News Archives - September / October 2010
Friday, October 29, 2010
Total spending on healthcare in Canada is expected to reach $191.6 billion this year, growing an estimated $9.5 billion, or 5.2 per cent, since 2009, says the Canadian Institute for Health Information (CIHI). This represents an increase of $216 per Canadian, bringing total health expenditure per capita to an estimated $5,614. After removing the effects of inflation and population growth, healthcare spending per person is expected to increase by 1.4 per cent in 2010, the lowest annual growth rate seen in 13 years. In 2010, government spending on healthcare is expected to reach $135.1 billion, while private sector spending, which includes both private insurance and out-of-pocket expenses, will reach an estimated $56.6 billion. For more than a decade, public and private sector health spending in Canada has been growing at about the same rate, with the public sector accounting for about 70 per cent of the total health care bill and the private sector for 30 per cent.
Balanced pooled funds in the UK have bounced back into the black with a positive return of 9.4 per cent for the third quarter of 2010, says BNY Mellon Asset Servicing’s quarterly pooled fund survey. It shows that for the third quarter returns were positive for most of the major equity sectors. UK smaller companies posted the highest return with 15.2 per cent. The lowest equity return was provided by Japanese equities with -0.1 per cent, the only equity class to post a negative. Active UK equity managers posted a return of 13.8 per cent for the quarter, beating its index which posted 13.6 per cent for the quarter.
The interest assumptions required to calculate commuted values for an event which occurs in any month up to and including December 2010 are now available at www.an-actual-actuary.com. An Excel spreadsheet on the website contains six worksheets:
- Commuted Values – 2009 Basis
- Commuted Values – 2005 Basis
- Commuted Values – 1993 Basis
- Marital Breakdown – CSOP 4300 (May 2009)
- Annuity Proxy for Solvency Calculations for Non-Indexed Pensions and Fully Indexed Pensions
- Minimum Interest on Employee Required Contributions (including the 12 month average rates)
Thursday, October 28, 2010
Upcoming changes to the Canada Pension Plan will make retiring later than at age 65 a lot more attractive to people who are short on savings, says a report from BMO. The changes, which kick in fully by 2016, will see CPP pay an additional 0.7 per cent per month to those beginning to take their CPP retirement pensions after their 65th birthday. Under current rules, the premium for later retirees is just 0.5 per cent a month. For those who choose to begin taking their CPP retirement pension at 70, waiting the extra five years will add an extra 42 per cent to their pension payments. The CPP changes also see an increase to the penalty for drawing the pension early. Currently, the reduction is 0.5 per cent per month for each month that pensions begin before age 65. Under the new rules, that penalty will rise to 0.6 per cent per month by 2016.
Companies worldwide are looking to attract more investment from hedge funds and sovereign wealth funds and more are contemplating secondary stock listings in emerging markets, says a Bank of New York Mellon survey. The annual ‘Global Trends in Investor Relations’ survey revealed that 93 per cent of companies met with hedge funds to discuss possible investment in 2010, compared to 89 per cent in 2009. Survey respondents said major regions for investor opportunities over the next three years are North America (77 per cent), Europe (70 per cent), and Asia (48 per cent).
Sun Life Assurance Company of Canada is selling its life reinsurance business to Berkshire Hathaway Life Co. of Nebraska. "This transaction reflects Sun Life Financial's strategy to deploy capital to the parts of our business that can best achieve strong, sustainable growth," says Donald Stewart, chief executive officer, noting that the sale follows a review of options for the company's reinsurance business. "Our reinsurance business is profitable, but it is not a growth area for Sun Life Financial and this transaction releases capital which can be put to work in other businesses."
Wednesday, October 27, 2010
Smaller investment firms can provide stronger returns and better downside protection in volatile markets than large firms investing in the same asset class – large cap U.S. equities, says a Northern Trust study. ‘No Contest: Emerging Managers Lap Investment Elephants’ says investment firms with less than $3.6 billion under management – the smallest firms that collectively manage one per cent of all assets in the institutional market – outperformed the largest firms and all other groups studied, as well as the S&P 500 Index, over the five-year period ending June 30, 2010. Firms with less than $3.6 billion under management gained 0.67 per cent per year in their active large cap U.S. equity portfolios for the five-year period, a higher return than larger firms or the S&P 500 Index, which was down 0.80 per cent per year over the same period. Small firms tend to reduce risk when it counts the most, in bear markets. The emerging manager composite outperformed the S&P 500 Index in five of the eight bear quarters over the past five years by a cumulative 3.65 per cent – the best results of the groups studied. They were also the only group with total volatility less than the index (18.1 per cent per year versus 18.5 per cent).
In an unsteady economic recovery, organizations are planning moderate base pay increases in 2011, says the Conference Board of Canada’s ‘29th Compensation Planning Outlook.’ It found that in recent years the public sector has outpaced the private sector in base pay salary increases. This trend is expected to reverse in 2011, with private sector employers planning increases of 2.9 per cent, compared to 2.3 per cent in the public sector (including the public service, agencies and Crown corporations, municipalities, hospitals, and schools). Base pay represents the most significant component of total cash compensation, particularly in the public sector. Increases for non-unionized employees are expected to average 2.8 per cent. “Things are not quite back to business as usual for compensation planners. The economic recovery is still unsteady and burdened by risks from abroad,” says Karla Thorpe, associate director, compensation and industrial relations. “The next year will require patience on the part of workers and businesses. Workers cannot yet expect strong wage gains and businesses have been slow to see improvements in corporate balance sheets.”
Globally, investor confidence fell 1.9 points from September reading of 88.1 to 86.2, says the State Street Investor Confidence Index for October 2010. In North America, confidence fell by 3.2 points to 84.9 from September’s level of 88.1. Investor confidence in Europe remained largely static, ticking down 0.6 points to 96.4 from 97.0 in the prior month. Across the regions, confidence among Asian investors remained positive at 103.3, though this level was down 4.4 points from the September reading.
Ashi Mathur is managing director and head of media and communications for investment and corporate banking at BMO Capital Markets. He joined BMO Capital Markets in 2001 and was appointed co-head of the media and communications practice in 2008. Darryl White is deputy head of investment and corporate banking, Canada, and global head of equity capital markets. He joined the firm in 1994 and served in various practices in Toronto. Most recently, he served as head of investment and corporate banking, Montreal. Ilias Konstantopoulos is managing director and head of investment and corporate banking, Montreal. He joined BMO Capital Markets in 1996 as part of the mergers and acquisitions team and most recently served as a senior member of that team as a managing director.www.cpbi-icra.ca
Tuesday, October 26, 2010
Introducing pension reforms in a piecemeal manner and without definite effective dates makes it very difficult for employers to plan their pension strategy and to implement the necessary administrative and HRIS modifications, says Mark Newton in a Heenan Blaike ‘Pension Pulse.’ He says the pieces of the pension reform puzzle are slowly coming together in Ontario with Bill 120, “with the populist title, ‘Securing Pension Benefits Now and for the Future Act, 2010’.” The regulations have not yet been released so “Bill 120 can best be described as Phase 1.5 of Ontario’s pension reform.” Hopefully, draft regulations will be released shortly to give plan sponsors, plan administrators, and plan members a clearer picture of the final state of pension reform.
The Ontario Summit to Prevent Work Disability has resulted in the formation of the Ontario Action Group to Prevent Work Disability. It seeks to propagate a new model for preventing needless work disability, described in a report called ‘Preventing Needless Work Disability by Helping People Stay Employed’ written in 2006 by a group of American and Canadian physicians and published by the American College of Occupational and Environmental Medicine. The report makes 16 recommendations to shift the focus of compensation boards, insurance companies, employers, unions, lawyers, legislators, and the medical community beyond managing illnesses and injuries after the fact, towards putting in place solutions to avoid or put a timely end to unnecessary work disability. For more information, visit www.60summits.org/on
Oxford Properties, the real estate division of OMERS, has entered into a 50:50 joint venture with British Land to develop the Leadenhall Building in the city of London, UK, otherwise known as the Cheesegrater. When completed, the 47-storey building will provide 610,000 square feet of office space. As well as offices, the Leadenhall Building will provide public space, retail, and leisure facilities.
Canadian pension funds reported significant gains in the third quarter, says Morneau Sobeco’s ‘Performance Universe of Pension Managers’ Pooled Funds for the Third Quarter of 2010.’ It says in the third quarter of 2010 diversified pooled fund managers posted a median return of 7.1 per cent before management fees. Since the beginning of the year, the median return has been 5.4 per cent. “The strong market recovery in the third quarter allowed pension funds to offset losses incurred in the previous quarter,” says Jean Bergeron, a partner in the asset management consulting practice. On average, during the third quarter of 2010, diversified pooled fund managers performed slightly better than the benchmark. In fact, these managers’ median return (7.1 per cent) was 0.2 per cent higher than the benchmark (with an allocation of 55 per cent in equity and 45 per cent in fixed income) used by a lot of pension funds (6.9 per cent).
While the equity market has now managed to climb three weeks in a row despite the fact that the U.S. dollar has done likewise in a classic countertrend rally from oversold conditions, if there is an obstacle, it is all the divergences taking place regarding the internals and the equity market has become quite technically overbought here, says David A. Rosenberg, chief economist and strategist at Gluskin Sheff + Associates Inc., in his ‘Breakfast with Dave’ online column. Moreover, he says investor sentiment has moved to extremely bullish levels with the Investors Intelligence poll flagging twice as many bulls as there are bears, and the American Association of Individual Investors survey showing a 49.6 per cent share of bulls, which is more than 10 percentage points above the long-run norm. Fully 83 per cent of the companies have beaten their bottom-line estimate, which is far above the historical norm of 62 per cent.
“Collaboration done right is becoming a new and important source of competitive advantage,” says Adine Mees, president and CEO of the Canadian Business for Social Responsibility. Speaking at ‘8th Annual Canadian Business for Social Responsibility Summit,’ she said “What’s becoming very clear is that collaboration is essential if we are going to solve the pressing environmental and social issues we are facing today.” Summit speakers emphasized that effective collaboration is key to finding creative solutions to managing multiple stakeholders, global issues, and local impacts. “If you don't take a collaborative approach, you may get a solution but it will not survive pressure,” said Bob Elton, executive chair, Powertech Labs Inc.
For the quarter ended June 30, the State Street Private Equity Index posted a 0.65 per cent return, 157 basis points lower than the first quarter of 2010 return and 483 basis points lower than the return recorded during the same period a year ago. The second quarter of 2010 return for the European and Rest of World regions were -3.14 per cent and 0.48 per cent, respectively, with both reflecting a significant decrease from prior quarter.
Paul Smith is vice-president – Toronto office and a member of its management committee at BFL Canada. Most recently, he was president of Hargraft Schofield, a Toronto-based broker.
Cerian Shepherd is client relations associate at Capital Guardian. She has been with the firm working in client relations and marketing since 2003.
The CPBI Pacific Region’s ‘Introduction to Benefits’ will provide an overview of group benefits, including government sponsored plans, administration and funding options, plan design, and tax implications. Presenters are Karen Tomkins, Manulife Financial; and Yanick Comeau, Mercer. This session is designed for employees who are new to the group benefits field and require some basic benefits knowledge. It takes place November 18 in Vancouver, BC. For more information, visit www.cpbi-icra.ca
The ‘6th Annual Essential Course in Pensions’ will feature two post-conference sessions. They are ‘Implementing Pension Reforms: What You Need to Know and How to Do It’ and ‘Pension Governance and Risk Management: A Closer Look.’ The course takes place November 30 to December 1 in Toronto, ON, with the post-conference sessions set for December 2. For more information, visit http://www.osgoodepd.ca
Monday, October 25, 2010
State Street Global Advisors has agreed to acquire Bank of Ireland Asset Management (BIAM). Pending regulatory approvals and other closing conditions, the transaction is expected to close in the first quarter of 2011 or earlier. Upon closing of the transaction, the BIAM operation in Dublin will transition to State Street Global Advisors Ireland Limited. With approximately €26 billion in assets under management among more than 500 clients as of September 30, 2010, BIAM is a recognized leader in the Irish market offering a broad range of investment solutions to institutional investors and intermediaries including global fundamental equities, fixed income, cash, asset allocation, property, and balanced funds. With this acquisition, SSgA will add Dublin as its 10th global investment centre from which investment teams manage client assets.
The pension reforms introduced by the Ontario Government represent a significant move forward, says the Healthcare of Ontario Pension Plan (HOOPP). “We applaud the government for moving ahead with pension reform – it’s great to see their commitment to following through on this process,” says John Crocker, HOOPP president and CEO. HOOPP, as a jointly governed pension plan, welcomes reforms that will enhance pension coverage within the province and enable the effective functioning of MEPPs and JSPPs to provide cost-effective pension management to Ontarians.
Friday, October 22, 2010
A School of Public Policy research paper is calling for the expansion of the current Canada Pension Plan (CPP). ‘Expanding Canada Pension Plan Retirement Benefits: Assessing Big CPP Proposals’ argues that there is a current and growing deficiency in the ability of many workers to maintain their accustomed standard of living into retirement. As such, an expansion of retirement benefits through a bigger CPP is compared against other plans, such as expanding workplace pensions and individual savings. These alternative plans are found wanting compared to an expansion of CPP. The author, Jonathan Kesselman, a professor at Simon Fraser University's at Simon Fraser University's School of Public Policy who holds the Canada Research Chair in Public Finance, concludes, "My analysis and review of alternative proposals for reforming the retirement income system strongly support some form of big CPP. Mandatory and universal coverage with higher benefit rates than the current CPP are essential to ensure benefit adequacy for all Canadians." The paper is available by going to www.policyschool.ca and clicking on ‘latest papers.’
Global markets rallied during the September quarter, lifting Canadian pension assets by 7.3 per cent over the period, says a survey by RBC Dexia Investor Services. "It's been a bumpy ride, but this quarter's gains make up for last quarter's pull back and brings year-to-date totals to a respectable 5.7 per cent," says Don McDougall, director of advisory. Domestic stocks were the best performing asset class for Canadian pensions, increasing 10.2 per cent in the quarter and 6.7 per cent over the year-to-date. Non-Canadian equities also rebounded 9.9 per cent in the quarter, lifting year-to-date results into positive territory and ahead of the MSCI World Index by 0.9 per cent. Canadian bonds thrived thanks to a late September rally, advancing 3.4 per cent in the quarter and 8.3 per cent year-to-date.
The Canadian Life and Health Insurance Association (CLHIA) welcomes a Senate committee recommendation that multi-employer pension plans (MEPPs) should be encouraged. This recommendation reflects positions advocated by the industry since the government launched its consultations around saving for retirement. “There seems to be a Canadian consensus building around the opportunities that MEPPs provide for Canadians to save more effectively in the workplace,” says Frank Swedlove, CLHIA president. CLHIA also welcomes a number of other proposals in the report including amendments to the Income Tax Act to permit contributions to RRSPs until age 75 and to allow for a $100,000 lifetime contribution to a Tax-Free Savings Account. It suggests that the latter proposal could be usefully applied to RRSPs as well.
The Healthcare of Ontario Pension Plan (HOOPP) has deployed SimCorp Dimension to act as the single, integrated system to support its investment strategy. It selected SimCorp Dimension because of the platform’s ability to provide a completely integrated, front-to-back office system with capabilities including derivatives management and accounting. For the past few years, HOOPP has been engaged in implementing a liability driven investment approach involving non-traditional portfolio structures and alternative investment strategies. It became apparent that HOOPP’s existing portfolio management and accounting system would not support the types of activities that the organization wished to undertake. It decided it needed a portfolio management and accounting system which could handle all of the various investment products and strategies that it needed to employ that was flexible enough to add new products and strategies in the future and provide timely and adequate reporting and accounting to support investment decision-making.
The health of Canadian Defined Benefit plans deteriorated in the first half of the year, says a semi-annual report from the Office of the Superintendent of Financial Institutions. The average solvency ratio for the plans fell to an estimated 87 per cent as of the end of June which is lower than the December 2009 estimate of 90 per cent. “The deterioration in the estimated ratio was largely due to weak pension fund returns during the first half of the year,” says Judy Cameron, managing director of the private pension plans division.
The Hungarian government has started a communications program to encourage the country's funded pension scheme members to opt back into the pay-as-you-go state pension pillar. This implies the government intends to move beyond the freeze to second-pillar contributions announced last week and is seeking to dismantle the country's existing private pension system altogether. The government says that savers' money is safer with the Hungarian state. While existing scheme members would not be forced to return their assets to the state system, the implication is the bulk of savers would be expected to do so.
