Tuesday, February 21, 2017

Overestimating Canadian DB Plans' Liabilities?

The Canada News Wire reports, Canadian pensioners not living as long as expected:
New research finds longevity for Canadian pensioners is lower than anticipated – which may actually be costing defined benefit (DB) plan sponsors.

Canadian male pensioners are living about 1.5 years less than expected from age 65, according to the latest data from Club Vita Canada Inc. – the first dedicated longevity analytics firm for Canadian pension plans and a subsidiary of Eckler Ltd. Female pensioners are living about half a year less than expected.

"Based on our data, some DB plans are overestimating how long their members are currently living and are therefore taking an overly conservative approach to funding their liabilities," explains Ian Edelist, CEO of Club Vita Canada. "Correcting that overestimation could reduce actuarial reserves by as much as 6% – improving Canadian pension funds' and their plan sponsors' balance sheets just by using more accurate, granular and up-to-date longevity assumptions."

The data comes from Club Vita Canada's first annual and highly successful longevity study completed in 2016 – one of the largest, most rigorous research studies on the impact of longevity on defined benefit pension and post-retirement health plans.

The newly created "VitaBank" pool of longevity data (provided by Club Vita Canada members) spans a wide range of industries and geographic regions in both the public and private sectors. VitaBank is currently tracking more than 500,000 Canadian pensioners from over 40 pension plans. Unlike the most widely used study to set longevity expectations – the Canadian Pensioners' Mortality (CPM) study, which relies on data up to 2008 – VitaBank includes fully cleaned and validated data up to 2014.

The Club Vita Canada study brings to the Canadian pension market leading-edge modelling techniques already used by the insurance industry and in other countries. Club Vita U.K. recently released similar results, noting £25 billion could be wiped off the collective U.K. DB deficit by using more accurate longevity assumptions.

"Naturally, the ultimate cost of a pension plan will be determined by how long its members actually live. But assumptions made today really do matter for such long-duration commitments," explains Douglas Anderson, founder of Club Vita in the U.K. "Club Vita's data gives DB plan sponsors the tools they need to evaluate their willingness to maintain their longevity risk or offload that risk to insurers."

About Club Vita Canada Inc. (clubvita.ca)

Club Vita Canada Inc. was created by Eckler Ltd. It is an extension of Club Vita LLP, a longevity centre of excellence launched in the U.K. in 2008 by Hymans Robertson LLP. By pooling robust data from a wide range of pension plans, Club Vita provides its members with leading-edge longevity analytics helping them better measure and manage their retirement plan.

About Eckler Ltd. (eckler.ca)

Eckler is a leading consulting and actuarial firm with offices across Canada and the Caribbean. Owned and operated by active Principals, the company has earned a reputation for service continuity and high professional standards. Our select group of advisers offers excellence in a wide range of areas, including financial services, pensions, benefits, communication, investment management, pension administration, change management and technology. Eckler Ltd. is a founding member of Abelica Global – an international alliance of independent actuarial and consulting firms operating in over 20 countries.
I recently discussed life expectancy in Canada and the United States when I went over statistics on gender and other diversity in the workplace, noting this:
Statistics are a funny thing, they can be used in all sorts of ways, to inform and disinform people by stretching the truth. Let me give you an example. Over the weekend, I went to Indigo bookstore to buy Michael Lewis's new book, The Undoing Project, and skim through other books.

One of the books on the shelf that caught my attention was Daniel J. Levitin's book, A Field Guide to Lies: Critical Thinking in the Information Age. Dr. Levitin is a professor of neuroscience at McGill University's Department of Psychology and he has written a very accessible and entertaining book on critical thinking, a subject that should be required reading for high school and university students.

Anyways, there is a passage in the book where he discusses the often used statistic that the average life expectancy of people living in the 1850s was 38 years old for men and 40 years old for women, and now it's 76 years old for men and 81 for women (these are the latest US statistics which show life expectancy declining for the first time since 1993. In Canada, the latest figures from 2009 show the life expectancy for men is 79 and for women 83, but bad habits are sure to impact these figures).

You read that statistic and what's the first thing that comes to your mind? Wow, people didn't live long back then and now that we are all eating organic foods, exercising and have the benefits of modern medical science, we are living much longer.

The problem is this is total and utter nonsense! The reason why the life expectancy was much lower in 1850 was that children were dying a lot more often back then. In other words, the child mortality rate heavily skewed the statistics but according to Dr. Levitin, a man or woman reaching the age of 50 back then went on to live past 70. Yes, modern science has increased life expectancy somewhat but not nearly as much as we are led to believe.

Here is another statistic that my close friend, a radiologist who sees all sorts of diseases told me: all men will get prostate cancer if they live long enough. He tells me a 70 year old man has a 70% chance of being diagnosed with prostate cancer, an 80 year old man has an 80% chance and a 90 year old man has a 90% chance."

Scary stuff, right? Not really because as my buddy tells me: "The reason prostate cancer isn't a massive health concern is that it typically strikes older men and moves very, very slowly, so by the time men are diagnosed with it, chances are they will die from something else."

Of course, the key word here is "typically" because if you're a 50 year old male with high PSA levels and are then diagnosed with prostate cancer after a biopsy confirms you have it, you need to undergo surgery as soon as possible because you might be one of the unlucky few with an aggressive form of the disease (luckily, it can be treated and cured if caught in time).
So, much like the US, it seems the recent statistics on life expectancy in Canada are not that good. Again, you need to be very careful interpreting the data because the heroin epidemic has really skewed the numbers in both countries (much more in the US).

But let's say the folks at Club Vita Canada and Eckler are doing their job well and Canadian pensioners are living less than previously thought. Does that mean that Canadian DB plans are overestimating their liabilities?

Yes and no. Go read an older comment of mine on whether longevity risk will doom pensions where I stated:
I actually forwarded [John] Mauldin's comment to my pension contacts yesterday to get some feedback. First, Bernard Dussault, Canada's former Chief Actuary, shared this with me:

True, longevity is a scary risk, but not as much as most think, the reason being that the calculations of pension costs and liabilities in actuarial reports take into account future improvements in longevity.

For example, as per the demographic assumptions of the latest (March 31, 2011) actuarial report on the federal public service superannuation plan (http://www.osfi-bsif.gc.ca/Eng/Docs/pssa2011.pdf), the longevity at age 75 in 2011 is projected to gradually increase by about 1 year in 10 years (2021). For example, if longevity at age 75 was 12.5 in 2011, it is projected as per the PSSA actuarial report to be about 13.5 in 2021

This 1 year increase at age 75 over 10 years is much less than the average 1year increase at birth every 4 years over the 20th century reported by the Society of Actuaries (SOA). However, this is an apple/orange comparison because longevity improvements are always larger at birth than at any later age and were much larger in the first half of the 20th century than thereafter than at any later age.
Bernard added this in another email correspondence where he clarified the above statement:
Annual longevity improvement rates are assumed to apply for the whole duration of the projection period under any of the periodical actuarial reports on the PSSA, i.e. for all current and future contributors and pensioners.

