Tag: Larry Light

NGO Study IDs Vanguard, BlackRock as Big Climate-Change Villains

Mary Pat Campbell

Link: https://www.ai-cio.com/news/ngo-study-ids-vanguard-blackrock-big-climate-change-villains/

Excerpt:

Guess who the largest investors in climate-harming energy companies are? That would be major asset managers, with BlackRock and Vanguard Group the biggest offenders. So says an environmentalists’ report, “Investing in Climate Chaos.”

The report, spearheaded by Urgewald, a German environmental group, and conducted “in partnership” with more than 20 other nongovernmental organizations, comes down hard on two financial service stalwarts in particular: Vanguard, the mutual fund powerhouse, and BlackRock, the world’s largest asset manager.

Beyond those two, half of the stakes in fossil fuel companies identified in the report are held by just 23 investors. What’s more,18 of them are U.S.-based, the advocacy group stated, basing the report on data collected in January.

….

BlackRock has positions in oil and gas companies that account for two-thirds of the world’s yearly hydrocarbon production, per Urgewald. Its single largest energy holding is also Exxon, which is the firm’s ninth biggest equity position overall. . Although the asset manager has a policy against investing in any business that gets at least one-quarter of its revenue from coal, the report charged that BlackRock exempts power companies that use coal. “As a result, BlackRock remains the world’s largest investor in coal developers,” it said.

….

In the past, BlackRock has responded to critics on the right and the left by saying that, while it supports ESG, is not about to “dictate how clients should invest.” In a statement, it declared that “transition to a low carbon is in the interest of realizing the best long-term financial results for our clients.” 

Vanguard, also under GOP attack, has made much the same argument. It did raise environmentalists’ ire last year when it quit the investment-industry initiative on combating climate change, saying it wanted to “speak independently on matters of importance to our investors.” Some contended that Vanguard was just knuckling under to politicians’ pressure.

Author(s): Larry Light

Publication Date: 25 Apr 2023

Publication Site: ai-CIO

Public Pension Funding Status Rose in 2022, NCPERS Says

Mary Pat Campbell

Link: https://www.ai-cio.com/news/public-pension-funding-status-rose-in-2022-ncpers-says/

Graphic:

Excerpt:

Capital markets had a tough time in 2022, but public pension funds managed to increase their funded status, according to a report from the National Conference on Public Employee Retirement Systems

The funded ratio at public pension funds increased to 77.8% last year, compared with 74.7% in 2021, per a survey of almost 200 funds conducted by NCPERS, the largest trade association for public funds in the U.S. and Canada, in partnership with Cobalt Community Research.

The vast majority of survey respondents, 92%, represent defined benefit plans, 8% defined contribution plans, 10% combination plans and 5% cash balance plans. The total exceeds 100% because of multiple responses, according to NCPERS.

Public pension programs scored an average one-year return of around 11.4%. By contrast, the S&P 500 was down around 19% and the Bloomberg US Agg, which tracks bonds, was off 13% in 2022. Heavy concentration in real estate and private equity were the key to the funds’ outperformance, the report says.

The study’s findings highlight public pensions’ “resiliency in the face of volatile markets, rising interest rates, and disruption in the workforce during the COVID-19 pandemic,” said Hank Kim, NCPERS executive director and general counsel, in a statement. “It’s clear that public pensions remain dedicated to maximizing returns while managing risks in order to efficiently deliver retirement benefits to public servants all over the country.”

Higher contribution income helped. Investment returns were the largest component of the gains, accounting for slightly more than two-thirds of them, but the stronger average member and employer contributions also played a role. Each rose by one percentage point, to 9% and 24%, respectively.

Author(s): Larry Light

Publication Date: 6 Feb 2023

Publication Site: ai-CIO

What Happens if US Debt Defaults? Just Short-Term Pain, Sages Say

Mary Pat Campbell

Link: https://www.ai-cio.com/news/what-happens-if-us-debt-defaults-just-short-term-pain-sages-say/

Excerpt:

So what is likely to occur this year?

