Taxpayers To The Rescue
OMERS never has to worry about bad deals or big losses. Taxpayers are there to pick up the pieces from any poor investment decisions. I bet that you, dear reader, would look good in a cavalry hat:
- “OMERS books $8-billion 2008 investment loss; return negative 15.3 per cent
TORONTO — The Ontario Municipal Employees Retirement System endured an $8-billion net loss on its investments in 2008, but its chief executive stressed Monday that "the main issue here is that our fund is strong."
A newspaper article to frighten you more said:
- "the figures don't tell the whole picture, particularly because there are different ways to valuate unrealized losses. While the Caisse, for example, reported significant losses in its real estate portfolio, OMERS did not make any significant writedowns."
Do you remember what happened before when OMERS had to write-down assets by hundreds of millions of dollars: every municipality in the Province that belonged to OMERS had to increase its pension contributions. It made a mess of budgets province-wide and caused increases in taxes and employee contributions. Think lightening cannot strike twice:
- “Its year-end surplus on a going-concern basis shrank to $3 billion from $6.2 billion, and chief financial officer Patrick Crowley said the solvency ratio sagged to 90 per cent - meaning that if OMERS were wound up today, its assets would cover only nine-tenths of the benefits it has promised.
Crowley said it's up to the OMERS board to decide how this deficiency will be covered and whether additional contributions will be required.”
Remember, when OMERS says pay up, the municipality has no choice but to do so.
Here is an interesting story about Pension Funds and infrastructure that scares me to death:
- “Infrastructure wins pension funds votes
Australian industry superannuation funds might be at the vanguard of unlisted infrastructure investing - but they could soon face stiff competition from their international pension fund counterparts.
According to an OECD report on pension fund investment in infrastructure, interest in both listed and unlisted infrastructure is on the rise among global pension funds.
The report noted that pension funds are now increasingly searching for sustainable yield, and infrastructure presents the potential for funds to match long-term pension assets and provide diversification, said the report penned by Georg Inderst.
One of the US's largest pension funds, California Public Employees' Retirement System, adopted a new investment policy in 2008 with a target 3 per cent allocation of assets, or $11.2 billion in infrastructure. The target returns is a net 5 per cent above inflation over 5 years.
In Canada, the Ontario Municipal Employees Retirement System (OMERS) for instance has several billions Can$ invested in infrastructure through its subsidiary Borealis Infrastructure, set up in 1998.”
California wants to invest only 3% of its funds in infrastructure while OMERS’ target is 20%, up from 15%.
Just for your information, here is how OMERS has done recently in infrastructure:
2003--OMERS wrote down $183 million of private equity and infrastructure assets to ensure these assets properly reflect current market conditions
2004--The group had an unusually strong year in 2004 with a return of 31.0 per cent
2005--Infrastructure investments provided a return of 23.2 per cent, compared to 31.0 per cent a year earlier, due to a second straight year of strong returns in the energy sector.
2006--Infrastructure investments generated net investment income of $388 million, compared with $393 million a year earlier. In 2006 lower earnings generated by the energy sector were offset by more positive earnings generated by other sectors in the infrastructure portfolio
2007--Infrastructure investments, through Borealis Infrastructure, generated net investment income of $0.6 billion, compared with $0.4 billion a year earlier. Net investment income increased $0.2 billion in 2007 compared with 2006 as a result of unrealized gains recognized on investments made within the past three years. The 2007 return was 12.4 per cent, compared with 9.9 per cent
2008--Infrastructure 11.5% compared with 12.7% in the year before.
Not a bad return compared with other investments you might say. However, to me, it seems that infrastructure returns are going down over the last five years yet more money is being put into it. I would be very interested to know as well how they calculate income.
Just to repeat something I said above from a different source:
- "One of the biggest concerns is figuring out the true level of actual losses.
In recent years many big plans moved billions of dollars aggressively into credit derivatives, real estate and other private markets. Some of those markets have stopped trading, forcing investors to estimate the value of their assets.
But often those estimates prove over-optimistic, said Mr. Hamilton.
Give the current environment it may be some time before the level of real losses is known. It will likely take even longer before those numbers are made public.