The availability of an employee health benefits plan plays a role in the decision of 90 per cent of Canadians to take a position, says Bonnie Siemens, manager of insurance product delivery with the Investors Group, making it an important consideration for small business owners competing for talent. “Small business owners often shy away from group benefits plans with concerns over the cost and administrative responsibilities,” she says. “However, with the flexibility of most insurance providers today, organizations with as few as two employees can benefit from having a plan in place.” The advantages of developing the right group benefits plan are that the employer and their family can participate in the plan to offset costs related to their own medical and dental expenses; coupled with life and disability insurance, an employee benefits program can form part of the small business owner's sound financial plan; and plans can be designed so each member has the ability to select the level and types of insurance coverage based on their specific needs.
Integrated Asset Management Corp. and its private corporate debt group, Integrated Private Debt Corp. have announced the first closing of their third senior secured private corporate debt fund, with total commitments of $275 million, increasing IPD's assets under management to $1.1 billion. Investors in the IPD private corporate debt funds are pension funds, large and small, public and private; and life insurance companies. IPD invests in fixed rate term loans to investment-grade mid-market companies to obtain a higher rate of return than is available from public-market bonds.
Innovative ideas and cutting-edge strategies for health and wellness programs in Canada is the focus of the ‘Canadian Health and Wellness Innovations Conference.’ Now in its third year, the International Foundation of Employees Benefit Plans’ event will look at the hottest trends in cost control as well as the latest advances in alternative treatments for supplementing traditional healthcare. It takes place February 20 to 23 in Las Vegas, NV. For more information, visit www.ifebp.org
Thursday, October 21, 2010
A Senate committee report on retirement savings vehicles is calling on the federal government to create a new, voluntary national savings plan. The report of the Standing Senate Committee on Banking, Trade and Commerce says it believes a voluntary plan would help bridge the gap that exists between those with occupational pension plans and those without as well as the gap between benefits for Defined Benefit and Defined Contribution pension plan members. It also calls on the federal government to retain the annual RRSP contribution limit of 18 per cent of earned income to a maximum dollar amount indexed to growth in the average wage. It says that the government should take action to encourage multi-employer pension plans, including RRSPs.
Retired Canadian women aren’t getting their fair share of federal pension benefits compared to men, says Ontario Finance Minister Dwight Duncan. That, he said following a speech to the Canadian Labour Congress, is just another reason the entire system of retirement benefits needs to be overhauled with an eye to phased-in ‘modest’ benefits increases. The maximum benefit under Canada Pension Plan is $11,000 a year while the average is $6,000. As of December 2009, the average annual CPP retirement benefit for women was $4,906.56, compared with $7,128.24 for men.
The Canada Pension Plan Investment Board is buying a 45 per cent stake in two office buildings in Washington, D.C. The board is partnering with Vornado Realty Trust in the joint venture on the properties located in the central business district. While it has resisted investments in its U.S. target markets – New York City, Washington, D.C., and Los Angeles, it has found the property prices are now more attractive than they were three years ago. The cities identified as target markets are considered more stable than the rest of the country.
Investors Turn To Emerging Markets
Institutional investors are turning most of their renewed appetite for risk into global emerging market equities, says the BofA Merrill Lynch ‘Survey of Fund Managers.’ It reports that the level of risk that investors took in their portfolios in September rose more sharply than in any month since April 2009. Hedge funds continued to add to their net equity exposure and the proportion of asset allocators overweight equities nearly tripled to a net 27 per cent from a net 10 per cent in September. The vast majority of this movement into equities was into global emerging markets. A net 49 per cent of asset allocators are overweight emerging markets, up 17 percentage points from the previous month. In particular, portfolio managers are more optimistic about China’s growth over the coming year.
World population growth, climate change, and a range of other catalysts are transforming sustainability into “a material issue for companies and investors alike,” says State Street Corporation’s latest ‘Vision Focus’ report on sustainable investing. ‘Sustainable Investing: Positioning for Long-Term Success’ examines the growing impact of environmental, social, and governance (ESG) concerns on the investment decisions of institutional investors. It says the global financial crisis contributed to greater awareness of ESG issues by spotlighting the need for “more stringent corporate governance and disclosure requirements to help protect the interests of investors.” Today’s sustainable investor is intent on identifying companies expected to outperform over the long term based on their practices of embracing the concept of sustainability in the operation and management of their enterprises, says the report. For a copy of the report, visit www.statestreet.com/vision
SimCorp has opened an office in Toronto, ON, furthering its expansion in North America and commitment to the Canadian market. The Toronto office offers local account management and technical support for the firm’s regional clients. It now operates in 19 regions including New York, Copenhagen, Hong Kong, London, Paris, and Sydney. A provider of integrated solutions for the investment management industry, enabling buy-side firms to mitigate risk, reduce cost, and enable growth, it is already working with pension funds such as the Canada Pension Plan Investment Board (CPPIB), Healthcare of Ontario Pension Plan (HOOPP), and Ontario Teachers’ Pension Plan (OTPP).
The costs of workplace violence and harassment are high, both to the victims and to their employers, says a Conference Board of Canada study. “The scope of workplace violence has broadened beyond extreme acts of physical violence to include psychologically harmful behaviours,” says Karla Thorpe, associate director, compensation and industrial relations. “Addressing harassment is important for several reasons. Harassment incidents occur more frequently than acts of violence. Harassment often precedes violence and serves as an early warning that violence can result if workplace issues are not addressed.” ‘Managing the Risks of Workplace Violence and Harassment’ identifies six actions that organizations can take to significantly reduce the human, financial, and reputational costs of workplace violence and harassment incidents. Organizations should conduct periodic risk assessments; heed early warning signs of potentially violent individuals and work situations; make targeted use of professional assistance service options, such as employee assistance programs; have appropriate policies and resources to respond when needed; review prevention and response plans continually; and provide effective crisis leadership and response in the event of violence or harassment.
Julie Perks is vice-president, risk and liability driven investing; Sunil Shah is vice-president, fixed income portfolio manager; and Naoum Tabet is managing director and vice-president, investment sales; at Aviva Investors. Julie Perks has 25 years of financial industry experience, most recently at Genesis Financial Products where she was a principal actuary. Sunil Shah was most recently managing director and head of fixed income for Sceptre Investment Counsel. Tabet joined the firm in 2008 after holding business development roles at Standard Life Investments and CIBC Global Asset Management.
Matthew F. Price, F.M.A., is vice-president, marketing and business development, at Penad Pension Services Limited. Previously, he was director of business development. James (Jim) Walker, B.E.S., M.B.A., is chief operating officer.
‘The Changing Pharmacy Environment’ will be examined at a Connex Health session. Tim Clarke, national practice leader, Hewitt Associates; and Dennis Darby, CEO of the Ontario Pharmacists Association, will examine the impact of changes to pharmacy compensation from a private payer perspective and explore the implications and opportunities for plan sponsors from new legislation. It takes place October 28 in Kitchener, ON. For more information, visit www.connexhc.com
Wednesday, October 20, 2010
Canada maintained its B-grade classification and ranked fifth with a score of 69.9, ahead of the U.S., UK, and France, in the second ‘Melbourne Mercer Global Pension Index.’ The index was expanded to cover 14 countries, with the addition of Brazil, France, and Switzerland. For the second year in a row, the Netherlands obtained top ranking as its index value increased from 76.1 in 2009 to 78.3 in 2010. However, an A-grade classification again eluded the Netherlands. Newcomer Switzerland was ranked second, followed by Sweden and Australia in fourth position. Areas in the Canadian system that could be addressed include increasing the coverage of employees in occupational pension plans, possibly through a more efficient system; ensuring that voluntary retirement savings are preserved for retirement purposes; and introducing a mechanism to increase the government pension age of 65 as life expectancy continues to increase.
The Ontario government appears to be reversing its position allowing entitlement-based employer surplus withdrawal, says Ian McSweeney of Osler, Hoskin & Harcourt LLP. He says his preliminary reading of Bill 120 indicates what he calls “an incredible about face.” As well, the arbitration provisions to allocate surplus are also in need of some significant rethinking. He also says the provisions on payment of expenses are ambiguous and may well create a new round of post-Kerry litigation. The government maintains ‘The Securing Pension Benefits Now and for the Future Act, 2010’ builds on the first phase of reforms that passed last spring. These latest reforms would clarify pension surplus rules and provide a dispute resolution process to allow members, retirees, and sponsors to reach agreements on how surplus should be allocated on wind up. It would also strengthen Ontario's pension funding rules by requiring more sustainable funding of promised benefits and stronger funding standards for benefit improvements.
The Financial Reporting Council has published the names of institutional investors that have signed the Stewardship Code. The Stewardship Code aims to promote more active discussion between company boards and investors to improve the quality of corporate governance and long-term company performance. In total, 68 institutions have published statements of support for the code including 48 asset managers, 12 asset owners, and eight service providers. The list includes BlackRock, Fidelity Investment Managers, Mercer, and the California Public Employees Retirement Scheme.
Francis Veilleux is senior vice-president, client services, at Standard Life Investments Inc. He oversees all servicing activities for Canada. He has more than 20 years of experience in the investment industry, working for investment organizations of national and international scope in institutional services related positions both in Eastern and Western Canada.
Tail Risk Examined
‘Tail Risk Talk’ is the focus of a CAIA Canada session. A panel of David Hay, managing director – DGAM; Santosh Nabar, managing director – Barclays Capital; Dr. Nicolas Papageorgiou, director of quantitative research – Brockhouse Cooper; and Dr. Jean François Bacmann, head of overlay strategies – Man Group; will provide an introduction and insight into how tail risk can impact institutional portfolios and which strategies and instruments might be used to ameliorate violent swings in asset prices. It takes Place November 10 in Toronto, ON. For more information, visit http://caia.org/caia-community/events#bottom
Maureen McTeer and Dr. Alain Sotto are the keynote speakers at the Toronto Chapter of the International Society of Certified Employee Benefit Specialists (ISCEBS) ‘ 21st Century Thinking.’ McTeer, an expert on regulatory mechanisms dealing with reproductive technologies in Canada and the UK, will focus on medical decision-making in the 21st century. Dr. Sotto has served as lead medical officer at Boeing, CN Railway, and Pratt-Whitney. He is currently chief physician at Ontario Power Generation and occupational medical consultant to the Toronto Transit Commission. He is also an expert on corporate wellness and health programs. It takes place November 18 in Toronto, ON. For more information, visit http://torontoiscebs.org/
Tuesday, October 19, 2010
Assets managed by the world’s largest 500 fund managers rose by 16 per cent in 2009 to US$62 trillion at the end of the year, says Towers Watson. The gain follows a year in which total assets were down 23 per cent. Assets are still below 2006 levels. The larger firms were the main beneficiaries of the rebound as the top 20 managers’ share of total assets increased from 38 per cent to more than 40 per cent. The top ranking Canadian companies in the survey are life insurers, led by Manulife Financial in 37th place with just under $419 billion, Sun Life Financial in 39th place, and Great-West Lifeco ranks 50th. Canadian managers have gained global market share over the past 10 years, joining firms from France, Germany, Italy, Spain, and Belgium as countries that have gained share.
Whether or not American families have access to a Defined Contribution retirement plan has “a significant positive impact” on reducing the additional savings they will need to achieve retirement income adequacy, says the Employee Benefit Research Institute (EBRI). Its ‘Retirement Security Projection Model’ shows that younger workers (those with longer eligibility to participate in a 401(k) plan) would need to save less additional compensation per year to achieve retirement income adequacy. For instance, for GenXers in the lowest-income quartile, the median (mid-point) additional compensation needed to be saved varies from 9.5 per cent per year for those simulated to have no future eligibility in a 401(k) plan to 4.4 per cent for those who have at least two-thirds of their future working years eligible in a 401(k) plan, meaning the required additional savings would be reduced by more than half for those with long eligibility. The overall impact of DC plans on retirement income adequacy in the future depends on a number of key factors, including participation rates, employee contribution rates, employer matching formulae, employer non-elective contributions, asset allocation, job turnover, cashout rates, and rates of return.
Investors have lowered their return expectations for investing in U.S. real estate over the next few years, says PricewaterhouseCoopers (PwC) and the Urban Land Institute (ULI). Their ‘Emerging Trends in Real Estate’ report shows that while the U.S. market is expected to recover, most investors anticipate single-digit returns for core U.S. properties going forward. Respondents to the annual survey said real estate assets in the U.S. would be unable to sustain higher performance seen in the past without the use of ample leverage or by taking on greater risk.
Royal Bank of Canada is acquiring BlueBay Asset Management plc. BlueBay is one of Europe's largest independent managers of fixed income debt funds and products, with $40 billion in assets under management on behalf of institutional and high net worth investors in the UK, Europe, the U.S., the Middle East, Asia, and Australasia. It manages a combination of long-only and alternative investment strategies across the sub-asset classes of fixed income credit, primarily focused on European and emerging markets strategies.
Monday, October 18, 2010
More than three quarters of Canadians support increasing Canada Pension Plan benefits, a national survey for the Canadian Union of Public Employees and the Public Service Alliance of Canada. The ‘Future of Pensions’ poll also found 80 per cent of Canadians also support increasing federal payments to senior citizens and half of the survey respondents believe the government is moving too slow in reforming Canada's pension system. Poll respondents also overwhelmingly support increasing Old Age Security and Guaranteed Income Supplements for those living below the poverty line. OAS and GIS payments amount to only $11,000 per year.
Kennedy Looks At Chronic Disease Management
‘Chronic Disease Management: How Does It Affect Your Organization?’ will be the focus of the next Manitoba CPBI Council session. Michael Kennedy, national director, business development, Shepell•fgi, will quantify the costs related to chronic illness as well as share strategies for managing these costs in the workplace setting. It takes place October 21 in Winnipeg, MB. For more information, visit http://www.cpbi-icra.ca/
‘Sovereign Debt: Are we out of the woods yet?’ will be the focus of a session at the ‘Exchange Traded Forum 2010.’ It will look at the sovereign debt situation and discuss whether the crisis is past or whether there are still some issues that need to be resolved. As well, it will examine what stress indicators to look for and what they mean. It takes place October 25 in Toronto, ON. For more information, visit www.exchangetradedforum.com
Friday, October 15, 2010
For Canadian employees with health benefit plans, a majority (59 per cent) think highly of their plan’s quality; especially those who feel their employers do a very good job communicating their plans, says the 2010 edition of ‘The sanofi-aventis Healthcare Survey.’ As well, it says a convincing 90 per cent believe the quality of their plan is excellent (48 per cent) or very good (42 per cent). The current economic uncertainty has deepened this appreciation of quality with more than seven out of 10 (77 per cent) agreeing that the existing economic environment has increased the value they place on their health benefit plan. Coverage for prescription drugs continues to be the most common benefit enjoyed by employees (94 per cent), with 90 per cent of all employees agreeing that it is very important for their health benefit plan to cover vaccinations.
“It's very important to have a diverse portfolio of employee programs during a time of economic turbulence to ensure cost protection while still engaging employees," says Steven Osiel, vice-president, total rewards, at Pal Benefits. Speaking at a session on the Toronto Board of Trade's ‘2010 Compensation and Benefits Reports,’ he said that diversity does not necessarily have to cost more than a straight cash payment – and may even cost less – yet still will be valued by employees as an important part of their overall compensation.” The survey, sponsored by Pal Benefits, found for many positions, the overall pay earned last year is just above that of 2008.
Institutional investment managers' expectations for global growth improved in the third quarter and more than two-thirds of those surveyed believe a double-dip recession is unlikely, says a quarterly survey by Northern Trust Global Advisors. Managers were also broadly optimistic that U.S. unemployment would ease in the next six months and that the financial markets would react favourably to a U.S. November election that shifts the balance of power in Congress. "Our third-quarter survey revealed some subtle, but encouraging, shifts in manager sentiment. The most notable trend is toward a sense of stabilization within equity markets, as well as an uptick in global growth expectations," says Chris Vella, global director of research. "As evidence of improvement in the macro environment, most managers also appear confident that a double-dip recession is unlikely."
Legg Mason Canada has launched the Legg Mason Western Asset Canadian Core Plus Bond Fund and the Legg Mason Western Asset Canadian Core Plus Long Bond Fund, both pooled funds managed by its affiliate and fixed income specialist Western Asset. The funds’ aim is to complement a core portfolio of Canadian fixed income securities with opportunistic holdings in areas such as high yield bonds, emerging market debt, and U.S. and European investment grade securities to achieve a higher yield than a standalone core bond strategy, within a risk constrained framework. Frederick Marki, portfolio manager at Western Asset and lead manager on the new funds, says “The Canadian recovery is no longer being buoyed by a robust housing market, and is expected to grow at a slower pace in the second half of the year. While we still see value in the Canadian domestic market, we believe it is important to broaden our investment universe to generate a higher level of returns without adding incremental risk and this new fund will allow us to do this by taking on foreign sector positions and accessing a wider fixed income universe.”
