Have We Entered the Twilight Zone?

On January 25, 2006, Phillip Bowring wrote this op-ed piece in the NYT on pension liabilities:A remarkable if obscure event last week highlighted the potentially colossal impact on the global economy of the collision of two forces: the pension needs of aging populations throughout the developed world and the collapse of long-term interest rates. Pensions do not feature in the long list of subjects to be discussed at the World Economic Forum in Davos this week, but they ought to. The event last week was the fall in the rate of return of 50-year inflation-indexed British government bonds to under 0.4 percent. That is far worse than anything even Japanese savers have experienced - the inflation adjusted on yen bonds was never below 1 percent.The...

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Greek-Style Financial Crisis Hitting U.S. States?

Mary Williams Walsh of the NYT reports, State Debt Woes Grow Too Big to Camouflage: California, New York and other states are showing many of the same signs of debt overload that recently took Greece to the brink — budgets that will not balance, accounting that masks debt, the use of derivatives to plug holes, and armies of retired public workers who are counting on benefits that are proving harder and harder to pay. And states are responding in sometimes desperate ways, raising concerns that they, too, could face a debt crisis. New Hampshire was recently ordered by its State Supreme Court to put back $110 million that it took from a medical malpractice insurance pool to balance its budget. Colorado tried, so far unsuccessfully,...

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Are Pension Liabilities Set to Explode?

Gina Chon of the WSJ reports, Gurus Urge Bigger Pension Cushion:Government-pension problems, widely considered bad, may actually be even worse. That is the assessment of some experts who maintain that the current rules of number crunching for state and local governments make retirement-benefit obligations seem lower than they really are. Soon, their view may prevail. The accounting board for governments is likely to move toward changes that would increase the pension liability that local governments display on balance sheets by tens of billions of dollars. If the modifications are approved, many already cash-strapped states and municipalities would likely have to increase the amount they are supposed to pay annually to...

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David Dodge Calls for Pension Reform

Janet Taber of the Globe & Mail reports, David Dodge Calls For Pension Reform: Former Bank of Canada Governor David Dodge is adding his voice to the debate over pension reform, calling today for a voluntary component to the Canada Pension Plan. Speaking at the 'Canada 150: Rising to the Challenge' conference in Montreal this morning, Mr. Dodge also said there needs to be an “adult debate” over health care. He painted a stark picture of choices and challenges facing Canadians today. Now the Chancellor of Queen's University, Mr. Dodge was the keynote speaker introducing the panel dealing with real life issue for Canadian Families. Nortel workers and others workers who have lost pension savings as their companies went “bust”...

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Private Equity's Unwelcome Intruder?

Hester Plumridge reports in the WSJ, Private Equity's Unwelcome Intruder:The Ontario Teachers Pension Plan has just beaten European buyout firm CVC Capital Partners to the chase to buy U.K. lottery operator Camelot Group. While the £389 million ($576.4 million) deal may be relatively small, it could be the start of a wider trend. Pension funds such as Ontario Teachers are bypassing secondary funds to take charge of equity investments themselves. Their offers of longer-term ownership, and the potential for paying higher prices, could give them an edge with vendors. Pension funds traditionally invest in companies via secondary vehicles: specialist-mutual, private-equity, sector or index funds. But Ontario Teachers, which manages $87.4...

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A Greek Sigh of Relief?

Ambrose Evans-Pritchard reports in the Telegraph, Europe agrees IMF-EU rescue for Greece:After weeks of discord, Europe's leaders have agreed to an emergency facility for Greece backed by the International Monetary Fund and bilateral loans from eurozone states. The accord was vague on figures and aid can be invoked only as a "last resort" if Greece is shut out of the capital markets. Since Greece is already paying an untenable debt premium, the wording once again leaves it unclear what exactly has been settled. Angela Merkel, the German Chancellor, and Jan Peter Balkenende, the Dutch premier, leaders of the two key creditor states, imposed their demand that the IMF must be central to any rescue. While the Eurogroup...

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Canada Launches Pension Consultations

CBC reports that Flaherty seeks views on pension reform:Finance Minister Jim Flaherty wants to hear Canadians' views on whether the country's retirement income system needs to be improved, and, if so, how that should be done. Flaherty announced plans Wednesday for a series of public town hall meetings, roundtables and online consultations over the next five weeks.The town hall meetings will be held in Charlottetown, Quebec City and Richmond, B.C. Discussions with stakeholders, experts and government representatives will take place in St. John’s, Winnipeg and London, Ont. The online consultation process runs until April 30. The government wants feedback in time for a meeting of federal and provincial finance ministers in May, which will...

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Horny For Hedge Funds?

They're back! Facing severe funding shortfalls, public pension funds are popping a few blue pills, horny as ever for hedge funds:Hedge fund firm RAB Capital confirmed clients are returning to its funds that were battered by the credit crisis, after it swung to a loss in 2009 and cut its dividend.Citigroup expects to double the size of its team that advises institutional and government fund clients on hedge fund investments, the bank's global prime finance head, Nick Roe, told Bloomberg in an interview.Standard Life Investments (SLI) will pay a "modest upfront" fee for a 75.1 percent stake in the fund of hedge funds firm, which runs more than $50 million in assets, a spokesman said.Investors are flocking to hedge funds that bet on mergers and...

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Pension Woes May Deepen Financial Crisis

Global pension tension is on the rise again:In Canada, the federal government will stop short of cutting existing pension benefits to public servants in enacting its austerity program, but Stockwell Day, the Treasury Board President, refused to say whether future entitlements would be spared the knife in an effort to rein in Ottawa's massive $53.8-billion deficit. In the private sector, more victims of a failed scheme watch payouts shrink. David Dodge, former governor of the Bank of Canada, says Canadians need to save far more if they want to retire comfortably - even those Canadians who think they have great company pension plans and solid RRSPs.In the UK, a report from Towers Watson said the cost of gold-plated pension promises made to public...

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