National Regulator? Bah, Humbug! (Bradley)

Friday, December 23rd, 2011

From today’s Globe and Mail: “Finance Minister Jim Flaherty says Canada will not move ahead with its proposed Securities Act in light of the Supreme Court of Canada’s decision to declare it unconstitutional … The Supreme Court unanimously declared the proposed Act unconstitutional, siding with provinces that insisted the day-to-day regulation of securities markets does not belong in federal hands.”

It’s bureaucracy like this that prevents smaller firms (like Steadyhand) from offering their funds nationwide. Canada is one of few countries that doesn’t have a national securities body, which has been cited as a weakness in our system by many observers. Instead, investment firms have to deal with 13 different regulators (one for each province and territory).

The cost of filing a prospectus, and the associated regulatory expenses of dealing with each province individually, is extremely expensive. It’s the key reason why we only offer our funds in five provinces. As we grow, we hope to make our offering available in every province, but at this stage in our development, the costs are too prohibitive.

As a young business, it’s disheartening to turn down interested investors in Quebec, the Maritimes and the Territories (where the inquiries have been growing steadily). Unfortunately, the news today suggests we’re not going to see a national regulator anytime soon. Bah, humbug.

Tags: Bureaucracy, Federal Hands, Finance Minister Jim Flaherty, Globe And Mail, Inquiries, Interested Investors, Investment Firms, Maritimes, National Securities, News Today, Observers, Prospectus, Quebec, Regulators, Securities Markets, Siding, Steadyhand, Supreme Court Of Canada
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Investors Turning to Active Commodities Strategies?

Thursday, May 19th, 2011

by Leo Kolivakis, Pension Pulse

Via Pension Pulse.

I hooked up for lunch with commodity relative value fund manager I spoke to on Monday. He’s looking to raise raise capital for this new fund which he will be managing with other experienced traders and we went through his pitch book.

I’ve sat with some of the best hedge fund managers in the world. The best of the best know the theory but more importantly, they can give you tons of examples of actual trades that went for and against them. That’s exactly how this manager presented his views. He has the academic and industry credentials, but it’s his actual commodity trading experience in Canada and the US that came through as he walked me through one trading example after another.

I love talented alpha managers. I’ll repeat what I’ve been stating the last few posts, there is exceptional alpha talent in Quebec that is being underutilized or worse still, totally ignored. I met two of Montreal’s best hedge fund managers today and I wouldn’t bat an eyelash to invest in either one of them (the other is an equity market neutral manager).

The question I get from outside-Quebec investors is if they’re so good how come the Caisse and other large Quebec institutions don’t invest in these new and existing hedge funds? There are a lot of reasons. First, reputation risk. There have been quite a few scandals in Quebec with institutions getting burned with funds like Lancer, Norshield, Norbourg, and other frauds. The last thing any institution here needs is to read that some hedge fund they invested with blew up, especially if it’s a local fund (the media in Quebec are merciless).

Second, unlike other places, Quebec lacks the entrepreneurial drive to develop the absolute return industry here in Montreal. There entrepreneurs and visionaries like Jean-Guy Desjardins over at Fiera Sceptre who are trying hard to change this. His fund runs both long-only and a good size equity market neutral fund.

But no matter how smart and successful Jean-Guy Desjardins is, he cannot change Quebec’s absolute return landscape by himself. Quebec institutions like the Caisse, the FTQ, Desjardins, and the National Bank have to do a lot more to develop alpha talent within and outside their organization (Ontario Teachers’ has seeded a few Ontario hedge funds and funds of funds).

At one point, Desjardins Asset Management had the largest fund of funds in Canada, but after the crisis they shut that operation down, cutting it at the worst possible time (terrible business decision and way too conservative risk management). Unfortunately, even when they were big, they hardly seeded any Quebec hedge fund and mostly invested in managers based out of New York and London.

There is this misconception out there that managers from New York and London are better. The commodity arbitrage manager explained it to me like this since he worked in both countries: “There are more CFAs per capita here in Montreal who understand theory well, but they lack money management experience. If you go to New York, there are a lot of good traders but they’re not brighter than our investment managers”.

Another prominent Quebecer who worked in both countries explained it to me like this: “Any bozo could open a hedge fund in New York. Lots of slick Wall Street salesmen who lost their jobs after the crisis were able to raise millions and start a hedge fund. That’s why a lot of hedge funds suck and charge alpha fees for beta (we were discussing the Bridgewater paper, selling beta as apha).

That’s another topic that I raised with this commodity arbitrage manager. How many bozos are able to make a lot of money in this business either because they can bullshit their way into a position or they’re purely lucky and ride the wave for as long as they can. One of the smartest and nicest guys I know in this business works with the Fixed Income group at the Caisse and I can assure you he’s not getting compensated anywhere close to what many bozos in finance are getting paid. That’s what pisses me off about our business, too many snake oil peddlers are getting away with murder and getting paid way too much money while smart people get shafted.