Everything will be settled without a big problem for investors, predicts Robert Hunkeler, International Paper’s vice president of investments.

“I guess Congress and the White House will eventually finish their game of chicken, and the debt limit will be raised,” he opines. “There might be a little more drama and brinksmanship this time around, because there are more cooks in Congress than usual, and that’s saying a lot. Either way, I wouldn’t change my investments because of it.”

To Kostin and his Goldman staff, the risk that Congress fails to boost the debt limit by the deadline is “higher than at any point since 2011,” but “the team believes it’s more likely that Congress will raise the debt limit before the Treasury is forced to delay scheduled payments.”

If the debt ceiling is not raised in time to make those payments, in Goldman’s estimate, the economy would shrink by about $225 billion per month, or 10% of annualized gross domestic product. That’s provided that the Treasury does what policy wonks call, “prioritize,” meaning somehow continuing to pay interest on the national debt, but to stop payment on other obligations.

For Thomas Swaney, CIO for global fixed income at Northern Trust Asset Management, another credit downgrade for the government is possible.

“The practical implications of a credit downgrade are not entirely clear,” he writes in a report. “But we don’t expect a modest downgrade to result in market disruptions for Treasuries, U.S. agency debt or overnight repurchase agreements.”

Author(s): Larry Light

Publication Date: 6 Feb 2023

Publication Site: ai-CIO

Why Bond Liquidity May Be Headed for Trouble

Mary Pat Campbell

Link: https://www.ai-cio.com/news/why-bond-liquidity-may-be-headed-for-trouble/

Excerpt:

Reduced liquidity for bonds is getting to be a problem, according to Treasury Secretary Janet Yellen.

At a speech before the Securities Industry and Financial Markets Association annual meeting Tuesday, she reiterated an earlier observation that diminished ability to sell bonds is worrisome. Still, at SIFMA, she sought to temper her concern by adding that traders aren’t facing snags executing orders, with the biggest negative impact of lessened liquidity confined to higher transaction costs.

…..

The gauge for bond volatility, the Merrill Lynch Option Volatility Estimate, aka MOVE index, has jumped some 40% since mid-August. Other than a spike in March 2020 at the onset of the pandemic, the index (it launched in 2019) has been fairly placid—until 2022 and the beginning of big rate hikes. This all is reminiscent of the stock market’s fast-paced volatility lately.

Another related difficulty for bonds:  the imbroglio resulting from the Federal Reserve’s interest rate increases and the resulting strong dollar risk worldwide. That has promoted a rush by other central banks to match the Fed and jack up rates. To Richard Farr, chief market strategist at Merion Capital, one risk of this trend is that Treasury bonds will end up hurt.

Author(s): Larry Light

Publication Date: 26 Oct 2022

Publication Site: ai-CIO

So Are ESG Investments Lousy, or Not?

Mary Pat Campbell

Link: https://www.ai-cio.com/in-focus/market-drilldown/so-are-esg-investments-lousy-or-not/?oly_enc_id=2359H8978023B3G

Excerpt:

One criticism of ESG investing is that, when it shows good returns, this might be because of temporary factors that have an outsize impact. Such superior returns are  often driven by climate-news “shocks,” declared Robert Stambaugh, a professor at the University of Pennsylvania’s Wharton School, and two other academics, in a recent paper. The reference is apparently to a spell of severe drought or destructive hurricanes. The professors expressed uncertainty as to whether any future ESG outperformance can be assumed.

Of course, with climate-oriented investing now a partisan issue, a welter of claims and counter-claims has appeared. To pro-ESG folks, science is on their side, hence the opposition is just blowing smoke to confuse people.

Anti-ESG politicians appear to be convincing the public that a “false equivalence” exists between their stance and the sustainability advocates, contended Witold Henisz, director of Wharton’s ESG Initiative, in a recent article in the Knowledge Wharton periodical. He wrote that “ideological opposition [is] cynically seeking a wedge issue for upcoming political campaigns — and, so far, it appears to be working.”