Experts say that this lack of transparency makes it almost impossible for taxpayers to find out the true cost of the public sector pension plans they pay for. "
Here is what is happening with one Australian group that the Michigan legislators, OMERS Board and Ontario municipalities might want to consider carefully seeing their abysmal results:
- Billions wiped off Macquarie
February 25, 2009
MACQUARIE GROUP'S debt-fuelled business model is returning to earth with a resounding thud.
The mother ship, and most of its listed satellites, closed at multi-year lows yesterday after billions were wiped off their combined market values since the start of last week as they succumb to the latest round of the global financial maelstrom.
Macquarie Group shares barely stayed above the $19 mark yesterday, closing 4.5 per cent lower, down 89c, at $19.01 - its lowest since 2002.
Macquarie CountryWide Trust closed at a record low of 10c, down 23 per cent and a fraction of the $1.50 it traded at this time last year.
The company reported a loss of $714 million largely due to write-downs of shopping mall assets spread across the subprime belt of the US.
According to Goldman Sachs JBWere, the trust is being priced for a massively dilutive equity raising to reduce gearing and aid coming refinancing.
"Like all Australian real estate investment trusts, we expect portfolio fundamentals to weaken (occupancy rates and rental growth). However, we do not expect this to be a key stock driver, given its balance sheet concerns," the broker said.
Yesterday Macquarie Media Group reported a $127 million net loss for the six months to December after writing down a US acquisition from 2007.
They were not the only ones in trouble. Macquarie Airports closed at its lowest since 2003, having jettisoned a $1 billion share buyback this week to prop up Sydney Airports with another $630 million injection to pay down its debts. MAp will disclose its annual figures today. Its stock, which closed down nearly 10 per cent yesterday at $1.495, has lost about 30 per cent of its value since the start of last week.
Macquarie Infrastructure Group is trading at its lowest levels since 2000, closing at $1.13 yesterday, down 17.5 per cent since the start of last week.
Some of the satellites are trading at about half the value Macquarie is showing for them in its accounts.
Macquarie has had to slash its profit outlook for this financial year, which ends on March 31, and now expects earnings of about $900 million - half the previous year's results.
After warning it was taking $1.14 billion in write-downs and loan losses in the first half, Macquarie said recently it expected to take an extra $900 million in write-downs and other losses in the second half.
This was mostly on further falls in the value of its holdings in listed funds such as Macquarie Capital Group, Macquarie CountryWide and Macquarie Office Trust. At the time, Macquarie said it would resist write-downs on its holdings in listed funds, Macquarie Airports and Macquarie Infrastructure Group, despite the collapse in their market value.
Macquarie Group will report its full-year results on May 1. The company is quitting capital-intensive, low-return businesses to build its cash reserves. It also cut more than 1000 staff last year.
In a letter to shareholders last week Macquarie said the "extremely challenging market conditions" had affected activity and profitability across all Macquarie's business groups. But it continued to operate profitably and pursue new opportunities. "
And one other story:
- "In response, many states are re-evaluating their commitments to alternative asset managers. Last week, PSERS pulled back on almost $1 billion of planned private equity real estate commitments.
OMERS, which directly manages many of its alternative asset allocations via subsidiaries such as OMERS Strategic Investments and Borealis Infrastructure, has not indicated it would be taking similar moves. Instead, the pension has accelerated its exposure to alternative assets by increasing its long-term asset mix target for private markets from 37.5 percent to 42.5 percent from 2007 to 2008."
Either OMERS is very smart or we could be in a lot of trouble. Here is something they should consider:
- "The average pension plan lost about 16% in 2008," said Jane Rabovsky, Toronto-based practice leader, Investment Consulting Watson Wyatt Worldwide. She expects big losses will lead to a re-evaluation of pension risk among some of these plans. "I can't believe anyone will come out of this and not rethink what it is they are doing and how much risk they want to take," she said. "I hope people would re-examine their risk models...we don't know how long this will last."
Why should OMERS do this? I just have one question: How is DRTP doing?
posted by JoeBlog at 12:01 a.m.
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