What you can learn from public pensions: CFA Institute conference

This week, senior editor Dean DiSpalatro is reporting live from CFA Institute’s 69th annual conference.

One of the first sessions featured a panel of experts who offered their views on what investors can learn from the Canadian public pension model. The panel included:

• Ron Mock, president and CEO of the Ontario Teachers’ Pension Plan;
• Dana Muir, professor of business law for the Ross School of Business, University of Michigan;
• Michael Sabia, president and CEO of Caisse de dépôt et placement du Québec; and
• Miville Tremblay, moderator, and a director for the Bank of Canada.

Read: Understanding CPPIB’s rates of return

Check out our collection of live tweets below. Also, keep following @advisorca for more from the conference.

Live Tweets from CFA Institute annual conference

The next session is on best practices in fund management. We’ll hear about lessons from the Canadian public pension model. #CFAInvest

Mock: Size of asset base [of pensions] is important, but it’s not everything. Clarity of purpose and governance are the most important things. #CFAInvest (Read: Uneven markets challenge Canadian pensions in Q1)

Sabia: Pensions that internally manage assets have much more flexibility to design customized investment strategies. #CFAInvest

Muir: Can Canadian model be imported to U.S.? Difficult because of scale issues.

Mock and Sabia agree that pensions should be run like businesses. #CFAInvest

Mock says the essence of the investment business is understanding terrain you’re operating in. #CFAInvest Muir adds U.S. is a little more prone to political meddling, so would be difficult to copy independence of public pensions seen in Canadian model (Read: Is ORPP a “monster” or an incentive for better pensions?)

Sabia says Valeant is a “business built to satisfy the short-term impulses of equity managers in the public markets.” #CFAInvest And, he adds, “Valeant expresses everything that’s wrong with short-term thinking in equity markets.” #CFAInvest

Risk management is not just a value at risk (VAR) calculation; it’s a culture: Mock.

Mock adds he’s not shy about employing derivatives. The point of [using] derivatives is [to] balance risks in a portfolio. #CFAInvest

Hedge fund managers are very useful for providing insights into emerging ideas, innovative thinking, says Sabia. He has a small exposure to hedge funds, uses them for uncorrelated returns and as a window into new ways of thinking.

Mock says he wants the best Sharpe ratio he can get. Says it’s getting tougher to find hedge finds that deliver correlation benefits. #CFAInvest

Sabia: These days, I’m more willing to do greenfield infrastructure investing. #CFAInvest (Read: What can Canada learn from Britain’s pension reforms?)

Further, says Sabia, careful asset selection is essential in the market environment we’re facing. Need to find “creative entry points,” i.e. distressed pricing. And, you need to think differently about fixed income as the investment landscape is fundamentally different. This will continue for the next 10 to 15 years.

Sabia is now looking at investing in sovereigns in EMs, and at vehicles that deliver streams of income (e.g., royalties). He says he’s doing a lot less traditional fixed income, including fewer government bonds and high-rated corporates.