‘A short on human ingenuity’: Why CPPIB’s new chief says fossil fuel divestment is off the table under his watch
The new chief executive of the Canada Pension Plan Investment Board has no plans to institute a blanket divestment of oil and gas assets during his tenure, in part because he believes science will find solutions to many of the issues that have made enviro
The new chief executive of the Canada Pension Plan Investment Board has no plans to institute a blanket divestment of oil and gas assets during his tenure, in part because he believes science will find solutions to many of the issues that have made environmentalists and some investors question such holdings.
“Simple divestment is essentially a short on human ingenuity,” John Graham told the Financial Post in a recent interview, adding that there are “incredibly bright, talented” scientists and engineers in the oil and gas industry.
“We’ve taken the position that we invest in the entire energy ecosystem, and we do not pursue a path of blanket divestment,” he said.
Invoking science to support energy investments may not be a popular position in some quarters these days, but the 49-year-old, who was abruptly named to the top post at the $475 billion fund in February, has the credentials to back it up.
A research scientist for more than a decade, Graham has a PhD in chemistry from the University of Western Ontario, as well as an MBA from the University of Toronto’s Rotman School of Management.
Navigating the political minefield around energy investments will be one of the key challenges Graham faces as head of the investment platform for Canada’s national pension scheme, which has mandate to “maximize investment returns without undue risk of loss.” Like other large institutional investors, CPPIB is facing criticism not only from environmentalists but from academics who are quick to point out that fossil fuels, no matter how lucrative now, represent risk.
But Graham is not taking sides.
On Tuesday, CPPIB announced that two existing investment groups — energy and resources and power and renewables — will be rolled into a single $18-billion platform called the Sustainable Energy Group to build on investments in renewables, conventional energy and innovation through new technologies and services.
“We will continue to invest across the entire energy ecosystem including active investments we have in Alberta,” Graham said in the interview, which took place shortly before the announcement.
Among those investments is Calgary’s Wolf Midstream, which he pointed to as an example of what he sees as the path forward.
The company, which CPPIB first invested in six years ago, is involved in the conventional oil and gas sector. But Wolf also built and is part owner of the 240-kilometre Alberta Carbon Trunk Line, which captures industrial emissions from fertilizer facilities and refineries and delivers the carbon dioxide to use in enhanced oil recovery at mature oil and gas reservoirs and for permanent storage.
“It is one (investment) we’re quite proud of — a great example of some of the forward-looking thinking around carbon capture,” Graham said.
“I’ve met lots of people through my career, scientists and engineers, who work in the oil and gas sector, and they’re incredibly bright, talented people who will undoubtedly play a role in the energy transition.”
Graham is the second consecutive executive with a science background to lead the investment management team for Canada’s national pension scheme. His predecessor, Mark Machin, was trained as a medical doctor before turning his attention to high finance. Machin resigned from his job as CEO of CPPIB suddenly in February after it was revealed that he had travelled to the United Arab Emirates and been vaccinated against COVID-19 while those his age in Canada were still awaiting inoculation.
While Machin only worked as a doctor for about a year before moving into the world of investing at Goldman Sachs, Graham worked for several years as a researcher in the innovation group at Xerox, before transitioning to a strategy role at the technology company.
He had begun to work on his MBA when a headhunter came calling and lured him to CPPIB. He started in portfolio construction before moving into private investments and credit. As he moved up the ranks, his application of the scientific method was evident.
Take his decision in 2018 to move all CPPIB’s credit investors into a single department, a shift he describes as deliberate and methodical.
Before then, what had become one of the largest global asset classes was being managed within regional departments and asset class groups such as real estate, with a district focus on investment grade versus non-investment grade assets.
Graham’s view was that a broader lens across geographies and assets would help CPPIB capitalize on the opening of less-developed credit markets in China, India and Latin America, where there were fewer such silos or distinctions.
“We think of credit as an investment in credit, and really have built this department that can do public, it can do private, it can do corporate, it can do real estate, it can do structured credit,” he said. “The investment teams will build a portfolio with the best opportunities.”
The investment management organization won’t set “hard” allocations for specific asset classes, Graham said, adding that he will rely on chief investment officer Ed Cass when it comes to assessing macro-economic factors such as interest rates to determine portfolio construction and capital allocation.
While Graham’s ascent to the top job in February was abrupt, given the circumstances, he was far from a dark horse and had been on a very short list of possible successors to Machin since last summer, according to sources with knowledge of the succession planning.