Moreover, the federal public service superannuation plan is actuarially funded, which means that each generation/cohort of contributors pays for the whole value of all of its accrued benefits. In other words, the financing of the plan is such that there is essentially no inter-generational transfer of pension debt from any cohort to the next.
Second, Jim Keohane, President and CEO of the Healthcare of Ontario Pension Plan (HOOPP), sent me his thoughts:
I am not sure how longevity improvements will play out over the coming decades and neither does anyone else. I wouldn't dispute the facts being quoted in this article, but what I would point out is that these issues are not exclusive to DB plans. They are problems for anyone saving for retirement whether they are part of a DB plan a DC plan or not in any plan. DB plans get benchmarked against their ability to replace a portion of plan members pre-retirement income (typically 60%). If you measured DC plans on the same basis they are in much worse shape, in fact, they only have about 20 to 25% of the assets needed to produce that level of income.

I would also add that Canadian public sector pension plans are in much better shape than their U.S. Counterparts. We use realistic return assumptions and are in a much stronger funded position.
Third, Jim Leech, the former CEO of Ontario Teachers' Pension Plan (OTPP) and co-author of The Third Rail, sent me this:
Very consistent with my thoughts/observations. It is a shame that "short term" motivations (masking reality by manipulating valuations, migration from DB to DC, elimination of workplace plans altogether, kicking the can down the road, etc) have taken over what is supposed to be a "long horizon" instrument (pension plan).

But Jim Keohane makes a good point - this applies ONLY to DB valuations. Anyone with DC (RRSP), ie. most Canadians, is really jiggered by longevity increases.
No doubt about it, the Oracle of Ontario, HOOPP and other Canadian pensions use much more realistic return assumptions to discount their future liabilities. In fact, Neil Petroff, CIO at Ontario Teachers once told me bluntly: "If U>S. public pensions were using our discount rate, they'd be insolvent."

Mauldin raises issues I've discussed extensively on my blog, including what if 8% is really 0%, the pension rate-of-return fantasy, how useless investment consultants have hijacked U.S. pension funds, how longevity risk is adding to the pressures of corporate and public defined-benefit (DB) pensions.

Mauldin isn't the first to sound the alarm and he won't be the last. Warren Buffett's dire warning on pensions fell largely on deaf ears as did Bridgewater's. I knew a long time ago that the pension crisis and jobs crisis were going to be the two main issues plaguing policymakers around the world.

And I've got some very bad news for you, when global deflation hits us, it will decimate pensions. That's where I part ways with Mauldin because longevity risk, while important, is nothing compared to a substantial decline in real interest rates.

Importantly, a decline in real rates, especially now when rates are at historic lows, is far more detrimental to pension deficits than people living longer.

What else did Mauldin conveniently miss? He ignores the brutal truth on DC pensions and misses how the 'inexorable' shift to DC pensions will exacerbate inequality and pretty much condemn millions of Americans to more pension poverty.
The important point is that last one, decline in interest rates are far, far more damaging to pension liabilities than an increase in longevity risk.

So, if you ask me, I wouldn't read too much into this latest study stating Canadian pensioners are living less than previously thought and Canadian DB plans are "overestimating" their liabilities.

Worse still, the stakeholders of these DB plans might take this data and twist it to their advantage by asking to lower the contribution rate of their plans. This would be a grave mistake.

Lastly, I want to bring something to your attention. Last week, after I wrote my comment on a lunch with PSP's André Bourbonnais, where I stated that the Chief Actuary of Canada is rightly looking into whether PSP's 4.1% real return target is too high, I received an email from Bernard Dussault, Canada's former Chief Actuary, stating he didn't agree with me or others that PSP's target rate of return needs to be lowered.

Specifically, Bernard shared this with me:
I still do not understand why "suddenly" investment experts (including Keith Ambachtsheer) think that the expected/assumed long term real rate of return will decrease compared to what it has been expected/assumed for so many years in the past.

I look forward to Bourbonnais' and the Chief Actuary's rationale if they were to reduce the 4.1% rate below 4.0%.

The rationale I used for the 4% I assumed for the CPP and the PSPP when I was the Chief Actuary is briefly described as follows in the 16th actuarial report on the CPP:
The CPP Account is made of two components: the Operating Balance, which corresponds in size to the benefit payments expected over the next three months, and the Fund, which represents the excess of all CPP assets over the Operating Balance.

In accordance with the new policy of investing the Fund in a diversified portfolio, the ultimate real interest rate assumed on future net cash flows to the Account is 3.8%. This rate is a constant weighted average of the real unchanged rate of 1.5% assumed on the Operating Balance and of the real rate of 4% which replaces the rate of 2.5% assumed on the Fund in previous actuarial reports.

The long term real rate of interest of 4% on the Fund was assumed taking into account the following factors:

  • from 1966 to 1995, the average real yield on the Québec Pension Plan (QPP) account, which has always been invested in a diversified portfolio, is close to 4%;
  • as reported in the Canadian Institute of Actuaries' (CIA) annual report on Canadian Economic Statistics, the average real yield over the period of 25 years ending in 1996 on the funds of a sample of the largest private pension plans in Canada is close to 5%, resulting from a nominal yield of about 11.0% reduced by the average increase of about 6% in the Consumer Price Index;
  • using historical results published by the CIA in the Report on Canadian Economic Statistics, the real average yield over the 50-year (43 in the case of mortgages) period ending in 1994 is 4.03% in respect of an hypothetical portfolio invested equally in each of the following five areas: conventional mortgages, long term federal bonds (Government of Canada bonds with a term to maturity of at least 20 years), Government of Canada 91-day Treasury Bills, domestic equities (Canadian common stocks) and non‑domestic equities (U.S. common stocks). The assumed real rate of 4% retained for the Fund is therefore deemed realistic but erring on the safe side, especially considering that:
 Ø replacing federal bonds by provincial bonds in this model portfolio would increase the average yield to the extent that provincial bonds carry a higher return than federal bonds; and
Ø the 3-month Treasury Bills, which bear lower returns, would normally be invested for the Operating Balance rather than the Fund.

From a larger perspective, assuming a real yield of 4% on the CPP Fund means that the CPP Investment Board would be expected to achieve investment returns comparable to those of the QPP and of large private pension plans.

On the other hand, I think I heard Bourbonnais saying last year at a presentation of the PSP annual report to the Public Service Pension advisory Committee (and I could well have misheard or misinterpreted what he said) that he was reducing the proportion of equities in the PSP fund in order to reduce the volatility/fluctuation of the returns.
If he is really doing this, then that would be a valid reason for reducing the expected 4.1% return. Besides, if he is doing this, I opine that this is not consistent with the PSP objective to maximize returns. Indeed, a more risky investment portfolio carries higher volatility though BUT it is coupled with a higher long term average return (which both the CPP and the PSP funds have achieved on average over at least the last 15 years).
As I explained to Bernard, PSP Investments and other large Canadian pensions are indeed reducing their proportion in public equities precisely because in a historically low rate environment, the returns on public equities will be lower and more importantly, the volatility will be much higher.

I also told him that given my long-term forecast of global deflation, I think more and more US and canadian pensions should lower their target rate and that the contribution rates should rise.

