigtigong Nishnaabeg (Ojibways of the Pic River First Nation), Pays Plat First Nation, Netmizaaggamig Nishnaabeg (Pic Mobert First Nation) and Red Rock Indian Band. 

The line has an OEB-approved rate base of approximately $880 million (100 per cent basis) and connects northwest Ontario communities and industries to Ontario’s electricity grid. The transaction is conditional upon satisfaction of customary closing conditions.  

This was another great asset that OMERS Infrastructure owned and it was time to sell it to Hydro One so it can continue its mission in providing the province with safe, reliable electricity.

Hydro One is purchasing a 48 per cent interest in the East-West Tie Limited Partnership from OMERS and Enbridge valued at $257 million.

Again, this deal goes to show you that OMERS has one of the best infrastructure portfolios among Canada's large pension funds and it can realize on some assets when it makes sense (and put the money to work elsewhere).

And as Michael Hill, Executive Vice President and Global Head of OMERS Infrastructure states, Hydro One is a great strategic partner to OMERS who can take now support the next growth stage of the East-West Tie Limited Partnership:

“We are very proud of our 12-year partnership with co-shareholders and our collaboration with First Nations to develop and operationalize the East-West Tie. Hydro One, a prominent Canadian company that already owns and operates more than 90 per cent of Ontario's transmission network, was considered the best strategic partner to support the company’s continued reliable operations.”

That's it from me, wish all those celebrating a Merry Christmas and Happy Hanukkah and happy holidays to everyone, rest up.

I will be back early next year with my Outlook 2025 and going to try to figure out these crazy markets once again (and likely be wrong again).

Below, Stuart Kaiser, Citi head of equity trading strategy, joins 'Closing Bell' to discuss the next major market catalyst and bracing for new year volatility.

And Liz Ann Sonders, Charles Schwab chief investment strategist, joins 'Squawk on the Street' to discuss uncertainty around the Federal Reserve in 2025, the certainty the market needs, and much more.

Third, Sarat Sethi, DCLA managing partner and portfolio manager, joins 'Squawk Box' to discuss the latest market trends, what to make of the recent market volatility, state of the economy, the Fed's inflation fight, and more.

Lastly, Bing Crosby and Frank Sinatra sing the classic "White Christmas" together. 

Wishing you all a wonderful holiday season, stay safe and all the best for the new year.

Brian Evans and Sean Conlon of CNBC report the Dow closes nearly 500 points higher on cooler inflation data, but index posts third straight losing week:

The Dow Jones Industrial Average bounced on Friday to close out a tough week that saw the index plunge 1,100 points in a single day and complete its longest losing streak since the 1970s. Some cooler-than-expected inflation data helped fuel the session’s rebound.

The 30-stock Dow gained 498.02 points, or 1.18%, to 42,840.26. The S&P 500 added 1.09% to end at 5,930.85, while the Nasdaq Composite advanced 1.03% and closed at 19,572.60.

November’s reading of the personal consumption expenditures price index — the Federal Reserve’s preferred inflation metric — increased 2.4% year over year. That was a tad less than economists expected and helped defuse some of the bearishness that arose earlier this week when the Fed said it would dial back future rate cuts in part because of stubborn inflation.

All 11 sectors of the S&P 500 ended the day higher, with real estate and information technology among the biggest gainers. Just 53 stocks in the broad market index closed lower on Friday.

Chicago Fed President Austan Goolsbee told CNBC’s Steve Liesman he was encouraged by Friday’s inflation figures and that rates could still decline next year despite the central bank’s cautious stance.

“We’re still on path to get to 2% and at least for this new month you don’t want to make too much out of any one month, but I’m hopeful that this suggests that the couple of months of firming were more of a bump than a change in path,” Goolsbee said. Major indexes jumped intraday following his comments.

It was a positive end to a tumultuous week. During Thursday’s trading session, the Dow eked out a 15-point gain and ended a 10-day losing streak, its longest since 1974. The small gain came a day after the Dow plunged 1,100 points on Wednesday. The Fed’s indication of just two cuts next year, instead of the four it originally forecast, was the catalyst for the decline.

“Today has calmed people down,” said Tom Fitzpatrick, managing director at R.J. O’Brien and Associates.

”[It’s] unlikely we get a downside catalyst now ahead of Christmas and New Year’s, so [the] moves of the last few days can get unwound a bit.”

Even as the major averages jumped on Friday, all three booked losses on the week. The Dow lost nearly 2.3%, notching its third straight losing week. The S&P 500 fell almost 2% week to date, while the Nasdaq Composite was off by about 1.8%.

Elsewhere, a Trump-endorsed House Republican measure to fund the government for three months and avert a government shutdown failed on Thursday. Without a deal, a partial shutdown is slated to start late Friday night.

And Julie Hyman of Yahoo Finance reports the sharp reaction to the Fed could be an ominous sign for markets in 2025: 

Fed Chair Jay Powell wasn't particularly surprising on Wednesday.

The Fed cut rates by a quarter point. The Summary of Economic Projections — the so-called “dot plot” — showed FOMC members, on average, expect two rate cuts next year, in line with market expectations. Powell talked a lot about the economy being strong, and the uncertainty surrounding potential policies of the incoming Trump administration.

Yet stocks reacted as though Powell had gone streaking through the briefing room wearing nothing but his trademark purple tie. The Dow extended a losing streak to 10 sessions, its longest string since 1974. The S&P 500 plunged by nearly 3%, its worst day in four months.

But the “higher for longer” conversation, both regarding interest rates and inflation, has been happening for months. Fed funds futures were already pricing in two cuts next year. Stocks had mostly kept rising, buoyed by the reason behind higher for longer — a still-expanding economy — and the perception that the incoming Trump administration would be bullish for stocks.

“You know, markets have a funny way of kind of talking about things and pricing them in incrementally, but not really fully pricing them in until they’re actually realized,” Piper Sandler’s Michael Kantrowitz said in an interview following Powell’s presser.

Peter Boockvar, chief investment officer of Bleakley Financial, likened the market’s reaction to the classic children’s book, “If You Give a Mouse a Cookie,” in which the titular mouse keeps wanting more and more. “The Fed gives the market some guidance on rates and the market then goes too far with pricing it,” Boockvar wrote in his “Boock Report” newsletter.

None of this is particularly unusual. An academic might say that markets price in available information efficiently, but in reality that process is messy, and sometimes seemingly illogical. Powell and co. project two cuts next year, and now suddenly the market says just one.

That messiness is set to continue, given all the uncertainty coming in the next year. Powell uttered some variation of the word “uncertain” 17 times in his press conference, up from seven in November and only a handful after the other meetings this year. A lot of that uncertainty centers on fiscal policy.

That uncertainty cuts both ways too. Even if the new Fed projections’ higher terminal rate spooked markets, that’s in 2027 — and it’s an understatement to say that a lot can happen between now and then. There’s a reason why Powell is staying “data dependent” or “reactive.” As he said, we’re “walking into a dark room full of furniture.”

Indeed, even as Powell was speaking on Wednesday, markets got a concrete reminder beyond the Fed chair’s discussion of economic modeling: Elon Musk was trying to push Congress not to pass a funding bill. He was joined by Trump, which may mean the government could shut down today, leaving thousands of government workers without paychecks before Christmas.

It was a preview. If the Fed’s relatively predictable message caused this level of market messiness, investors had better buckle up for the Trump-Musk show.

Alright, another busy week in markets so let me get to it.

First, the Fed's "hawkish rate cut" spooked markets because traders want more rate cuts and the Fed is easing up on that prospect.

2025 is shaping out to be another volatile year and the biggest problem is if inflation picks up while the economy slows down (stagflation).

That's the real reason the Fed doesn't want to commit to more rate cuts until it sees data suggesting inflation is abating and/ or the economy is slowing.

More ominously, it's that time of the year where politicians get together in Washington to discuss the debt ceiling and if they can't get a deal, a government shutdown showdown occurs.

Luckily, after the close today, the House of Representatives approved a bipartisan federal spending bill to fund the government for three months and provide disaster relief and farm aid:

The bill passed with significant Democratic support and votes from 2/3rds of the members present, a high bar that reflected the desire in both parties to avoid a costly shutdown that could jeopardize paychecks for hundreds of thousands of federal employees a few days before Christmas.

