July 25, 2017

The SEC says cryptocurrencies are securities (link to full report added):

The Securities and Exchange Commission issued an investigative report today cautioning market participants that offers and sales of digital assets by “virtual” organizations are subject to the requirements of the federal securities laws. Such offers and sales, conducted by organizations using distributed ledger or blockchain technology, have been referred to, among other things, as “Initial Coin Offerings” or “Token Sales.” Whether a particular investment transaction involves the offer or sale of a security – regardless of the terminology or technology used – will depend on the facts and circumstances, including the economic realities of the transaction.

The SEC’s Report of Investigation found that tokens offered and sold by a “virtual” organization known as “The DAO” were securities and therefore subject to the federal securities laws. The Report confirms that issuers of distributed ledger or blockchain technology-based securities must register offers and sales of such securities unless a valid exemption applies. Those participating in unregistered offerings also may be liable for violations of the securities laws. Additionally, securities exchanges providing for trading in these securities must register unless they are exempt. The purpose of the registration provisions of the federal securities laws is to ensure that investors are sold investments that include all the proper disclosures and are subject to regulatory scrutiny for investors’ protection.

The SEC’s Office of Investor Education and Advocacy today issued an investor bulletin educating investors about ICOs.

The Ontario government’s pension fund manager has opened for business:

Toronto-based Investment Management Corporation of Ontario (IMCO) begins managing the $60-billion on behalf of its first two clients, Workplace Safety and Insurance Board (WSIB) and the Ontario Pension Board (OPB), on Monday after a lengthy integration process. IMCO hopes to add other small public-sector plans over time by offering them access to a broader range of asset classes at lower fees.

IMCO has roots in a 2012 report on what might be gained by pooling Ontario’s fragmented public-sector pension funds. It was penned by Bill Morneau, who was then president of Morneau Shepell and a pension investment adviser to Ontario’s Minister of Finance. His review suggested that size does matter in investing, that grouping these funds together would be a more efficient investment method and that plans might collectively save more than $75-million each year.

When the initial build out of IMCO’s investment teams is completed more than a year from now, he will need to be able to make a compelling argument to potential future clients that the improved returns and lower costs will lead to better results than what they would be able to source on their own. Otherwise, there’s no incentive for a prospective client to join the voluntary IMCO group.

But the model already has a strong track record in Western Canada. Alberta Investment Management Corp., known as AIMCo, manages more than $90-billion of assets for 26 pension, endowment and government funds in its province. British Columbia Investment Management Corp., or BCIMC, is even larger, managing $135-billion for more than 30 institutional clients.

Like its Western cousins, IMCO will also look to manage more of its money in house, rather than buying investments in asset through other fund managers.

It will not have escaped the intelligent and assiduous reader that, in the context of a $60-billion portfolio, $75-million in projected fee savings is only slightly greater than the square root of fuck-all. I don’t want to issue any doom-filled forecasts here, but as I have pointed out in the past:

I don’t think there’s anything wrong with the Yale model, but there are definitely problems with the implementation – as I told one guy recently, just because I believe the “Warren Buffet style” of investment CAN work, doesn’t mean I think YOU can do it.

The field is filled with ignoramuses and charlatans and institutional boards aren’t any better at picking winners than any other retail investor who handles his investments as a part-time job. Hiring a small group of specialists to farm out the work to third party firms just makes matters worse, because then allocations are made on the basis of two salesmen talking to each other.

For an institution to outperform, I believe that you have to have most, if not all, of the investment expertise in-house. ‘You don’t need to sell anything, guys, you just have to outperform on a rolling four year basis or you’re fired.’ This is the Teachers/OMERS model – and it works.

So, I will direct readers’ attention to the assertion in today’s Globe article: he will need to be able to make a compelling argument to potential future clients that the improved returns and lower costs will lead to better results. That is to say, sales. It must be remembered that, in government as in business, the guys in charge of pension plans are not professional investors and don’t have any more expertise in investing than any other accountant with a $200,000 RRSP. So they’re susceptible to just as much stockbroker flim-flam as any other member of the gullible investing public.