Of course, someone may claim the only reason PSP and others want to lower their actuarial target rate of return is because it lowers their bar to attain their bogey and collect millions in compensation.

I'm not that cynical, I think there are legitimate reasons to review this target rate of return and I look forward to seeing the Chief Actuary's report to understand his logic and why he thinks it needs to be lowered.

I would also warn all of you to take GMO's 7-year asset class return projections with a shaker of salt (click on image below):


GMO may be right but I never bought into this nonsense and I'm not about to begin now. I guarantee you seven years from now, they will be way off once again!

Below, Goldman isn't buying into 2017's bull market hype. They must be reading my comments but remember what I told you last Friday when I went over top funds' Q4 activity, the real risk in these markets is another melt-up, even if it's a slow, insidious one, to shake all those shorts out and force portfolio managers underperforming their index to chase returns by buying risk assets at higher valuations. That's when the real fun begins but don't worry, we're not there yet.

Monday, February 20, 2017

CPPIB Fixing China's Pension Future?

The Canadian Press reports, Canada, China to share pension expertise:
The top executive at Canada's largest retirement fund is in Beijing today to help grow the fund's relationship with Chinese pension officials.

Mark Machin was on hand for the official launch of a Chinese translation of "Fixing the Future" — a book tracing the political and financial hurdles that were overcome when the Canada Pension Plan Investment Board was created in the 1990s.

Machin says the translation of the 380-page book was a Chinese initiative that complements a previously announced "pooling of resources" planned by the CPP Investment Board and China's National Development and Reform Commission.

He says Canada and China face similar challenges as the number of retired people grows faster than the number of working people paying into the retirement system.

Machin says CPP Investment Board will be leading efforts to co-ordinate Canadian pension expertise and share it with Chinese government officials and other pension experts.

He anticipates the book — written by a former Globe and Mail reporter under a commission from CPPIB — will be used as a textbook in China to help teach about pension reform.
David Paddon of the Waterloo Chronicle also reports, Canada, China to share pension expertise:
China sees Canada as a valuable source of expertise as both countries grapple with the needs of an aging population that's increasingly retired, according to the head of the Canada Pension Plan Investment Board.

"China faces very similar demographic issues and pension challenges that Canada has faced and continues to face. When you put the demographics side-by-side, there are some striking similarities," Mark Machin said in a phone interview Monday from Beijing.

He said the most important similarity is that each country will have only about 2-1/2 working-age people per retired person by 2046.

"That's the crux of the challenge for pension systems."

As recently as September, the Chief Actuary of Canada's latest three-year projection said the Canada Pension Plan will remain sustainable at current contribution rates if the CPP Fund managed by Machin's organization can produce inflation-adjusted rates of return averaging 3.9 per cent over 75 years.

As of Dec. 31, the CPP Funds inflation-adjusted rate of return over the past 10 years was 4.8 per cent and about $300 billion of assets around the world — with more than half in North America.

While CPP Investment Board has had an office in Hong Kong that looks for suitable deals in China and the surrounding region, Machin said that its new collaboration with Chinese officials has a more general purpose.

"I think part of this is making sure that, when we're investing in markets, we're not just looking for things that we can get but offering a little bit back — offering a little bit of advice and insights."

Machin was in China's capital for the launch of a Chinese translation of "Fixing the Future," a book tracing the political and financial hurdles that were overcome when the Canada Pension Plan Investment Board was created in the 1990s.

He anticipates the book — written by a former Globe and Mail reporter under a commission from CPPIB — will be used as a textbook in China to help teach about pension reform.

Machin says the translation of the 380-page book was a Chinese initiative that complements a previously announced "pooling of resources" planned by the CPP Investment Board and China's National Development and Reform Commission under a memorandum of understanding signed in September.

The memorandum was one of the agreements signed in Ottawa during an official visit by China's Premier Li Keqiang.

While the CPP Investment Board is designed to be politically independent from all levels of government, Machin said there's a common interest with the Canadian federal government's efforts to build economic and trade ties with China.

"Those two things are definitely aligned. I wouldn't say they're co-ordinated, but they're aligned."
CPPIB put out a press release providing more details on this exchange, Canada Pension Plan Investment Board Launches the Chinese Edition of “Fixing the Future”:
Canada Pension Plan Investment Board (CPPIB) today launched the Chinese edition of “Fixing the Future: How Canada's Usually Fractious Governments Worked Together to Rescue the Canada Pension Plan.” Written by Bruce Little, Fixing the Future describes how Canada addressed the looming demographic crunch and its impact on the Canadian pension system in the mid-1990s. Today, the CPP Fund totals $300 billion and is projected to be sustainable for the next 75 Years. CPPIB, the manager of the Fund, is a leading global institutional investor and invests in more than 45 countries through eight offices around the world.

In the mid-1990s, the Canada Pension Plan (CPP) was underfunded and faced an uncertain future. Experts predicted that the CPP Fund would be exhausted by today, and a major overhaul was urgently needed to ensure the sustainability of the CPP for future generations of Canadian retirees. Canada’s federal and provincial finance ministers made some difficult decisions and introduced a set of reforms to the CPP, including the creation of CPPIB, which effectively ended the funding crisis.

“We are honoured to share Fixing the Future, the story of Canada’s pension reform, with China,” said Mark Machin, President & Chief Executive Officer, CPPIB. “Many of the issues that Canada faced in reforming their pension system are shared between our two countries. With China’s pension reform now well under way, we hope that some of the lessons learned in Canada are of value to policymakers in China as they work to secure the pension system for many generations to come.”

On September 22, 2016, during the visit of Premier Li Keqiang to Canada, CPPIB’s CEO, Mark Machin, signed a Memorandum of Understanding with Xu Shaoshi, Chairman of the National Development and Reform Commission. Through this memorandum, CPPIB has agreed to assist Chinese policymakers in addressing the challenges of China’s ageing population. The translation of Fixing the Future into Chinese is just one way CPPIB is delivering on this agreement.

“Fixing the Future is inspiring to policy makers and academia in thinking about establishing a coordinated policy-making mechanism for the pension reform currently taking place in China. Demographics and pension management is an important subject for China’s future, and we believe CPPIB’s successful model will set a precedent for the academia and policy makers in China as they are striving to build a sustainable social security system,” said Professor Zheng Bingwen, the translator of the book and Director of Center for International Social Security Studies, Chinese Academy of Social Sciences (CASS).

The new edition of Fixing the Future includes a foreword by the Right Honourable Paul Martin, former Prime Minister of Canada and federal Finance Minister, who was intimately involved in the reforms, and an afterword by renowned pension expert Keith Ambachtsheer. The Chinese edition also includes a foreword from Mr. Lou Jiwei, former Finance Minister of China and now Chairman of National Council for Social Security Fund, highlighting the relevance of the book to Chinese readers.

The translated version of the book was launched at an event in Beijing, co-hosted by CPPIB, the Embassy of Canada to China, CASS Center for International Social Security Studies, China Human Resources and Social Security Publishing Group and China Council for the Promotion of International Trade.
Back in September, I explained why CPPIB is aiding China with its pension reform. In short, the global pension storm is hitting China particularly hard and I've been talking about the need to overhaul China's pension system for a few years now.