The bill has a realistic path to passing the Democratic-controlled Senate. But parliamentary procedure in the chamber gives more power to individual senators to jam up legislation.

“We will not have a government shutdown,” House Speaker Mike Johnson, R-La., told reporters in the Capitol Friday afternoon. “We will meet our obligations for our farmers who need aid, disaster victims all over the country and make sure that military and essential services and everyone that relies on the federal government for a paycheck is paid over the holidays.”

The vote capped off several days of chaos on Capitol Hill, during which Johnson tried, and failed, to meet the demands of President-elect Donald Trump.

I'd be shocked if the Senate doesn't pass it.

What else happened this week in markets?

Last Friday, I discussed whether the market is ready for a quantum leap, profiling the extraordinary returns in micro/ small cap quantum computing stocks.

On Saturday, that comment shot up to number one on my popular posts and when I looked into into thousands of hits (30,000++) came in from servers in India.

I found that strange and this week, the mania in quantum computing stocks continued and it was extraordinary and volatile to say the least.

I will give you the symbols to tracks: ARQQ, IONQ, QMCO, QUBT, QBTS and RGTI and below the weekly action in the three most popular ones:

These quantum computing stocks hit a high on Wednesday when the Fed announced, got whacked on Thursday and bounced back strongly today (but off their weekly highs).

The volume and swings in these stocks is reminiscent of the 1999-2000 tech bubble, big quant hedge funds are 1000% behind the action.

How do I know? Their servers are in India and they were all hitting my comment from last Friday which is strange (they typically couldn't care less about what I write on Pension Pulse).

It's also holiday season, a lot of people are off, so they can easily manipulate these stocks, pump and dump them as they post nonsense on stock boards (quite amazing).

I'm not complaining, trading the action (traded RGTI again this morning) and expert traders are making a killing trading going long & short the quantum mania but these stocks are all hot air, sooner or later, the volume will dry up fast and they will fall back to where they were a month ago.

Another stock that caught my attention this week was Nukkleus Inc (NUUK) which went from $2 to almost $77 in three days before falling back down to earth on Friday:

Don't ask me what they do, have no clue, not interested but it's silly season in Stock Land and the Fed isn't paying attention.

Speaking of silliness, shares of Novo Nordisk stock saw the biggest loss in more than 20 years on the company's CagriSema results:

That prompted me to post this on StockTwits earlier today:

Ok, I've seen enough nonsense here, time for some good technical analysis. While everyone is looking at short-term daily charts, wondering if the stock will cross back over $90 and make its way back over $100, I was checking out the 5-year weekly chart and low and behold, the stock hit its 200-week exponential moving avg (right under $85) and seems to be holding here. This is an important level and if the stock keeps sliding lower and lower, then we have entered a major bear market on Novo. However, if it consolidates here and earnings show good results, then this will prove the best dip on a large pharma stock in a very long time. There is no rush to buy, the weekly MACD remains negative, just keep this chart in mind and come back to me in a year to see where Novo is trading.

Happy Holidays! :)

It's not every day you see a large pharma stock with billions in revenues nosedive 20% and while the stock can go lower, end of year rebalancing will occur and it's part of international stock portfolios so I expect some consolidation will take place (not to mention, the data was pretty good if you bothered looking at it).

Whatever, my point is it's silly season in the stock market, the Fed isn't paying attention and I see this nonsense continuing next year and pretty much throughout Trump 2.0. 

More volatility, more opportunity, so keep it coming!!

Below, Speaker Johnson: "We are excited about this outcome tonight. We're grateful that everyone stood together to do the right thing...We are setup for a big and important new start in January...We encourage a swift passage in the Senate now. They need to do their job."

Next, the 'Fast Money' traders discuss the Fed comments that turned markets around after this week's Fed meeting.

Third, Ed Yardeni, Yardeni Research president, joins 'Squawk on the Street' to discuss how cautious the market expert is about equities into January, the reason that Treasury yields are up, and much more.

Fourth, Michael Farr, Hightower Advisors chief market strategist, and Ron Insana, iFi AI CEO, join CNBC's 'Power Lunch' to discuss whether the market cares about a looming government shutdown, economic outlooks, and more.

Lastly, CNBC takes a look back at Tyler Mathisen's phenomenal 27-years at the network. 

A true gentleman, I will miss him and wish him the very best.

IPE Real Assets reports TerraPact secures $240m CDPQ financing to expand US and Canada portfolio:

TerraPact has secured $240m (€228.3m) in senior financing from the Caisse de dépôt et placement du Québec (CDPQ) to expand its real estate portfolio across the US and in British Columbia, Canada.

The investment will also refinance TerraPact’s existing debt structure.

TerraPact is a real estate investment platform specialising in long-term ground leases and rights of way for critical infrastructure assets.

It oversees over 700 assets consisting of long-term ground leases and rights of way. The platform generates stable, long-term cash flows, with each site supporting essential digital, utility and energy infrastructure.

Marc Cormier, EVP and head of fixed income at CDPQ, said: “TerraPact is a strategically positioned ground lease platform which occupies a core position in the infrastructure value chain, delivering connectivity and energy across North America.

“With this transaction, CDPQ is providing a bespoke infrastructure financing solution as sole lender, tailored to propel TerraPact’s growth ambitions over the years to come.”

Ben Myers, CEO of TerraPact, said: “We are excited to continue our partnership with CDPQ. This growth financing will allow us to continue our multi-year strategy of becoming one of America’s premier energy and digital infrastructure landowners. We couldn’t be more excited to move forward with CDPQ’s best-in-class financing team.”

CDPQ issued a press release earlier this week stating it will invest USD 240 million to propel TerraPact’s growth in North America:

CDPQ, a global investment group, and TerraPact, an owner and operator of real estate that underpins America’s wireless, broadband, and energy sectors, announced today the conclusion of an agreement under which CDPQ will provide USD 240 million (CAD 335 million) in senior financing to support the growth of TerraPact’s real estate portfolio across the United States and in British Columbia, Canada. The investment will also refinance TerraPact’s existing debt structure.

TerraPact, a Columbia Capital portfolio company, manages a highly diversified platform comprised of long-term ground leases and rights of way for more than 700 assets. The platform benefits from long-term and resilient cash flows, as each site underprops critical digital, utility and energy infrastructure.

“TerraPact is a strategically positioned ground lease platform which occupies a core position in the infrastructure value chain, delivering connectivity and energy across North America,” said  Marc Cormier, Executive Vice-President and Head of Fixed Income at CDPQ. “With this transaction, CDPQ is providing a bespoke infrastructure financing solution as sole lender, tailored to propel TerraPact’s growth ambitions over the years to come.”

“We are excited to continue our partnership with CDPQ,” said Ben Myers, CEO of TerraPact. “This growth financing will allow us to continue our multi-year strategy of becoming one of America’s premier energy and digital infrastructure landowners. We couldn’t be more excited to move forward with CDPQ’s best-in-class financing team.”

ABOUT CDPQ

At CDPQ, we invest constructively to generate sustainable returns over the long term. As a global investment group managing funds for public pension and insurance plans, we work alongside our partners to build enterprises that drive performance and progress. We are active in the major financial markets, private equity, infrastructure, real estate and private debt. As at June 30, 2024, CDPQ’s net assets totalled CAD 452 billion. For more information, visit cdpq.com, consult our LinkedIn or Instagram pages, or follow us on X.

CDPQ is a registered trademark owned by Caisse de dépôt et placement du Québec and licensed for use by its subsidiaries.

ABOUT TERRAPACT

Founded in 2012 and headquartered in Waltham, Massachusetts, TerraPact is a leading acquirer and manager of real estate assets critical to infrastructure within North America’s wireless, broadband, and energy sectors. TerraPact offers asset owners a unique opportunity to divest and monetize their holdings through flexible and economically rewarding transactions. For more information, please visit terrapact.com.

ABOUT COLUMBIA CAPITAL

Columbia Capital was founded over 30 years ago and, in that time, has developed a repeatable investment model guided by a specialized and experienced team. Columbia focuses on the investments in the digital infrastructure, enterprise technology, and mobility spaces and has raised over $8B in fund commitments. For more information, please visit www.colcap.com.