Desjardins Financial Security Group Retirement savings team has improved the participant experience with a redesigned statement, which has received the 2010 DALBAR seal of approval for clear communications. The new statement encourages plan participants to become actively involved in managing their group retirement savings and investments. This is the first part of DFS' global strategy to improve the participant experience. Other initiatives will be launched in the coming months.
Man Group plc has acquired GLG Partners, Inc. to create a multi-style, performance-focused alternative asset manager with funds of around $63 billion under management. GLG is now a wholly-owned subsidiary of Man. Peter Clarke, chief executive of Man, says “The acquisition of GLG is a significant milestone in Man’s development as a global leader in alternative asset management. Investors are now able to gain access to managed futures, equity, credit, emerging markets, global macro, across single manager funds, managed accounts, multi-manager portfolios, and structured products.”
‘Where do Global Absolute Return Strategies and Global Equity fit into a pension plans investment mix?’ will be the focus of a session at the CPBI Western Regional Conference. Mark Bandola, vice-president, Franklin Templeton Investments; and Chris Arnott, investment director, head of investment specialists, Standard Life Investments Inc.; will explore the benefits of investing in global equities and absolute return strategies. It takes place October 27 to 29 in Banff, AB. For more information, visit http://www.cpbi-icra.ca/
Thursday, October 14, 2010
With $850 billion in assets, Brazil ranks at the sixth largest nation in the world for assets under management, says Pedro Bastos, CEO HSBC Global Asset Management (Brazil). Speaking at its ‘Emerging Markets and Brazil Conference 2010,’ he said its population is a major asset, especially as more people move into the middle class. This could see Brazil with the seventh largest economy in the world by 2015. However, he said there is a strong need for infrastructure. The country needs about$1 trillion to improve its infrastructure over the next five years. The problem is there is not enough saving in the country to cover this investment need so the country will have to depend on foreign investment. This means it needs to improve its environment for infrastructure investment.
Comment Wanted On GST/HST Rebate
Judy Sgro, the official opposition critic for seniors and pensions, has introduced a private member’s bill – the ‘Retirement Income Bill of Rights.’ The purpose of the bill is to ensure that all federal legislation and statutes are in keeping with a view of providing access to an affordable retirement savings plan, greater disclosure of information and risks, conflict-free investment advice, and greater uniformity between types of retirement vehicles under the Income Tax Act. This is the first time a quasi-constitutional piece of legislation has been aimed at strengthening the retirement income system in Canada since the introduction of the Canada Pension Plan in 1965.
Manulife Financial is introducing Executive LTD, an enhanced long-term disability program designed to protect executives and professional employees. This meets the needs of advisors and employers seeking disability coverage to help close the income replacement gap for many higher income earners. Employers seeking a way of improving the long-term disability programs they offer key employees now have a new option available for their group benefits plans. "Employers across Canada have told us they need an enhanced and integrated benefit to provide their executives and professional staff with a higher level of long-term disability protection. This product helps them offer that protection to these key employees on a group basis that provides excellent value," says Rick Brunet, executive vice-president, group benefits.
The employment-based retirement system, while still critical to Americans’ retirement income security, continues to feel the pressure of the recent economic downturn, says an analysis by the Employee Benefit Research Institute. It shows the number of American workers participating in a retirement plan continued to decrease last year, adding to the trend that began with the recession of 2008 and reaching its lowest level in a decade. Only 39.6 per cent of all workers (including those not offered a retirement plan at work), participated in a retirement plan in 2009, about a percentage point less than 2008 and down almost five percentage points from the high of 44.4 per cent registered in 2000. Among those most likely to have benefits, just over half (54.4 per cent) participated in a retirement plan in 2009, down six percentage points from the high of 60.4 per cent registered in 1999. The rate of employers sponsoring retirement plans also dropped in 2009 to 61.8 per cent, down almost eight percentage points from the high of 69.4 per cent measured in 1999.
Sun Life Financial has launched a new investment company, Sun Life Global Investments (Canada) Inc. Its suite of 12 funds includes seven funds sub-advised by MFS Investment Management, bringing MFS’s investment capabilities to Canadian investors through six global, U.S., and international equity funds and one global balanced fund. The inaugural fund family also includes four Milestone funds, Sun Life’s brand of target-date funds, and one money market fund sub-advised by McLean Budden. The new funds will be available through its distribution reach which includes Sun Life advisors, MFDA and IIROC advisors, and Sun Life’s group retirement and direct distribution businesses through its segregated fund platform. They are eligible for inclusion in registered plans, such as RRSPs, RRIFs, and TFSAs. The company is scheduled to begin accepting investments from clients October 25.
Following a slowdown in trading activity from mid-year 2009 to mid-year 2010, U.S. institutions are hopeful about a recovery in equity derivatives trading volumes in 2011, but hardly bullish, says Greenwich Associates. Based on an analysis of the amount of commissions paid by U.S. institutions to brokers on trades of options, it estimates average trading volume in options products declined some 20 per cent from June 2009 to June 2010. At the same time, average commission payments on futures trades declined 35 per cent to $210 million, indicating an even more pronounced slowdown in futures trading activity. Looking ahead to 2011, 55 per cent of U.S. institutions predict their use of flow equity derivatives will increase "somewhat" with another three per cent predicting a significant increase.
Hedge fund managers increased their appetite for risk in September following signals that the Federal Reserve will vote to take additional quantitative easing measures when they meet in November, says Man Investments. The move into risky assets such as emerging market equities, FX, and commodities led to a positive month’s performance for most hedge funds. Manager moves to increase risk in September were typical of a volatile 2010. After giving back much of July’s gains in August, equity markets rallied again in September as bearish economic indicators gave way to renewed optimism that looser monetary policy will drive prices higher. It was far from a smooth ride though, with significant intra-month reversals creating challenging trading conditions.
Wednesday, October 13, 2010
Private enterprises in Canada that choose not to adopt International Financial Reporting Standards must transition to new ‘Made-in-Canada’ standards no later than the fiscal year beginning on or after January 1, 2011, says an Eckler ‘Special Notice.’ The standards, published by the Accounting Standards Board (AcSB), permit Canadian private enterprises to account for their Defined Benefit pension plans using either an immediate recognition approach or a deferral and amortization approach. On transition, under the deferral approach, an entity would have the option to recognize in its opening retained earnings all unrecognized actuarial gains and losses as well as past service costs, which will have the effect of making the balance sheet asset or liability in respect of the pension plan equal to the funded position of the plan. If the entity chooses not to recognize these unamortized balances, the current standards require the entity to recalculate the recognized and unrecognized amounts retrospectively from inception of the plan. Such a calculation may involve significant effort and cost. Since this was not the AcSB’s intention, it is proposing to simplify the transition to permit entities to carry forward their unrecognized actuarial gains and losses and past service costs that were in existence on the date prior to adoption and that were calculated under Section 3461.
The Ontario Court of Appeal has ruled against PSAC on its case against the federal government over its expropriation of $28 billion from the federal superannuation fund. The court confirmed a 2007 Superior Court of Justice Decision which dismissed the claims that the government breached the trust of plan members, violating its fiduciary duty, and not meeting its obligations. At issue was the fact that the federal government removed a $28-billion surplus from the public service, RCMP, and Canadian Forces pension plans after passing legislation that restructured the way the plans are managed. The court of appeal found that the federal government did have the discretion to remove the surplus funds, even if it resulted in higher pension contributions for plan members. PSAC is reviewing the decision to determine its next course of action.
German institutional investors, in their search for stable returns without increasing risk, are turning away from European fixed income to real estate, while faith in external managers and consultants remains low, says a survey by Greenwich Associates. In the first half of this year, the fixed income quota in German institutional portfolios fell from 68.7 per cent in 2009 to 66.3 per cent. Looking at European fixed income, institutions cut back exposure from 65 per cent to 60.2 per cent, partly because of 'active diversification efforts,' reflected in the quota for international bonds increasing from 3.7 per cent to 6.1 per cent. Rather than shifting these allocations to equity, however, institutions moved many of them to real estate.
HOOPP Corporate Culture Admired
Canadian investors are twice as likely to believe they will have enough money to meet their retirement needs (62 per cent) as compared to their non-investing counterparts (31 per cent), says the ‘2010 Canadian Securities Administrators (CSA) Survey on Retirement and Investing.’ The survey also found that 71 per cent of Canadian investors say they've done research on their last investment opportunity, either themselves (31 per cent) or through their financial adviser (40 per cent). Furthermore, when it comes to recommendations on high return investments from friends and family, most Canadians would do more research before investing.
Dave McLellan is vice-president, market development for group retirement services, at Sun Life Financial. He will lead the product and research, marketing and communications, and member education teams across Canada.
Jill Wagman, a principal at Eckler Ltd., will look at ‘Target Benefit Plans – An Option for Single Employers?’ at the ACPM Ontario region’s ‘impACT 2010: Scoring Pension Plan Goals – While Staying Out of the Penalty Box.’ In this half-day seminar, a collection of experts will share innovative approaches to pension plan design, funding, and risk management. Wagman will discuss the main features of target benefit plans and some considerations and challenges in adapting them to a single employer environment. It takes place November 23 in Toronto, ON. For more information, visit http://www.acpm.com/
Tuesday, October 12, 2010
Wal-Mart Stores Inc. is replacing its automatic profit-sharing contributions for its U.S. employees with matching retirement plan contributions of up to six per cent of pay. It also is setting aside up to $1,000 for each employee's healthcare account to cover eligible medical expenses before employees have to pay any deductible coinsurance. The profit-sharing payments added up to four per cent to the compensation of employees who'd worked more than 13 months for the retailer. Wal-Mart started profit sharing in 1971.
Mercer is exiting the investment consulting business for U.S. public Defined Benefit plans. It will continue to offer investment consulting services to public DB funds outside of the U.S. In a statement, it said the decision to quit public DB investment consulting followed “a comprehensive review of our business and in light of changes in the public fund marketplace.” It also comes after Mercer settled two lawsuits during the past 18 months brought by public fund clients over the group's actuarial services. In the U.S., liability limits can be included in contracts for actuarial work, but not investment advisory agreements.
Emerging markets equities will trade at a premium to developed stocks within the next five years, says Baring Asset Management. It says emerging markets currently account for 70 per cent of global GDP growth. However, they are not considered a mainstream investment by pension funds. For example, the average U.S. pension fund allocation to emerging equities is one per cent compared to 27 per cent to U.S. equities and 13 per cent to international equities. However, it predicts this will change radically as investors see the returns on emerging markets equities and they will begin to trade at a premium.
The German commercial real estate market is experiencing an influx of international investors this year, says property agency Savills. In 2010, they accounted for 40 per cent of all transactions in the first half of the year. Total transaction levels during the first half increased by 148 per cent compared with the same period last year, as buyers from the UK, Netherlands, and France, in particular, targeted German real estate. It predicts commercial real estate investment in Germany will total €16 billion by the end of the year, compared with €11.2 billion in 2009.
‘Thriving in a 30-VIX World’ is the focus of the next AIMA Canada session. Panelists Howard Atkinson, Horizons Exchange Traded Funds; Nicolas Papageorgiou, HEC Montreal, BrockhouseCooper; Richard Croft, The Croft Group; and Chris Guthrie, Hillsdale Investment Management; will look at different ways to thrive in a volatile, post-crash world. It takes place November 2 in Toronto, ON. For more information, visit http://aima-canada.org/cgi-bin/seminars_user.cgi
‘Educating and Empowering to Improve Mental Health in the Workplace’ is the focus of a session at the CPBI Western Regional Conference. Karen Liberman, executive director of the Mood Disorders Association of Ontario, will explore the ‘invisible disability’ of mental illness and outline workplace strategies to ensure a healthy, engaged workforce. It takes place October 27 to 29 in Banff, AB. For more information, visit http://www.cpbi-icra.ca/
Friday, October 8, 2010
The Supreme Court of Canada has dismissed an appeal in the case of Burke v. Hudson's Bay. It said that a lower court ruling that transferred employees did not have an equitable interest in the surplus of the pension fund was correct. The lower court found their only interest was in their defined benefits and, as the defined benefits were protected in the transfer, HBC did not breach any fiduciary obligation. It also dismissed an appeal on the issue of plan administration expenses. It said the HBC pension plan did not impose an obligation on HBC to pay plan administration expenses and HBC was permitted to charge plan administration expenses to the pension fund.
As part of Mental Illness Awareness Week, The Standard Life Assurance Company of Canada says organizational health is no longer an option, but rather a responsibility and a competitive advantage Canadian companies cannot ignore. According to Health Canada, mental illnesses account for nearly one-third of disability claims and their estimated related costs are between $15 and $33 billion per year. The Public Health Agency of Canada also mentions that the economic burden placed on Canada by depression and distress stands at $14.4 billion, including at least $8.1 billion in loss of productivity for companies. “The resulting effects on performance, absenteeism, and the number of departures of competent employees are often too high a price to pay for a lack of action with regard to organizational health,” says Christine Potvin, vice-president, disability and risk management, health and wellness, group insurance.
Auto-enrollment and auto-contribution escalation in 401(k) plans, depending on how they’re implemented and used, can result in a big improvement in retirement savings, especially for low-income workers, says research from the Employee Benefit Research Institute (EBRI) and the Defined Contribution Institutional Investment Association (DCIIA). Specifically, the research finds that under more optimal use of automatic features, the chances of younger employees (with 31 to 40 years of 401(k) eligibility) hitting an 80 per cent pre-retirement real income replacement target (a goal recommended by many financial planners) increases well over 30 percentage points for both lower-income workers (from 45.7 percent to 79.2 percent when the auto features are optimized) and for higher-income workers (from 27 percent to 64 percent). The study also found when all design elements and behaviours are optimized, the probability of success increases 33.5 to 37 percentage points, depending on income quartile.
Despite a modest reduction in equity derivatives trading volume from mid-year 2009 to mid-year 2010, European institutions are cautiously optimistic about the prospects for equity derivatives trading in 2011, says Greenwich Associates' ‘2010 European Equity Derivatives Study.’ It says that average commission spend from trading options products declined by approximately four per cent among European institutions from the first half of 2009 through the first half of 2010. The typical European user of equity derivatives paid $5.2 million in brokerage commissions on trades of equity options in the 12-month period ending June 2010 and the typical institution paid $3 million in brokerage commissions on futures trades, an average that was down 12 per cent from the previous year. Meanwhile, the average notional volume of trades of structured equity/securitized products executed by European institutions in the Greenwich Associates research universe increased by about five per cent to $165 billion from the end of the first half of 2009 to the same period in 2010.
The CPBI Ontario region’s 2010/2011 CPBI Fundamentals series is now set. The pension/investments fundamentals breakfast seminar series is designed to provide an introduction and better understanding to those who are new to these fields or who are looking for an update on industry issues and trends. Each series has five lectures, beginning in November and ending in May 2011. For more information, visit www.cpbi-icra.ca
Thursday, October 7, 2010
Last year was the year of the crisis – now is the era of collateral damage, says Patti Croft, vice-president, Phillips, Hager & North Investment Management Ltd. Speaking on ‘The Economic Environment and What It Means to You’ at the 2010 Ontario CPBI conference, she said the questions now are what are the longer-term implications of the credit crisis and the epic policy response? In terms of the implications for asset allocation strategies, she said fears of a double dip are overdone and their base case scenario continues to call for a half speed recovery. As well, the European debt debacle has passed the crisis stage and while the European outlook is bifurcated as Germany enjoys strong growth while PIIG economies languish, China’s economy is slowing. However, this is desirable as prior inflation fears have dissipated. For the next 12 months, they expect stocks to outperform bonds and cash over the next 12 months.
Long-term institutional investors face a future environmental bill that could wipe trillions off their assets unless they force companies, regulators, and asset managers to reduce the impact of climate change, says a study backed by the UN-backed Principles for Responsible Investment (UNPRI) and UNEP Finance Initiative. The study says the world’s top 3,000 companies by market capitalization were responsible for $2.15 trillion worth of environmental damage in 2008, calculated as the cost of their water and air pollution, greenhouse gas emissions, general waste, and depleted resources. Total global environmental damage caused by human activity in 2008 was worth $6.6 trillion, equivalent to 11 per cent of global GDP and 20 per cent larger than the $5.4 trillion decline in the value of pension funds in developed countries caused by the global financial crisis in 2007/8. This could mean workers and retirees could see lower pension payments from funds invested in companies exposed to environmental costs when governments start applying a more vigorous ‘polluter pays’ principle.