But I'm not sure a textbook translated in Chinese will help China address many structural weaknesses in its pension system and economy. First and foremost, the Chinese need to adopt CPPIB's governance model which unfortunately runs contra to the country's communist doctrine where the government has a say on everything, including the way state pensions invest assets.

Moreover, China, much like Japan, has a huge problem, namely an aging demographic which will require some form of pension safety net to make sure these people don't die from pension poverty and starvation. In other words, bolstering China's pension system is critically important for all sorts of socio-economic reasons.

By the way, bolstering pensions is critically important all over the world, not just China. A friend of mine is in town from San Francisco this long US weekend and we had an interesting discussion on technological disruption going on in Silicon Valley and all over the United States.

My friend, a senior VP at a top software company, knows all about this topic. He told me flat out that in 20 years "there will be over 100 million people unemployed in the US" as computers take over jobs and make other jobs obsolete at a frightening and alarming rate (Mark Cuban also thinks robots will cause mass unemployment and Bill Gates recently recommended that robots who took over human jobs should pay taxes).

"It's already happening now and for years I've been warning many software engineers to evolve or risk losing their job. Most didn't listen to me and they lost their job" (however, he doesn't buy the "nonsense" of hedge fund quants taking over the world. Told me flat out: "If people only knew the truth about these algorithms and their limitations, they wouldn't be as enamored by them").

He agreed with me that rising inequality is hampering aggregate demand and will ensure deflation for a long time, but he has a more cynical view of things. "Peter Thiel, Trump's tech pal, is pure evil. He wants to cut Social Security and Medicare and have all these people die and just allow highly trained engineers from all over the world come to the US to replace them."

He also gave me a very grim assessment of the United States still very divided along racial lines. "Dude, I am a white Greek Christian and there are places in the country where I don't feel welcomed at all because my skin is too dark and my name has too many vowels in it. I have Muslim friends of mine that have been beaten and harassed because of the way they look. If you live in the big cities, it's obviously not as bad but it's still very tense."

We both agreed that Trump's immigration executive order was a huge fail ("even Peter Thiel came out against it") but I told him he will personally prosper under Trump in a "bigly" way.

He said: "No doubt, I'm getting a huge tax cut which will make me a lot richer but I've already decided to donate whatever I gain in tax cuts to Planned Parenthood, the ACLU and other organizations that Trump is trying to weaken."

He told me there is "massive, widespread poverty in the US" and "the only way to effectively combat growing inequality in the US is to tax the rich, just like President Roosevelt did in the 30s when he implemented the New Deal."

He also told me that the reason Trump wants to be close to Russia is because "racist white supremacists like Steve Bannon and others want to destroy Islam and they see Russia as a critical player to help them with their anti-Islamic agenda."

I told him Bannon won't survive a year in Trump's administration and I wouldn't worry too much about America and Russia joining alliances to "destroy Islam." 

Both my buddies out in California -- this software engineer and a cardiologist -- are very smart, successful left-wing bleeding heart liberals who hate Trump with a passion so we engage in some spirited email chats as to why Trump was elected and whether he's as dangerous as they both claim (we all agree he's a bit unhinged and a huge megalomaniac but I see this as more of a show to distract people and I tend to agree with Trump, the mainstream media in the US is completely biased and out to get him).

Anyways, why am I bringing all this up again? Oh yeah, pensions and why a good pension system is critical to ensure people retire in dignity and security and don't succumb to pension poverty. A good pension system fights growing inequality and allows people to spend money during their retirement years, allowing governments to collect sales and income taxes from these people after they retire."

China is nowhere near the US or Canada when it comes to its pension system but if it's one country that can get its act together in a hurry, it's China. Will there ever be a Chinese CPPIB? I strongly doubt it but as long as they drastically improve the current pension system by implementing some key reforms, it will be a vast improvement over what they have now.

Lastly, you should all take the time to read Mark Machin's remarks to the Canadian House of Commons Finance Committee when he testified back in June:
Thank you for having me here today to discuss and answer questions regarding the Canada Pension Plan Investment Board and how we are helping ensure the CPP remains sustainable for future generations of Canadians.

To my right is Michel Leduc, our Senior Managing Director of Public Affairs and Communications, and to my left is Ed Cass, our Chief Investment Strategist.

I joined CPPIB four and a half years ago as the first President of Asia and then became Head of International in 2013. Prior to that, I worked for Goldman Sachs for twenty years in Europe and Asia. While I am a new resident to Canada, so far I’ve had the pleasure of travelling across the country meeting with finance ministers, the stewards of the CPP and some of our contributors.

I was enormously honoured to be chosen by CPPIB’s Board of Directors to lead such an important professional investment organization with a compelling public purpose. International organizations such as the OECD, the World Bank, Harvard Business School and The Economist, have all praised the ‘Canadian model’ of pension management due to its strong governance and internal investment management capabilities.

Our governance structure is a careful balance of independence and accountability, enabling professional management of the CPP Fund while ensuring that we are accountable to the federal and provincial governments, and ultimately the Canadian public. We know that contributions are compulsory and so we are motivated to work even harder to earn that trust.
You can the full speech here and it goes over a lot of key elements behind CPPIB's long-term success.

By the way, when I recently told you to ignore CPPIB's quarterly results,  I forgot to mention that those results do not include private market assets which are valued only once a year when CPPIB releases its annual report, so don't read too much into quarterly results of any pension, especially CPPIB.

Below, Morgan Stanley Investment Head of Emerging Markets Ruchir Sharma discusses why he's bearish on China. He spoke with "Bloomberg ‹GO›" last March.

Sharma still thinks China's economy is running on borrowed time and I tend to agree with him and not only for the reasons he cites. I'm worried of another Chinese Big Bang if the US dollar crisis I warned of late last year develops and roils emerging markets later this year.

Something tells me the Chinese are worried too which explains why they're willing to play hardball with North Korea. When it comes to the global economy, it's the US that still dominates the world.


Friday, February 17, 2017

Top Funds Activity in Q4 2016

Katherine Burton, Simone Foxman and Katia Porzecanski of Bloomberg report, Hedge Funds Boost Financials, Trim Tech and Other 13F Highlights:
Hedge fund managers jumped on the Trump train in the last three months of 2016, boosting their stakes in financial companies and reducing their holdings in technology firms.

Financial institutions have risen 22 percent since Donald Trump won the U.S. presidential election on Nov. 8, on optimism that his administration will reduce regulations, cut taxes and spur deal making. Shares of Goldman Sachs Group Inc. hit a record high Tuesday. Technology shares, meanwhile have risen just 9.3 percent since the election, as measured by the S&P 500 Information Technology Index, about the same as the overall market.

The biggest new buys at Stephen Mandel’s Lone Pine Capital in the fourth quarter included a $493 million purchase in PayPal Holdings Inc., a $491 million stake in PNC Financial Services Group Inc. and a $479 million stake in Bank of America Corp, according to government filings Tuesday. Louis Bacon’s Moore Capital Management increased its exposure to financials and lenders including a new $94 million position in the exchange-traded Financial Select Sector SPDR Fund.

