Opportunities In Private Debt Harder To Find
It has become more challenging for institutional asset owners to find compelling opportunities in private debt, says research from Willis Towers Watson which examines the key principles that investors should follow in order to invest most effectively in the sector. ‘Finding value in private debt’ says adoption of private debt has become more widespread amongst asset owners since the company published its 2015 paper ‒ ‘Illiquid credit – playing the role of a (good) bank’ ‒ with assets allocated to credit strategies more than tripling between 2007-2017. However, it believes that investors are placing too much focus on mid-market corporate direct lending, thereby missing out on opportunities in less competitive parts of the market which could offer greater return outcomes. With this portion of the market demonstrating signs of deterioration in future return potential, it believes that investors must make sure that they continue to direct capital towards areas offering the best risk-adjusted returns. It believes there is a tendency for managers to focus on ideas that can be quickly raised, are scalable, and profitable to run, which ultimately results in flocking towards very similar opportunities.
Some Investors Believe In ESG Impact
Whether retirement plans consider the projected impacts from climate change and other environmental, social, and governance (ESG) risk factors could affect investment returns and, in turn, the financial health of retirees, the Government Accountability Office (GAO) notes that some investors believe that companies with good corporate governance practices are better managed and will perform better financially over time. It says that examples of environmental factors are climate change impacts, energy efficiency, and waste management. Social issues include labour standards, human rights, and gender and diversity. Governance includes board composition, executive compensation, whistleblower programs, and accident and safety management. Citing a report from US SIF: The Forum for Sustainable and Responsible Investment, it says investors in the United States are increasingly incorporating ESG factors into their investment management. Assets in the U.S. that considered ESG factors in 2016 were $4.7 trillion, a 14 per cent increase from 2014, when they were $4.1 trillion. Globally, the amount of assets using ESG factors was $22.9 trillion in 2016, up 26 per cent from $18.3 trillion in 2014. However, few retirement plans in the United States into how they manage investments.
Concerns Grow Over Turkey
The plunge in the Turkish lira, debt levels, and a worsening relationship between Turkey and the U.S. have money managers concerned about a full-blown crisis for the country. The country’s central bank says it will “closely monitor the market depth and price formations, and take all necessary measures to maintain financial stability, if deemed necessary.” The notice said that, to support financial stability and sustain the effective functioning of the markets, the central bank had introduced a number of foreign exchange and lira liquidity management measures, including allowing banks to borrow FX deposits in one-month maturity in addition to one-week maturity. The Turkish lira was down 8.5 per cent versus the U.S. dollar Monday and money managers, who already were watching Turkey closely amid a trade dispute with the U.S., are worried the situation might escalate further.
Buck Completes H.I.G. Deal
Buck has completed its previously announced sale to an investment fund managed by H.I.G. Capital. The transaction creates an independent organization with a global footprint. Initially founded in 1916 as an actuarial consulting firm, Buck offers a global portfolio of benefits advisory, analytics, administration, employee engagement, and communication solutions.
Timber Investments Affiliated
British Columbia Investment Management Corporation (BCI), the Public Sector Pension Investment Board (PSP Investments), and the Alberta Investment Management Corporation (AIMCo) have entered into an agreement to affiliate their long-term timber investments, TimberWest Forest Corporation and Island Timberlands Limited Partnership. Under the agreement, both timber companies will continue to operate independently while sharing certain services that will realize economic and environmental benefits. BCI and investment vehicles managed by AIMCo have been limited partners in Island Timberlands since 2005. BCI and PSP Investments acquired TimberWest in 2011.
ETFs Reach New High
Assets invested in ETFs and ETPs listed globally reached a new high of US$5.12 trillion, following net inflows of US$41.13 billion in July, says ETFGI. This marks the largest monthly net inflows since January, when the global ETF/ETP industry experienced net inflows of US$105.73 billion. “Investors favoured equities over fixed income and commodities as equity markets have performed positively in July. The S&P 500 gained 3.72 per cent, international markets ex US were up 1.93 per cent, and emerging markets up 2.81 per cent. Investors are still concerned about the impact of trade wars and Brexit,” says Deborah Fuhr, managing partner and a founder of ETFGI.
Kitt Joins RBC Global
Michael Kitt is head of real estate equity investments at RBC Global Asset Management. He will be responsible for leading the firm’s efforts to develop Canadian real estate pooled solutions, which will initially be offered to the domestic institutional market, with the aim of expanding both vehicle type and targeted client groups over time. He has extensive experience in the North American and European real estate business. Most recently, he was chief financial officer and executive vice-president, finance and strategy, for Oxford Properties, OMERS’ wholly owned real estate investment unit.