I'm pretty sure many of you read this press release and wondered what is TerraPact?

It's a right-of-way lease specialist that focuses on wireless infrastructure, digital infrastructure and right of way corridors:

TerraPact owns over 3,000 miles of private right-of-way and a national tower footprint. 

From telecom wireline and wireless carriers to energy transport, we have a diverse set of tenants who demand speed, reliability and a cost-effective approach to network buildouts. We understand this and strive to serve our customers and their network needs.

 

And this is how it works:

If you know anything about what a servitude is, you will understand that companies use right-of-way agreements to carry out their activities and this is what TerraPact specializes in.

It's definitely in the right niche sectors and CDPQ is financing its growth:

 “TerraPact is a strategically positioned ground lease platform which occupies a core position in the infrastructure value chain, delivering connectivity and energy across North America,” said  Marc Cormier, Executive Vice-President and Head of Fixed Income at CDPQ. “With this transaction, CDPQ is providing a bespoke infrastructure financing solution as sole lender, tailored to propel TerraPact’s growth ambitions over the years to come.”

Lastly, I note that prior to joining TerraPact, TerraPact CEO Ben Myers was Vice President of Corporate Development and Property Management at American Tower, a Fortune 500 company, where he led all domestic acquisition efforts relating to telecommunication and real estate assets:

In addition to his corporate development responsibilities, Ben also led American Tower’s property management team focused on managing underlying real estate rights from private and public property owners on over 40,000 assets. Ben was integral member of American Tower’s acquisition and property groups having various leadership roles over a 13 year period with direct experience in over $10 billion worth of real estate infrastructure acquisitions.

 

American Tower, one of the largest global REITs, is a leading independent owner, operator and developer of multitenant communications real estate with a portfolio of over 224,000 communications sites and a highly interconnected footprint of US data center facilities.

Clearly he understands extremely well the wireless and digital infrastructure business and the role right-of-way corridors play there.

Below, TerraPact presents railroad corridor owners with the unique opportunity to monetize their real estate occupancy agreements. This allows owners to refocus and optimize primary rail operations.

Watch this clip as it explains well what the company does and how they add value to corridor owners.

Jefferey Jones of the Globe and Mail reports Canadian sustainability board issues its first climate-reporting rules with some breaks on timing:

The body in charge of sustainability accounting in Canada has issued its first standards, sticking closely to international guidelines but giving companies extra time to adopt some contentious provisions for emissions reporting, scenario analysis and timing of disclosures.

The Canadian Sustainability Standards Board said the additional time, or transition relief, for those measures will help strike a balance between providing investors the data they’ve demanded to make informed decisions and not putting companies at a competitive disadvantage as they take on additional reporting.

Major institutional investors on Wednesday welcomed the standards and urged companies to adopt them without delay, while environmental advocates expressed disappointment about the extended implementation periods.

The guidelines are based on those developed by the International Sustainability Standards Board to replace a mishmash of reporting templates for environmental and social risks with a global baseline. The CSSB started its work in 2023 to tailor those rules to an economy heavy in resource extraction and in small and medium-sized businesses.

The CSSB said its initial standards preserve the baseline by making sure all the provisions come into effect after its transition periods end. The guidelines follow months of public consultation on a draft it released early this year.

“What this means for Canada is we now have the first set of Canadian sustainability disclosure standards. They’re voluntary at this stage,” Bruce Marchand (featured above), interim chair of the CSSB, said in an interview. “We believe that with the transition relief that we’ve now included in response to what we heard from all of the respondents, that these are practical and able to be implemented.”

Sustainable investing professionals have been waiting for the standards. The new guidelines, along with a green and transitionary investment taxonomy recently approved by Ottawa, are aimed at adding certainty to sustainable investments, avoiding greenwashing and bolstering Canada’s ability to compete for green capital, their authors say.

The standards prescribe how to report key sustainability and climate metrics, including carbon emissions, risks and opportunities tied to environmental issues, analysis of potential policy options, and other items.

The rules are voluntary, though Canadian Securities Administrators, which represents provincial and territorial securities commissions, said it will use them to determine a future set of compulsory measures, starting with climate-related reporting.

The CSA said in a statement that it aims to issue rules that balance investor demands for consistent disclosures while contributing to efficient capital markets and keeping the capabilities of public companies of different sizes in mind. It will study the feedback the CSSB received, while also conducting its own consultation.

The regulator also said it plans to monitor events in the U.S. closely, given the interconnectedness of the two markets. With the change in administrations in Washington, the fate of planned climate reporting rules set by the Securities and Exchange Commission is now a major question mark.

Where the CSSB standards differ from the international ones is the time granted for adoption of some of the measures that faced opposition from many companies that submitted comments to the process.

For Scope 3 emissions – greenhouse gases that stem from a company’s supply chain and end use of its products – the CSSB is allowing until Jan. 1, 2028, to begin tallying and reporting that data. That is three years beyond what is prescribed by the ISSB.

Where the ISSB calls for sustainability and climate reports to be issued with annual financial statements, the CSSB has decided companies can also conform to that standard by 2028. In the interim, companies can issue those reports nine months from their financials in the first year, and in the subsequent two years they are allowed a six-month gap.

For climate resilience, the CSSB is not granting companies transition relief for qualitative scenario analysis – how companies could fare under a range of potential policy, price and physical outcomes. But it is offering three years to develop and implement quantitative analysis – number crunching associated with that analysis.

“Part of the reason for that is to acknowledge what is required to accomplish that. There’s expertise required, resources required, methodologies to be matured, process implications and so on,” Mr. Marchand said.

Ten of the largest Canadian pension funds, including Canada Pension Plan Investment Board, Caisse de dépôt et placement du Québec and Ontario Teachers’ Pension Plan, said the new standards offer a robust framework that will boost the competitiveness of Canadian companies in the race for global capital.

However, Sonia li Trottier, the director of the Canada Climate Law Initiative, lamented the additional time granted for implementation, saying companies have long known they would have to eventually disclose the data. “One year of relief is enough time, as there have been many years of guidance on climate-related disclosure and methodologies,” she said in a statement.

Earlier today, the University Pension Plan Ontario issued a press release stating leading Canadian pension plan investment managers support CSSB standards:

TORONTO, December 18, 2024– Ten of Canada’s largest pension investors and investment managers, representing more than $2.25 trillion in assets under management, today affirm their support for both the Canadian Sustainability Disclosure Standards (CSDS) from the Canadian Sustainability Standards Board (CSSB): General Requirements for Disclosure of Sustainability-related Financial Information (CSDS 1) and Climate-related Disclosures (CSDS 2), collectively the CSSB Standards.

The CSSB standards establish a robust framework for the Canadian market, while addressing specific Canadian circumstances. Alignment with a global baseline is important for the competitiveness of Canadian companies in global capital markets and for Canadian directors to discharge their duties to the companies they oversee. We also believe that this will reduce the reporting burden for Canadian entities that operate or raise capital in multiple jurisdictions.

For major institutional investors, complete, comparable sustainability-related information is a key part of making informed investment decisions. The CSSB’s standards address both general sustainability-related disclosures and climate-specific requirements, thus providing a framework to access this critical information.

While we recognize the need to make modifications to address Canadian-specific considerations, we encourage Canadian issuers to not delay the measurement and reporting of material sustainability-related information, particularly where “reasonable and supportable information is available to the entity at the reporting date without undue cost or effort.” For effective capital allocation decisions, investors depend on standardized disclosure across the full spectrum of material sustainability risks and opportunities.

As part of our mandates, our objectives are to deliver long-term, risk-adjusted returns that help support retirement and benefit security for millions of Canadians. We believe these standards will strengthen the Canadian market’s sustainability disclosure infrastructure and improve the quality of information available to investors, stakeholders and regulators. We call on corporate leaders to adopt CSDS 1 and CSDS 2 to ensure the transparency and comparability needed to make investment decisions that will contribute to a more prosperous future for our clients and beneficiaries.