The ‘New Normal’ is not normal and the current environment can be best described as the “Great Deviation, says Harry Marmer, executive vice-president, institutional investment services, at Hillsdale Investment Management. He told an investment session at the 2010 Ontario CPBI conference that a number of "Black Swan events” – events that are beyond the realm of regular expectations – have caused typical asset class returns to have non-normal return distributions. Recent “Black Swans” include the 1998 Russian default and the 2008/09 credit crises. During this “Great Deviation, economic and political policies have become “more interventionist, less rules-based, and less predictable.” As a result, he said now is not the time to move out of equities and into LDI. As well, one way to capture the equity risk premium through minimum risk equity portfolios or to employ strategies that perform well in the tails.
With the effects of the recent global financial crisis still lingering, the Fall 2010 issue of the Rotman International Journal of Pension Management takes a look at rethinking pension design and management. Published by the Rotman International Centre for Pension Management (ICPM) at the Rotman School of Management at the University of Toronto, "The broad message of this issue of the journal is that the global financial crisis has left its mark on many things, including pension design and management," says Keith Ambachtsheer, director of Rotman ICPM and an adjunct professor of finance at the Rotman School. Articles in the issue include ‘How Pension Funds Manage Investment Risks: A Global Survey,’ by Sandy Halim, Terrie Miller, and David Dupont; and ‘Measuring the Sustainability of National Social Insurance Plans: The Case of the Canada Pension Plan,’ by Jean-Claude Ménard.
While the federal and provincial governments have decided not to pursue the CSPP, a “government facilitated,” national savings plan, it could get another look after other reform solutions such as multi-employer Defined Contribution pension plans are given a try, says Malcolm Hamilton, of Mercer. Speaking at the ‘Does the Canadian Retirement Income System deserve a passing grade?’ session at the 2010 Ontario CPBI conference, he said some of the advantages of the system include the fact it would be administered by independent entities with one mission – help retirement savers. As well, since there would be few providers, the funds would be large offering useful economies of scale and a full range of investments. However, he said it is not without concerns. Does “government facilitated” ultimately become “government guaranteed,” he asked? And, who is to blame when the defaults work badly for a particular generation? There are also questions on how employers and employees would participate voluntarily.
Although financial market performance in the third quarter was stellar, the financial health of Canadian pension plans in the third quarter of 2010 did not improve much, due to a drop in federal bond yields, says the Mercer ‘Pension Health Index.’ It now stands at 68 per cent, up one per cent over the quarter. “For the second straight quarter, long-term federal bond yields declined significantly, dropping 30 basis points during the quarter,” says Paul Forestell, retirement, risk, and finance leader for Central Canada. “This resulted in higher pension liabilities measured on a solvency basis, decreasing the index by about five per cent.” All major asset classes posted positive returns during the third quarter of 2010, with equities in general performing better than bonds. Canadian equities, as measured by the S&P/TSX Composite index, returned 10.3 per cent in the last quarter and growth stocks outperformed value stocks and Canadian bond performance, as measured by the DEX Universe Bond index, returned 3.2 per cent in the last quarter, led by long-term bonds which gained 5.6 per cent, followed by mid-term bonds at 3.8 per cent and short bonds 1.6 per cent.
Good Defined Contribution pension plan governance can add value to members’ income in retirement, says Michelle Loder, of Towers Watson. In a session entitled ‘Creating the Optimal DC Journey Plan’ at the 2010 Ontario CPBI conference, she said members and fiduciaries should adopt a ‘journey plan’ approach to DC and consider it as similar to ‘one-person DB.’ Good governance practices include plan-specific provider performance benchmarks for areas such as investment and administration; internal and external reporting guidelines; and written benefit design, funding, accounting, and record-retention policies. Understanding of the membership should drive investment and engagement and there needs to be more of an ‘outcome’ focus, rather than the ‘here and now.’
Anne Marie Verstraeten is president and chief executive officer of BNP Paribas (Canada). She was most recently head of energy and commodity finance UK with BNP Paribas Fortis. Prior to this, she served as global head of energy with Fortis Merchant Bank.
Robert Arnould is a sales representative for Western Canada at BNY Trust Company of Canada. Based in Vancouver, BC, he will focus on leveraging new opportunities presented by the recent acquisition of CIBC Mellon’s corporate trust business in Canada and increasing the company’s sales coverage throughout the Western region. He was formerly a senior vice-president at EFG International, a Canadian financial advisory firm.
Wednesday, October 6, 2010
It’s a question of when, not if, private plan sponsors move from “passive” drug plan management to “active” optimal pharmacy, says Wendy Poirier, health and group benefits division leader – Canada, at Towers Watson. Speaking at ‘A Panel Discussion: The New Drug Landscape’ at the 2010 Ontario CPBI conference, she said despite the critical role played by private plan sponsors, they continue to be the weakest players in the pharmacy landscape. However, the pharmacy system is ripe for change and the current level of “noise” generated by drug reforms in Canada is providing an opportunity for plan sponsors to get more involved and educated in how to better manage pharmacy benefits. This quickly-changing dynamic between stakeholders is paving the way for measurable savings from preferred provider networks, direct price negotiation for manufacturer rebates, and effective employer purchasing coalitions.
The Canada Pension Plan Investment Board is buying 10 per cent control of the Highway 407 toll road north of Toronto, ON. It has come to an agreement with Spanish multinational firm Ferrovial to buy a stake in the road, lowering the Spanish firm's ownership stake to 43 per cent. The remainder of the highway is owned by SNC-Lavalin Inc., which has 17 per cent, and Intoll Group, which holds 30 per cent. In July, it moved to buy Intoll outright, including its 30 per cent stake in 407. If that deal goes through, the CPPIB would own 40 per cent of the highway, Ferrovial would own a little more than 43 per cent and SNC-Lavalin would own slightly less than 17 per cent. The deal is expected to be completed within two months, but both SNC-Lavalin and Intoll have the right of first refusal to buy the stake the CPIB is seeking.
Ideally, businesses do not outsource to save money, but in recent years that is what it has been all about, says JF Potvin, of Aon Hewitt Associates. He told the 2010 Ontario CPBI conference session ‘Benefits & Pensions Outsourcing Evolves’ the estimated benefits administration market growth in Canada between 2008 and 2013 is eight per cent and the rate of fully outsourced benefits administration in Canada grew from 12 per cent in 2001 to 29 per cent in 2008. However, he acknowledged that it is still difficult to build a business for outsourcing as employers don’t see the return on investment.
O’Connell Buys Davis-Rea
Boutique asset manager Davis-Rea Ltd. is being bought by John O’Connell, founding partner of the Harbour Group at RBC Dominion Securities. Davis-Rea offers discretionary money management services to individuals, companies, institutions, and foundations. It currently has more than $400 million of assets under management. O’Connell has been in the investment industry for more than 24 years as a portfolio manager and investment advisor.
Banyan Work Health Solutions is expanding its employer services division to a focus on the service sector. It launched the division several years ago to offer bottom line-focused disability management solutions. The expansion means it will now offer end-to-end programs for employers and employees. It will continue to promote a ‘de-medicalized’ approach to disability management which emphasizes a person’s capabilities and addresses the underlying drivers in order to avoid a prolonged disability, as opposed to focusing on the medical condition and symptoms.
Faisal Siddiqi, FSA, FCIA, is a principal and consulting actuary and Diana Wintermans, FSA, FCIA, is a consulting actuary at Buck Consultants. Both are responsible for client management and retirement practice development. Faisal has more than 18 years of consulting experience with major consulting firms in the area of retirement benefits with particular expertise on pension plan design, funding, administration, and special events. Wintermans has more than 15 years of consulting experience with a major consulting firm in the area of pensions with particular expertise on pension plan funding, accounting, and administration.
Jane Rowe is head of the private equity division at the Ontario Teachers Pension Plan. She was previously executive vice-president of special accounts management and retail credit risk at Bank of Nova Scotia. She also served as managing director and co-head of Scotia Merchant Capital and was president and CEO of RoyNat Capital.
Hedge Funds Care Canada’s seventh annual Toronto gala will again support Canadian organizations that focus on the prevention and treatment of child abuse and neglect. It takes place November 3 in Toronto, ON. In Canada, it has raised more than C$1 million in support of the cause. For more information, visit http://www.hedgefundscare.org/
Tuesday, October 5, 2010
TMX Group Inc. plans to create a new alternative trading system (ATS). Expected to launch in the second quarter of 2011, it will offer a visible marketplace for trading equity securities. The trading system will operate on the TSX Quantum trading platform, with functionality and pricing models separate and distinct from TSX and TSX Venture Exchange. In addition to seamless connectivity for existing clients and competitive pricing, features include expanded trading hours, providing additional opportunities to execute trades; a simplified market structure with continuous trading of board lots only and no special terms; and strict price-time priority for visible orders.
The Ontario Teachers' Pension Plan, through its private investment department, Teachers' Private Capital, is selling GCAN Insurance Company to RSA Canada. GCAN, a Canadian commercial property and casualty insurer, became a subsidiary of Glenstone Capital Inc., a portfolio company of Teachers' Private Capital, in 2005. RSA Insurance Group PLC, UK general insurer, is pursuing its aggressive acquisition strategy. Combining GCAN with its Canadian operations will make RSA the fourth-largest general insurer in the country based on gross written premiums, with a combined amount of around C$2.2 billion.
British Columbia Investment Management Corp. (bcIMC) said Monday is acquiring community and resort developer Parkbridge Lifestyle Communities Inc. Parkbridge owns, operates, and develops residential communities and seasonal recreational resorts in Ontario, Alberta, Quebec, and British Columbia. It manages a global investment portfolio of more than $80 billion and its clients include public sector pension plans, the province of British Columbia, trust funds, and other public bodies. A shareholders' meeting is scheduled for late November and the deal is not expected to close earlier than January. However, bcIMC has the right to match any superior competing proposal for Parkbridge.
Canada’s Minister of Human Resources and Skills Development is calling on MPs to reject a private member’s bill that would reduce the qualification age for Old Age Security (OAS) for immigrants from 10 years to three. The bill was introduced by Brampton, ON, MP Ruby Dhalla. Diane Finley, the minister, contends the bill, if enacted, would allow people to come to Canada at age 62 and start collecting Old Age Security on retirement at age 65. She says the 10-year residence rule is consistent with many other countries that have residence or contribution requirements associated with their national pensions to ensure that benefits are given in proportion to years of residence or affiliation with their pension programs. As well, she says it estimated that reducing the 10-year eligibility requirement to three years would cost more than $700 million annually in additional OAS and Guaranteed Income Supplement benefits. Given that the OAS program is funded entirely from general tax revenues, this would be costly and place an additional burden on the Canadian taxpayer, she says.
Aon Hewitt is now open for business. The merger between Aon Corporation and Hewitt Associates, Inc. is now completed. "Through Aon Hewitt, we will provide our clients with a broader portfolio of innovative products and services focused on what we believe are two of the most important topics facing today's global economy – risk and people,” says Greg Case, president CEO of Aon. The company predicts the cost savings of the merger will be approximately $355 million across Aon Hewitt in 2013, primarily from reduction in back office areas, public company costs, management overlap, and leverage of technology platforms.
Monday, October 4, 2010
Financial rewards for damages caused by mental injury at work have increased over the past five years by as much as 700 per cent, says a report from the Mental Health Commission of Canada (MHCC). The ‘Tracking the Perfect Legal Storm’ report has been prepared by Dr. Martin Shain, an academic lawyer and leading expert in workplace mental health issues who has written for Benefits and Pensions Monitor. It warns that a perfect legal storm is brewing in the area of mental health protection at work as employers are confronted with a legal duty to maintain not only a physically safe workplace, but also a psychologically safe workplace. Courts and tribunals are scrutinizing behaviour that may cause mental injury to employees and legal actions are being taken in key areas of law including human rights tribunals and Occupational Health and Safety Law.
The global financial crisis provided the ultimate stress test for asset management firms. However, data from nearly 60 firms suggests that strong leadership and strong culture were instrumental in determining their success or failure, says the Focus Consulting Group. In the paper ‘Crisis Lessons ... from Thrivers, Survivors, and Divers,’ it concludes that investment leaders ignore at their peril the basic truth that investments is a talent industry, and talent means people.
Northern Trust has expanded its automated solutions for investment operations outsourcing clients to cover processing of syndicated bank loans, which are growing as an alternative asset allocation by specialist investment managers. The implementation of Markit WSO Services on its investment operations outsourcing platform offers efficiency in trade capture and position reporting as well as cash management for investment managers that utilize syndicated bank loans in fixed income and hedging strategies. It provides middle- and back-office services such as trade services, performance measurement, client reporting, fund accounting, and custody to investment managers worldwide.
The changing pharmacy environment will be the focus of a BBC session. It will look at the immediate impacts on plan sponsors and the long-term implications of the reduction in generic prices. It takes place October 28 in Kitchener, ON. For more information, visit www.connexhc.com
November Commuted Value Interest Rate Assumptions
The interest assumptions required to calculate commuted values for an event which occurs in any month up to and including November 2010 are now available at www.an-actual-actuary.com. An Excel spreadsheet on the website contains six worksheets:
- Commuted Values – 2009 Basis
- Commuted Values – 2005 Basis
- Commuted Values – 1993 Basis
- Marital Breakdown – CSOP 4300, May 2009
- Annuity Proxy for Solvency Calculations for Non-Indexed Pensions and Fully Indexed Pensions
- Minimum Interest on Employee Required Contributions (including the 12 month average rates)
Friday, October 1, 2010
Companies with superior positioning and performance on sustainability tend to be more forward-thinking and strategic, more agile and adaptable, and better managed, says Dr. Matthew J. Kiernan, chief executive, Inflection Point Capital Management. Speaking at the Legg Mason ‘Global Investment Forum on ESG,’ he called on the industry to reconsider its approach to sustainable or socially responsible investing and instead think of it as strategic investing. There are a number of megatrends, such as climate change, now taking place and investors need to be aware of them. Using sustainability issues and drivers as indicators along with traditional financial analysis gives a more complete picture of a company’s true competitive risks, value potential, and future performance, he said, allowing for a strategic approach to investing.
Manulife Financial’s Canadian group retirement plan members will be able to turn to financial writer and TV personality Gail Vaz-Oxlade for insights and suggestions designed to help them manage their personal finances and build an effective retirement plan. The host of the television series ‘Til Debt Do Us Part' and the author of ‘Debt-Free Forever: Take Control of Your Money and Your Life’ has entered an exclusive arrangement with Manulife to provide her approach to financial management to its clients. Initially, she will provide articles for member updates and communications along with a series of web-based seminars for plan members.
Institutional investor appetite for low carbon investment opportunities is being significantly dampened due to retrospective policy changes at the member state level, says research for the Institutional Investors Group on Climate Change. It looked at the effectiveness of the EU’s policy framework in attracting private sector investment to achieve its climate goals. It found 90 per cent of asset managers said that changing policy and retrospective policy making in the absence of guarantees for grandfathering of existing investments is a barrier to investment in renewable energy. Other barriers to investment include permitting and planning problems (55 per cent) and grid access and grid infrastructure issues (45 per cent).
Society, markets and the economy need to become reconnected, says Paul Ehrlichman, managing director, head of global equity at Global Currents Investment Management. He told the Legg Mason ‘Global Investment Forum on ESG’ anything that serves that reconnection will thrive. One area where there is a connection is what he called mass collaboration, driven by world-wide use of the Internet. Managers need to tap into the trends that are developing out of this mass collaboration, he said.
Rebecca Lee has joined the pension and benefits practice group at Hicks Morley in Toronto, ON, as an associate. She was called to the Ontario Bar in 2010, is a graduate of Queen’s Law, and was president of the Queen’s labour and employment law society.
Thursday,September 30, 2010
The Caisse de Depot et Placement du Quebec plans to increase investments in energy and minerals to benefit from an expected commodities boom, says its CEO Michael Sabia. The Caisse oversees $135.8 billion in assets and has stakes in Quebec gas distributor Gaz Metro and Suncor Energy, the country’s biggest oil company. Energy and materials shares made up more than half of the Caisse’s U.S.-listed stock holdings of $11.3 billion as of June 30. The Caisse will also consider investing in natural resources through its private equity arm.