The sector accounted for a third of the firm’s U.S. equity holdings at the end of the year. Tudor Investment Corp. continued to boost its stake in financial companies to 26 percent of its equity allocation from about 15 percent a year ago.

Bullish on Banks

The value of hedge fund stakes mostly rose in the fourth quarter on the promise of less regulation and more fiscal spending (click on image).


By comparison, the reduction in holdings of tech companies by several firms was a reversal from the third quarter, when many of the marquee money managers added to their holdings in expectation of a Hillary Clinton win helping the industry.

In the fourth quarter, Third Point, Millennium Management, Melvin Capital Management and Moore Capital were among firms that slashed their stakes in Facebook Inc. Viking Global Investors decreased its stake in Amazon.com Inc. by $1.23 billion. Shares of the online retailer fell about 10 percent last quarter.

Apple Inc., long a hedge fund favorite, lost the love of Chase Coleman’s Tiger Global Management and Aaron Cowen’s Suvretta Capital Management. The two firms sold out of their stakes, worth $407.6 million and $293.9 million at the end of last year, respectively. Coatue Management, the technology-focused hedge fund led by Philippe Laffont, halved its position, leaving it with 3.2 million shares as of Dec. 31.

Bearish on Tech

The value of hedge fund stakes mostly fell in the fourth quarter on concerns that immigration restrictions would set back hiring (click on image).


Och-Ziff Capital Management Group LLC, Discovery Capital Management and PointState Capital were also among funds that cut holdings of gaming company Activision Blizzard Inc. during the fourth quarter as holiday video-game sales disappointed.

One exception to the tech selloff was Salesforce.com. Jana Partners and Sachem Head Capital Management bought 3.2 million and 2.1 million shares, respectively, during the quarter.

In contrast to many industry peers, George Soros’s family office added a new position in Facebook, and increased its stake in Alphabet Inc. and Netflix Inc., but it exited Intel Corp. and some other technology companies.

While Time Warner Inc. and AT&T Inc. announced one of the year’s biggest deals during the fourth quarter, most managers declined to bet on its completion through risk-arbitrage trades. One possible reason: Trump in a campaign speech vowed to block the takeover on the same day it was unveiled by the two companies. 

Even managers who did bet on the deal’s completion did so in relatively small doses. Paulson & Co. bought 2.86 million Time Warner shares during the fourth quarter, while Third Point acquired 3 million shares and Abrams Capital Management purchased 3.05 million, according to filings.

Paulson also cut its stake again in insurer American International Group Inc.

Even as the future of health-care stocks have been less clear since Trump’s victory, David Tepper’s Appaloosa Management added to investments in the sector. His largest new buys were in Teva Pharmaceutical Industries Ltd., Pfizer Inc. and Mylan NV. He also added to his holding in Allergan Plc, which was worth almost $900 million at the end of the quarter.
David Randall of Reuters also reports, Bets on financials, pharma power U.S. hedge funds' strong start to year:
Several big-name U.S. hedge fund investors in the fourth quarter moved significant parts of their portfolios into financial and pharmaceutical stocks that are expected to benefit under the Trump administration, helping to power the sector to its best January performance in four years.

Omega Advisors, run by Leon Cooperman and Steven Einhorn, increased its stake in insurance broker Fidelity & Guaranty Life by 343 percent compared with the quarter before, and added a new position in regional bank Renasant Corp, according to securities filings released Tuesday.

Both companies are up 16 percent or more since President Donald Trump's surprising November election victory, compared with a 9.6 percent gain in the broad Standard & Poor's 500.

Jana Partners, one of the largest U.S. activist investors, added six new healthcare companies to its portfolio, and increased its stake in 11 other companies in the sector by 50 percent or more, including biotechnology holdings such as Nuvasive Inc and Acadia Pharmaceuticals Inc. Shares of Acadia are up 72 percent since Election Day, while shares of Nuvasive are up 24 percent.

Appaloosa Asset Management, run by billionaire David Tepper, nearly tripled its stake in pharmaceutical company Allergan PLC, to 15.8 percent of its portfolio, according to filings. Shares of the company are up 24.6 percent since the Nov. 8 election.

The winning bets come as equity hedge funds gained 2.1 percent in January, the strongest start to a calendar year for the industry since 2013, according to Hedge Fund Research. Total assets under management in the hedge fund industry reached $3.02 trillion at the end of the fourth quarter, the first time that hedge fund assets surpassed $3 trillion, the research firm said.

Trump's administration is expected to slash financial regulation, helping push the financial companies in the S&P 500 up 22.3 percent since Election Day. Pharmaceutical companies, meanwhile, have rallied on Trump's pledge to speed drug approvals.

The quarterly disclosures of manager stock holdings, in what are known as 13F filings with the U.S. Securities and Exchange Commision, are closely watched as investors look to divine what well-known hedge fund managers are buying and selling. However, the filings are backward looking and come out 45 days after the end of each quarter, meaning that funds could have added to or sold their positions since.

While the position information from the filings does not reflect January activity, fund managers have said they continued to play the same trends.

But not every hedge fund manager made savvy bets in the fourth quarter.

Tiger Global, known in part for taking concentrated positions in companies, sold all of its shares in Apple Inc during the fourth quarter, a position that made up 5.8 percent of its portfolio the quarter before. Shares of the iPhone maker hit a record high Tuesday and are up 16.5 percent since the start of the year.

Warren Buffet's Berkshire Hathaway, meanwhile, more than tripled its position in the company over the same time, to 4.5 percent of its portfolio.
Haha! Love that last comment, the Oracle of Omaha teaching these young hedge fund swingers how real money is made (Buffett was very busy buying $12 billion of stock from the election to the end of January).

It's that time of the year again where we all get to peek into the portfolios of "money manager gods" and some not so divine hedge fund and asset managers. Before reading this comment, make sure you skim through my last comment going over top funds' activity in Q3 2016.

I will let you read some more articles on 13F filings like these ones:

Icahn raises stakes in Herbalife, Hertz; cuts PayPal, Freeport-McMoran
Soros Fund Management buys new stakes in financials
Soros gets out of gold, Paulson cuts SPDR Gold shares
Buffett's Berkshire takes huge bite of Apple shares, boosts airline stakes

You can also read all the Google articles covering 13F filings to see what those smart "billionaires" bought and sold last quarter.

For me, it's a total waste of time as markets have moved a lot following the elections. Also interesting to note the leaders of last year are lagging early this year so there is a reversal going on.

I do go over top funds' holdings for ideas (where did they add and why?) but I always look at the daily and weekly charts to determine whether or not to initiate a position.

More importantly, I am consumed by big macro trends, that's what drives my personal trading and why I'm very careful interpreting what the tops funds bought and sold last quarter.