His experience on the credit side of investing is understood to have worked in his favour, given the growing prominence of private debt alongside the sometimes flashier world of private equity. A person with knowledge of the pension management organization’s inner workings said Graham worked under seasoned fund veterans such as Cass and Mark Jenkins, who spearheaded CPPIB’s $12-billion acquisition of major credit platform Antares Capital, and was recognized as a smart and disciplined investor who also possessed a combination of strong leadership skills and strategic sense.
Graham is one of three CPPIB executives on the board of Antares, which was purchased in 2015. He described the in-house investment process that drove that acquisition as a guide to what can be expected under his leadership. Perhaps not surprisingly, the two-year process was methodical — it involved identifying a promising market segment and its key players, the writing of a research paper to back the investment thesis, and then careful observation.
“We watched the market…. When GE went to sell Antares, in many ways we’d already done all the homework,” he said. “We knew it was the market leader, we knew it was the platform we wanted to buy, and the organization was able to move (with) speed. And it’s been a fantastic investment for us.”
• Email: email@example.com | Twitter: tomblackwellNP
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“We Are Headed For Another Train Wreck”: Bill Ackman Blames Janet Yellen For Restarting The Bank Run
"We Are Headed For Another Train Wreck": Bill Ackman Blames Janet Yellen For Restarting The Bank Run
Yesterday morning we joked that every…
Yesterday morning we joked that every time Janet Yellen opens her mouth, stocks dump.
Yellen opens mouth and stocks dump— zerohedge (@zerohedge) March 21, 2023
Well, it wasn't a joke, and as we repeatedly noted today, while Jerome Powell was busting his ass to prevent a violent market reaction - in either direction - to his "most important Fed decision and presser of 2023", the Treasury Secretary, with all the grace of a senile 76-year-old elephant in a China market, uttered the phrase...
- YELLEN: NOT CONSIDERING BROAD INCREASE IN DEPOSIT INSURANCE
... and the rest was silence... or rather selling.
Commenting on our chart, Bloomberg's Mark Cudmore noted it was Yellen who was "to blame for the stock slump", pointing out that "the pessimistic turn in US stocks began within a minute of Janet Yellen starting to speak."
The S&P 500 rose almost 1% in the first 47 minutes after the Fed decision. Powell wasn’t the problem either: the index was 0.6% higher in the first 17 minutes after his press conference started.
Why am I picking that exact timing of 2:47pm NY time? Because that is the minute Yellen started speaking at the Senate panel hearing. The high for the S&P 500 was 2:48pm NY time and it fell more than 2.5% over the subsequent 72 minutes. Good effort.
Picking up on this, Bloomberg's Mark Cranfield writes that banking stocks globally are set to underperform for longer after Janet Yellen pushed back against giving deposit insurance without working with lawmakers. He adds that "to an aggressive trader this sounds like an invitation to keep shorting bank stocks -- at least until the tone changes into broader support and is less focused on specific bank situations." Earlier, we addressed that too:
*YELLEN: NOT CONSIDERING BROAD INCREASE IN DEPOSIT INSURANCE— zerohedge (@zerohedge) March 22, 2023
At least until spoos drop below 4K again
Looking ahead, Cranfield warns that US financials are likely to be the most vulnerable as they are the epicenter of the debate. Although European or Asian banking names may outperform US peers, that won’t be much consolation for investors as most financial sector indexes may be on a downward path.
The KBW bank index has tumbled from its highs seen in early February, but still has a way to go before it reaches the pandemic-nadir in 2020. Traders smell an opening for a big trade and that will fuel more downside. Probably until Yellen blinks.
And if Bill Ackman is right, she will be doing a whole lot of blinking in days if not hours.
While we generally make fun of Ackman's self-serving hot takes on twitter, today he was right when he accused Yellen of effectively restarting the small bank depositor run which according to JPMorgan has already seen $1.1 trillion in assets withdrawn from "vulnerable" banks. This is what Ackman tweeted:
Yesterday, @SecYellen made reassuring comments that led the market and depositors to believe that all deposits were now implicitly guaranteed. That coupled with a leak suggesting that @USTreasury, @FDICgov and @SecYellen were looking for a way to guarantee all deposits reassured the banking sector and depositors.
This afternoon, @SecYellen walked back yesterday’s implicit support for small banks and depositors, while making it explicit that systemwide deposit guarantees were not being considered.