ABOUT:

British Columbia Investment Management Corporation (BCI)  
Gross AUM $250.4 billion (as at March 31, 2024)  
Media: Olga Petrycki, Tel: +1 778 410 7310, Email: media@bci.ca  
About  

CDPQ (Caisse de dépôt et placement du Québec)
AUM $452.0 billion (as at June 30, 2024)  
Media: Media Relations team, Tel. : + 1 514 847 5493, Email:  medias@cdpq.com 
About  

Canada Pension Plan Investment Board (CPPIB) 
AUM $675.1 billion (as at September 30, 2024) 
Media: Frank Switzer, Tel: +1 (416) 523 8039, Email: fswitzer@cppib.com 
About  

Healthcare of Ontario Pension Plan (HOOPP)  
AUM $112.6 billion (as at December 31, 2023) 
Media: Scott White, Email: swhite2@hoopp.com 
About  

Investment Management Corporation of Ontario (IMCO) 
AUM $77.4 billion (as at December 31, 2023)  
Media: Neil Murphy, Tel: +1 (416) 898 3917, Email: neil.murphy@imcoinvest.com
About

Ontario Municipal Employees Retirement System (OMERS)  
AUM $133.6 billion (as at June 30, 2024) 
Media: Don Peat, Tel: +1 (416) 815 4433, Email: media@omers.com 
About  

Ontario Teachers’ Pension Plan (OTPP) 
AUM $255.8 billion (as at June 30, 2024)  
Media: Dan Madge, Tel: +1 (416) 419 1437, Email: media@otpp.com
About  

OPSEU Pension Plan Trust Fund (OPTrust) 
AUM $25.0 billion (as at December 31, 2023)  
Media: Jason White, Tel. : +1 (416) 201 1527, Email : jwhite@optrust.com
About  

Public Sector Pension Investment Board (PSP Investments) 
AUM $264.9 billion (as at March 31, 2024)  
Media: Maria Constantinescu, Tel: +1 (514) 218 3795, Email: media@investpsp.ca  
About  

University Pension Plan (UPP) 
AUM $11.7 billion (as at December 31, 2023)  
Media: Zandra Alexander, Tel: +1 (647) 454 2612, Email: media@universitypensionplan.ca 
About  

Why are ten of Canada’s largest pension investors and investment managers, representing more than $2.25 trillion in assets under management, affirming their support for  the Canadian Sustainability Disclosure Standards (CSDS) from the Canadian Sustainability Standards Board (CSSB)?

In short, the world is heading there and if Canadian companies plan on remaining competitive, they too need to adopt these standards and the sooner they do so, the better off they and their investors will be over the long run.

Are there difficulties or obstacles? You bet. The Globe and Mail article points out two of them -- Scope 3 emissions and climate resilience -- and I'm certain there are other issues.

But companies have plenty of time to adopt the new standards and once they do, investors will have much better data to gauge climate related risks across their public and private market portfolios.

Again, Canadian companies are starving for capital, they can ill-afford to sit back and not adopt these new standards and expect to remain competitive on the international scene (most European companies are way ahead of them).

Global institutional investors are demanding uniform climate-related disclosure so the fact that Canada's ten largest pension investment managers are throwing their support behind this shouldn't surprise us in the least.

Again, the world is heading there and either Canadian companies follow suit or risk being left behind, it's that simple.

And large Canadian investors have a fiduciary duty in ensuring all their portfolio companies are competitive when it comes to climate related disclosure as it impacts their enterprise value.

Companies that disclose more in terms of climate risks will be worth more over the long run.

In related news, OMERS announced the launch of OMERS Climate Taxonomy, a purpose-built classification system to assess the exposure of our investments to climate risk and opportunities:

This approach groups business activities by applying a climate lens, enabling us to classify our portfolio assets into five distinct categories.

The taxonomy will be used as a key tool to support our Climate Action Plan (CAP), which outlines our commitment to reach zero by 2050. As of 2023, we've reported $21 billion in green investments, with a goal to reach $30 billion by 2030.

You can learn more on OMERS' Climate Action Plan and Climate Taxonomy here.

Below, a quick overview on the essentials of the Canadian Sustainability Standards Board (CSSB) and what it means for your business. Whether you're a large corporation or a small business, understanding the CSSB is crucial for staying ahead in today's sustainability-focused world.

Also 360EnergyInc hosts Dave and Lysandra as they welcome Gregory Carli, the global leader in sustainability, resilience, and ESG at GHD, for an enlightening discussion on the new Canadian sustainability disclosure standards (excellent insights).

Lastly, Behdad Bahrami, Edgecom Energy's CEO & Founder, and Demian Newman, CEO and Founder of GreenWorks ESG discuss the latest draft of the CSSB’s Canadian Sustainability Disclosure Standards and decode what it means for your company (more excellent insights).

Daniel Johnson of Bloomberg reports fall economic statement: Ottawa seeks to lower pension fund investments caps:

The federal government announced a move to ease limits for pension funds investing in Canadian companies in its latest fiscal update, along with responses to tariff threats from the U.S. and other moves aimed at competing for capital.

On Monday, the federal government unveiled its fall economic statement amid turmoil in Prime Minister Justin Trudeau’s cabinet. Building on a previous announcement last week, the government said it intends to remove restrictions on pension funds in an effort to spur domestic investment.

“The 2024 Fall Economic Statement announces the federal government’s intent to amend regulations to remove the 30 per cent rule for investments in Canadian entities,” the government said in its fiscal update. 

“This will make it easier for Canadian pension funds to make significant investments in Canadian entities. During the development of regulatory amendments, the federal government will consult with provinces on the treatment of provincially regulated pension plans.”

According to Ottawa, the move will make it easier for Canadian pension funds to make major investments in Canadian companies.

Finance Minister Chrystia Freeland announced her resignation in a letter posted on social media from Prime Minister Justin Trudeau’s cabinet hours before she was scheduled to deliver a fiscal update on Monday. She stated in the letter that the decision came after Trudeau offered her a different position.

In the letter, Freeland highlighted risks to the Canadian economy coming from tariff threats from U.S. President-elect Donald Trump. She said Canada needs to keep its “fiscal powder dry,” adding that the government should avoid “costly political gimmicks” it cannot afford given the current situation.

Fight for capital

Freeland announced the intention to remove the cap on Canadian pension funds last week, according to Bloomberg News. She said in a statement Friday that the announcement comes amid rising “economic nationalism” where competition for capital has intensified.

“Canada needs to fight harder than ever for capital, including facilitating and supporting the investment of Canadian capital here at home. This is key to the future prosperity of all Canadians,” she said.

Freeland’s removal of the pension cap comes as Canada grapples with issues related to lagging productivity and weak business investment.

The fall economic statement highlights that Stephen Poloz, the former Bank of Canada governor, was asked to explore ways to “catalyze greater domestic investment opportunities” for pension funds in the government’s previous budget.

The government also announced other changes related to Canadian pension fund operations in its fiscal update.

This includes the fact that Ottawa is exploring lowering the 90 per cent threshold limiting municipal-owned utility companies from attracting private sector ownership of more than 10 per cent.

“Lowering this threshold for Canadian pension funds would allow them to acquire a higher ownership share in these entities. For example, municipally owned electricity utilities would be able to access more capital to meet future demand and expand electricity production and distribution grids,” the fall economic statement reads.

Additionally, the government announced it is currently consulting on potential regulations to increase transparency for large federally regulated pensions.

“This would require the Office of the Superintendent of Financial Institutions to publish the distribution of investments, by jurisdiction and asset class within each jurisdiction, of federally regulated pension plans with assets under management greater than $500 million,” the government said in the fiscal update.

The government also proposed to launch a fourth round of the Venture Capital Catalyst Initiative, making $1 billion in funding available next year with more favourable terms for pension funds or institutional investors.

Tariff threat response

The federal government’s fall economics statement comes on the heels of trade tensions with the U.S., with Ottawa saying it is focused on countering the threat in its fiscal update.

Last week, Freeland said Trump and his administration are attempting to foster a sense of economic uncertainty outside the U.S. as part of a strategy to “discourage investment anywhere other than the United States.”

“Canada is going to fight for Canada. Our government is fighting for Canadian job,” she said.

Trump has threatened that the 25 per cent tariff on both Canadian and Mexican imports will be implemented unless both countries address issues related to the U.S. border and crack down on fentanyl and illegal migration into the U.S., according to Bloomberg News.

The fall economic statement proposed measures to enhance border security with a $1.3 billion package over six years starting in 2024-25 to various organizations including the Canada Border Services Agency and the Royal Canadian Mounted Police.