In my last comment covering a CFA Montreal lunch featuring André Bourbonnais, the President and CEO of PSP Investments, I was very adamant about something:
[...] given my views on the reflation chimera and US dollar crisis, I would be actively shorting emerging markets (EEM), Chinese (FXI), Industrials (XLI), Metal & Mining (XME), Energy (XLE)  and Financial (XLF) shares on any strength here (book your profits while you still can). The only sector I like and trade now, and it's very volatile, is biotech (XBI) and technology (XLK) is doing well, for now. If you want to sleep well, buy US long bonds (TLT) and thank me later this year. 
I couldn't care less what Buffett, Soros, Tepper, Dalio, or Jim Simons and other super quant hedge managers are buying and selling, I always take a step back and THINK before initiating any position and I ask myself very tough questions on global inflation versus global deflation.

I realize markets can move in the opposite direction of my long-term deflationary call, but that's alright, it gives me opportunities to trade some sectors like biotech (XBI) and technology (XLK) knowing full well "markets can stay irrational longer than you can stay solvent."

I listen carefully to the views of smart strategists like François Trahan of Cornerstone Macro who was in town a couple of weeks ago for another CFA Montreal luncheon I covered on my blog where he expressed his bearish views but I've been more bullish than he him in the short-run knowing how all the quants and CTAs will try to squeeze as much juice as they can from the Trump rally.

If you ask me, the biggest risk now in stocks is a market melt-up akin to the folly of 1999-2000 when you would wake up every day to see tech stocks like Microstrategy (MSTR) up 10, 20 or 30% a day. Do you remember those crazy times? I certainly do, it was nuts.

Admittedly, for a lot of structural reasons (global deflation being the biggest one), the chances of another tech bubble are low (even if I'd love to see a biotech bubble), but never say never and remember, despite all the talk of upcoming Fed rate hikes, there is plenty of juice in the financial system to drive risks assets even higher (and this despite the recent tightening of financial conditions).

Most big hedge funds are more worried about Trump's slew of uncertainties and how to navigate these dizzy presidential tweet filled days.

Hedge fund quants engaged in high-frequency, momentum trading love these type of markets because they can squeeze shorts out of their positions and enjoy the ride up.

But data nerds are struggling to gain power at some hedge funds and I'm not sure all these whiz kids are worth the huge investment. I read nonsense from the Wall Street Journal about how Julian Robertson's Tiger Cubs have become Wall Street prey to all these quant funds and how they're investing in quants and risk managers after suffering a terrible year last year.

This is a total waste of time, money and effort. Look at Buffett, he keeps it simple and clean and is killing all these hedge funds and quant funds over the long run.

Last year was a tough year for a lot of marquee hedge funds like Andreas Halvorsen's Viking Global, one of my favorite long-short hedge funds. After posting a 4% loss in 2016, its worst performance since launching back in 1999, Halvorsen outlined important changes to his fund's managerial structure, tightened up risk management and expanded the universe of stocks they cover (read more here).

I met Andreas Halvorsen back in 2002 when he was part of my directional hedge fund portfolio at the Caisse. He is extremely impressive and very competent at what he does. I wouldn't think twice about investing in his fund even after a "disappointing" year (Viking is already doing much better this year).

Another big shot hedge fund star who suffered "relatively" disappointing returns last year is Steve Cohen, the perfect hedge fund predator waiting to get back in the game next year when he'll be back at it again under the new improved SAC Capital.

[Note: Read this comment from an ex-SAC trader to get an inside look at how he used to run his shop. There is a lot of nonsense being written on Cohen.]

Cohen's (family office) firm Point72 Asset Management returned just 1% last year, according to Bloomberg, underperforming both the S&P 500, up 9.5% in 2016, as well as hedge funds in general, which averaged returns of about 5.6% for the year. It was Cohen's worst year on record other than 2008, when he lost nearly 28%—the only year the billionaire trader has lost money, though he did outperform the broader market.

Love him or hate him, however, Cohen is fiercely competitive and he's upfront about what went wrong last year:
[...] in an exclusive interview with Fortune in the fall, Cohen reiterated his desire to not only beat the market, but to be the best among money managers—despite the fact that he doesn't currently compete for business in that industry. "There may be firms out there that are happy being middle-of-the-pack and having modest returns, and maybe don’t work as hard as other people and are perfectly acceptable. That’s not me," he said. "If I’m going to be mediocre—if I’m going to be mediocre, I’m going to question whether I should stay in this business."

Indeed, if Cohen wants to begin managing outside money again starting next year — and the consensus in the industry is that he does — investors will want to look closely at how Cohen performed managing his own money these last few years, during which he has implemented strict new compliance procedures and been under the additional close watch of a government-mandated monitor stationed in his own offices. After all, it's Cohen's legacy of best-in-class returns that will lure investors back despite the stigma of the insider trading scandal, provided he can still deliver them.

That's going to be harder, though, if the market continues to behave the way Cohen expects. "The reality is growth is slow, valuations are high—that’s sort of a mix where it's going to be hard to see great returns going forward," he told Fortune during the interview. "If there’s a crash or significant correction, then you have an opportunity again because valuations are more reasonable. But right now, at this point, given the way the world looks, I would say returns are going to be pretty meager for the next couple years."

And Cohen is clearly feeling the pressure. In October, he announced a new bonus structure for his traders, upping the potential payout to 25% of their profits (from 20% previously) but only if they outperform certain benchmarks chosen by the firm. Meanwhile, traders who underperform will receive a lower proportion than they used to.

The additional incentive is designed to attract new talent to Point72, which has recently stepped up its recruiting efforts as Cohen himself focuses more on training and mentoring and less on trading stocks himself. After long managing the "big book" — the largest portfolio at his firm — Cohen has lately pared back his personal allocation. His trades still account for as much as 5% of Point72's profits, but that's down from 15% some 10 years ago.

Early last year, Cohen blamed a specific phenomenon for a patch of poor performance: Hedge fund crowding —or too many other hedge fund managers piling into the stocks he owned. When those other funds sold out en masse, Cohen said his "worst fears were realized" as he became "collateral damage," losing 8% in just four days in February 2016.

Cohen managed to recover during the remainder of the year, but only just enough to stay in positive territory.
Ah, the "old hedge fund crowding" excuse except in this instance, Cohen is right, there is a lot of crowding and let me explain why. All these pension funds keep listening their lousy consultants so everyone is investing in the same hedge funds and private equity funds.

The top hedge funds get fed the same trades from their investment bankers which cover them closely and they also talk to each other, so they feed each other a lot of trades and have the same quantitative and analytical approach to their portfolios. In short, there is a lot of group think in the hedge fund industry, much more than there ever was so it's hardly surprising to see lackluster returns among marquee funds.

Still, Cohen knows all this, he is a trader, one of the best traders ever, and if you look at Point72's top holdings as of the end of last quarter you'll understand why (click on image):


Notice how Cohen's family office increased its stake in Tesoro Petroleum Corp. (TSO) right before the stock took off? Point72 also significantly increased its stake in NVDIA Corp. (NVDA), the best performing tech stock last year: (click on image):


In an earlier version of this comment, I made the mistake of thinking Cohen's fund significantly increased its stake in Tesaro (TSRO) which also took off since last quarter (click on image)


Tesaro, not to be confused with Tesoro, is a biotech focusing on cancer treatments and it's part of the top ten holdings of the SPDR S&P Biotech ETF (XBI). It also could fetch north of $200 per share in a rumored takeover, Credit Suisse and Leerink analysts suggested last week.