A majority of Canadian investment managers remain bullish on equities, despite volatility in the markets, says the ‘Russell Investment Manager Outlook.’ Meanwhile, less than seven per cent of investment managers are bullish towards bonds and cash. Bullish sentiment towards most equity sectors declined in the third quarter, reflecting a lower risk appetite among investment managers. The two exceptions were international equities and Canadian small cap stocks. Bullishness for Canadian equities slipped this quarter from 63 per cent to 56 per cent. Positive sentiment towards Canadian small cap stocks shot up nine points to 50 per cent of managers this quarter. The proportion of international bulls rose from just 33 per cent last quarter to 44 per cent this quarter, bringing sentiment closer in line with other equity markets.
Nortel Networks Corp has joined with Lehman Brothers Holdings' European unit to challenge the powers of the UK’s pension regulator to require they provide financial support to their UK pension funds. Two weeks ago, the regulator's determinations panel ruled six subsidiaries in the Lehman Brothers group should provide financial support to the pension scheme and issued an financial support direction. In July the regulator chased companies in the Nortel group to provide support for the UK scheme. Earlier this year, courts in the U.S. and Canada ruled the TPR and the UK's Pension Protection Fund could not force Nortel to pay for the UK scheme because the firm is in the midst of bankruptcy proceedings.
Employers must show that they cannot accommodate an employee's disability without facing undue hardship or face undue hardship to provide further accommodation if it wants to terminate the employee, says Christian Paquette, of Heenan Blaikie. Speaking at it's 'Managing Disability in the Workplace' seminar, he said this may involve looking at the cost to accommodate, health and safety issues, and even the impact on employee morale. The threshold to accommodate will also vary based on the resources of the employer. The duty to accommodate only requires the employer to provide a reasonable, not a perfect, accommodation. As well, the employer is not required to create a position to accommodate an employee. They can expect the employee to perform meaningful work.
Environmental, social, and governance (ESG) factors are now integrated at $6.8 trillion of internally active managed assets worldwide, says the United Nations Principles for Responsible Investment. It’s ‘Report on Progress’ says assets subject to integration by its 808 signatories now represents seven per cent of the total market, estimated at $121 trillion. The number has jumped from $3.6 trillion, or four per cent of the total market, in 2008. The report also found that 66 per cent of asset owners now put specific ESG considerations into their mandates with asset managers, up from 63 per cent a year ago and ahead of the 38 per cent recorded in 2007.
Defined Contribution assets in the U.S. are expected to grow about 34 per cent to $5.5 trillion by 2015, a McKinsey & Co. report. However, the increase in assets will bring about a move toward more passive management which has lower fees and are less of a fiduciary burden on plan sponsors. It predicts that target date and lifecycle funds will account for 60 per cent of DC assets by 2015.
Northern Trust has launched a portfolio reporting and monitoring solution for private equity fund-of-funds managers which enables them to track in detail their fund of funds holdings and valuations right through to portfolio company level. The enhanced solution includes updates such as the recording of transactions at the underlying investment company level; valuation processing at the underlying investment level, adjusted real-time by cash-flows; and portfolio reporting which can include diversification by geography, industry, vintage year, or as required.
Aon Consulting has made a number of appointments across Canada. Julie Tanguy is senior consultant in the health and benefits practice. Renée Parent and Geneviève St-Louis are consultants in the employee benefits outsourcing practice. Mathieu Vézina is senior consultant in the retirement practice.www.eapat.org
Wednesday,September 29, 2010
Multi-national companies should centralize their pension expertise to better manage their liabilities, says PricewaterhouseCoopers (PwC). The recommendation follows an analysis of pension liabilities for the 25 companies in the Amsterdam Exchange index (AEX). It also calls for improving efficiency through joint investment policies and risk management, and using the benefits of scale through collective international contracts to manage pension arrangements. It found that company pension funds had a combined shortfall of €18.1 billion at the end of 2009 after their sponsors made worldwide additional contributions of €7.1 billion the previous year. Since 2004, companies spent less than 50 per cent of their contributions for new pension accrual and a steadily increasing amount to account for shortfalls.
Canadians who save through RRSPs can take comfort in knowing a neutral retirement income target is within reach, says Morneau Sobeco’s ‘Saving for Retirement – a Fresh Perspective.’ To get there, however, they need to keep a reasonable retirement age in mind, pay off their mortgage by retirement, start saving early enough, and be prepared to use some of their Pillar 4 assets. Pillar 4 assets are the ‘x-factor’ that bails out many Canadians who would otherwise find themselves falling short of their retirement goals. For instance, some couples might sell their principal residence at retirement and downsize to a smaller, less expensive home and use the proceeds to supplement their income. Pillar 4 also includes taxable savings and TFSAs. The neutral retirement income target is generally lower than conventional wisdom suggests. For decades, Canadians have been told to strive for retirement income that is equal to 70 per cent of final earnings. The neutral retirement income target is about 50 per cent for a two-parent family earning $100,000. The report can be found at http://www.morneausobeco.com
The Healthcare of Ontario Pension Plan (HOOPP) has officially opened the AeroCentre V office building in Mississauga, ON, a cutting-edge ‘healthy’ office building. It features windows that open, covered on-site parking, and an off-centre core that provides much more natural light and significant energy savings. There’s a lot of original thinking behind this project, says Dermot Sweeny, principal of Sweeny Sterling Finlayson & Co. Architects, designers of the building. “HOOPP is interested in suburban infill … putting a new building on a site that was considered to be built out. This is important, because it means no new infrastructure (water, sewers, roads) have had to be built, and no agricultural land is being turned over to development. It’s the healthy thing to do.” He notes that the use of natural light on the site will reduce energy consumption by 35 to 50 per cent. The building’s lead tenant is PepsiCo.
Institutional investors in the UK are allocating more than one-quarter of their portfolios (28 per cent) to alternative assets, says a JP Morgan Asset Management survey. This is up from 21 per cent three years earlier. And it says the trend was likely to continue, reaching 31 per cent over the next two to three years. Hedge funds account for most of alternative weightings, with an average allocation of 8.2 per cent, up from 6.1 per cent in 2007. This could increase to an average of 9.2 per cent over the next few years. The percentage of UK pension schemes with exposure to hedge funds has grown significantly. It found 45 per cent currently invest in, or are looking to invest in, hedge funds, up from 23 per cent in 2007.
Expectations for average total property returns are falling sharply around the globe as economic uncertainty reduces access to financing and supply increases, says a survey by bfinance. The UK would be most affected in the short term with average total returns for the office market in 2011 falling by 30 per cent to 5.8 per cent. It also sees a surprisingly pronounced downward revision for expected total returns from property in emerging Asia – which includes China, Taiwan, South Korea, India, and Malaysia – through to 2013. Only Russian property bucked the trend with double digit returns expected in 2011 and beyond, primarily due to its strong commodity based economy and the recovery in energy prices.
Globally, investor confidence fell from August’s reading of 92 to 88, says the State Street ‘Investor Confidence Index for September 2010.’ In North America, confidence decreased the most, dropping 7.3 points to 87.9 from August’s reading of 95.2. Confidence also decreased slightly among European investors dropping 1.2 points from 98.4 to 97.2. As has been the case for some months now, Asian investors bucked the trend. Their confidence rose 4.4 points from 103.5 to 107.9.
‘Catastrophe Bonds, Reinsurance, and more’ is the focus of a CAIA Canada, AIMA Canada, and PRMIA educational event. Barney Schauble, a principal at Nephila Capital Ltd; Bernard Van der Stichele assistant portfolio manager, OTPP; and David Kaposi, a principal at Mercer Consulting; will provide insight into catastrophe bonds, reinsurance, industry loss warranties, and retrocessions. They will also look at how these insurance-linked securities can complement Canadian institutional portfolios. It takes place October 6 in Toronto, ON. For more information, visit http://bit.ly/CAIATorontoCat2010http://www.cpbi-icra.ca/
Tuesday,September 28, 2010
Ontario Premier Dalton McGuinty will take another look at a Nortel pensioners’ proposal to let a private financial services company manage their $2.5 billion in pension assets. Last week, the government rejected the request. However, the workers don't want their plan wound-up and the funds used to buy annuities, the normal practice when companies go bankrupt. The plan, estimated to be funded at only two-thirds of its liabilities, would then have no opportunity to recover any of those losses, especially at today’s annuity rates. The government rejected the proposal on the grounds it would expose them to the greater risks in equity markets.
Pension plan and institutional investors must come to grips with the “two speed” world of the developed and emerging markets economics, says Yvan Breton, Canada and Latin America leader at Mercer’s investment consulting business. Over the past 25 years, the developed world has driven growth and equity prices. Now, however, growth is slowing and most global economic growth is coming from emerging markets, he told a media session prior to its ‘Americas Investment Forum.’ Investors need to take advantage of the “two speed” world and reassess the weighting of emerging markets in their portfolios. “Clients should really consider rethinking their investment strategies going forward, and pay more attention to the potential from the east, or emerging economies,” said Breton.
Standard & Poor’s has introduced the S&P/TSX MegaCap Index, a large cap index highlighting the 25 largest, most liquid stocks listed on the Toronto Stock Exchange. The index is derived from the benchmark S&P/TSX Composite Index. To be included in the index, securities must be among the 25 largest constituents in the S&P/TSX Composite in terms of float quoted market value (the value determined by multiplying the number of float shares of a security by the price for one such float share), and have listed options on the Montreal Exchange. In order to minimize turnover, additions and deletions are made at the index’s quarterly review.
Many institutions have begun to centralize the quantification, pricing, and management of their counter-party credit risk by establishing an internal credit valuation adjustment (CVA) trading desk that quantifies counterparty credit risk (CCR) for individual business lines and uses the price measure of CVA to actively manage this risk across the entire institution, says an Algorithmics’ white paper on counter-party credit risk. It says since the financial crisis, there has been a shift from passive to active management of counterparty credit risk that requires increasingly accurate and more frequent CVA calculations – from daily to intraday to real-time. ‘Towards active management of counterparty credit risk with CVA’ also explores best practices and practical challenges in counterparty credit risk management through proper calculation of CVA
Nearly half of all European pension funds are imprecisely modelling their liability hedging portfolios, says a survey by the EDHEC-Risk Institute. Its 'Survey of the Asset and Liability Management Practices of European Pension Funds' found 45 per cent of pension funds had poorly defined liability hedging portfolios (LHP) while a quarter of schemes have not fully identified their liabilities. One reason for the failure to define an LHP formally and for the incorporation of hedge funds in LHPs lies in the use of portfolio optimization techniques such as economic capital and surplus optimization. These techniques do not require the identification of a liability-hedging portfolio and of a performance-seeking portfolio. The survey says that optimization techniques that do not identify a liability-hedging portfolio run the risk of unintentional imperfect liability hedging.
‘Change to Survive – Benefits for Organizations of All Shapes and Sizes’ will be the focus of a session at the Conference Board’s ‘Benefits Summit 2010.’ Susan Hermann, regional vice-president, sales, group and business insurance, at Desjardins Financial Security, will discuss if and how benefits providers can adapt to the social and economic changes now taking place, including how costs can be controlled, which trends are going to subside, and which are here to stay. It takes place October 27 in Toronto, ON. For more information, visit http://www.conferenceboard.ca/
How insurance-linked securities such as catastrophe bonds, reinsurance, industry loss warranties, and retrocessions can complement Canadian institutional portfolios will be the focus of an AIMA Canada and PRMIA session. Presenters include Barney Schauble, managing partner, Nephila Capital Ltd; Brooks Crankshaw, managing director, Aon Benfield Securities; and F. Graham Thouret, president, Diversified Global Asset Management. It takes place October 4 in Montreal, QC. For more information, visit http://aima-canada.org
Monday,September 27, 2010
Standard & Poor's has launched a website to help pension funds and plan sponsors better understand how the company arrives at its ratings. The free website provides articles, videos, podcasts, and educational guides on what credit ratings are, the processes by which S&P produces ratings, and how those ratings have performed over time. On the site, analysts, credit officers, and ratings executives will explain the processes the agency has put in place to support the independence of ratings, as well as the methodologies used for various asset classes. They will also address the ways in which ratings performance can be measured and compared, as well as evaluate the performance of ratings in various asset classes over the past several years.
BMO Financial Group’s Exchange Traded Funds (ETFs) business has reached $1 billion in assets under management only 15 months after entering the market. In June 2009, BMO became the only bank in Canada to offer ETFs. Investors can choose from a diverse line-up of 30 BMO ETFs.
‘Compensation, Rewards, and the New Employer Value Proposition’ will be the focus of a session at the Conference Board’s ‘Compensation Outlook 2010.’ Peter McAdam, vice-president, employee experience, at TD Bank Financial Group, and Rhonda Lewis, director, people practice, at Trillium Health Centre, will examine the ultimate role of compensation and rewards in employee engagement, the employer brand, retention, and the employee experience. It takes place October 26 in Toronto, ON. For more information, visit http://www.conferenceboard.ca/conf/
Friday,September 24, 2010
Achieving much-needed reforms to workplace pension plans requires the creation of a national forum of regulators and stakeholders, says a study by the C.D. Howe Institute. ‘Seeking Certainty in Uncertain Times: A Review of Recent Government-Sponsored Studies on the Regulation of Canadian Pension Plans’ reviews the findings of three provincial inquiries into the problems of workplace pension plans and makes recommendations for reform. It is time to fix the problems of workplace pension plans, says the study. While Canadians with incomes below half the average wage are generally well served by government plans (CPP/QPP), those with moderate and higher earnings depend on workplace plans and/or personal savings to avoid substantial drops in their living standards in retirement years. The Ontario report suggests letting large pension plans and funds offer investment and administrative services to small organizations and individuals and raises the possibility that a proposed provincial pension agency would do likewise. The Alberta-British Columbia and Nova Scotia reports propose new provincial pension plans with differing opt-in and opt-out features. The authors believe these ideas deserve serious consideration. For the study go to http://www.cdhowe.org/
Mainstream institutional investors are beginning to incorporate environmental, social and governance (ESG) factors into their decision-making, says a publication from the Canadian Institute of Chartered Accountants (CICA). "Institutional investors tend to have a longer investment time horizon and are increasingly showing signs of interest in ESG factors," says Lisa French, principal, guidance and support, CICA. "These investors are expressing their expectations for corporate disclosures beyond what is currently provided in financial reporting." The publication states that regulators have a responsibility to ensure that material information needed by capital markets is provided in regulatory filings. ‘Environmental, Social and Governance (ESG) Issues in Institutional Investor Decision Making’ is available online at www.cica.ca/cpr
State Street Corporation is celebrating the 20th anniversary of its presence in Canada. Since opening its first office in Canada in 1990, it has grown its client base to more than 360 institutional investors. “As State Street celebrates 20 years in Canada, we reflect on our strong growth in the region, where we have, thanks to our clients, become one of the top financial services providers to institutional investors,” says Jay Hooley, president and chief executive officer. “Canada is an important market for State Street and our clients around the world and I am firmly committed to maintaining our position as a financial services leader in this market for years to come."
Evolution Benefits, Inc. has been selected by the Great-West Life Assurance Company to deliver card technology for its Visa payment card for healthcare spending accounts (HCSAs) in Canada. Under the agreement, Great-West Life will use Evolution Benefits’ prepaid benefits card services to launch ‘Health SolutionsPlus,’ a group benefits solution for healthcare spending accounts. The card will be loaded with a group plan member’s HCSA funds, allowing members to pay for covered health-related products and services from providers authorized by Great-West Life. This is the first contract outside the United States for Evolution Benefits.
Fifty-seven per cent of money managers responding to a Russell Investments poll now believe the market to be undervalued. That represents the second-highest percentage response in survey history on that issue and the highest since the March 2009 survey. Only seven per cent of managers believe the markets are overvalued. It also found technology maintained its long-running position as the most preferred sector at 69 per cent bullishness, followed by energy and then materials and processing, at 51 per cent and 48 per cent, respectively. Bullishness for emerging market equities rose 10 per cent from the last survey to 71 per cent. Only 12 per cent of managers surveyed were bearish on emerging market equities, an all-time low for the survey.
Normand Lépine is pension investment specialist with the Financial Services Commission of Ontario (FSCO). In this role, he will provide expertise for the development/review of the pension investment risk assessment and monitoring program of the provincial pension industry to ensure compliance of pension plans in Ontario. He was previously with Johnson & Johnson.