We have gone from implicit support for depositors to @SecYellen explicit statement today that no guarantee is being considered with rates now being raised to 5%. 5% is a threshold that makes bank deposits that much less attractive. I would be surprised if deposit outflows don’t accelerate effective immediately.
Ackman concluded by repeating his ask: a comprehensive deposit guarantee on America's $18 trillion in assets...
A temporary systemwide deposit guarantee is needed to stop the bleeding. The longer the uncertainty continues, the more permanent the damage is to the smaller banks, and the more difficult it will be to bring their customers back.
... but as we noted previously pointing out, you know, the math...
Math: $18 trillion in deposits, $125 billion in the deposit insurance fund. https://t.co/Zsu2RsJk41 pic.twitter.com/nb3Ypnt1gd— zerohedge (@zerohedge) March 21, 2023
... absent bipartisan Congressional intervention - which is very much unlikely until the bank crisis gets much, much worse - this won't happen and instead the Fed will continue putting out bank fire after bank fire - even as it keeps hiking to overcompensate for its "transitory inflation" idiocy from 2021, until the entire system burns down, something which Ackman's follow-up tweet was also right about:
Consider recent events impact on the long-term cost of equity capital for non-systemically important banks where you can wake up one day as a shareholder or bondholder and your investment instantly goes to zero. When combined with the higher cost of debt and deposits due to rising rates, consider what the impact will be on lending rates and our economy.
The longer this banking crisis is allowed to continue, the greater the damage to smaller banks and their ability to access low-cost capital.
Trust and confidence are earned over many years, but can be wiped out in a few days. I fear we are heading for another a train wreck. Hopefully, our regulators will get this right.
Narrator: no, they won't.
China’s Auto Industry Association Urges “Cooling” Of Price War, As Major Manufacturers Slash Prices
China’s Auto Industry Association Urges "Cooling" Of Price War, As Major Manufacturers Slash Prices
Just hours after we wrote about maniacal…
Just hours after we wrote about maniacal price cutting in the automotive industry in China, China's auto industry association is urging automakers to "cool" the hype behind price cuts.
The statement was made in order to "ensure the stable development of the industry", Automotive News Europe reported on Tuesday.
The China Association of Automobile Manufacturers even went so far as to put out a message on its official WeChat account, stating that "A price war is not a long-term solution". Instead "automakers should work harder on technology and branding," it said.
The consumer disagrees...
Recall we wrote earlier this week that most major automakers were slashing prices in China. The move is coming after lifting pandemic controls failed to spur significant demand in China, the Wall Street Journal reported this week. Ford and GM will be joined by BMW and Volkswagen in offering the discounts and promotions on EVs, the report says.
Retail auto sales plunged the first two months of the year and automakers are facing additional challenges in trying to transition their business models to prioritize EVs over conventional internal combustion engine vehicles.
Ford is offering $6,000 off its Mustang Mach-E, putting the standard version of its EV at just $31,000. Last month, only 84 of the vehicles were sold, compared to 1,500 sales in December. There was some pulling forward of demand due to the phasing out of subsidies heading into the new year, and Ford had also cut prices by about 9% in December.
A spokesperson for Ford called it a "stock clearance".
Discounts at Volkswagen are ranging from around $2,200 to $7,300 a car. The cuts will affect 20 gas powered and electric models. Its electric ID series is seeing price cuts of almost $6,000. The company called the cuts "temporary promotions due to general reluctance among car buyers, the new emissions rule and discounts offered by competitors."
Even more shocking is Citroën-maker Dongfeng Motor Group, who is offering a 40% discount on its C6 gas-powered sedan, now priced at $18,000.
Kelvin Lau, an analyst at Daiwa Capital Markets, told the Journal that automakers are also trying to get rid of 500,000 vehicles collectively stored in their inventory, most of which are older vehicles that won't meet new emissions standards.
David Zhang, a Shanghai-based independent automobile analyst, added: “Some car makers have been seeing very few sales. At this rate, the manufacturers’ production and dealership networks will collapse.”
COVID origins debate: what to make of new findings linking the virus to raccoon dogs
New reports suggest the pandemic’s origins may be linked to raccoon dogs sold at Wuhan’s Huanan Wholesale Seafood Market. A virologist explains.
The origin of SARS-CoV-2, the virus that causes COVID, has long been a topic of heated debate. While many believe SARS-CoV-2 spread to humans from an animal at Wuhan’s Huanan Wholesale Seafood Market, others have argued the virus was accidentally leaked from a lab at the Wuhan Institute of Virology.