Whatever the outcome of the current debate over ESG-related bans and the like, the climate change question is not going away. Says CalSTRS’s Ailman, “It will be with us for the next 50 years.”

Author(s): Larry Light

Publication Date: 8 Sept 2022

Publication Site: ai-CIO

Public’s Cash Stash Will Cushion a Downturn? Maybe Not

Mary Pat Campbell

Link: https://www.ai-cio.com/news/publics-cash-stash-will-cushion-a-downturn-maybe-not/

Excerpt:

One calming thought amid today’s economic turmoil has been that any recession would be softened by the large trove of savings that the U.S. public has accrued since the pandemic began. But that cushion may be a lot less protective than many believe, according to a study by Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Pandemic savings have “been run down further than previously thought,” Shepherdson noted. “Consumers’ financial cushion against tighter financial conditions is smaller” than before, he wrote.

Thanks to Washington stimulus and curbed spending in the early days of COVID-19, savings had run up to $2.6 trillion. New government data, however, show that this ready cash has shrunk, no doubt due to high consumer outlays that kicked in since. Almost a third of the trove has been spent.

Indeed, consumers have gone back to their previous ways of preferring spending to saving, and then some. This past decade, before the pandemic, the personal savings rate was around 6% of their disposable income. That shot up to almost 25% in early 2020 and stayed high until the middle of 2021. Lately, it is a mere 3.5%.

Author(s): Larry Light

Publication Date: 10 Oct 2022

Publication Site: ai-CIO

Governor Moves to Bar Florida SBA From ESG Investing

Mary Pat Campbell

Link: https://www.ai-cio.com/news/governor-moves-to-bar-florida-sba-from-esg-investing/

Excerpt:

The latest anti-ESG onslaught from Republican state officials is Florida Governor Ron DeSantis’ campaign to forbid the Florida State Board of Administration from adopting environmental, social and governance investing tenets. At the moment, SBA doesn’t appear to be a devotee of ESG.

The governor, an outspoken conservative, plans to propose at an SBA meeting on August 15 that the body’s fiduciary duties must exclude ESG. “From Wall Street banks to massive asset managers and big tech companies, we have seen the corporate elite use their economic power to impose policies on the country that they could not achieve at the ballot box,” DeSantis said in a statement.

DeSantis, a possible GOP presidential contender in 2024, declared that “we are protecting Floridians from woke capital and asserting the authority of our constitutional system over ideological corporate power.” He also plans to push through legislation banning the SBA from making ESG-themed investments and requiring them to focus on maximizing returns.

Author(s): Larry Light

Publication Date: 5 Aug 2022

Publication Site: ai-CIO

Warning: Tossing Russian Banks From the International System Could Backfire

Mary Pat Campbell

Link: https://www.ai-cio.com/news/warning-tossing-russian-banks-from-the-international-system-could-backfire/

Excerpt:

The decision to boot Russian lenders from the global bank messaging system as punishment for its invasion of Ukraine is a very bad idea that could boomerang and hurt the West, Credit Suisse admonishes.

“Exclusions from SWIFT will lead to missed payments and giant overdrafts similar to the missed payments and giant overdrafts that we saw in March 2020,” wrote Credit Suisse strategist Zoltan Pozsar, in a research note.

….

“Exclusions from SWIFT will lead to missed payments everywhere,” Pozsar wrote. Two years ago, “the virus froze the flow of goods and services that led to missed payments.” Aside from the financial panic at the outset of the pandemic, the world ran into a similar problem in 2008, when Lehman Brothers collapsed, he said. 

 Pozsar wrote: “Banks’ inability to make payments due to their exclusion from SWIFT is the same as Lehman’s inability to make payments due to its clearing bank’s unwillingness to send payments on its behalf. History does not repeat itself, but it rhymes.”