Ontario drug reform and pension plans conversions will be the topics of the CPBI London Fall seminar. Barbara Martinez, of Mercer, will examine how plan sponsors can manage their plans in light of Ontario’s drug reforms. Cathy Morrison, of Green Shield will discuss its experiences converting from a Defined Benefit to a Defined Contribution pension plan. It takes place October 26 in London, ON. For more information, visit http://www.cpbi-icra.ca
Thursday,September 23, 2010
The Ontario government has rejected a request from former Nortel workers to let a private financial services company manage their pension assets instead of winding up their pension plan. In a letter to the workers, Finance Minister Dwight Duncan said the proposal would mean a potential increased risk for pensioners because of a "high degree of exposure to the equity markets." It would also require a new, highly complex legislative and regulatory scheme within a short time frame. Under the government's wind-up rules, the assets would be used to purchase annuities that would provide a steady income to retirees. Nortel workers said investing the money could help the plan recover some of its shortfall, rather than lock in the loss when the assets are estimated to equal only about 65 per cent of its liabilities. They also said the current low interest rates make it a bad time to buy annuities.
A major transformation in the asset management industry could take place over the next few years, says a report by PricewaterhouseCoopers. The study states that lower asset values, growing competition, and rising operational costs are causing asset management firms to experience lower profit margins. At the same time, investors are looking for increased transparency and more frequent reporting while regulators are placing more pressure on managers to provide this transparency. Some of the changes that asset management companies will need to address to succeed and remain competitive include outsourcing non-core activities to third-party providers; sharing support processes such as human resources and information technology; and investing in technology which can lead to longer-term cost savings and improve productivity.
Changing demographics may be a factor in the fact that the S&P 500 has seen a lack of expansion in its price-earnings multiple, despite a very sharp rebound in earnings, says a report from National Bank Financial. It says the continuing fear of a double dip in the economy is playing a role in holding down equities, but structural factors are also at work. In particular, it suggests that unusual weakness in investor demand for U.S. equities at this point in the cycle also reflects the lower risk tolerance of an aging population in the aftermath of a very big negative wealth-effect shock. Equities (held directly or indirectly) currently account for more than 36 per cent of all household financial assets in the U.S., a share that is well above the historical average. However, the report finds it very unlikely that aging investors, who in the past decade have endured two of the worst bear markets in more than 70 years, will let this proportion rise.
Defined Benefit pension plan liabilities across the world are likely to have increased to record levels in 2010, says research from Mercer. Equity values in most developed financial markets have been volatile throughout 2010, although returns over the past 12 months have generally been positive. However, sponsors of large DB schemes preparing their financial statements under current market conditions could still report larger pension scheme deficits than those 12 months ago. This has been caused by falls in corporate bond yields, which affect the value placed on pension scheme liabilities for accounting purposes. While Canada's economy suffered less in the crisis, its companies are also experiencing record deficits. The story in Canada is more nuanced with poor investment performance, hobbled by flat markets in the first half of 2010, combined with declining AA corporate bond yields driving up liabilities. As a result, pension scheme deficits overall are expected to more than double, from about $20 billion to just under $50 billion.
Requests for securities lending services unbundled from custody arrangements are on the increase, says eSecLending, a firm which works with large clients looking for separate securities lending providers. Most of the search activity has come from U.S. investors, but some interest has come from the UK. The trend stems from an interest to diversify counterparty risk.
The CVCA – Canada’s Venture Capital & Private Equity Association supports the concerns of venture capital leaders from around the world regarding the proposed European Alternative Investment Fund Managers Directive set to be voted on in early October. The Global Venture Capital Congress says that the legislation as it currently is written will irreparably harm small- and medium-sized enterprises by instituting burdensome regulations on the venture capital firms which invest in them. These regulations are intended to curb risks at large trading institutions, but when applied to venture capital firms will have significant unintended consequences. Of particular concern are rules that require the disclosure of highly sensitive portfolio company information by European venture investors. Other rules involve significant restrictions on non-European Union investors doing business in Europe.
Kim Ozubko is counsel in the pensions, benefits, and executive compensation practice at McCarthy Tétrault. She has extensive experience in all matters relating to the legal and regulatory aspects of pension, group benefit, and profit-sharing plans, including implementation, administration, governance, funding, and wind-up. She shares her expertise by working with several organizations focused on pension and benefits issues, including the executive of the pension and benefits section of the Ontario Bar Association. In this role, she helped draft submissions to reform Ontario pension legislation.
John Usborne will lead Societe Generale's financial institutions and governments team in Canada, advising Canadian banks, insurance companies, pension funds, asset managers, and federal and provincial governments as well as their agencies. Previously, he was head of financial institutions for BNP Paribas Canada. He has more than 20 years of investment banking experience having worked with several Canadian and international financial institutions.
Gordon Forrester is executive vice-president, marketing and product, strategy and development, at AGF Investments Inc. He will lead marketing strategy and product development initiatives for both the retail and institutional channels. He comes to the firm with nearly three decades of experience in the financial services and investment industry, most recently in the U.S.
Flaherty Speaks At IFIC
James Flaherty, Canada’s minister of finance, is the keynote speaker at the ‘23rd Annual IFIC Conference.’ It takes place October 1 in Toronto, ON. For more information, visit www.ific.ca
Working with Defined Contribution and Capital Accumulation Plans will be the focus of a session at Osgoode Professional Development program’s ‘6th Annual Essential Course in Pensions.’ Susan G. Seller, of Bennett Jones LLP, and Marc Poupart, general manager, pension and retirement programs at Hudson’s Bay Company, will examine areas such as plan texts and service agreements, as well as compliance/governance issues. It takes place November 30 to December 1. For more information, visit http://www.osgoodepd.ca/
Wednesday,September 22, 2010
The next decade will see employers improving the spend-down phase of their Defned Contribution pension plans, says Mercer’s ‘Spend Down: Post-retirement strategies around the globe’ report. It says the spend-down phase is, in many ways, the final frontier of DC plan provision. People who are retiring from DC plans and are now trying to decide what do to do with their accumulated retirement assets. Mercer’s global spend-down model can analyze investment returns and longevity scenarios and uses the results to construct a risk/return frontier approach for the decumulation phase at the point of retirement. The model can help sponsors and fiduciary managers evaluate returns to retirees, risks of strategies, and the impact of the retiree leaving a bequest to a family member.
The Canadian Pacific Railway Company will raise $350 million through a debt offering and put the proceeds towards a $650 million pension payment. It will issue 4.45 per cent notes due March 15, 2023, in the U.S. The company expects its 2010 Defined Benefit pension plan contributions to reach $845 million after this prepayment is made.
Investors need to ensure there is a strong relationship between pension fund design and investment strategy, says Josephine Marks, managing director – pension assets at Scotiabank Group Treasury. The chairperson at the marcus evans ‘Canadian Institutional Investment Summit 2010’ says if that link is not strong enough, there could be an increased risk of the fund being unable to meet benefit obligations. Looking at the demographics of the population, she says attention must be paid to the pension frameworks that are in place. The choice of pension framework determines the level and type of risk that will be assumed to provide the benefits. Canadian institutional investors need to realize the importance of good risk management, the necessity to better understand and be aware of the risks that are inherent in their portfolios, and how they can be managed better relative to plan design. It takes place October 25 to 27 in Gatineau-Ottawa, QC. For more information, visit http://www.ciisummit.com/
Driven by the combination of a dire funding crisis and strict mark-to-market accounting rules for corporate plans, UK plan sponsors are shifting their attention from traditional corporate portfolio management tasks to broad strategic efforts to minimize – and if possible eliminate – risks associated with the operation of Defined Benefit pension plans, says Greenwich Associates' ‘2010 UK Investment Management Study.’ It found the pace of DB plan closures accelerated dramatically from 2009 to 2010. For the first time, meaningful numbers of corporate plan sponsors report they have closed their plans to new accruals or expect to do so in the next two to three years. As well, the commitment to de-risking DB portfolios has relegated UK equities to the role of a minor asset class. As recently as 2004, domestic equities made up one-third of DB pension assets in the UK Today allocations average 18.3 per cent and plan sponsors intend to reduce them further in coming years.
Gary Ostoich, of Spartan Fund Management, is chairman of AIMA Canada for 2010-2012. The executive committee also includes deputy-chair – Eamonn McConnell, Manna Asset Management; legal counsel – Michael Burns, McMillan LLP; secretary – Andrew Doman, Man Investments Canada Corp.; and treasurer – Chris Pitts, PricewaterhouseCoopers.
Tuesday,September 21, 2010
A majority of commodity derivatives users agree that mandatory centralized clearing will increase their hedging costs, says a Greenwich ‘Market Pulse.’ And a smaller but meaningful share think the new rules will diminish the effectiveness of their hedging practices. In addition to margin requirements, commodity derivatives users point to several drawbacks with centralized clearing including higher transactions costs and reduced flexibility related to standardization of contracts. Despite the negative impact on costs, companies around the world do expect the shift of derivatives trades to exchanges or other CCPs to generate important benefits. Almost all the participants in the survey say central clearing is effective in mitigating counter-party risk.
Institutional investors are limiting returns and retaining unnecessary risks in their equity portfolios by continuing to bias investment towards developed economies, says a Mercer research paper. It is calling on institutional investors to carry out a fundamental review of their equity portfolios to ensure they remain “fit for purpose” in the economic landscape post-financial crisis. Specifically, it says the continued strong growth in developing countries with favourable features such as young and expanding populations is not being captured adequately by many investors. It says there is a strong argument for diversifying away from developed markets in a rational way to preserve performance potential and to improve the efficiency of portfolios. This is likely to involve an increased exposure to emerging, small cap, and low volatility strategies.
Carbon management is becoming a strategic business priority and competitive driver for the largest global companies, says the Carbon Disclosure Project's ‘2010 Global 500’ report. Of the leading global companies surveyed, 85 per cent have board or senior executive level responsibility for climate change and nearly half – 48 per cent – are now embedding climate change initiatives into the overall business strategy and across the organization. However, despite the increase of boardroom and executive level engagement, only 19 per cent of the Global 500 companies surveyed show significant emissions reductions.
Emerging market debt’s weak correlation with developed world bond markets means investors have a prime opportunity to enhance returns and reduce risk through diversification, says Western Asset Management, an affiliate of Legg Mason. It says emerging economies are continuing to outperform developed economies thanks to fiscal and monetary reforms and favourable secular and demographic trends. This has made them significantly less vulnerable to external shocks compared with past cycles. As a result, it says an actively managed exposure to emerging market debt – including sovereign, quasi-sovereign, and corporate issues in both local and foreign currencies – will be rewarded over the coming business cycle.
Integrated Asset Management Corp. and its private corporate debt group, Integrated Private Debt Corp., have closed a $90 million senior term loan to Enwave Energy Corporation. The loan is structured in two tranches: a 35-year $85 million tranche and a 10-year $5 million tranche. Enwave is owned by the City of Toronto and OMERS. The total capital raised will be used to refinance existing debt and provide Enwave with resources for future capital projects.
RBC Dexia has been chosen by Sun Life Global Investments (Canada) Inc., an indirect wholly-owned subsidiary of Sun Life Financial Inc., to provide an integrated service platform including custody, fund accounting, transfer agency recordkeeping, and risk and investment analytics to a new family of mutual funds in Canada scheduled to launch in the fall of 2010. The fund line-up will be available through Sun Life Financial advisors, as well as Mutual Fund Dealer Association and Investment Industry Regulatory Organization of Canada firms. It will also be made available to Sun Life Financial’s group retirement plan customers through its segregated fund platform.
The Canada Pension Plan Investment Board is taking full ownership of six shopping centres in British Columbia and Ontario and a 90 per cent interest in two malls in Quebec. Among the deals is the purchase of the Hillside Centre in Victoria, BC, from the Ontario Pension Board, the pension plan for Ontario public employees. The CPPIB increased its interest in a portfolio of seven other malls in a deal with private real estate firm Osmington Inc. The CPPIB’s real estate portfolio has an equity value of about $7.9 billion, with $3.6 billion in Canadian investments and the rest invested globally in the United Kingdom, the United States, Mexico, Brazil, continental Europe, and the Asia-Pacific region.
Allard Now Global COO
Jacqui Allard is global chief operating officer of MFC Global Investment Management. Based in Toronto, ON, she is responsible for all information technology, operations, performance analytics, and product and corporate marketing functions worldwide. Before joining the firm as vice-president and chief administrative officer, she was a senior vice-president at State Street Corporation where she held various senior technology, operations, and client management positions.
Luc Bachand is vice chair and head of the operations of BMO Capital Markets in Quebec. He will be responsible for senior relationship management of corporate, government, and institutional clients as well as for facilitating co-ordination and co-operation between the various Quebec-based lines of business. He joined the firm in 1983.
Pension Committee Evaluation Discussed
Monday,September 20, 2010
The Alberta government says it's opposed to expanding Canada Pension Plan (CPP) benefits for retirees. However, a substantial majority of Albertans would back a CPP increase, says an opinion survey for the Canadian Union of Public Employees (CUPE). Some 66 per cent of Albertans would support an increase in CPP benefits. Only 19 per cent would be opposed, while 15 per cent don't know. The Alberta government has been the most vocal opponent of a proposed modest, phased-in, and fully-funded enhancement of CPP benefits. Changing the CPP will require the support of at least two-thirds of the provinces representing not less than two-thirds of the population.
Canada's “patchwork system” of drug coverage is leading to financial hardships for many cancer patients, says Suzanne Lepage, a private health plan strategist. Speaking at a CPBI seminar on cancer treatment solutions, she pointed out how oncology drug funding varies considerably among provinces, creating a fragmented national system that leaves many with inadequate public or private insurance protection. With cancer drug costs rising dramatically over the past five years, many employer-sponsored plans are failing to pick up the cost, forcing the use of private clinics and leaving many forced to pay for therapy out of their own pockets. As a result, cancer now represents the single largest drain on national economies and is significantly impacting families’ personal savings. Employers need to respond by educating workers on these shifts in coverage and preparing them for the financial burden of a cancer diagnosis, Lepage says.
The ground has been broken for Green Shield Canada’s head office expansion in Windsor, ON. When completed, the construction expansion project will almost double the facility size to more than 116,000 square feet. Using a team approach to construction management, the expected completion date is spring 2011. Steve Bradie, Green Shield Canada president and chief executive officer, says “the expanded head office will not only position us to provide our customers with the best customer service possible for years to come, it will also allow us to keep true to our community roots.” Green Shield Canada was founded in Windsor in 1957.
‘Pension Reform – The Strength of CAPs in Canada's Retirement Market’ will be the focus of the next Kitchener-Waterloo Chapter of the ISCEBS breakfast session. William (Bill) Kyle, executive vice-president, wealth management, for Great-West Life, London Life, and Canada Life, is the guest speaker. It takes place September 22 in Cambridge, ON. For more information, visit http://www.kw-iscebs.org
The 41st IBIS Academy will take place May 2 to 6, 2011, in Vienna, Austria. The two-track Academy, comprising the five-day institute (for training and certification) and the three-day conference (for industry leadership discussions), aims to promote industry growth and provides multi-nationals with knowledge and resources on international pensions and employee benefits in markets around the world. For more information, visit www.ibisacademy.com
Friday,September 17, 2010
The Canadian dollar is likely to behave more like an Asian currency than OECD currency, says Louis-Vincent Gave, of GaveKal. Speaking at the ‘2010 ACPM National Conference’ session ‘Asia’s Paradigm Shift And its Implications for Canada,’ he said Canada, like Asia, does not face the two main problems facing developed economies. These economies have created a lot of assets, against which banks have collaterized too much debt, and are in challenging budgetary situations. However, Canadian equity markets are likely to face similar challenges to Asian equity markets. And Asian markets are not without their challenges. He said inflation is looming as a threat in countries such as China.
The question is not ‘how long,’ but rather ‘what is the prognosis’ when it comes to terminating an employee absent due to long-term disability, says Fasken Martineau’s ‘The HR Space.’ It says in the recent Ontario decision of Naccarato v. Costco Wholesale Canada Ltd., the court found in favour of the employee on the grounds he could return to work. Costco, using a Hydro-Quebec decision where the company was allowed to terminate the employee because doctors predicted that the employee would likely not be able to return to work, argued the employee would be unlikely to return to work in the foreseeable future. Although a five-year illness was "significant,” the court found the lack of a medical prognosis, coupled with the fact that he was still in psychiatric treatment, left open that possibility. For employers, the decision means the length of an absence is not enough to terminate an employee. The prognosis of whether an employee can return to return matters more.
