| ▲ | cherioo 8 hours ago |
| That seems fine as long as they can show lower volatility than market while still being close in return? Did they? |
|
| ▲ | lesuorac 8 hours ago | parent | next [-] |
| Why does it matter if volatility is lower than the market? Future payments in the short term are covered by inflows. You might as well maximize the returns now so that in the future when it's not covered by inflows you've acrewed a larger return. |
| |
| ▲ | akamaka 3 hours ago | parent | next [-] | | > Future payments in the short term are covered by inflows. That wouldn’t work in a major depression when there is high unemployment and inflows drop. | | |
| ▲ | caminante 44 minutes ago | parent [-] | | Well, it could absorb it because its horizon is past the depression. Let's not forget, CPPIB underperformed a passive benchmark during the Great Financial Crisis and lost 18.8% in FY09. |
| |
| ▲ | vkou 6 hours ago | parent | prev | next [-] | | > Why does it matter if volatility is lower than the market? Because I can trivially beat the market by ~100% by going long on 3:1 margin. The volatility is why that's a bad idea. One time out of five, the consequence of that investment strategy is 'The market had a crash and I lose everything'. 'Lol, YOLO' is not a great investment strategy for a well-ran country. | | |
| ▲ | AnthonyMouse 6 hours ago | parent [-] | | > One time out of five, the consequence of that investment strategy is 'The market had a crash and I lose everything'. Which is why that strategy doesn't actually beat the market. Keep using it for 30 years and you're bankrupt. Whereas if you put your money in a major index 30 years ago and left it there, or even 50 or more years ago, what result? Are you even in a bad place if you put all your money into the market in 1926 and left it there for 100 years? | | |
| ▲ | akamaka 3 hours ago | parent [-] | | Yes, if a retirement fund had put all their money into a stock index in 1926, it wouldn’t have been able to pay out pensions throughout the 1930s and 1940s and would have been bankrupt before the market eventually recovered. Going full index is a great strategy for an individual person aged 20-50, but not a strategy for a pension fund which needs to continuously pay out. | | |
| ▲ | caminante 39 minutes ago | parent [-] | | > Going full index is a great strategy for an individual person aged 20-50, but not a strategy for a pension fund which needs to continuously pay out. It's OK for a person in their 70s that has a few million in the bank. This person (CPPIB) has 780 billion and has a sustainability rating for 75 years. |
|
|
| |
| ▲ | jjtheblunt 7 hours ago | parent | prev [-] | | > Future payments in the short term are covered by inflows. is that similar to the Ponzi scheme pattern, though? | | |
| ▲ | AnthonyMouse 6 hours ago | parent [-] | | Ponzi schemes always make current payments out of current inflows. The first 10 people get paid from the inflows from the next 100 people who get paid from the next 1000 people and so on, until you run out of people to sign up and the last group is left holding the bag. This is how Social Security works in the US because it started out by making payments to people who never paid in and was premised on the early 20th century fertility rate of >3.5 instead of the current ~1.6 to keep the system from collapsing, which is why the "trust fund" is running out of money -- it never had enough to cover future payments to begin with. Whereas having individual years when the fund pays out more than it collected in interest is not a problem as long as that's not what happens on average. | | |
| ▲ | jjtheblunt 5 hours ago | parent [-] | | kudos for a thoughtful and clear explanation: useful indeed as my question was genuine, not snarky. |
|
|
|
|
| ▲ | WorkerBee28474 8 hours ago | parent | prev | next [-] |
| No lol https://youtu.be/DQgqEFOc894?t=267 |
| |
| ▲ | caminante 6 hours ago | parent [-] | | This youtuber appears to be anti-active management. CPPIB is underperforming their own benchmarks and charging substantial active fees. > Where 20 years ago the CPPIB had just 150 employees and total costs of $118-million, it now has more than 2,100 employees and total expenses (not including taxes or financing costs) in excess of $6-billion. But...they don't appear to be terrible v. their peers, but that might be an indictment of pension funds. |
|
|
| ▲ | roncesvalles 7 hours ago | parent | prev [-] |
| "We achieved superior risk-adjusted returns" as an excuse for sovereign fund underperformance is nonsense. PE (depending on how levered it is) inherently has lower volatility than buying public stocks. If your fund gets consistently lower returns than if you had just stuck everything in a 60/40 portfolio, the whole endeavor has failed. |
| |
| ▲ | triceratops 6 hours ago | parent [-] | | I really like the ideal of just chucking it all in VTI (or, since it's Canada, some other equivalent). But does it still work at that scale? Or does the fund exert its own gravitational field on the index in question? | | |
| ▲ | AnthonyMouse 6 hours ago | parent | next [-] | | The gravitational field of indexes that large is one of the reasons why it works. The stock price of a company will generally increase when it's added to a major index because there are now so many more people trying to buy it as part of the index. The risk is nominally that if you ever wanted to move a fund that large into some other investments, the act of selling would lower the price of the assets in the fund. But that's what happens no matter what you invest that amount of money in. But then widely distributed whole-market indexes would tend to mitigate that. The real problem with this is that it disconnects what people invest in from the fundamentals of the companies. Promising companies don't get as much investment if they're not in an index, and mismanaged companies get too much if they are. | | |
| ▲ | triceratops 2 hours ago | parent [-] | | > The gravitational field of indexes that large is one of the reasons why it works I'm confused because my question was whether a sovereign wealth fund could move an index by too much. Not about the issues with index investing (which IMO are mostly overblown). |
| |
| ▲ | caminante 6 hours ago | parent | prev [-] | | Not Canada, but Bank of Japan and the equivalent JP pension fund have juiced the crap out of domestic JP stocks with ETF purchases. |
|
|