And don’t get me started on brokers. Most of them are pure financial whores who’ll do anything to squeeze a buck out of their clients. There are excellent brokers, people who offer fantastic, actionable ideas, but they’re a dying breed. That commodity arbitrage manager told me: “I don’t shop around trading ideas. I reward brokers who offer me good insight, and trade with them even if they’re more expensive.” That’s the way it should be, reward the brokers who offer you the best ideas.

We started discussing passive commodity indexes, and I told him I don’t believe in them. Some of the larger ones are all about energy and even the ones that are more diversified are way too volatile to justify a sizable allocation. Moreover, the diversification benefits of these passive commodity indexes are exaggerated, and most of the returns can be explained by rebalancing and roll yield.

Tags: Absolute Return, Canadian Market, Commodities, Commodity Trading, Crude Oil, Experienced Traders, Eyelash, Frauds, Hedge Fund Managers, Hedge Funds, Industry Credentials, Local Fund, Market Neutral Fund, Matte, Norbourg, Pitch Book, Quebec, Relative Value, Reputation Risk, Scandals, Sceptre, Visionaries
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Douglas Porter: Canada Boasts Low Inflation

Monday, May 12th, 2008

May 9, 2008 – Courtesy of BMO Capital Markets – Douglas Porter, Deputy Chief Economist, BMO, from Focus (Economic Research), May 9, 2008.
Just imagine where oil prices would be if the U.S. economy was not in a recessionette. Oil galloped above $125 this week, more than doubling in the short space of a year. Can we all agree that this formidable surge is much more than just a weak US$ story? After all, oil prices are also up 75% in euro terms over the past year and 83% in Canadian dollar terms.
And, this is a lot more than just due to supply disruptions in Nigeria, Venezuela, or Timbuktu. This latest oil shock is a global event, with wide-ranging implications. Here are some of the most important (in no particular order):

1) Headline inflation is poised to pop further globally. The risk for central bankers is that sustained strength in headline inflation may yet alter inflation expectations.
2) Soaring energy prices could put further upward pressure on food costs, aggravating an already dire set of circumstances.
3) Global growth may take a hit, with the U.S., Europe and Japan particularly at risk. Just the run-up in energy prices since Q1 will cost U.S. consumers more than $100 billion annually—gobbling up the tax rebates.
4) Sovereign wealth funds, already wielding enormous power, will become even more powerful, particularly those from the Middle East and Russia.
5) China’s trade surplus should narrow meaningfully. A rapidly rising import bill for energy and other commodities, strains in its major export markets (the U.S., Japan and Europe), strong domestic demand, and a rising currency all point to a drop in China’s trade surplus. Still, its stock of foreign assets will continue to grow quickly for a while yet.
6) Canada’s trade surplus will hold up better than expected, providing important support for the loonie. While it hasn’t worked in 2008, the rule-of-thumb is that every $10 rise in oil translates into a 3-to-5 cent gain in the Canadian dollar. At the very least, record oil prices will keep the CAD from retreating.
7) Canada’s regional imbalances will continue to widen. Soaring energy costs, a strong currency and a suffering U.S. economy spell trouble for Ontario and Quebec with a capital T.
8) The relative outperformance of the TSX versus the S&P 500 and other major markets will continue. While most of the world has seen serious setbacks this year, the TSX came within a few points of its all-time high this week. 
9) Interest rates are unlikely to come down much further. The Fed’s lingering inflation concerns will be stoked by record crude, and definitely ditto for the ECB.
10) First it was food riots in the world’s poorest countries. Will we now see some serious unrest in countries further up the chain amid soaring energy costs?

Amid surging global commodity prices, Canada now boasts one of the lowest inflation rates in the world at 1.4% y/y. Among major and even semi-major countries, only Japan is now lower at 1.2%, and it is rising rapidly. In fact, among the world’s top 40 economies, Canada is one of only five countries to have recorded a drop in its inflation rate from a year ago. And three of those other countries still have inflation rates of at least 5.5% (India, Argentina and Turkey). Britain is the other country with lower inflation than a year ago, and the BoE is also cutting rates. Among the top 40 economies, the median inflation rate has vaulted from 2.5% a year ago to 4.3% now (Spain, Australia, Korea and the U.S. are all fairly close to both those figures). Canada, meantime, has gone from 2.3% to 1.4%—i.e. from close to the middle of the pack to near the low. Thank you loonie, and with an assist from the GST cut.

Tags: Argentina, Australia, BMO, BMO Capital Markets, Britain, Cad, Canadian Market, cent, Chief Economist, China, Commodities, Commodity, Currency, Deputy Chief Economist, Dollar, Douglas Porter, ECB, Economics, Economy, energy, Energy Costs, Energy Prices, Euro, Europe, Fed, Federal Government, Focus, Food Costs, Food Riots, India, inflation, interest rates, Japan, Korea, Markets, Middle East, Nigeria, oil, Oil Prices, Oil Shock, Ontario, Outperformance, Porter, Quebec, Recession, record oil prices, risk, Russia, S&P 500, Setback, Spain, Top 40, Turkey, UK, United States, upw, usd, Venezuela
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