LFDE Insights - Interview of Errico Cocchi from City of Montreal Pension Funds

City of Montreal

Errico Cocchi, could you briefly introduce yourself ?

I manage the City of Montreal Pension Funds, six traditional defined-benefit plans that are open and mature. They cover the 42,500 municipal participants of the City of Montreal (excluding the police) and represent around C$9 billion.

I took on this responsibility 16 years ago after a career in the private sector, and since 2014 I’ve been wearing two hats as I’m also in charge of issuing municipal bonds for the City.

What are the main issues you’re facing ?

The main issue has been finding yield in an environment with rates as low as the ones we’ve had although they are heading back up. The cost of the plans and their management, the increased risks, the negative cash flows issue and the rapid financial market movements are also among the main challenges that we face, having a long-term horizon. Another challenge, not to mention the unprecedented context of 2020, is that regulatory and reporting issues require constant adaptation and adjustments that are sometimes contradictory to our long-term vision.

My priority is the plan’s sustainability, as well as its cost, the increase in contributions being an eternal challenge !

To what extent can external management help to address this ?

We operate in a syndicated environment and cooperate with trade unions, which are real partners and often the driving force behind responsible investment issues. We have to find external expertise, managers of certain asset classes. We delegate both equities and bonds, and the management of all assets outside North America.

How do you select these experts ?

As far as equities are concerned, we select managers using the databases of our consultant, Mercer, depending on the asset class and their track record.. We try to avoid what I would call the markets’ “short-termism”. Among the other prerequisites, always in order to preserve the sustainability of the scheme and cap any increases in contributions and therefore the cost of pension schemes, we also take into account the cost of management fees.

Why did you choose LFDE ?

In 2006, we selected LFDE for a mandate in the European small- and mid-cap segment, in which the firm has long been recognised as a specialist.

As experts in European stock-picking, you have field-tested expertise based on thorough knowledge of companies and close relationships with their management; which are important to us, as well as a solid track record.

Other key selection criteria for us were LFDE’s alignment with our interests and its long-term vision. Although performance is the primary factor, we also appreciate how very responsive the LFDE teams are. The monitoring provided is of high quality and we particularly appreciate the accessibility of the fund management team, with whom we have a quarterly meeting.