MD Financial Management and Scotiabank announce creation of multi-employer pension plan to boost physician retirement security

[Redpill]

https://www.newswire.ca/news-releases/md-financial-management-and-scotiabank-announce-creation-of-multi-employer-pension-plan-to-boost-physician-retirement-security-840728562.html?fbclid=IwAR167V4Hr8_gI9GP8OCxBmO31STb_w1kFFbURG0MtcD88KKC4T02reHcdh4

Thoughts on this?

Seems like it is in the planning stage still, to be launched later this year. Rumor is it might be defined benefit.

The Facebook physician financial group seems to be quite skeptical, although I think they are mostly still sour about CMA selling off MD Financial (for good reason).

Personally don't know much about this, although as I understand it defined benefit pension plans are usually quite good, and usually only available from large public sector unions nowadays.

(Apologies if this is in the wrong forum - mods please advise if this needs to be moved)

[OldManNearTheSea]

The devil will be in the details. Part of what makes defined benefit plans attractive is that your employer is on the hook if the investment portfolio doesn't keep up with society level inflation or longevity risks. A pension plan funded by physician owned professional corporations by definition doesn't have someone else to pick up the tab for physicians if the investment returns are suboptimal. 

What could be good about this is access to professional quality asset managers. Teachers in Ontario have some of the worlds best investors working on their behalf doing very complex transactions that no regular individual could pull off. Other funds have over-priced mediocre investors running their money. You need probably 10 or 20 billion in AUM to build out a high quality organization like OTPP. It will take many years of contributions to get to that scale and then you need to right leadership to build the organization. 

[rmorelan]

14 hours ago, OldManNearTheSea said:

The devil will be in the details. Part of what makes defined benefit plans attractive is that your employer is on the hook if the investment portfolio doesn't keep up with society level inflation or longevity risks. A pension plan funded by physician owned professional corporations by definition doesn't have someone else to pick up the tab for physicians if the investment returns are suboptimal. 

What could be good about this is access to professional quality asset managers. Teachers in Ontario have some of the worlds best investors working on their behalf doing very complex transactions that no regular individual could pull off. Other funds have over-priced mediocre investors running their money. You need probably 10 or 20 billion in AUM to build out a high quality organization like OTPP. It will take many years of contributions to get to that scale and then you need to right leadership to build the organization. 

If you believe that active managers are useful - which is generally against the literature on the subject - then you likely by extension believe that past performance would be a guide to future success. If so then it would be logical to look at MD Financial's track record on their actively managed funds and see how they do relatively to a standardized benchmark. Spoiler alert - they sub performed and did so for decades and that was BEFORE you subtracted their very high fees. They did that as well with no lack of resources to construct something superior. Neither has scotia's investment line either for that matter net of fees. You are left with :

You believe active management with costs will do worse than doing low cost index investing on your own, so just do it yourself 

or

Active management works but MD Financial has not demonstrated with plenty of chances to do so that they are superior in that space. Why would you invest with under performers? 

Either way........

 

 

Edited March 11, 2022 by rmorelan

[OldManNearTheSea]

12 hours ago, rmorelan said:

If you believe that active managers are useful - which is generally against the literature on the subject - then you likely by extension believe that past performance would be a guide to future success. If so then it would be logical to look at MD Financial's track record on their actively managed funds and see how they do relatively to a standardized benchmark. Spoiler alert - they sub performed and did so for decades and that was BEFORE you subtracted their very high fees. They did that as well with no lack of resources to construct something superior. Neither has scotia's investment line either for that matter net of fees. You are left with :

You believe active management with costs will do worse than doing low cost index investing on your own, so just do it yourself 

or

Active management works but MD Financial has not demonstrated with plenty of chances to do so that they are superior in that space. Why would you invest with under performers? 

Either way........

 

 

On average, active management (after fees) is guaranteed to underperform the benchmark; that's just how the math works. 

The idea with something like an OTPP or CPPIB is that the size and time horizon of the aggregate portfolio lets you do things an individual can't and shouldn't on their own. Basically, you get to pick a different benchmark with a better risk/return trade off because the asset management platform opens up access to managers and strategies you don't have with etfs or mutual funds. High quality private equity, VC, and hedge funds generally want nothing to do with individual investors or retail mutual funds. Those same funds will drop everything for a meeting with OTPP or CPPIB. 

I would need to know a lot more about how MD Financial is putting together the organization to say for sure, but I would say your skepticism is warranted. It takes a huge pot of investible assets to reach the scale of a OTPP or CPPIB and significant costs to poach the talent needed to run your new fund.