Canada’s federal and provincial governments are figuring out ways to navigate Trump’s threat to impose 25 per cent tariffs on all Canadian imports during his first day in office in January, The Canadian Press reported last week. Ontario Premier Doug Ford also stated last week that Ottawa was preparing potential tariffs in retaliation, as well as threatened to limit electricity exports from Ontario.

However, the provinces don’t appear to be moving in unison on the issue as Alberta Premier Danielle Smith said the province would not agree under any circumstances to cut off oil and gas exports to the U.S.

‘Economic hit’

Ahead of the release of the fall economic statement, James Orlando, a director and senior economist at TD Economics, said in an interview with BNN Bloomberg last week that many are trying to figure out the impact tariffs could have on Canada’s economy.

“The thing that we’re dealing with right now in economics departments is that we are trying to figure out how much of an economic hit we’re going to have in Canada as a result of potential tariffs,” he said.

“With the analysis that we’ve done, and everyone else seems to have done, is that it’s very severe like we’re talking about at least a stagnation or even recession in Canada should the worst tariffs come on.”

As a result, Orlando said tariffs could weigh on the federal government’s revenue if enacted.

“Let’s be honest, like Donald Trump’s not even in the White House yet, and the government, in their fall economic statement is looking like they’re going to be doing new policies in preparation for an incoming U.S. president. So, there should be some hard spending promises there,” he said.

Barbara Shecter of the National Post also reports Freeland removes 30% investment cap for Canadian pension funds:

Canadian pension funds will no longer be restricted to a cap of 30 per cent control of companies they invest in and the federal government is working with the institutional investors and domestic airports to “explore measures for further pension fund investment on airport lands.”

Deputy prime minister Chrystia Freeland made the announcements — part of sweeping measures that could total $47 billion in government money and incentives to encourage more pension investment in Canada — at a news conference Friday in Toronto. She said more details would be provided in Monday’s fall economic statement.

“We are making it easier for pension funds to acquire controlling stakes in Canadian entities,” Freeland said. “Currently Canadian pension funds are restricted from owning more than 30 per cent of a Canadian entity. We’re going to change that.”

She said the series of changes and new measures that will affect the country’s largest pensions were made following a report from former Bank of Canada governor Stephen Poloz, who she tasked in the spring with finding ways to encourage more domestic investments by the Canadian funds, which collectively control $3 trillion.

“Canadian pension funds have… some of the world’s best investment expertise. They are envied around the world,” Freeland said at the news conference at the Toronto Stock Exchange.

The campaign to get more pension money invested domestically began in 2023 after fierce lobbying in Ottawa, but drew pushback from large pension funds whose executives argued that their diversification geographically and by asset class is what resulted in their enviable returns.

Pension officials also argued that Canada had not freed up large infrastructure assets, such as airports and ports, which are a type of investment favoured by large institutional investors around the world including Canadian pensions.

But Freeland kept pushing forward, and last spring’s appointment of Poloz to lead a task force to explore the issues seemed to ease friction with the pension funds.

“We are fighting for capital. We need to own the podium and say Canada is a great place to invest… and we are determined to get our share,” Freeland said at the news conference where she announced other measures including tax credits and incentives, plus $2 billion in additional government money to encourage public-private investment to spur growth of Canadian startups and mid-sized companies.

Another leg of the plan is to create a program that will provide up to $45 billion in loans and equity and involve “working with pension funds developing AI data centres,” Freeland said.

A senior pension source said Friday that there appeared to be no downside in the pre-announced measures, but declined to comment publicly before seeing the full detail in the government’s fall economic statement on Monday.

Freeland said Poloz had come up with “smart, creative ideas” to generate more opportunities for pensions funds to boost their investments in Canada and make that easier for them to do. But she also framed the measures announced Friday, in part, as a response to the re-election of Donald Trump as president of the United States.

“We have to be candid about the reality of the incoming U.S. administration,” she said. “This is an administration which openly has a strategy of creating economic uncertainty outside the U.S. — as a strategy to discourage investment anywhere other than the United States.”

She said she will have more to say about her government’s response during Monday’s economic update.

“Canada is going to fight for Canada,” Freeland said. “Our government is fighting for Canadian jobs, our government is fighting for capital.”

Alright, yesterday I discussed Mark Wiseman's comment on why politicians shouldn't interfere with Canada's large pension funds and left the fall economic statement as it pertains to our pensions for today.

I want to bring to your attention this section of that statement on boosting innovation to create good jobs, growth and prosperity:

Today, the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, alongside the Minister of Export Promotion, International Trade and Economic Development, Mary Ng, announced the 2024 Fall Economic Statement will unlock billions in new capital and include significant new incentives to help businesses grow, innovate, and create good jobs.

First, the 2024 Fall Economic Statement will include significant, historic reforms that, through existing and new support, will deliver $26 billion in tax incentives for Canadian businesses. This will be done through a bold reform and a significant enhancement of the Scientific Research and Experimental Development (SR&ED) tax incentive program, which is already a proven cornerstone of Canada’s innovation strategy and currently supports over 22,000 businesses in Canada. The 2024 Fall Economic Statement is making this tax incentive more generous, particularly for high-growth potential firms. Specifically, the government is proposing to:

• Increase the annual expenditure limit on which Canadian-controlled private corporations are entitled to earn an enhanced 35 per cent investment tax credit, from $3 million to $4.5 million;
• Increase the prior-year taxable capital phase-out thresholds for the enhanced credit from $10 million and $50 million to $15 million and $75 million, respectively;
• Extend the enhanced refundable credit to Canadian public corporations; and,
• Restore the eligibility of capital expenditures for both the deduction against income and the investment tax credit components of the SR&ED program.

Second, the government has a plan to unlock billions in private sector and pension fund investment to boost growth and create good jobs. The 2024 Fall Economic Statement includes a set of proposals that create a more attractive investment environment for pension funds to invest at home, in Canada. This plan will unlock investment opportunities by removing investment barriers that currently hold pension funds back; crowd in private capital; and secure Canada’s AI advantage by attracting billions to build AI data centres. Informed by the work of the former Governor of the Bank of Canada, Stephen Poloz, the government is proposing to:

• Remove the 30 per cent rule that currently restricts Canadian pension funds from owning more than 30 per cent of the voting shares of a Canadian entity;
• Crowd in private venture capital by launching a fourth round of the Venture Capital Catalyst Initiative with $1 billion in funding and more enticing terms for pension funds and other institutional investors;
• Bolster access to capital for mid-cap companies by providing up to an aggregate of $1 billion in concessional financing. These investments will be equal to 25 per cent of net new private investments;
• Secure Canada’s AI advantage by developing a program that would provide up to $45 billion in aggregate loan and equity investments for AI data centre projects in which Canadian pension funds are significant investors; and,
• Attract investment for better airports by working with airports and pension funds to incentivize development on airport lands, including by exploring potential changes to airport authority ground leases.

The government is making significant reforms to ensure Canadian innovators have the right incentives to discover the next scientific breakthroughs here in Canada, and facilitate domestic pension fund investment in Canada, growing our economy and boosting innovation, while generating returns that will strengthen the robust retirement incomes of Canadians. These are just some of the measures in the 2024 Fall Economic Statement that will boost innovation, enhance productivity, and drive economic growth to build a more prosperous future.

Quotes

“In the face of external challenges, Canada needs to invest more in our own research and development, which is why we are expanding our SR&ED program and focusing more support on Canada’s innovators and start-ups. Canada is the world’s intellectual leader in AI, a dominant emerging technology. We are determined to use this intellectual edge to secure a national economic competitive advantage. At a time of rising economic nationalism, the fight for capital has never been more fierce. Canada needs to fight harder than ever for capital, including facilitating and supporting the investment of Canadian capital here at home. This is key to the future prosperity of all Canadians.”

- The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance

Well, Ms. Freeland has now resigned from her post and it's a shame she didn't get to present the highlights in the fall economic statement.

But she was smart enough to appoint Stephen Poloz to head up the task force exploring how our pension funds can invest more domestically and he came up with some great recommendations that were incorporated in the statement.

What strikes me is the recommendations allow Canada's large pension funds to use their expertise to make significant investments across public and private assets classes domestically.