The top institutional holders of Tesaro are well-known huge funds like Fidelity, Wellington, T. Rowe Price, Vanguard and BlackRock, but you also have some less well-known biotech funds too like BB Biotech and Perceptive Advisors.

Recall last quarter, right before the elections, I wrote about America's Brexit or biotech moment, urging my readers to buy the the SPDR S&P Biotech ETF (XBI) so I'm not surprised to see this company taking off the way it did.

Having said this, even though Cohen invested in Tesoro, not Tesaro, he still made great stock trades last year and I'm convinced he's going to come back strong this year and so will George Soros who lost close to a billion dollars after Trump won, loading up on big bets against the stock market at the wrong time (he will load up on big short positions at the right time this year).

Would you like me to go over all the top trades I saw and more importantly, where I see big money in the stock market going forward?

Well, that is a lot of work and I'm busy trading Leo's biotech watch list (click on each of three images):


And unlike these hedge fund and private equity "gods", I can't charge dumb pensions 2 & 20 for my comments or shaft you with other fees. In fact, if I'm brutally honest with myself, I'm the biggest dummy in the world offering you all this information for free!

Hope you enjoyed reading this comment, please remember to show your financial support by donating or subscribing to my blog on the top right-hand side under my picture. I thank those of you who value and appreciate the work that goes into these comments.

You can read many articles on 13F filings on Barron's, Reuters, Bloomberg, CNBC, Forbes and other sites like Insider Monkey, Holdings Channel, and whale wisdom. Interestingly, Insider Monkey now compiles a list of top 100 hedge funds based on tracking their long positions on each quarterly 13-F filing. This list can be found here.

My favorite service for tracking top funds is Symmetric run by Sam Abbas and David Moon but there are other services offered by market folly and you can track tweets from Hedgemind and subscribe to their services too. I also like Dataroma which offers a lot of excellent and updated information on top funds and a lot more on insider activity and crowded trades (for free).

In addition to this, I regularly look at the YTD performance of stocks, the 12-month leaders, the 52-week highs and 52-week lows. I also like to track the most shorted stocks and highest yielding stocks in various exchanges and I have a list of stocks I track in over 100 industries/ themes to see what is moving in real time.

Enjoy going through the holdings of top funds below but be careful, it's a dynamic market where things constantly change and even the best of the best managers find it tough making money in these schizoid markets.

Top multi-strategy and event driven hedge funds

As the name implies, these hedge funds invest across a wide variety of hedge fund strategies like L/S Equity, L/S credit, global macro, convertible arbitrage, risk arbitrage, volatility arbitrage, merger arbitrage, distressed debt and statistical pair trading.

Unlike fund of hedge funds, the fees are lower because there is a single manager managing the portfolio, allocating across various alpha strategies as opportunities arise. Below are links to the holdings of some top multi-strategy hedge funds I track closely:

1) Citadel Advisors

2) Balyasny Asset Management

3) Farallon Capital Management

4) Peak6 Investments

5) Kingdon Capital Management

6) Millennium Management

7) Eton Park Capital Management

8) HBK Investments

9) Highbridge Capital Management

10) Highland Capital Management

11) Pentwater Capital Management

12) Och-Ziff Capital Management

13) Pine River Capital Capital Management

14) Carlson Capital Management

15) Magnetar Capital

16) Mount Kellett Capital Management 

17) Whitebox Advisors

18) QVT Financial 

19) Paloma Partners

20) Weiss Multi-Strategy Advisors

21) York Capital Management

Top Global Macro Hedge Funds and Family Offices

These hedge funds gained notoriety because of George Soros, arguably the best and most famous hedge fund manager. Global macros typically invest in bond and currency markets but the top macro funds are able to invest across all asset classes, including equities.

George Soros, Carl Icahn, Stanley Druckenmiller, Julian Robertson and now Steve Cohen have converted their hedge funds into family offices to manage their own money and basically only answer to themselves (that is my definition of true investment success).

1) Soros Fund Management

2) Icahn Associates

3) Duquesne Family Office (Stanley Druckenmiller)

4) Bridgewater Associates

5) Pointstate Capital Partners 

6) Caxton Associates (Bruce Kovner)

7) Tudor Investment Corporation

8) Tiger Management (Julian Robertson)

9) Moore Capital Management

10) Point72 Asset Management (Steve Cohen)

11) Bill and Melinda Gates Foundation Trust (Michael Larson, the man behind Gates)

Top Market Neutral, Quant and CTA Hedge Funds

These funds use sophisticated mathematical algorithms to initiate their positions. They typically only hire PhDs in mathematics, physics and computer science to develop their algorithms. Market neutral funds will engage in pair trading to remove market beta.

1) Alyeska Investment Group

2) Renaissance Technologies

3) DE Shaw & Co.

4) Two Sigma Investments

5) Numeric Investors

6) Analytic Investors

7) Winton Capital Management

8) Graham Capital Management

9) SABA Capital Management

10) Quantitative Investment Management

11) Oxford Asset Management

12) PDT Partners

Top Deep Value,
Activist, Event Driven and Distressed Debt Funds

These are among the top long-only funds that everyone tracks. They include funds run by legendary investors like Warren Buffet, Seth Klarman, Ron Baron and Ken Fisher. Activist investors like to make investments in companies where management lacks the proper incentives to maximize shareholder value. They differ from traditional L/S hedge funds by having a more concentrated portfolio. Distressed debt funds typically invest in debt of a company but sometimes take equity positions.

1) Abrams Capital Management (the one-man wealth machine)

2) Berkshire Hathaway

3) Baron Partners Fund (click here to view other Baron funds)

4) BHR Capital

5) Fisher Asset Management

6) Baupost Group

7) Fairfax Financial Holdings

8) Fairholme Capital

9) Trian Fund Management

10) Gotham Asset Management

11) Fir Tree Partners

12) Elliott Associates

13) Jana Partners

14) Gabelli Funds

15) Highfields Capital Management 

16) Eminence Capital

17) Pershing Square Capital Management

18) New Mountain Vantage  Advisers

19) Atlantic Investment Management

20) Scout Capital Management

21) Third Point

22) Marcato Capital Management

23) Glenview Capital Management

24) Apollo Management

25) Avenue Capital

26) Armistice Capital

27) Blue Harbor Group

28) Brigade Capital Management

29) Caspian Capital

30) Kerrisdale Advisers

31) Knighthead Capital Management

32) Relational Investors

33) Roystone Capital Management

34) Scopia Capital Management

35) Schneider Capital Management

36) ValueAct Capital

37) Vulcan Value Partners

38) Okumus Fund Management

39) Eagle Capital Management

40) Sasco Capital

41) Lyrical Asset Management

42) Gabelli Funds

43) Brave Warrior Advisors

44) Matrix Asset Advisors

45) Jet Capital

46) Conatus Capital Management

47) Starboard Value

48) Pzena Investment Management

Top Long/Short Hedge Funds

These hedge funds go long shares they think will rise in value and short those they think will fall. Along with global macro funds, they command the bulk of hedge fund assets. There are many L/S funds but here is a small sample of some well known funds.