Over the past week there has been intense activity surrounding the emergence of new data relevant to this question. In particular, reports emerged that the pandemic’s origins may be linked to raccoon dogs which were being sold illegally at the market.
The excitement stemmed from a re-analysis of raw data generated as part of official investigations into the role of the Huanan Wholesale Seafood Market in the outbreak.
The team of international scientists working on this re-analysis (from North America, Europe and Australia) alerted the World Health Organization and discussed the topic in an article published in The Atlantic. And the scientists themselves have now released a report on the issue, providing greater detail.
So what can we make of their findings? Will this development shift the course of the ongoing debate? Let’s take a look.
The Huanan market
In January 2020, writing about the emergence of what we now call SARS-CoV-2, I stated the importance of understanding how this pandemic began. It remains important to determine the virus’s origins because this knowledge may help us stop the next pandemic occurring.
Even very early in 2020, it was clear that the central Chinese city of Wuhan (a major metropolis and travel hub) was the epicentre of the outbreak. Within Wuhan, the Huanan seafood market stood out as it was associated with many – but not all – of the earliest cases. Indeed, the market was closed on January 1 2020, animals were culled, and the site was disinfected.
Suspicions arose given the role that animal trade and markets had played in the emergence of the closely related SARS-CoV-1 virus (which caused SARS, a widespread outbreak of viral respiratory disease) nearly two decades earlier. Evidence emerged that the Huanan seafood market also sold live mammals, including a fox-like mammal known as a raccoon dog, that we now know are susceptible to SARS-CoV-2.
Later epidemiological and genetic analyses further focused in on the market, and even specific stalls within it, as being the origin of the pandemic.
Read more: The original Sars virus disappeared – here's why coronavirus won’t do the same
The new data
As part of the official investigations into the market, swabs were collected from various parts of the market in the two months after it shut down at the start of 2020. The scientists who undertook this research, from the Chinese Center for Disease Control and Prevention, posted their analysis as a pre-print (a study yet to be peer-reviewed) in February 2022.
In this, the team concluded that the market likely played a significant role in SARS-CoV-2’s early spread, but that they couldn’t detect the virus in samples taken directly from animals. They reported that all the virus evidence found was associated with humans, and it was therefore likely the virus had been brought into the market by humans, not animals, and so perhaps the pandemic began elsewhere.
However, prior to any official peer-reviewed publication, the raw data from this work was released on an open scientific database called Gisaid. And the group of scientists who re-analysed this data did actually find an association between SARS-CoV-2 and animals, in particular raccoon dogs in the market.
They found DNA from animals mixed in with SARS-CoV-2 in a number of samples from the market. Some positive samples contained no human DNA and mostly raccoon dog DNA. This mix of virus and animal material is consistent with an infected animal – not a human – shedding virus, which is what you might expect if SARS-CoV-2 originated from animals brought into the market. Unfortunately, samples from a living raccoon dog were either not taken or not reported, and the official investigation makes no mention of raccoon dogs.
Where to from here?
While this latest data is one additional piece of the puzzle that supports an origin of the pandemic linked to Wuhan’s animal trade, it is unlikely to provide irrefutable evidence. It’s important to note it’s also a pre-print.
Ideally, we would like animal samples from early December 2019, and to compare animal virus genomes with human ones. It will also be crucial to follow events backwards through the animal trade and farming systems to work out where the animals got the virus from in the first instance.
Further, we must bear in mind that the virus could have easily been given to a raccoon dog by an infected human, or that the association between raccoon dog DNA and SARS-CoV-2 may be coincidental.
Read more: We want to know where COVID came from. But it’s too soon to expect miracles
However, evidence is accumulating that official investigations have left a gap in their research – particularly around the role that animals like raccoon dogs and the wildlife trade played in the origins of the pandemic.
While it may be unlikely that we will ever get concrete evidence as to how SARS-CoV-2 entered the human population, we can still think pragmatically and seek to alter behaviour and practices to reduce the chance of a new pandemic. One immediate target would be food systems (encompassing farm to fork), and how to make farming and the wildlife trade safer for all, potentially by enhancing virus surveillance in animals.
Connor Bamford receives funding from Wellcome Trust, UKRI, SFI and BMA Foundation.disease control center for disease control pandemic coronavirus genetic dna spread wuhan europe world health organization
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