They're going to be incentivized to invest more in public equities, private equities, private debt, infrastructure, you name it, however the devil is in the details and it still remains to be seen whether these incentives will be enough to make a material difference.

Still, it's important to note that the Government isn't forcing our pension funds to invest more domestically, it's actually incentivizing them to do so and that's the right approach. 

So what's the catch? There's no catch but also worth noting the Government will be regulating our large pension funds more closely to gain more transparency on their investments at home and abroad (from Bloomberg article):

Additionally, the government announced it is currently consulting on potential regulations to increase transparency for large federally regulated pensions.

“This would require the Office of the Superintendent of Financial Institutions to publish the distribution of investments, by jurisdiction and asset class within each jurisdiction, of federally regulated pension plans with assets under management greater than $500 million,” the government said in the fiscal update.

In my comment yesterday, I made an explicit reference to improving the governance at Canada's large pension funds by increasing transparency:

For example, Mark Wiseman talks about transparency. Well, I think it's high time all our pension funds provide detailed information on where they invest (public and private markets) by country, providing long-term returns.

So, you want to invest billions in India, great, show me what your active strategy is and what's the long-term performance and the same goes for all countries.

Also, when it comes to investing domestically, I'm a huge proponent of investing in infrastructure as long as the conditions the government lays out are on par with those of other countries like the UK and Australia.

The delayed Fall Economic Statement addresses investment and implements a lot of the recommendations from former Bank of Canada Governor Stephen Poloz's task force looking into how our pension funds can invest more domestically and where, including removing the 30% cap ownership on Canadian companies.

It's high time we get detailed breakdowns by asset class in each country and performance for each country so we can gauge whether active management is working over the long run.

We also need to make it a lot easier for our large pension funds to own controlling stakes in airports, ports and toll roads in Canada.

Alright, not much more to add here, I generally like these recommendations and just wanted to give credit to Chrystia Freeland and Stephen Poloz who came up with these recommendations.

Below, former Finance Minister Chrystia Freeland says the upcoming fall economic statement will remove the cap that restricts Canadian pension funds from owning more than 30 per cent of the voting shares of a Canadian entity. Freeland says this will make it easier for Canadian pension funds, which have more than $3 trillion in assets, to make significant investments in Canadian entities. (Dec. 13, 2024)

And Power & Politics breaks down the fall economic statement after Chrystia Freeland's abrupt resignation as finance minister with a former governor of the Bank of Canada, the CEO and president of the Business Council of Canada and a panel of economists.

Lastly, Peter Navarro, incoming White House senior trade counselor, joins 'Squawk Box' to discuss the incoming Trump administration, what to expect from President-elect Trump's economic proposals, potential impact of Trump's tariff proposals, state of the economy, and more. Navarro stated "You'll see over $1 trillion of investments from Trump's tariff & trade policies."

Mark Wiseman, former Chair of AIMCo, former CEO of CPP Investments and current Senior Advisor and Chairman of Lazard Canada wrote a comment for the Globe and Mail on why pension funds are a Canadian success story and politicians must leave them alone:

The Canadian pension fund model is the envy of the world and the centrepiece of our lauded social security framework. The system works exceptionally well, yet in the past year, we have seen increasing calls to change this model and use pension funds as a policy tool. This has culminated in an announcement from Ottawa to explore ways to have pension funds invest more domestically.

To fully understand the implications of these moves, it is critical to understand what has made the system so successful.

Canada’s largest public pension funds, commonly referred to as the Maple Eight, collectively manage approximately $2-trillion in assets, reflecting the winning formula of independent governance, scale, geographical diversification, and top-tier investment and managerial talent.

While Canada is ranked 38th by population, the CPP Investment Board (CPPIB) is the seventh-largest pension fund in the world. It was recently ranked the top global pension fund for governance by the Global Pension Transparency Benchmark. In September, 2024, four Maple Eight funds – Caisse de dépôt et placement du Québec (CDPQ), British Columbia Investment Management Corporation (BCI), Ontario Teachers’ Pension Plan (OTPP) and CPPIB – were in the top 10 globally for governance excellence.

A 2017 World Bank report, citing benchmarking analysis, found that Canadian public pension funds had net returns that substantially outperformed those of comparable global funds over the preceding decade. This outperformance aggregated to $4.2-billion per year over that period. And all major Canadian funds have delivered substantial added value when measured on an appropriate long-term standard, after taking all costs into account. Recently, it was reported that the Public Service Pension Plan (PSP) has a surplus of approximately $9-billion. This position of strength is a bright spot while many plans around the world are trapped in an inexorable deficit position.

Now there is a mounting push for an “invest in Canada” mandate for pension funds and efforts from politicians to potentially advance ideological and regional interests through closer control of fund management. We are looking at solutions in search of problems. This carries great risks for Canada’s economic future.

Given Canada’s economic challenges, including demographic shifts and miserable productivity, the stakes are high for millions of Canadians. In fact, especially for funds like CPPIB, it is essential to diversify investments outside the country, as the nightmare scenario is that overexposure to an underperforming Canadian economy sees poor investment returns at the same time as higher unemployment and low wage growth, leaving both diminished inflows and flaccid asset returns to pay fixed pension obligations for Canadians.

The bottom line is this: Politicians are desperate to get their hands on more cash. One problem – this money is not theirs. Pension funds are the pooled savings of millions of individual contributors and beneficiaries, and we should be wary of those who try to expropriate them for personal or political ends. Because while anyone can tear down an institution, building one up is not easy.

The origins of the Canadian pension system

The concept of a national pension system traces its origins to 19th-century Europe. Otto von Bismarck introduced state pension schemes in Germany to address aging populations and worker welfare. The foundation of the national modern pension era in Canada came in 1965 with the creation of the Canada Pension Plan (CPP).

Established under prime minister Lester B. Pearson’s minority government, the CPP aimed to provide retirement income security by financing benefits through payroll contributions from employers, employees, and self-employed individuals. The target benefit covered 25 per cent of an average worker’s preretirement earnings. Yet, the initial management of CPP funds was far from ideal. First, it was a pay-as-you-go scheme, with little in terms of reserves, depending on then current contributions to fund immediate benefits. Its small investment reserves were directed by government into discounted federal and provincial bonds, with minimal independence or oversight, offering little diversification of asset classes and low returns. While the reliance on a pay-as-you-go model sufficed in the early years, demographic and economic changes soon exposed its fragility.

By the 1980s and 1990s fertility rates dropped, and at the same time life expectancy was increasing. Immigration was insufficient to counteract the effects of a population that was getting significantly older, with more and more retirees relative to working to the working-age population.

With fewer contributors and more beneficiaries, by the late 1990s the CPP was on the verge of collapse, as it had limited ability to meet future obligations. In 1997, recognizing these challenges, Paul Martin’s Finance Department initiated reforms to funding mechanisms and created a reserve fund and an independent asset manager, CPPIB, to manage the reserve fund.

CPPIB also had the benefit of learning from the reform that took place in Ontario, where a series of government-commissioned reports in the 1980s highlighted the need for modernization for the pensions of teachers and public servants. The Ontario Teachers’ Pension Plan, established during this period, became a pioneer of the modern Canadian pension fund model.

OTPP president and CEO Claude Lamoureux was a visionary who championed the principle of independence. This vision led to the evolution of OTPP as an arm’s-length organization, insulated from political influence, underpinned by independent governance and enhanced through active asset management and experienced professional leadership that brought in modern, industry-leading financial practices.

In other words, Mr. Lamoureux, along with his brilliant chief investment officer, Bob Bertram, replaced a sleepy and inefficient bureaucracy with world-class asset management techniques. This approach would go on to serve as a benchmark for Canadian public pension funds, which quickly adopted similar professionalized, independent management. By the early 2000s, our pension system was transformed, with Canadian pension funds emerging as global leaders, growing massively in scale, effectiveness and investment influence.

A winning approach

A 2021 study in the Journal of Portfolio Management confirmed the outperformance of Canadian pension funds compared with their global counterparts. The study found that Canadian funds achieved higher risk-adjusted returns, with an average Sharpe ratio (a risk-adjusted measure of the performance) translating to 8 per cent real returns – substantially outpacing the 6-per-cent average of their global peers. This translates to billions in excess capital, meaning that unlike many U.S. peers, Canadian pensions are fully funded and, in some cases, in a surplus. By contrast CalPERS and CalSTRS in California, the two largest plans in the United States, are only funded 75 per cent and 75.9 per cent, respectively.