1) Adage Capital Management

2) Appaloosa LP

3) Greenlight Capital

4) Maverick Capital

5) Pointstate Capital Partners 

6) Marathon Asset Management

7) JAT Capital Management

8) Coatue Management

9) Omega Advisors (Leon Cooperman)

10) Artis Capital Management

11) Fox Point Capital Management

12) Jabre Capital Partners

13) Lone Pine Capital

14) Paulson & Co.

15) Bronson Point Management

16) Hoplite Capital Management

17) LSV Asset Management

18) Hussman Strategic Advisors

19) Cantillon Capital Management

20) Brookside Capital Management

21) Blue Ridge Capital

22) Iridian Asset Management

23) Clough Capital Partners

24) GLG Partners LP

25) Cadence Capital Management

26) Karsh Capital Management

27) New Mountain Vantage

28) Andor Capital Management

29) Silver Point Capital

30) Steadfast Capital Management

31) Brookside Capital Management

32) PAR Capital Capital Management

33) Gilder, Gagnon, Howe & Co

34) Brahman Capital

35) Bridger Management 

36) Kensico Capital Management

37) Kynikos Associates

38) Soroban Capital Partners

39) Passport Capital

40) Pennant Capital Management

41) Mason Capital Management

42) Tide Point Capital Management

43) Sirios Capital Management 

44) Hayman Capital Management

45) Highside Capital Management

46) Tremblant Capital Group

47) Decade Capital Management

48) T. Boone Pickens BP Capital 

49) Bloom Tree Partners

50) Cadian Capital Management

51) Matrix Capital Management

52) Senvest Partners


53) Falcon Edge Capital Management

54) Melvin Capital Partners

55) Owl Creek Asset Management

56) Portolan Capital Management

57) Proxima Capital Management

58) Tiger Global Management

59) Tourbillon Capital Partners

60) Impala Asset Management

61) Valinor Management

62) Viking Global Investors

63) Marshall Wace

64) Suvretta Capital Management

65) York Capital Management

66) Zweig-Dimenna Associates

Top Sector and Specialized Funds

I like tracking activity funds that specialize in real estate, biotech, healthcare, retail and other sectors like mid, small and micro caps. Here are some funds worth tracking closely.

1) Armistice Capital

2) Baker Brothers Advisors

3) Palo Alto Investors

4) Broadfin Capital

5) Healthcor Management

6) Orbimed Advisors

7) Deerfield Management

8) BB Biotech AG

9) Ghost Tree Capital

10) Sectoral Asset Management

11) Oracle Investment Management

12) Perceptive Advisors

13) Consonance Capital Management

14) Camber Capital Management

15) Redmile Group

16) RTW Investments

17) Bridger Capital Management

18) Boxer Capital

19) Bridgeway Capital Management

20) Cohen & Steers

21) Cardinal Capital Management

22) Munder Capital Management

23) Diamondhill Capital Management 

24) Cortina Asset Management

25) Geneva Capital Management

26) Criterion Capital Management

27) Daruma Capital Management

28) 12 West Capital Management

29) RA Capital Management

30) Sarissa Capital Management

31) SIO Capital Management

32) Senzar Asset Management

33) Southeastern Asset Management

34) Sphera Funds

35) Tang Capital Management

36) Thomson Horstmann & Bryant

37) Venbio Select Advisors

38) Ecor1 Capital

Mutual Funds and Asset Managers

Mutual funds and large asset managers are not hedge funds but their sheer size makes them important players. Some asset managers have excellent track records. Below, are a few funds investors track closely.

1) Fidelity

2) Blackrock Fund Advisors

3) Wellington Management

4) AQR Capital Management

5) Sands Capital Management

6) Brookfield Asset Management

7) Dodge & Cox

8) Eaton Vance Management

9) Grantham, Mayo, Van Otterloo & Co.

10) Geode Capital Management

11) Goldman Sachs Group

12) JP Morgan Chase & Co.

13) Morgan Stanley

14) Manulife Asset Management

15) RCM Capital Management

16) UBS Asset Management

17) Barclays Global Investor

18) Epoch Investment Partners

19) Thornburg Investment Management

20) Legg Mason (Bill Miller)

21) Kornitzer Capital Management

22) Batterymarch Financial Management

23) Tocqueville Asset Management

24) Neuberger Berman

25) Winslow Capital Management

26) Herndon Capital Management

27) Artisan Partners

28) Great West Life Insurance Management

29) Lazard Asset Management 

30) Janus Capital Management

31) Franklin Resources

32) Capital Research Global Investors

33) T. Rowe Price

34) First Eagle Investment Management

35) Frontier Capital Management

36) Akre Capital Management

37) Brandywine Global

Canadian Asset Managers

Here are a few Canadian funds I track closely:

1) Letko, Brosseau and Associates

2) Fiera Capital Corporation

3) West Face Capital

4) Hexavest

5) 1832 Asset Management

6) Jarislowsky, Fraser

7) Connor, Clark & Lunn Investment Management

8) TD Asset Management

9) CIBC Asset Management

10) Beutel, Goodman & Co

11) Greystone Managed Investments

12) Mackenzie Financial Corporation

13) Great West Life Assurance Co

14) Guardian Capital

15) Scotia Capital

16) AGF Investments

17) Montrusco Bolton

18) Venator Capital Management

Pension Funds, Endowment Funds, and Sovereign Wealth Funds

Last but not least, I track activity of some pension funds, endowment funds and sovereign wealth funds. I like to focus on funds that invest in top hedge funds and have internal alpha managers. Below, a sample of pension and endowment funds I track closely:

1) Alberta Investment Management Corporation (AIMco)

2) Ontario Teachers' Pension Plan

3) Canada Pension Plan Investment Board

4) Caisse de dépôt et placement du Québec

5) OMERS Administration Corp.

6) British Columbia Investment Management Corporation (bcIMC)

7) Public Sector Pension Investment Board (PSP Investments)

8) PGGM Investments

9) APG All Pensions Group

10) California Public Employees Retirement System (CalPERS)

11) California State Teachers Retirement System (CalSTRS)

12) New York State Common Fund

13) New York State Teachers Retirement System

14) State Board of Administration of Florida Retirement System

15) State of Wisconsin Investment Board

16) State of New Jersey Common Pension Fund

17) Public Employees Retirement System of Ohio

18) STRS Ohio

19) Teacher Retirement System of Texas

20) Virginia Retirement Systems

21) TIAA CREF investment Management

22) Harvard Management Co.

23) Norges Bank

24) Nordea Investment Management

25) Korea Investment Corp.

26) Singapore Temasek Holdings 

27) Yale Endowment Fund

Below, CNBC's Leslie Picker takes a closer look at hedge fund gains under President Trump, saying they are gaining traction.

I agree with the guy at the end who said the "gig is up for hedge funds" (not top funds) but they then said something about "passive investing is here to stay" not realizing how the big alpha bubble migrated into a giant beta bubble which will implode, leaving many wondering why.