Author(s): Larry Light

Publication Date: 28 Feb 2022

Publication Site: ai-CIO

The Exxon Vote: Pension Supporters Stay Onboard to Advance Change

Mary Pat Campbell

https://www.ai-cio.com/news/the-exxon-vote-pension-supporters-stay-onboard-to-advance-change/

Excerpt:

Sticking around and backing dissident board candidates worked. Instead of divesting from Exxon Mobil, the US’s biggest oil company, the nation’s three largest public pension funds pursued a successful strategy of advocating for change, and they just helped elect a pair of outside directors. Expect more of this tack against fossil fuel outfits.  

Running counter to the trend of pension programs dumping fossil fuel stocks, these giant retirement systems—the California Public Employees’ Retirement System (CalPERS), the California State Teachers’ Retirement System (CalSTRS), and the New York State Common Retirement Fund—believe that, in most cases, working from within is the better way to promote change.

They were key players in electing the two outside directors (a third is still up in the air as proxy ballots are counted), along with huge asset managers BlackRock and Vanguard, plus other pension entities such as the Church of England’s program.

Author(s): Larry Light

Publication Date: 1 June 2021

Publication Site: ai-CIO

CPPIB Chief Mark Machin Exits Amid Vaccine Uproar

Mary Pat Campbell

Link: https://www.ai-cio.com/news/cppib-chief-mark-machin-exits-amid-vaccine-uproar/

Excerpt:

The head the Canada Pension Plan Investment Board (CPPIB) has stepped down in the wake of his journey to the Middle East to receive a vaccination for COVID-19.

CEO Mark Machin, 54, traveled to the United Arab Emirates (UAE) to get the shot earlier this month, as Canada’s rollout of its vaccination program has lagged. Canada’s largest pension fund (US$379 billion) named John Graham, the fund’s head of credit investments, as Machin’s successor.

“After discussions last evening with the board, Mr. Machin tendered his resignation and it has been accepted,” the fund said in a statement. The statement said he had traveled personally to get the vaccine.

Author(s): Larry Light

Publication Date: 26 February 2021

Publication Site: ai-CIO

So … Is Bitcoin Going to Replace the Dollar?

Mary Pat Campbell

Link: https://www.ai-cio.com/news/bitcoin-going-replace-dollar/

Excerpt:

Bitcoin has been on a roll lately, rising in price five-fold over the past 12 months. Meanwhile, the US dollar, the world’s reserve currency, has lost 9% of its value.

All this has buoyed talk that someday Bitcoin in particular, or cryptocurrency in general, will replace the buck. Well, forget about that, argues St. Louis Federal Reserve President James Bullard, invoking the lessons of pre-Civil War days to warn about the chaos brought by a world of nonuniform currencies—that would be one where the buck isn’t king. 

Appearing on CNBC Wednesday, he predicted that “it’s going to be a dollar economy as far as the eye can see—a dollar global economy really as far as the eye can see—and whether the gold price goes up or down, or the Bitcoin price goes up or down, doesn’t really affect that.”

Author(s): Larry Light

Publication Date: 18 February 2021

Publication Site: ai-CIO

Mortgage Securities Deserve a Bigger Place in Pension Portfolios, DoubleLine Says

Mary Pat Campbell

Link: https://www.ai-cio.com/news/mortgage-securities-deserve-bigger-place-pension-portfolios-doubleline-says/

Excerpt:

Collateralized mortgage obligations (CMOs), which are collections of home-loan bonds, have long been a stalwart of insurers. But for other institutional investors, ownership is scant. DoubleLine Capital, the rising fixed-income power, would like to change that.

And it has some interesting research showing that CMOs dedicated to agency-guaranteed bonds, known as mortgage-backed securities (MBS), can book superior performance over time. MBS, of course, are pools of individual mortgages. Those that agencies support—Fannie Mae, Freddie Mac, and Ginnie Mae, chiefly—carry the pledge that Uncle Sam will cover any defaults.

Once-popular non-government-backed mortgage securities, which took a hit in the 2008 financial crisis, have diminished in volume. These so-called “private label” home-loan bonds dropped by half from then to now, to $1 trillion.

Author(s): Larry Light

Publication Date: 18 February 2021

Publication Site: ai-CIO