So you get investment decisions being made on the basis of how well it can be explained to an uninformed client and that view becomes pervasive throughout the organization; with people’s bonuses being paid not for performance, but for Assets Under Management. In the worst case scenario, people start brown-nosing the government of the day instead of asking themselves how, exactly, do I put more actual money into my actual clients’ actual pockets:

It’s a black day for the professionalism of the Canadian investment management industry, such as it is. It looks like the OTPP’s foray into politics (sneered at on October 7) comes straight from the top:
Ontario’s proposal to create a voluntary disclosure rule to boost women on boards is unlikely to cause much improvement and will likely have to be turned into a quota, warns the head of Ontario Teachers’ Pension Plan.

Speaking at a public forum Wednesday hosted by the Ontario Securities Commission, Jim Leech said Canada has a smaller proportion of women on corporate boards than countries like Turkey and Poland. He said voluntary disclosure rules can be tried for three or four years, but will probably end up being rejected as inadequate.

“Let’s skip this intermediate step we don’t think is going to work,” Mr. Leech proposed.

Teachers has urged regulators to instead require all public company boards to have at least three women directors.

Maybe Leech is sucking political arse in hopes of a position with the proposed Ontario Pension Plan.

So, let’s hope. And particularly, let us hope that the new entity looks more like HOOPP, one of the best organizations I know of and not so much like Honest Jimmy’s Best Mutual Funds:

Never let it be said that I never say anything nice on this blog! For instance, on March 25, 2009 and again on April 17, 2012, I said nice things about the Hospitals of Ontario Pension Plan (HOOPP). And now there are more nice things to say:
The Healthcare of Ontario Pension Plan (HOOPP) has posted returns for 2012 of 17.1 per cent, which boosted the pension plan for Ontario healthcare workers to a record $47.4 billion in assets, compared to $40.3 billion at the end of 2011. This strong double-digit return increased HOOPP’s 10-year average rate of return to more than 10 per cent, one of the best long-term records among pension plans worldwide.

At the end of 2012, HOOPP was 104 per cent funded – this fully funded status means the Plan has sufficient assets to pay for every promised member’s pension benefit, with no shortfall.

“HOOPP had a very strong year in 2012 – with our best investment results in more than a decade,” says HOOPP President & CEO Jim Keohane. “This was a year when all of our investment strategies worked. We were firing on all cylinders, with positive returns from every type of investment,” he said. HOOPP’s liability driven investment (LDI) strategy continues to contribute to HOOPP’s success, Keohane added.

“Liability Driven Investment” is the cool way of saying “paying attention to your client’s needs”. HOOPP is in a good position to do this, because they have exactly one client and aren’t looking for new ones, despite idiotic initiatives from Premier Dad’s office that would encourage large plans to stock up on salesmen and get rid of those dreary nerds. That’s the real secret – a focus on return made possible by a complete absence of pressure for sales. Then you can fire the moron whose sole useful attribute is being buddies with a large client; then you can do all kinds of things. In an interview with the Star, though, president and CEO Jim Keohane emphasized scale, which is probably more diplomatic.

It was a tough day for global bonds:

Markets took a risk-on tone Tuesday as generally positive earnings and economic data bolstered confidence in the strength of the global economy. The data come as the Fed will weigh robust global growth against feeble inflation and mixed U.S. economic data. Expectations are for policy makers to keep rates on hold; clues to the fate of its balance sheet will be key.
  • •The yield on 10-year Treasuries rose seven basis points to 2.33 percent, the most in a month.
  • •Germany’s 10-year yield rose six basis points to 0.566 percent.
  • •Britain’s 10-year yield rose seven basis points to 1.258 percent, the highest in more than a week.
  • •France’s 10-year yield rose seven basis points to 0.812 percent, the first advance in more than a week.