The report also highlights how Canadian pension funds managed 52 per cent of their assets internally, compared with the 23 per cent for funds in other countries. This trend was even more pronounced among funds managing over $50-billion, with Canadian pensions handling 80 per cent of assets in-house versus 34 per cent for their global peers.

This result matters for two reasons – first, while it increases internal costs, it substantially lowers total costs, as external management fees are substantially more expensive. Second, it allows Canadian pensions to truly exploit their comparative advantages, including scale, time horizon and risk tolerance, which has led to superior returns.

In fact, the study reported that Canadian pension funds reduced total costs by approximately one-third and the study also underscores how Canada’s model enables results by attracting top talent and maintaining independent governance and full accountability. From decades of experience working with Canadian pension funds, I can attest that these advantages allow the funds to attract the smartest, most driven talent that otherwise would just go to the private sector.

Active management has further distinguished Canada’s pension fund model. Unlike passive strategies tied to market indexes, active management allows funds to diversify into illiquid and alternative asset classes such as infrastructure, real estate, private credit and private equity. This approach not only enhances long-term risk-adjusted returns, but also allows for diversification and access to deal flow that is not otherwise available through indexing to public markets.

The Canadian funds’ scale allows them to negotiate favourable terms in private markets, access exclusive transactions, and align their investments with long-term liabilities. OTPP, for instance, owns Cadillac Fairview, a prominent real estate company. CPPIB owns a portion of the 407 electronic toll road and PSP owns a significant interest in the highly successful generative artificial-intelligence business, Cohere. None of these investments are available in public markets or to the average investor. By setting high standards for transparent reporting and risk management, these funds have become global leaders in private markets.

Additionally, the independent, long-term focus of Canadian pension funds allows them to be less beholden to market cycles and deliver sustainable returns over the long-term, which is the appropriate yardstick given the funds’ very long-term liabilities.

The successes of this model are hard to overstate. OTPP now manages over $250-billion, compared with $15-billion in 1997. CPPIB grew to $570-billion by 2023 from $35-billion in 1997. Alberta Investment Management Corporation (AIMCo) manages around $160-billion, compared with approximately $70-billion at its inception in 2008. Keeping in mind that direct return comparisons are not entirely fair because of differences in asset mix – the story is impressive across the board for the Maple Eight.

But the Maple Eight are becoming victims of their own success.

A wolf in sheep’s clothing

Strapped for cash, without the ability or willpower to raise revenue through more taxes, and running significant deficits, the federal government has appeared to signal that it wants a piece of the Maple Eight success.

In last year’s fall economic update, the government explicitly stated its intention to “work collaboratively with Canadian pension funds to create an environment that encourages and identifies more opportunities for investments in Canada.” In this year’s budget, Ottawa announced a working group to explore this. While creating a great investment environment in Canada is a good thing, those investments should be competed for equally by Canadian and foreign capital. Foreign direct investment is particularly beneficial to any economy, including helping to extend demand for Canadian currency.

Canadian funds are already heavily invested in Canada, with a strong home country bias. On average, the Maple Eight have 18 per cent of their portfolios invested in Canada, as compared with the approximately 3 per cent of global capital markets that Canada represents.

So, one has to ask, why governments are so keen to have pension funds invest more domestically?

Everyone wants a piece of the more than $2-trillion saved in Canadian public pension plans. There has been a flood of lobbying from business sectors, each vying for a slice of Canadians’ pension money. Some have suggested that pension funds should focus more on domestic investments, particularly in sectors such as mining or private equity.

A “dual mandate” for pension funds – where they are expected to not only maximize returns but also contribute to Canada’s economic development – is not new. It has long been the CDPQ mandate, and The Globe and Mail has reported that the Alberta government, which has replaced AIMCO’s board and chief executive, is looking to take a similar approach.

The approach is a wolf in sheep’s clothing. There are two critical issues with this approach.

The first concern is the risk of political interference. Canadian pension funds have been successful in large part because they have been managed independently. Since the 1980s, their governance has focused solely on maximizing risk-adjusted returns for pensioners. The moment governments start directing these funds toward political or economic objectives, it undermines this independent management. Public pension systems are already under scrutiny in many parts of the world, and any perception that Canadian funds are politicized would undermine public confidence. If that happens, the damage to the system’s credibility would be irreparable.

This is a point even understood by critics of active management, like The Globe’s Andrew Coyne, who has credibly argued that over certain time frames that S&P funds outperform the returns achieved by many professional investors and pension funds. Yet even Mr. Coyne agrees that regardless of how pension funds are invested, governments should keep their hands off them.

The second issue is that a dual mandate would encourage too much domestic concentration in pension portfolios, reducing the diversification that is crucial for managing risk.

Consider that Norway’s massive US$1-trillion sovereign wealth fund is not permitted to invest domestically – both to ensure diversification and to prevent political interference.

Having said this, it does make sense for Canadian pensions to invest disproportionately in Canada if they find the right investments; they know the market, Canada has predictable regulatory frameworks, and investors in their home market arguably have better access to information. Most investors have a home-country bias, including all Canadian pension funds. But having a home-country requirement would ultimately be detrimental to Canadians’ retirement savings.

While it is true that Canada faces economic stagnation and lagging productivity, the solution lies not in politically driven mandates but in more effective policy measures to actually address the underlying causes of economic malaise. Reducing interprovincial trade barriers, liberalizing foreign investment restrictions, and simplifying pathways to skills development could more directly address the country’s economic issues, without compromising its pension system and our social security.

It is also important to note that the independence of pension funds does not equal a lack of accountability. Rather the opposite, the Canadian funds are also world leaders in processes around transparency reporting (as per the aforementioned transparency benchmark), and are subject to robust government oversight.

All large Canadian public pension funds prepare comprehensive annual reporting data detailing their financial performance, investment activities, and governance practices. The Maple Eight also engage regularly in public meetings where contributors and beneficiaries engage with its leadership, ask questions, and receive updates.

What’s more, just as with other institutions like the Bank of Canada, while the government cannot provide strict direction to the pension funds, there are measures in place to ensure oversight. For example, the finance minister, in consultation with participating provinces, appoints members to CPPIB’s board. CPPIB submits its annual report to the finance minister, who tables it in Parliament, and every three years federal and provincial finance ministers review CPPIB’s performance to ensure its long-term sustainability. The chief actuary also conducts a comprehensive triennial financial review of the CPP.

These are all important factors that allow pension funds’ independent governance to co-exist and function while maintaining accountability to government and the people it represents.

A slippery slope

The dangers of political interference in pension funds are not hypothetical. In the United States, jurisdictions like Florida have banned pension systems from investing based on environmental, social, and governance (ESG) criteria. These edicts are purely driven by political motives. Similar actions have been taken in other states, resulting in lower returns. Left-wing advocacy to divest from our investment in fossil fuel sectors also misses the mark and comes with similar risk of placing politics over return-driven fiduciary responsibility.

Internationally, there are several cautionary tales.

In Ireland, for example, the government withdrew billions from its national pension fund to bail out its banks during the 2008 financial crisis. While this reduced immediate borrowing needs, it depleted pension resources, increased public debt to 125 per cent of GDP by 2013, and shifted the National Pension Reserve Fund’s focus away from the best interests of beneficiaries.

Similarly, Argentina nationalized $30-billion in private pension funds during the 2008 financial crisis to avoid default and stabilize public finances. While providing immediate relief, the move dismantled the pension system, shifted retirement savings to a state-managed pay-as-you-go scheme and increased long-term debt and inflation, weakening both individual retirement security and fiscal stability.

Even closer to home, CDPQ has seen its returns diminished compared with other funds that have remained focused solely on returns.

Governments should use fiscal policy to encourage economic growth. They should and can use tax dollars to help drive policy and they should be held accountable for those decisions, including at the ballot box. And, separate from pension monies, if there are sovereign funds, such as Alberta’s Heritage Fund, gleaned from government surpluses, natural resource royalties or otherwise, then governments should direct those funds as they see fit, with attendant political accountability.

