Friday, April 5, 2019

Weekend catch-up

Your weekend edge - catch up with this week's readings:

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This $358 billion pension fund bets on private equity (Link)
With everyone diving in to private equity, future returns may not be as attractive as in the past. Yet the $358 billion California Public Employees’ Retirement system fund (CalPERS) believes it has a competitive advantage. Today, CalPERS has nearly $28 billion, or 8% of assets, in private equity holdings and over the last 10 years, private equity was CalPERS best-performing asset, returning an average of 9% annually, compared with 6.7% on public stocks. CalPERS now believes it may be able to continue this success and on March 18 voted to funnel up to $20 billion more into private equity over the next 10 years.

CalPERS plans to partner with elite private-equity managers, that will make them their sole client. That way, CalPERS would have better control and more transparency to make better investment decisions. The chief investment officer (CIO) of CalPERS believes more private equity is needed to increase the fund's probability of success.

Private equity firms are flocking to Mexico? (Link)
In January of 2018, Mexican regulators eased restrictions on how Mexican pension funds invest their assets. This change allowed foreign private equity managers to tap into the $179 billion worth of pension fund assets for the first time in Mexico. Over the last year many of the world’s top private equity managers have quietly raised billions of dollars from Mexican pension funds.

Well-known names like BlackRock was one of the first foreign asset managers to expand into Mexico, raising $615 million for two funds. Blackstone Group has now also raised $695 million from Mexican pension funds for its first two local private equity funds.

The majority of private equity sales are now to other private equity firms (SBO)

German house prices are up only 8% (cumulative) since 1970

Germany’s mortgage market saw little growth in the past 18 years.
Germany's mortgage market was equivalent to 40.5% of GDP in 2017. This is not surprising as Germany has one of the lowest home ownership rates in Western Europe at 51.9%.
Looking at the Canadian mortgage market we see a different story. The Canadian mortgage market expanded from 39% of GDP in 2000 to over 68% of GDP in 2017.

It is their job to entertain. It is your job to ignore (Link)
Every day media outlets try to tell investors how the markets are doing. This question commands far too much attention given how little it actually matters in most people’s day-to-day lives. Since January 17, 2018 the Dow Jones Industrial Average has seen absolute daily changes add up to over 58,000 points.
Yet over this time, the index has gained less than 100 points.

Why outperforming can be so difficult (Link)
Most assume picking the big winners is the key to outperforming the market for a stock-picker, but it’s likely more important to avoid those distressed stocks that can be so damaging to performance. Since 1980, over 320 companies were removed from the S&P 500 for business distress reasons.
How many individual U.S. common stocks outperform the S&P 500 over rolling 10-year periods? On average 43%. You can see the number got as high as 70% in the 1980s and as low as 25% in the late 1990s.