In Canada the five-year yield popped up to 1.63% and the ten-year rose to 2.02%.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.5340 % 2,420.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.5340 % 4,440.9
Floater 3.58 % 3.60 % 129,741 18.29 3 0.5340 % 2,559.3
OpRet 0.00 % 0.00 % 0 0.00 0 0.0078 % 3,062.3
SplitShare 4.70 % 4.39 % 52,631 3.79 5 0.0078 % 3,657.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0078 % 2,853.4
Perpetual-Premium 5.39 % 4.73 % 64,752 6.10 21 0.0889 % 2,773.3
Perpetual-Discount 5.30 % 5.28 % 83,527 14.99 15 0.1103 % 2,915.3
FixedReset 4.32 % 4.32 % 184,384 6.38 98 0.3488 % 2,409.3
Deemed-Retractible 5.08 % 5.46 % 118,919 6.13 30 0.0014 % 2,855.6
FloatingReset 2.54 % 2.88 % 43,653 4.27 10 0.0225 % 2,636.1
Performance Highlights
Issue Index Change Notes
BNS.PR.Y FixedReset -1.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.29
Bid-YTW : 4.78 %
TD.PR.T FloatingReset -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.26
Bid-YTW : 2.82 %
MFC.PR.K FixedReset 1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.89
Bid-YTW : 5.93 %
VNR.PR.A FixedReset 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-25
Maturity Price : 22.06
Evaluated at bid price : 22.65
Bid-YTW : 4.80 %
MFC.PR.N FixedReset 1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.34
Bid-YTW : 5.67 %
TRP.PR.H FloatingReset 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-25
Maturity Price : 15.59
Evaluated at bid price : 15.59
Bid-YTW : 3.10 %
IFC.PR.A FixedReset 1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.83
Bid-YTW : 7.00 %
BAM.PR.K Floater 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-25
Maturity Price : 14.48
Evaluated at bid price : 14.48
Bid-YTW : 3.59 %
SLF.PR.I FixedReset 1.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.70
Bid-YTW : 4.87 %
SLF.PR.G FixedReset 1.39 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.50
Bid-YTW : 8.12 %
BAM.PF.B FixedReset 1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-25
Maturity Price : 22.62
Evaluated at bid price : 23.00
Bid-YTW : 4.55 %
PWF.PR.P FixedReset 1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-25
Maturity Price : 17.12
Evaluated at bid price : 17.12
Bid-YTW : 4.38 %
MFC.PR.M FixedReset 1.45 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.44
Bid-YTW : 5.68 %
MFC.PR.F FixedReset 1.62 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.98
Bid-YTW : 8.41 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.B FixedReset 355,950 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-25
Maturity Price : 21.64
Evaluated at bid price : 22.07
Bid-YTW : 4.30 %
TD.PR.S FixedReset 193,425 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.80
Bid-YTW : 3.38 %
NA.PR.W FixedReset 158,300 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-25
Maturity Price : 21.41
Evaluated at bid price : 21.75
Bid-YTW : 4.36 %
TD.PF.C FixedReset 130,850 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-25
Maturity Price : 21.57
Evaluated at bid price : 21.97
Bid-YTW : 4.30 %
TD.PF.H FixedReset 128,625 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.19
Bid-YTW : 3.63 %
RY.PR.Z FixedReset 124,300 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-25
Maturity Price : 21.69
Evaluated at bid price : 22.13
Bid-YTW : 4.23 %
RY.PR.H FixedReset 123,000 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-25
Maturity Price : 21.74
Evaluated at bid price : 22.21
Bid-YTW : 4.25 %
PWF.PR.P FixedReset 116,500 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-25
Maturity Price : 17.12
Evaluated at bid price : 17.12
Bid-YTW : 4.38 %
There were 31 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
SLF.PR.H FixedReset Quote: 20.63 – 20.95
Spot Rate : 0.3200
Average : 0.2125

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.63
Bid-YTW : 6.20 %

TD.PR.T FloatingReset Quote: 24.26 – 24.60
Spot Rate : 0.3400
Average : 0.2396

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.26
Bid-YTW : 2.82 %

IFC.PR.C FixedReset Quote: 22.42 – 22.75
Spot Rate : 0.3300
Average : 0.2379

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.42
Bid-YTW : 5.45 %

BAM.PR.N Perpetual-Discount Quote: 21.50 – 21.84
Spot Rate : 0.3400
Average : 0.2504

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-25
Maturity Price : 21.50
Evaluated at bid price : 21.50
Bid-YTW : 5.59 %

MFC.PR.I FixedReset Quote: 24.17 – 24.43
Spot Rate : 0.2600
Average : 0.1719

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.17
Bid-YTW : 5.03 %

BAM.PR.M Perpetual-Discount Quote: 21.46 – 21.83
Spot Rate : 0.3700
Average : 0.2841

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-25
Maturity Price : 21.46
Evaluated at bid price : 21.46
Bid-YTW : 5.60 %

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