But where there is a compelled retirement savings scheme, the story has to be different. Individuals’ savings must be managed as with a fiduciary interest of the beneficiaries in mind, not the country as a whole. Canadians would certainly be upset if the government directed their RRSP dollars. Their pensions are no different.

In 2005, the Paul Martin government eliminated the foreign property rule that prohibited the amount of foreign investments pension funds and individual’s RRSPs could own, because the government realized the distorting effect this had on capital markets and on the stability of Canadian’s savings. Now, the government is pondering going a step further. We are at risk of the government not only limiting or setting quotas for investments but saying exactly where and how pension funds should invest.

This matters because public trust in Canadian institutions is already waning, yet polling by research firm Discover shows that Canadians familiar with the CPPIB view it positively, with a significant majority agreeing that it protects their retirement savings. Any push for a dual mandate risks undermining this trust and eroding the credibility of pension funds as independent, reliable institutions.

The stakes are particularly high as Canada’s aging population presents new challenges for retirement security. With more Canadians living longer, the need for a strong, stable pension system is greater than ever. Approximately 75 per cent of private-sector workers do not have an employer-sponsored pension plan, and many near-retirees risk significant financial hardship.

After decades of success, there is no room for politicization in Canada’s pension system. The role of government should be to safeguard Canadians’ financial security – not exploit pension funds for political gain.

The combination of an independent mandate and the ability to compete (in-house) with the world’s leading investors placed these funds in a unique position to achieve strong returns That would have been impossible if short-term political considerations were in play.

The idea that politicians know better than professional, world-leading investors about how to deliver long-term risk-adjusted returns is simply unpalatable. It’s time to kill this idea, to embrace and protect our pension funds, and most importantly leave them alone.

Another excellent comment from Mark Wiseman who is well placed to discuss this issue.

It was a very hectic day given events in Ottawa so I'm going to discuss the economic update tomorrow and its implications for our large pension funds.

Today, my focus will solely be on Mark's comment and I'll share where I agree, disagree and why this is an important topic.

Notice he carefully left out recent events at AIMCo which is probably because he doesn't want to go there or can't discuss these events given his position as former chair of that organization.

Still, he provides an excellent overview of why Canada's Maple Eight funds have been successful over the long run, delving into their independent governance, ability to attract and retain top talent to be able to internalize asset management to deliver better risk-adjusted returns over the long run.

He also cites an important paper from Alexander D. Beath, Sebastien Betermier, Chris Flynn, and Quentin Spehner which presents  a quantitative portrait of the Canadian pension fund model between 2004 and 2018, showing Canadian pension funds outperformed their international peers in terms of both asset performance and liability hedging:

A central factor driving this success is the implementation of a three-pillar business model that consists of (1) managing assets in-house to reduce costs, (2) redeploying resources to internal investment teams for each asset class, and (3) channeling capital toward growth assets that increase portfolio efficiency and hedge liability risks. This model works best for funds whose pension liabilities are indexed to inflation.

In fact, it was Alexander Beath of CEM Benchmarking who brought Mark Wiseman's comment to my attention, posting this on LinkedIn:

A great way to spend a Sunday is reading the national newspaper, in my case the Globe and Mail - a household staple. And so very neat to wake up today and see research I worked on a few years ago on the success of Canadian Model funds featured in an op-ed written by Mark Wiseman this weekend. This research introduced Christopher Flynn, CFA and I to Sebastien Betermier, associate professor at my alma mater McGill University and ED of the International Centre for Pension Management, as well as by-now good friend Quentin Spehner, both of whom I've had the joy of working with almost continuously these past five years on a variety of research projects.

One bone I would pick with the article (which I'm otherwise in agreement with) is the link drawn between the success of Canadian Model funds and the need to push back against the suggestion to invest more domestically. That the push comes from governments and outsiders is one thing - independence is a big part of the Canadian Model - but whether they should invest more in Canada is a separate question that I know they wrestle with.

As pointed out in the op-ed, and to be fair, Canadian Model funds are by some standard over-invested in Canada already. Canadian equity and debt makes up something like 3 percent of global markets (to pick a number, nobody really knows), but Canadian Model funds invest 18 percent of assets in Canada. It could be argued quite forcefully however that the success of Canadian Model funds is in part due to this domestic focus. As discussed in our research, the big edge Canadian Model funds had over U.S. peers was far better asset-liability matching, and that this due in part to the better inflation hedging characteristics of Canadian equity, not just superior portfolio construction, organizational design, etc.

The over-weight Canada trade has been good for Canadian Model funds on multiple fronts; not only are they over-weight Canadian equity, they are in fact far more over-weight domestically in their real estate portfolios, with around 80 percent invested in Canada. While this feature of being over-weight domestic real estate is not unique - U.S. pension funds invest the same fraction of their real estate portfolios in the U.S. - a big part of the success of Canadian Model real estate portfolios can be attributed to home country bias as well (I'll post something on this in the next week or so, if I ever find the time).

Should Canadians invest more domestically? Maybe, maybe not. Should Canadian pension funds have independence, definitely. But the questions are separate and should be treated separately, and a discussion on the topic is okay. It's common to read mission statements stating the goal of maximizing returns without taking undue risk, but this isn't the only thing stakeholders care about. If you improve other aspects of your stakeholders lives in addition to maximizing return, isn't that better? Does investing more domestically do that, it might be.

I posted this reply:

Great post Alexander, well articulated insights. The success of the Canadian Model is indisputable but lately people are wondering where’s the beef as returns have waned relative to public markets which are soaring due to a handful of large tech names. 

Moreover, the Canadian Model has been criticized as compensation levels are being openly scrutinized at these organizations.

Lastly, as far as independence, it’s a chimera as we saw what happened at AIMCo. At the end of the day, governments can step in and shut it all down or radically transform how they operate and where they invest.

Still, despite all the criticism, Canada’s mighty pension funds keep chugging along, delivering outstanding long-term returns and while we can debate where and how they should invest domestically or whether their compensation levels are appropriate, we can’t argue about their long-term success and the proof is in the funding levels of the plans they serve.

I don't mince my words and I will not mince them here.

The governance model at Canada's large pension funds is excellent but it can and should be improved.

For example, Mark Wiseman talks about transparency. Well, I think it's high time all our pension funds provide detailed information on where they invest (public and private markets) by country, providing long-term returns.

So, you want to invest billions in India, great, show me what your active strategy is and what's the long-term performance and the same goes for all countries.

Also, when it comes to investing domestically, I'm a huge proponent of investing in infrastructure as long as the conditions the government lays out are on par with those of other countries like the UK and Australia.

The delayed Fall Economic Statement addresses investment and implements a lot of the recommendations from former Bank of Canada Governor Stephen Poloz's task force looking into how our pension funds can invest more domestically and where, including removing the 30% cap ownership on Canadian companies.

More on that tomorrow.

What else? I agree with Mark Wiseman that you cannot directly compare pension funds because of different asset mixes but then he goes on to state CDPQ's dual mandate is why it's underperformed its peers.

Not exactly, CDPQ has a very different asset mix, more exposure to public markets, and that's why it has underperfomed some of its larger peers over the long run (same with AIMCo which doesn't have a dual mandate).

But I think the most important point of contention I have with Mark Wiseman's comment is when he argues the success of the pension funds has attracted government wolves who want to raid it.

We have to be very careful making such statements, some argue the arrogance of these large pension funds is why governments are stepping in to rein in compensation and direct more investments domestically.

That brings me to a very important point, the Canadian Model is a gift, one we should aspire to maintain, but it's in no way guaranteed and it will require a new governance model going forward in my opinion to evolve and take into account views of all stakeholders, including governments and members. 

If you think after what happened at AIMCo, it's business as usual and the hell with governments, you're in for a rude awakening.

So, I like what Mark Wiseman wrote, think every associate entering Canada's pension fund world should frame it and remember it, but also remember my comments, the Canadian Model necessarily needs to evolve or it will face extinction (AIMCo is a big warning).

Alright, let me wrap it up there and leave you with an older interview with Mark Wiseman on investing more in Canada and clips on one of the wackiest days in Canadian politics ever.

I have many views on today's events but let me just summarize them by stating this, the day will come when Justin Trudeau and Chrystia Freeland are distant memories. That day can't come soon enough.