Once the federal election campaign kicks off, Liberal MPs will be wandering the land clutching a Finance Department-authored script meant to deal with any tough questions voters ask on income trusts.
Voters who are more than a little miffed about the damage done to their savings since Finance Minister Ralph Goodale launched his review of the trust sector are to be told to calm down. Sure, the sector is down by 11 per cent since then. Yes, billions of dollars worth of wealth has been vaporized. But apparently, it's not Ottawa's fault.
To shift blame, Finance mandarins have penned talking points for MPs, suggesting the politicians blame the markets for the damage done to RRSPs through the trusts held in RRSPs. "Lower oil prices" and "concerns about higher interest rates" have depressed unit prices. The Finance document says: "Clearly, the decline in the trust index (which is heavily weighted in energy) cannot be attributed solely to the announcement."
That answer just doesn't add up.
For the most part, Bay Street is trying to keep the debate on trusts at an intellectual level. Most corporate finance types welcome a spirited policy debate on trusts -- in fact, they think it should have happened several years ago, before benign neglect on the government's part lit a fire under the sector.
In the spirit of informed debate, RBC Dominion Securities analyst Dirk Lever and his team crunched the numbers on the trust selloff in October, when the decline was at its worst. They found much blame does lie at Mr. Goodale's door.
Think about the dynamics of most any business. When energy prices drop, costs fall. Oil prices are down in the past few weeks. So results at most business trusts are going to be better, not worse. Yet the market has sold off.
RBC Dominion's team concluded: "If we assume 5 per cent of the decline [in the business trusts]is a result of interest rates, using the Canadian and U.S. REITs as a proxy, then [the remaining]9.2 per cent of the decline (or two-thirds, or $5-billion) can be attributed to the recent uncertainty in the sector -- the recent furor surrounding the federal white paper."
If the government goes into an election campaign without clearing the air on income trusts, Liberal MPs should not be able to dodge tough questions on trusts with their Finance Department-scripted answers. This is a mess of the government's making.
Analyze this
You don't have to look too far down the ranks at RBC Dominion Securities to find a former analyst who has enjoyed a decent second career as an investment banker. Chuck Winograd had some great calls in the research department before moving on up the ladder -- these days, he's the CEO.
This week, the corporate finance team at RBC Dominion rolled out the red carpet for former non-bank financial services analyst Mohammad Saleem, who was covering sectors such as the publicly traded brokerage houses for CIBC World Markets.
Fund managers on the move
As the traditional domestic pension fund managers know all too well, the growth areas in money management these days aren't the old standards, such as Canadian equities and bonds. The newest things include hedge funds and other alternative assets, and the hot prospects of these sectors are reflected in moves on the Street.
Norm MacDonald, one of four portfolio managers at venerable, $10-billion Beutel Goodman, has departed for hedge fund Salida Capital, one of the hotter hedge fund players. Salida has been around for a few years, and partners include folks who have worked at top-drawer firms such as Morgan Stanley, but it can't match Beutel Goodman's deep roots in the community. What Salida and other players lack in history, though, they make up for with a performance culture that's potentially more lucrative than any traditional money manager.
Sticking with the theme that expertise in alternative assets hedge funds is a hot ticket on the Street these days, it's worth nothing that trader Chris Rigby just jumped to Genuity Capital Markets from Canaccord Capital. The biggest chunk of his relationships are with hedge funds.
It's also worth noting that the first generation of Genuity's desk, which came together 10 months ago, had common roots at Gordon Capital and CIBC World Markets. Mr. Rigby represents new blood, as he hasn't worked at either of those dealers.
One other update on job-hopping equity traders: John Cook jumped to Orion Capital last week, but it was a brief visit, as he decided to move back to his old home, Paradigm Capital.
Andrew Willis