When exploring performance based fees, sponsors need to determine what they are trying to achieve and what their expectations are of the manager, says Topher Callahan, of MFS Investment Management. Speaking at the session ‘Exploring Performance Based Fees’ at the ‘2010 ACPM National Conference,’ he said sponsors also need to analyze how performance fee structures work in different market scenarios. As well, they need to know if the structure reflects the performance and risk profile they seek and reward the manager fairly, Finally, they need to ensure that the description of performance fee is explicit in the agreement, while keeping it as simple as possible.
Pension funds and other institutional investors based in developed markets could raise their emerging markets equity weighting to 18 per cent in the next 20 years from the current six per cent, says research from Goldman Sachs. The move could be driven by an expectation of emerging markets eventually having the largest share of the global equity market. ‘EM Equity in Two Decades: A Changing Landscape’ says by 2030, emerging markets equity capitalization could rise to $80 trillion, or a 55 per cent share of global equity. That rise in emerging markets would amount to a 9.3 per cent compound annual growth rate through 2030, compared to an expectation of a four per cent growth for developed markets equity.
The ultimate goal for all educators should be to make a difference in the lives of plan members by providing hope and encouragement in the pursuit of their financial and retirement goals, says Graydon Watters, of the Financial Education Institute of Canada. Speaking on ‘Financial Literacy … Will Canadians be ready for retirement?’ at the ‘2010 ACPM National Conference,’ he said education efforts require sponsors to go where the plan members are. They need to listen to the members and speak to their concerns. Finally, it is important to communicate in lay terms and eliminate jargon.
Risk Management Focus Of Discussion
AIMA Canada, CAIA, and PRMIA will host a half-day discussion focusing on risk management. The event consists of two separate panels. Panel one will look at ‘Risk Management Before and After 2008: AFC Capital Case Study.’ The other panel will examine the evolution of risk management for the hedge fund investor. It takes place September 21 in Montreal, QC. For more information, visit www.prmia.org
Thursday,September 16, 2010
A push to strengthen Canada’s pension system is now bogged down in the details and will likely come up short of a fall deadline, says a report in the ‘Globe and Mail.’ Three months ago Finance Minister Jim Flaherty announced at a Prince Edward Island retreat that a majority of his provincial and territorial counterparts supported improvements to Canada’s pension system, including enhancements to the Canada Pension Plan. He said the specifics would be “complete” by the fall. Following the announcement, the government started to look at enhancing the existing CPP and crafting a new pension option that would be run by the private sector to serve workplaces where no company pension is offered. One of the hurdles is that the CPP is a national program but Alberta and Quebec are opposed to changing the existing program.
The best protection for pension plans is strong funding and robust risk management, says Judy Cameron, of the Office of the Superintendent of Financial Institutions. Speaking at the session ‘Plan Sponsor Restructuring & Bankruptcy: A Regulator’s Perspective’ at the ‘2010 ACPM National Conference,’ she said plan sponsors can help insure this by preparing for the unexpected with scenario testing and reviewing their investment risk and risk appetite. She also said the mandate of OSFI recognizes that plans may terminate with losses to beneficiaries. However, it attempts to prevent this by administering the PBSA and taking action when plans don’t comply; promoting policies and procedures to control risk; and protecting the rights and interests of plan beneficiaries.
Quebec has struck a deal with AbitibiBowater to protect employee pensions and maintain operations in the province as the company tries to emerge from creditor protection. The province’s pension agency will allow the firm to make reduced pension contributions while it continues its restructuring effort. AbitibiBowater has also agreed to freeze dividend payments if the pension accounts fall below 80 per cent solvency. The deal is conditional on the company maintaining its Montreal headquarters and operations at its six remaining Quebec plants. The agreement only covers its 2,800 Quebec millworkers. Another 2,000 people work in other provinces, mainly in Ontario.
Target Benefit Plans, as proposed by pension reform studies in Ontario and Nova Scotia, may provide the best option for pension reform in Canada, says Robert Brown, who just retired as a professor at the University of Waterloo. Brown, who will also chair the three-member committee appointed to review the ‘25th Actuarial Report on the Canada Pension Plan,’ told a session on ‘Pension Reform in Canada: Issues’ at the ‘2010 ACPM National Conference,’ said as opposed to other alternatives such as an expanded Canada Pension Plan, Target Benefit Plans are similar to many MEPPS in Ontario today. They offer target benefit which can go can go up or down depending on the funded status of the plan. However, they have the advantage of size and also spread the risk out over a large number of employees, unlike Defined Contribution plans where each member has all their own risk.
Ten years after its launch, the University of Regina is looking at making changes to its successful Defined Contribution pension plan. Dr. Jim Tomkins, of the university, told a session at the ‘2010 ACPM National Conference’ that it is becoming increasingly difficult to manage the assets of its open Defined Benefit plan and combination plan (closed DB component and DC component) in one fund, especially trying to accommodate the needs of three strategies in one investment policy. As well, they are looking at the implementation of DC investment choice.
The board of trustees model of governance is probably the best for a MEPP even in a non-union environment, says Terry Duggan, of the B.C. Maritime Employers Association. Speaking at the session ‘Are MEPPs in your Future?’ at the ‘2010 ACPM National Conference,’ he said other options might be one employer administering the plan with others joining as participating employers; having a financial institution administer the plan; or having a for-profit or not-for-profit organization looking after administration. The trustee method has worked well, however, in a non-union environment it would require a shift in thinking. As well, with a non-union MEPP, it might be a challenge selecting the appropriate trustees. The challenge with any of the other approaches is replicating the long-term relationship that results from having industry groups and trade unions behind MEPPs.
Keri Alletson, of Towers Watson, will look at ‘Becoming an Employer of Choice: Connecting Well-being to Engagement’ at the ‘Health Work & Wellness Conference.’ In this session, she will explore how leading organizations are incorporating aspects of emotional and psychological health into their talent management programs as the next step in supporting employee well-being, productivity, and engagement. It takes place September 29 to October 2 in Vancouver, BC. For more information, visit www.healthworkandwellness.comhttp://www.cpbi-icra.ca/
Wednesday,September 15, 2010
The Albert Court of Appeal agrees with the Superintendent of Pensions that Halliburton Group Canada Inc. could not freeze earnings when converting one of its pension plans from Defined Benefit to Defined Contribution for future service, says a Mercer Communiqué. The decision in Halliburton Group Canada Inc. v. Alberta was over an amendment to freeze credited service and earnings as of January 1, 2002. Halliburton believed that the amendment was acceptable under both the plan terms and the Employment Pension Plans Act. Since the plan tied earnings to credited service, it seemed clear that there is no promise to recognize earnings during the future employment that is not credited service. However, the Superintendent insisted that future earnings be included in the defined benefits. The Court of Appeal agreed that deference should be given to the Superintendent's decision and upheld it. In addition, the Court of Appeal's decision included an analysis of the plan terms and Section 81 finding that the amendment was prohibited by both. Since the language used in the pre-amendment Halliburton plan text is commonly found in pension plans, plan sponsors in Alberta contemplating freezing accrual of defined benefits now must carefully review their plan text to see if that text permits an amendment ceasing the recognition of future salary increases.
Investors Bullish On China
Institutional investors are cautious overall, but bullish on China once again, says the ‘BofA Merrill Lynch Survey of Fund Managers’ for September. The survey says that global investors are approaching the fourth quarter “with a heightened sense of caution.” One key signal of low risk appetite is that large numbers of investors are simultaneously saying that equities are undervalued and bonds are overvalued. A net 38 per cent believe equities are undervalued while a net 68 per cent believe bonds are overvalued. Despite this overwhelming sense of caution, sentiment towards the Chinese economy has also swung from significantly bearish to bullish in just one month. A net 11 per cent of respondents believe that the Chinese economy will strengthen over the next 12 months, a 30 per cent swing and the largest positive monthly change since May 2009.
Nova Scotia taxpayers are contributing millions each year to pensions for politicians who are the richest in Atlantic Canada, says the Canadian Taxpayers Federation. It has released a report calling for major changes to the way pensions are funded for the 52 members of the provincial legislature. The study says the 24 legislature members eligible for pension benefits stand to take in more than $23 million should they all live to age 75. The program is so rich that for every $1 contributed by a politician, the taxpayers contribute $22 towards their retirement. The report recommends replacing the current pension program with an RRSP-style Defined Contribution plan where contributions would be reduced to dollar-for-dollar between taxpayers and politicians and the creation of a citizens' panel to examine legislature members pay and benefits.
Aon's annual ‘Pay Increase Survey,’ whose initial results suggest organizations are slowing down on freezing salaries, now confirm that the overall trend for salary increases next year should be viewed with cautious optimism. Organizations are expecting to give higher increases in 2011 than in 2010. The overall salary budget increase is expected to rise to approximately 2.8 per cent (three per cent when excluding salary freezes), yet organizations are holding salary structure increases steady at two per cent. A more detailed analysis of the results indicates very little difference among provinces and industries in terms of salary increase budgets.
The Pension Office Corporation of The Anglican Church of Canada will use Summit Global Investor Services’ Zenith Reports for analytical services. It augments the conventional services of performance, attribution, and risk measurement with additional analysis such as buy-and-hold, transaction cost, FX rates, and custodian monitoring. The Anglican plan has more than 5,000 members and assets of $500 million in its Defined Benefit pension plan in a mix of pooled and segregated funds across nine asset managers.
BetaPro Management Inc., the manager of the Horizons BetaPro Exchange Traded Funds, has launched the Horizons BetaPro S&P/TSX 60 Index ETF. It offers a more efficient and lower cost way to get exposure to the index and seeks to replicate, to the extent possible, the performance of the S&P/TSX 60 Index (Total Return), net of expenses. It will under the symbol HXT.
William R.C. Tresham is president and chief executive officer of the Caisse's Real Estate group subsidiary SITQ. He was recently partner and chief operating officer at Callahan Capital Partners, a private, Chicago-based real estate firm. Previously, he headed Trizec Properties.
Patricia Croft has announced her retirement from the investment industry. The chief economist at RBC Global Asset Management will depart at the end of September after almost three decades in the investment industry. She has held the post for almost two years and is part of the team that manages the asset mix for $25 billion in balanced fund mandates for Phillips, Hager and North Investment Management Ltd., a firm acquired by RBC in 2008.
Marie Foggetti is regional business development director for group retirement services at Sun Life Financial. She will be responsible for both consultant-driven and direct sales in central Canada. Jean-François Proulx is national vice-president, corporate accounts. He leads the sales practices team across Canada that focuses on advisor-driven business. Michael Irwin is assistant vice-president, product and investment management; Judy Farlow is assistant vice-president, marketing; and Caesar Iacovelli is assistant vice-president, operations, for Sun Life Global Investments (Canada) Inc. Irwin is responsible for the creation and day-to-day management of the product suite and Farlow will lead the development and implementation of the marketing strategy, plans, and infrastructure to support the new mutual fund company and its fund offerings. Iacovelli is responsible for company operations, including business services.
Tuesday,September 14, 2010
Many of the issues a new report calling for a national pharmacare program in Canada were covered in private sector think-tanks more than a decade ago, says Fred Holmes, a benefits consultant. The report contends a national pharmacare program could slash more than $10.7 billion off Canada's annual $25 billion prescription drug costs. However, Holmes says the real issue is that healthcare reform recommendations appear to be seen as more credible when coming from government funded or subsidized institutions than from the private sector. He says at a series of C-PIC conferences he chaired 10 years ago with Michael Decter, former chair of the Canadian Institute for Health Information and the Health Council of Canada, a number of findings were made that appeared in the report. These included that the assortment of public and private drug plans are not integrated and provide patients with inequitable assistance and Canadian drug prices are influenced by government policy to attract pharmaceutical research investment. As well, Holmes says the report overlooked some past learning's such as recognizing drugs must be recognized as part of the healthcare system.
Funds touting socially responsible investment strategies did not outperform more traditional funds and did not safeguard assets during the financial crisis, says research from EDHEC-Risk Institute. Its report found in most cases alpha was negative and not statistically significant. In addition, SRI funds provided no protection from market downturns during the financial period. The EDHEC recommends using a global SRI process that incorporates SRI stock picking with traditional asset management techniques such as diversification, forecasting market values, and tactical asset allocation.
Salary increases for 2011 will be comparable to the increases for 2009 and 2010, around 2.9 per cent, says the ‘2011 Mercer Canadian Compensation Planning Survey.’ Speaking at a seminar on the survey, Iain Morris, of Mercer said the top points about salaries when it comes to 2011 and beyond start with identifying an organization’s key talent risks. Employers must also assess the market, cost, and actual employee salary considerations in compensation planning, as well as analyze compensation practices and workforce dynamics to optimize future talent and reward management. “It’s time to broadly consider how base salary management support business needs,” he said.
AIMA Canada is calling for entries for the 2010 AIMA Canada Hillsdale Research Award, as the September 30 deadline for entries nears. Jointly sponsored by AIMA Canada and Hillsdale Investment Management Inc. recognizes outstanding Canadian research pertaining to any aspect of alternative investments. Topics may include, but are not limited to, investment strategy, regulation, trading, risk management, risk measurement, and manager selection. The award, now in its sixth year, is open to academics, students, and practitioners who are either residents of Canada or Canadian citizens living abroad. For more information, visit http://aima-canada.org/research_award.html
Some of the ways plan sponsors can save health and dental benefit dollars by updating their plan design to target the needs of employees will be the focus of a Connex Health seminar. Kevin West, vice-president at Innomar Strategies Inc. will provide information on the costs to employers of managing co-morbidities associated with obesity and Dr. Oksana M. Sawiak will address the relationship between dental health and other physical aspects of health. It takes place September 16 in Burlington, ON. For more information, visit https://www.connexhc.com/
Innovative ideas and cutting-edge strategies for health and wellness programs in Canada will be the focus of the International Foundation of Employee Benefit Plans’ ‘Canadian Health and Wellness Innovations Conference.’ The conference, now in its third year, will examine topics such as the hottest trends in cost control as well as the latest advances in alternative treatments for supplementing traditional healthcare. It takes place February 20 to 23 in Las Vegas, NV. For more information, visit www.ifebp.org
‘Financial Markets After The Crisis: Does Integrity Matter?’ will be the focus of a CFA Institute, Toronto CFA Society, and Schulich School of Business at York University session. A panel discussion will feature Susan Wolburgh Jenah, CEO, IIROC; Michael Jensen, a corporate governance researcher from Harvard University; Bob Bertram, retired CIO at Ontario Teachers Pension Plan; and Jeff Diermeier, former CEO of CFA Institute and current trustee of the Financial Accounting Foundation. It takes place September 16 in Toronto, ON. CAIA members who might be interested can contact firstname.lastname@example.org
Monday,September 13, 2010
Nortel Networks Corp.’s pension plan members want the Ontario government to let the private sector take over managing the pension fund. A committee representing 20,000 Nortel retirees has opened a “data room” to allow financial companies to review the plan’s $2.5 billion in assets and submit bids to take over managing the money. Moving the money to private management requires government approval because pension plan assets cannot currently be transferred when companies go out of business. The standard procedure is for assets to be liquidated and the money used to purchase annuities. And, a group of 40 employees living on long-term disability believes the private management plan is too risky and that the plan should be wound up and the money used to buy low-risk annuities. The Nortel pension committee opposes liquidation because annuities are providing low rates and the pension plan is only funded at 65 per cent of liabilities. The plan is slated to be wound-up as of the end of the month.
Teachers’ Sells CTV Stake
The Ontario Teachers’ Pension Plan will sell its 25 per cent ownership of privately held CTVglobemedia to BCE Inc. (Bell). The sale positions Teachers’ Private Capital, the pension plan’s private investment department, to continue its active pursuit of further global investment opportunities for its telecom, media and technology portfolio. Teachers’ Private Capital acquired 20 per cent of CTVglobemedia in 2005 and obtained an additional five per cent in 2006 with the follow-on acquisition of CHUM.
