While risk management, asset allocation and impending regulatory changes were on the agenda at the CPBI Ontario Region’s 4th Annual Pension Investment Forecast on Wednesday at the Fairmont Royal York, in the end it all came down to a Black Swan.
Qualifying his remarks by explaining that so-called “Black Swan” events are rare events beyond the realm of expectations, Colin Carlton, vice-president of investment research and risk management with the Canada Pension Plan Investment Board, suggested that the most likely catalyst for large-scale problems in the near future is the path to be chosen by incoming U.S. president Barack Obama.
“While things are bad, it might get worse,” he said. Explaining that while a fresh face in the White House helps to instill confidence, Carlton cautioned that the expectations placed upon Obama have reached “messiah-like” proportions and may lead to mass disillusionment if he can’t deliver on the economy. “It has as much to do with psychology as it does with the facts.”
Zev Frishman, vice-president of structured portfolios and external managers with the Ontario Teachers’ Pension Plan, explained that his main concern revolves around the global response to the current financial crisis: namely, that it is sufficient.
“My biggest fear is that what I see as the correct and massive response we’re seeing from central banks and governments will somehow fail,” he said. “And then we face dire deflationary consequences.”
While adamant that the world is not facing another Great Depression, Josephine Marks, managing director of pension assets with Scotiabank, said the financial industry is in denial with regard to the origins of the current crisis.
“What I find a little puzzling is this ‘head in the sand’ attitude as to what caused this,” said Marks. She feels that theories about excessive leverage, a lack of liquidity, complex structures and “evil derivatives and credit instruments” are a smokescreen, and that “the elephant in the room that nobody wants to put their finger on is what I call the behavioural issues. “It’s we in the industry that need to stop the bad apples.”
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