Parliament Votes Nay on Brexit, and Pound Continues to Drop

The UK parliament has again defeated Prime Minister Theresa May, deciding on a no-deal Brexit, and the British pound slid some more.

After Tuesday’s debate, marked by an unusual level of booing, the House of Commons voted 391-242 against an agreement. The pound slid a hair more, in keeping with its long descent, down 6% from a year ago.

Dubbed a “polished turd” by MP Steve Double, the question before the lawmakers was another in a series of disappointments for the May government as it tried to negotiate Britain’s departure from the European Union (EU).

Double argued that there had been many attempts to “undermine” May’s negotiations with the EU, resulting in an “impossible situation” between no-deal and a bad one. “The fact that we are where we are today is a failure of our politics and a failure of our leadership.”

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

After a series of delays and various divorce proposals, May had hoped that 11^th-hour approvals from the EU on the Irish border’s status would result in a breakthrough. It didn’t.

“I profoundly regret the decision that this house has made tonight,” said May, her voice cracking and hoarse. “This is an issue of grave importance for the future of our country.”

“Quite clearly, ‘no-deal’ has to come off the table,” said Labour Party leader Jeremy Corbyn following the court’s decision, suggesting that “perhaps there should be a General Election” so the people could choose “who their government should be.”

Parliament will reconvene on Wednesday to determine if the UK will leave the EU with no plan on March 29. If the House of Commons again rejects May’s plan, it will then determine a vote on extending Brexit.

“Voting against leaving without a deal and for an extension does not solve the problems that we face,” May said, adding that the EU “will want to know what use we want to make of that extension,” putting the answer on the House.

Andrew Wilson, CEO of Goldman Sachs Asset Management’s Europe, Middle East, and Asia division, told CIO the firm expects the British pound to “weaken further amid prolonged uncertainty,” but a reversal of Tuesday’s vote “could provide some support for the currency.”

He said the central expectation was—and still is— that the UK would eventually split from the EU. ”However, we recognize that the timeline for such an outcome is fluid, particularly given the EU is unlikely to accept either a time limit on the Irish backstop or a unilateral UK exit mechanism from the customs arrangements it enforces,” he said.

Tags: Brexit, EU, Jeremy Corbyn, Steve Double, Theresa May, UK

Although its 2018 returns weren’t as hot as previous years, the Healthcare of Ontario Pension Plan has plenty to celebrate.

The Canadian retirement fund for the province’s health sector returned 2.17% in 2018, growing its assets to $79 billion thanks to value added from “active management decisions,” it said in a release. A combination of increased obligations, lower investment results, and a reduced discount rate lowered its already overfunded status by one percentage point, to 121%.

Nonetheless, in a tough year, the fund couldn’t match the 10.88% performance logged in 2017, a great year for the stock market.

The secret to the fund’s success: a non-traditional portfolio with an “extremely long-term approach,” wrote CEO and President Jim Keohane in the organization’s 2018 annual report.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

The Ontario health plan’s asset mix is split between two sections: the inflation and interest rate risk offsetting liability hedge portfolio, made up of real estate and fixed income strategies; and a “controlled risk-taking” return-seeking portfolio, which holds public and private equities, corporate credit, short-term money and foreign exchange, and other absolute return strategies. It also uses derivatives to help manage its risk.

The strategies and their contributions to 2018’s return (1.73% from the return-seeking portfolio and 0.43% from the liability hedge portfolio) puts its 10- and 20-year returns at 11.19% and 8.52%, which have beaten their 8.43% and 6.88% benchmarks.

“Our approach allows us to preserve value even during turbulent and challenging investment environments,” said Keohane.

Keohane said results were “pretty positive across the board,” with the exception of stocks and bonds. “We did put a significant hedge against our public equity position, which cushioned the bullet quite a bit, especially in the third quarter,” he said, adding that without that, the fund would have had a negative year.

“Being defensive turned out to be the right thing to do,” he said.

Private equity and real estate were two of the drivers for the positive performance, yielding 13.7% and 8.88%, respectively. This helped battle the poor results from equities, which returned an aggregate -8.4%.

Challenges the fund faced were stock volatility and central bank tightening. Some plans, such as the health care plan and the Australia Future Fund, were able to do well regardless, but others, like Norway’s Government Pension Fund Global, felt a painful sting by year-end.

In addition to various indexes falling, Canadian bonds also dropped while US Bonds increased. The 10- and 30-year Government of Canada Bond yield slipped 9 and 10 basis points, respectively, from their 2017 performances (from 2.27% to 2.18%, and from 2.05% to 1.95%), and the US’s 10- and 30-year notes both rose by 27 basis points from the year prior (from 2.74% to 3.01%, and from 2.41% to 2.68%).

“Despite market challenges, the investment team was successful in positioning the Fund defensively in a year when missteps could have resulted in significant losses,” said the Fund, which also announced a 2% cost-of-living adjustment increase for its members and beneficiaries, effective April 1.

Canada Launches Pension Enhancement Plan

Tags: Canada, Funded Status, Healthcare of Ontario Pension Plan, Returns