Almost all Canadian employers (97 per cent) offer an extended healthcare plan to their employees, with slightly more than half (54 per cent) paying the full premiums for their employees, says a survey by the International Foundation of Employee Benefit Plans. ‘Employee Benefits Survey: U.S. and Canada 2011’ says of the organizations requiring employees to share the cost of the premium, the most common amounts employees pay is between 16 per cent and 20 per cent or between 41 per cent and 50 per cent. Eighty-four percent of employers surveyed report taking some kind of action to lower the costs of providing an extended healthcare plan. These efforts include annual and/or lifetime maximum benefit limits (94 per cent), reasonable and customary fee schedules (80 per cent), healthcare claims utilization analysis (76 per cent), and two tiers for cost sharing (59 per cent). Wellness initiatives have been implemented by a large percentage of corporations, professional service firms, and public employers (70 per cent, 70 per cent and 80 per cent, respectively), but are much less popular among multi-employer plans (10 per cent).http://www.cpbi-icra.ca/
Friday,September 10, 2010
More than half (56 per cent) of Canadian employers offer a Defined Benefit pension plan that provides employees with a guaranteed monthly income in retirement, says the International Foundation of Employee Benefit Plans’ ‘Employee Benefits Survey: U.S. and Canada 2011.’ As expected, this type of plan is more common among multi-employer plans (87 per cent) and public employers (86 per cent). About the same proportion, 53 per cent of employers in the survey, offer a Defined Contribution plan. This option is most common among professional service firms (70 per cent) and corporations (63 per cent). Most employers offering a DC plan report offering matching contributions – 93 per cent of corporations, 90 per cent of professional service firms, 86 per cent of public employers, and 67 per cent of multi-employer plans. The survey also found that in recent years, a number of automatic features have been introduced to increase employee participation in DC plans and to help employees manage their plan investments. The survey found that three in five employers (61 per cent) use automatic features in their DC plan.
New GST/HST rules targeted at registered pension plans (RPPs) currently only affect plans that are funded under a trust or a corporate entity such as a pension fund society, says Greg Hurst, of Greg Hurst and Associates Ltd. RPPs funded under insurance policies or contracts are not currently captured by the new rules. “In effect this means there are now two different tiers of taxation applied to RPPs under the Canada Excise Tax Act,” he says. “Trusteed pension plans are facing significant new administrative and financial burdens as a consequence of the new GST/HST rules for RPPs, while plans funded through insurance contracts are excluded from the provisions.” Under the rules as now in force, all trusteed RPPs and those administered through a pension fund society will be administratively burdened with self-assessment and reporting requirements. Plans where sponsors have been performing aspects of plan administration in-house or paying for third-party fees (such as actuarial, consulting, custodial, recordkeeping, and administration fees) directly will suffer the heaviest financial impacts consequent to the deemed supply provisions of the new rules.
A Canadian actuary has earned a prestigious award from the Society of Actuaries' pension section. A paper by Tom Walker, an actuary and financial adviser from Burlington, ON, was chosen as an award-recipient paper at the ‘Retirement 20/20: New Designs for a New Century’ conference. ‘The Total Career Benchmark Model: A Pension Model for Retirement 20’ explains how Retirement 20/20 recognizes the necessity to go back to first principles and develop a system that achieves the underlying goals of retirement savings from the perspectives of all stakeholders – employees, employers, and society in general through the government. His model, the Total Career Benchmark focuses on reconstructing and maintaining a consistent and reasonable sharing of risks and rewards and takes advantage of modern technology for the necessary tools by establishing benchmarks used to define tax shelter limits, target pensions, and other items like accrued benefits to date.
Randy V. Bauslaugh is a partner and national leader of the pensions, benefits, and executive compensation practice at McCarthy Tétrault. An expert in structuring pension plan investments, for nearly three decades, he has guided corporations, boards of trustees and domestic and foreign governments on the design, administration, implementation, restructuring, and winding up of pension, group benefit, and profit-sharing plans. He has also contributed significantly to Canadian and international professional organizations. He is chair of the International Pension and Employee Benefits Lawyers Association and is a member of the MEPP consultation committee of the Financial Services Commission of Ontario. He is also a past member of the executive committee of the pension and benefits section of the Canadian Bar Association (Ontario). He is also a member of the editorial advisory board at Benefits and Pensions Monitor.
With cancer on track to becoming the leading cause of death in Canada, many patients will be caught with inadequate public or private insurance protection. As well, with cancer care treatment moving to private clinics, many employer plans are not picking up the cost. A ‘Potential Solution to the Emerging Changes in Cancer Treatment’ will be the topic of a CPBI Ontario breakfast seminar. Suzanne Lepage, a private health plan strategist, will provide an understanding of how government and private coverage shifts will impact patient access and explain why Canadians need to prepare themselves for the financial burden of a cancer diagnosis. Andrea Roth, of Sun Life Financial will describe how critical illness insurance (CI) works, common features found in these products, and the types of costs it can cover. It takes place Friday, September 17, in Toronto, ON. For more information, visit http://www.cpbi-icra.ca/
Thursday,September 9, 2010
The financial crisis of 2008-2009 has re-focused pension plans in North America, the UK, and Northern Europe on defining and solving the risk management challenges they face in the decade ahead, says research by Pyramis Global Advisors. The Pyramis ’Global Defined Benefit (DB)’ research study found there is a great deal of concern in the market today about how best to assess risk and address it. As a result of the many lessons learned, plans are implementing new investment strategies and risk measures designed to meet their long-term goals. The top lessons learned from the financial crisis were the need for more downside protection, improved risk management, a better match of assets and liabilities, and a realization that they were less diversified than they thought. The top concern was their current funded status, followed by volatility and a low-investment return environment.
Mental illness is associated with more lost work days than any other chronic condition, costing the Canadian economy $51 billion annually in lost productivity, says a study from the Centre for Addiction and Mental Health. It calculated the actual cost of mental health leave and found that on average it's double the cost of a leave for a physical illness. Results showed that the cost to a company for a single employee on a short-term disability leave due to mental health concerns totals nearly $18,000. Disability leaves due to physical illness cost nearly half of that for a leave due to mental illness.
A $150 million equity commitment by Ontario Teachers' Pension Plan (Teachers') is providing additional growth capital for NXT Capital, LLC, a privately held middle-market commercial finance company based in Chicago, IL. The investment is being made through Teachers' Private Capital, the pension plan's private investment department. NXT Capital is led by former principals of Merrill Lynch Capital and was formed earlier this year with private equity funds managed by Stone Point Capital LLC, along with funds from the founding management team. NXT targets senior financing opportunities of up to $100 million.
The Toronto CFA Society has launched its newest award, the Toronto CFA Society & Hillsdale Canadian Investment Research Award. Applications will be judged on the potential contribution of their applied research to topics of interest related to Canadian capital markets. Areas of research interest include any aspect of investment management, such as portfolio management, asset valuation, risk management, compliance, and performance evaluation. Investment fields include traditional and alternative investments, as well as all asset classes and investment vehicles. Papers submitted for consideration must not have been published or accepted for publication. Deadline for submission is November 30.
Rob Brown will chair the three-member committee appointed to review the ‘25th Actuarial Report on the Canada Pension Plan.’ Brown chairs the International Actuarial Association’s Social Security Committee and has reviewed the CPP Actuarial Report in the past. He also a former president of the Canadian Institute of Actuaries. Other members are Doug Andrews, an International Actuarial Association member, and Warren McGillivray, a Society of Actuaries social security committee member, a policy associate with the Caledon Institute of Social Policy, and member of the National Academy of Social Insurance.
Alison Crosthwait is director, global trading research, at Instinet Inc. She comes to the firm from ITG Canada where she served as its head of research. She will lead its effort in publishing global market microstructure research.
Wednesday,September 8, 2010
Plan sponsors who move to cash balance plans from Defined Benefit plans may be trading interest rate risk for investment risk, and they may not be aware of it, says a Vanguard Group report. While cash balance plans are technically DB plans, the benefit is expressed as a lump-sum amount, whereas traditional DB plans express their benefit as an annuity, payable over the participant’s lifetime. As a result, it is more difficult to invest in assets that match the liability of the cash balance plan than it is to invest in assets that match the liability of a traditional pension plan. While the liability for a typical cash balance plan is not very sensitive to interest rates, the liability itself is more stable and predictable, especially because final average pay and early retirement provisions add volatility to a traditional plan. However, because there are no specific assets that will match the liability, the funded status of a cash balance plan is difficult to control.
Integrated Accessibility Regulation Proposed
The government of Ontario is proposing a new integrated accessibility regulation under the Accessibility for Ontarians with Disabilities Act, 2005, says Nancy J. Gowan, president/occupational therapist at Gowan Health Consultants. This appears to be a response to the public feedback acquired through the consultation processes on the standards for accessibility over the past couple of years, says Gowan. The proposed regulation will streamline, align, and phase-in accessibility requirements. This will allow for progress on accessibility and reduce regulatory burden for obligated organizations.A summary of the regulation is at http://www.ontariocanada.com/
The Organization for Economic Co-Operation and Development wants the International Accounting Standards Board to review the definition of DB and DC plans as they relate to international accounting standards. In commenting on an exposure draft of proposed changes to IAS 19, the OECD says some of its member countries feel that the current definitions do not fit well in the context of their national pension systems. For example, some member states have developed hybrid systems where the risk of the guarantee is divided between a Defined Benefit and a Defined Contribution arrangement.As a result, the OECD may look at reviewing its own classification system for different types of schemes early 2011 or 2012.
Tuesday,September 7, 2010
Undue augmentation of one leg of the retirement savings stool will ultimately be to the detriment of the others, resulting in an unbalanced retirement system, says a Heenan Blaikie ‘Pension Pulse,’ as there is only so much money to be devoted to retirement savings. It says a Canadian Labour Congress call for doubling of C/QPP premiums would result in fewer dollars elsewhere. “Interestingly, the CLC message makes the point that only one in four people in Canada can afford to put money aside in an RRSP or tax-free savings account. If that is the case, it is difficult to understand how most people will have the capacity to make additional contributions to the C/QPP,” it says. As well, it is widely recognized that the employer-sponsored pension leg of Canada’s retirement system has been suffering and is now much weaker than it used to be. More focus of reform should be placed upon strengthening and expanding this leg of the stool, thereby restoring a better balance to the system.
Industrial Alliance Insurance and Financial Services Inc. has completed the acquisition of of California-based Golden State Mutual (GSM). The GSM block of business involves 120,000 life policies with a face amount of close to US$500 million. For the year ended December 31, 2009, total premiums amounted to US$9 million and invested assets were US$70 million. Established in 1925, Golden State Mutual was the largest minority-owned life insurance company in California, providing traditional life insurance products to mid-market customers in 17 states.
Alternative trading system Omega ATS wants the ability to trade Canadian debt and U.S. securities. An ‘OSC Bulletin’ says proposed changes at the ATS include the introduction of order types designed to allow crossing trades on the marketplace and the introduction of pegged orders. The introduction of crosses will allow subscribers to move large volume blocks between accounts without being subject to interference from other orders. This will also enhance marketplace transparency. It intends to implement these changes in the fourth quarter. Comments on the proposals are due by October 4.
A text messaging service for retirement plan participants has improved savings rates, says the Principal. Its analysis comparing the group of participants who receive text alerts to a random sample of participants not receiving text alerts found 17 per cent of the text messaging group increased salary deferrals, compared to four per cent of the sample group. In addition, the average account balance increase since last summer has been 56 per cent for the text messaging group, compared to 35 per cent for the sample group.
Friday,September 3, 2010
Government should use public-private partnerships to address taxpayer exposure to Defined Benefit pension plan longevity risk, says a study from Swiss Re. 'A short guide to longer lives: Longevity funding issues and potential solutions' says that underestimating life expectancy by one year can increase a pension plan's liabilities by up to five per cent. It is calling on governments to consider realigning retirement ages with life expectancy and providing support for the longevity capital market following the unveiling of the Life and Longevity Market Association's (LLMA) longevity index framework earlier last month. It says governments already work with insurers to address other financial risks, such as those associated with natural catastrophes, and could look to create a mutually beneficial resolution for longevity risk.
Pension plans of S&P1500 companies are shouldering deficits of a combined $506 billion, the largest recorded deficit in their history, says data from Mercer. The deficit translates to a funded status of 71 per cent at the end of August, down from 84 per cent at the start of the year. It is also twice the 2009 deficit of $247 billion. The decline in funded status is due to a combination of falling equity markets and low bond yields.
‘Legal Issues in Managing Your Benefits Plan’ will be the focus of a session at the ‘CPBI 2010 Ontario Regional Conference.’ Terra L. Klinck, of Hicks Morley Hamilton Stewart Storie LLP, and Susan Philpott, of Koskie Minsky LLP, will discuss a variety of legal issues that can arise in relation to life, disability, and health/dental benefit programs including liability for failure to enroll plan members, dependent definitions, the role of the administrator in complying with court orders, separation agreements, and beneficiary designations. They will also provide practical tips to avoid disputes and litigation. It takes place October 4 to 6 in Niagara-on-the-Lake, ON. For more information, visit http://www.cpbi-icra.ca/
Thursday,September 2, 2010
Multi-national companies are looking for ways to redesign Defined Benefit schemes, but will cut contributions by 10 per cent in the process, says research by Mercer. Its ‘Scheme Design Survey’ of companies in the UK, U.S., Germany, France, Italy, and the Benelux countries found 33 per cent were looking to make changes to their DB scheme, but this would involve cutting contributions by 10 per cent on average. The average level of employee contributions, excluding additional voluntary contributions, is expected to fall to 5.5 per cent. The results indicate the evolution of "traditional" DB will continue as companies find innovative ways to keep their DB schemes open and resist closing to future accrual. The survey also found only 14 per cent had a DB scheme open to future accrual, while 38 per cent confirmed their schemes were closed to future accrual and 48 per cent said their schemes were closed to new entrants.
By introducing solvency relief for both multi-employer and jointly-sponsored pension plans (MEPPs and JSPPs) and by recognizing the need to support reform of outdated investment rules, the government has again demonstrated its commitment to making the kind of changes recommended by Harry Arthurs in his ‘Report from Ontario's Expert Commission on Pensions’ in 2008, says OMERS. "Not only has the government introduced solvency relief for jointly-sponsored and multi-employer plans like OMERS, it has restated its commitment to the further reform of outdated investment rules that limit a Canadian pension plan's desire to make significant private investments in Canada," says Michael Nobrega, its president and CEO.
Margaret Franklin has started her role as chair of the board of governors of CFA Institute, the global association for investment professionals. As chair of an 18-member board comprised of professionals from eight countries, she will bring the unique Canadian perspective of having witnessed the global recession from a well-regulated and comparatively sound economy. Franklin is currently the president and CEO of Kinsale Private Wealth Inc. and has more than 20 years of investment management experience with both institutional and private clients. Franklin will be joined on the board by Beth Hamilton-Keene, director and portfolio manager at Mawer Investment Management Ltd.
What exactly happens when a pension plan sponsor files for creditor protection or declares bankruptcy will be discussed in a session at the ‘2010 Association of Canadian Pension Management National Conference.’ A panel of Judy Cameron, of the Office of the Superintendent of Financial Institutions; Robert Ferchat, a professional corporate director; and Ian McSweeney, of Osler, Hoskin & Harcourt LLP; will also look at what can be done to protect current retirees and strengthen the pension promises already made, as well as the implications for the future of private sector pensions. It takes place September 14 to 17 in Whistler, BC. For more information, visit http://www.acpm.com/
Wednesday,September 1, 2010
A manager could invest as much as one-quarter of his portfolio into open real estate funds and still boost performance while decreasing risk, says research from the German WHU Otto Beisheim School of Management and the Ludwig-Maximilians University in Munich. Its report says open real estate funds in an efficient institutional portfolio helped achieve returns of 5.8 per cent to 7.1 per cent. The research found not only a "performance-enhancing effect" related to open real estate funds, but also a "downside-minimizing effect." It also noted the low correlation of open real estate funds with other asset classes.
Globally, investor confidence fell 4.4 points from July’s revised reading of 96.5 to 92.1, says State Street’s ‘Investor Confidence Index for August 2010. Confidence decreased in North America, dropping 5.7 points to 95.3 from July’s revised reading of 101. It also decreased among European investors dropping 1.2 points from 99.9 to 98.7 and Asia followed suit with confidence ticking down 1.6 points from 103.8 to 102.2. The results indicate that institutional investors remain non-committal in the face of a weaker macro-economic backdrop.
Stanton Joins Highstreet
Robin Stanton has joined the institutional relationship team at Highstreet Asset Management. Most recently, he was director, investments, for the pension division of a Canadian financial services firms. His experience also includes working for a global investment consulting firm where he led research for and consulted to pension, foundation, and endowment clients, as well as insurance companies.
The state of the nations for ETFs and structured products will be one of the sessions at the ‘Exchange Traded Forum 2010.’ Featured speakers include Harry Markopolos, the Bernie Madoff whistleblower; Trevor Cummings, of IShares; and Joe Keenan, of BNY Mellon. It takes place October 25 and 26 in Toronto, ON. For more information, visit www.exchangetradedforum.com