Spooked Investors Pull Out of Financial Sector

(May 21, 2012) — Outflows from financial equity funds hit their highest level since the collapse of Lehman Brothers last week as fears of a Eurozone break up and incidents in the banking sector fuelled a crisis of confidence, data has shown.

Investors around the globe pulled a combined $910.7 million from financial sector funds, according to data monitor EFPR. These were the highest since the first week of October 2008, and the immediate aftermath of the investment bank collapse.

The back drop to these outflows was a $2 billion trading loss incurred by JP Morgan – the details of which are yet to be fully disclosed – and significant deposits being pulled from Greek and Spanish banks over fears of their sovereign’s security.

Commentary from EFPR said: “With a leaderless Greece seemingly circling the drain leading to exit from the Eurozone, investors spent the second week of May looking for asset classes and countries that offer some degree of protection if the currency union begins to unravel.”

For more stories like this, sign up for the CIO Alert newsletter. 

EPFR global-tracked Japan equity funds and Germany equity funds both attracted over $750 million during the week ending May 16; defensive sectors healthcare and biotechnology funds posted their biggest inflow since late October and US bond funds absorbed over $4 billion for the fifth week in a row, EPFR said.

However, despite this lack of confidence in the banking sector, short-sellers have not yet started circling, according to Data Explorers, a Markit company.

Data from the firm showed Banco Santander, the Eurozone’s biggest bank by market capitalisation, has only 0.37% of its shares outstanding on loan. This is a much smaller number than the average 4.2% of stock on loan for the rest of the Spanish IBEX.

In Italy, which along with Spain saw most of its major banks downgraded in the past week, major financial institutions experienced lower levels of shorting than the general index. As an example, Unicredit, one of the country’s largest banks, and no stranger to tough times of late, only has 1.2% of its shares outstanding out on loan, compared with an average of 5.6% for Milan’s FTSE MIB index, Data Explorers said.

(May 18, 2012) — The Canada Pension Plan Fund, which manages Canada’s national pension fund, has reached a record-high valuation.

The fund hit a value of C$161.6 billion ($160.2 billion) last year, adding more than $13 billion to its assets and surpassing the valuation of the Caisse de depot et placement du Quebec at its fiscal year-end December 31.

The CPPIB’s valuation makes it the seventh-largest pension fund in the world.

Despite declines on the Toronto Stock Exchange and other public markets, the CPPIB saw a 6.6% rate of return in fiscal 2012, with gains in US and foreign equity markets, fixed-income instruments, along with private markets, including holdings in infrastructure and real estate. Meanwhile, the CPPIB is eyeing opportunities in Western Europe, Asia, Latin America.

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

“Overall our investment programs delivered a strong performance in fiscal 2012 despite the challenging global equity markets over the past year,” said David Denison, President and CEO, CPPIB. “While we witnessed dramatic fluctuations in global capital markets, our diversification of assets and growing number of global investments contributed to the Fund’s resilience.”

Denison added: “The fiscal 2012 performance of the Fund benefitted from our active management programs and private market holdings, which are less sensitive to the excessive volatility experienced by the public equity markets…As a longterm investor, we were able to take advantage of opportunities provided by market dislocations. We also expanded our global reach in order to participate in the growth and vitality of the world’s emerging markets.”

The fund benefitted from a total of 60 global deals in fiscal 2012, many as part of a consortium, including the US$6.1 billion acquisition of medical technology company Kinetic Concepts Inc and the purchase of a 24.1% stake in Norway’s Gassled gas transport infrastructure for C$3.2 billion.

“We are pleased that our 10-year annualized nominal rate of return of 6.2% is above the 4.0% prospective real rate of return that the Chief Actuary has incorporated in his latest report confirming the sustainability of the CPP, which was achieved even with the sharp declines in equity markets in recent years,” said Denison. “Although the recovery that began in 2010 and continued into 2011 faltered slightly this year, the 10-year return reinforces our confidence in the ability of the Fund’s current portfolio composition and our active investment strategy to generate the returns required to sustain the CPP at its current contribution rate over the longer term.”