But beat the index in the two years before that and generated enough extra return to cover all organizational expenses. Remains to be seen if that continues.beluga wrote:And in 2009, our active management empire didn't protect us any better than plain old index.
Well, for one thing imagine the risks a manager would take if his contract was up for grabs every three years.Why don't we put out RFP every three years to manage the funds? Have the eligible firms fight over the work, make competitive bids, and critique / police the incumbent.
For another, CPP and other big pension funds are ideally equipped to buy, as long-term holds, real estate and infrastructure that generates inflation-linked cash flows well aligned with the plans' inflation-linked liabilities. Even assuming there's a wide array of for-hire managers with the capacity to do RE and infrastructure investing -- and there isn't -- how could they do it effectively if their due diligence costs are amortized over just three years? Also, while a new manager can reasonably restructure a public equities portfolio he doesn't like, it's very difficult for him to sell a waterworks or electrical grid.
Where's your evidence that outsourced managers would do better? The web-available archive of RBC Dexia news releases goes back three years. According to them, CPPIB beat the universe of Canadian pension managers in two of the past three 12-month periods ending March 31:
FY07 -- Universe: 10.8 CPPIB: 12.9
FY08 -- Universe: (2.7) CPPIB: (0.3)
FY09 -- Universe (16.3) CPPIB: (18.6)
Where's your evidence that bonuses for outsourced managers would be any less? (Teachers' says the biggest reason they decided to pioneer in-house pension investment mgmt in 1990 was that outsourcing fees were too high. Bob Bertram, who retired last year, believed he could do the same job or better at much less cost. So far, after 18 years, he's been right.)
The bottom line:
-- One either does or does not accept the value of having a DB plan that covers the entire workforce, including self-employed. I do. You don't.
-- One is or is not satisfied that this plan has a conventional, and ideally reasonable, approach to meeting its long-term obligations. I do. You don't.
-- One accepts or does not accept that every industry has norms for evaluating and compensating key people. We both probably accept that.
-- One accepts or does not accept that CPPIB follows the pension industry norm. I do. You don't.
-- One accepts or does not accept that unlisted holdings such as real estate, infrastructure and private equity are valid holdings for well-capitalized pension funds with long time horizons, especially those whose obligations are inflation-linked. I do. You don't.
-- One accepts that active investing is worth the added cost over indexing. You don't. I don't for public markets, but like the idea of a pension plan directly owning illiquid cash-generating assets that are not available to the indexed investor.
Only time will tell who's right. In the meantime I look forward to starting my CPP pension at the end of this year and continuing to receive that pension, fully or substantially inflation-indexed, for the rest of my life.