CPP Assets Grow
The Canada Pension Plan (CPP) Fund ended its first quarter of fiscal 2019 on June 30, 2018, with net assets of $366.6 billion, compared to $356.1 billion at the end of fiscal 2018. The $10.5 billion increase in assets for the quarter consisted of $6.6 billion in net income after all Canada Pension Plan Investment Board (CPPIB) costs and $3.9 billion in net CPP contributions. The investment portfolio achieved 10-year and five-year annualized net nominal returns of eight per cent and 12.3 per cent, respectively, and 1.8 per cent for the quarter. These returns are net of all CPPIB costs. “While performance was solid across our investment departments, our private assets did particularly well. Global equity markets maintained positive performance this quarter, contributing to fund growth,” says Mark Machin, the CPPIB’s president and chief executive officer. “While we focus on strong average returns stretching well beyond five and 10 years, solid performance today cushions the fund for an inevitable future market downturn. We are confident that our investment strategy will continue to serve the fund through multiple economic cycles.” CPPIB continues to build a portfolio designed to achieve a maximum rate of return at an appropriate risk level, having regard to its exceptionally long investment horizon. Accordingly, long-term results are a more appropriate measure of CPPIB’s investment performance than returns in any given quarter or single fiscal year.
Employers Can Connect Healthcare Spend
Employers have the power to connect what employees and employers spend on healthcare and what is received in terms of high-quality outcomes and a good patient experience, says Mercer. Its ‘Vitals for Change Scorecard,’ a free assessment and benchmarking tool, helps employers identify how to optimize their health benefits programs. Part of this is a framework that calls on employer health plan sponsors to demand more for their employees and their families in four key areas that target systemic problems in the healthcare system and drive positive disruption and innovation. The framework includes reimbursement of providers based on quality and outcomes, not volume; steering members to high-quality care using data, technology, and user insights; building engagement by providing choice and customizing member interactions; and embracing disruption by seeking out opportunities in the rapidly changing healthcare ecosystem to work together to change the status quo.
Retirees Look For Work
More than one in 10 older workers (defined by the AARP as those ages 45 and older) report that they are retired but working or looking for work, says an AARP study. ‘Need the money’ (87 per cent) and ‘to save more for retirement’ (84 per cent) are the most commonly selected reasons older workers are working or looking for work. Nine per cent indicated they needed to maintain employer-sponsored health insurance. Eleven per cent of older workers say they will never retire and 30 per cent say they will exit the workforce and not work for pay at all during retirement. The rest report they expect to work either part-time or full-time in retirement.
Fintech Sector Deal Volume Unprecedented
Canada’s fintech sector has seen an unprecedented volume of deals during the first half of 2018, although the value of those deals is down compared to last year, says KPMG International’s ‘Pulse of Fintech’ report. Canada saw $263 million invested in fintech deals across venture capital and mergers and acquisitions in the first half of the year. However, this off the pace of the second half of 2017, when $510 million was invested. Artificial intelligence (AI) continued to be a dominant focus areas for investors in Canadian fintech. Canada is increasingly regarded as a global leader in AI innovation. A number of banks have also acquired companies in the AI space, in part as a talent grab in order to fuel their own innovation activities.
Funds Increase PSE Investment
The Alberta Investment Management Corporation (AIMCo) and the British Columbia Investment Management Corporation (BCI) have increased their investments in Puget Sound Energy (PSE). They are increasing positions they’ve held since 2009 by six per cent and four per cent to 13.6 per cent and 20.9 per cent, respectively. The Canada Pension Plan Investment Board (CPPIB), an investor since 2009, continues its 31.6 per cent position. AIMCo and BCI, along with OMERS Infrastructure and Dutch pension fund manager PGGM are acquiring the non-controlling, 44 per cent interest held by Macquarie Infrastructure Partners funds.
Private Debt Continues To Break Records
Private debt assets under management have continued to break records, with the industry expanding to $667 billion at the end of 2017, says Preqin. This represents a 13 per cent increase from December 2016, when private debt assets under management had yet to hit $600 billion. Both dry powder and the total value of unrealized investments held by fund managers increased, growing by 18 per cent and 10 per cent respectively over the course of 2017. With the exception of mezzanine funds, all private debt fund types saw their assets under management increase, with direct lending seeing a notable increase of $47 billion in assets under management – an annual growth rate of 30 per cent. Furthermore, net capital flow was positive for the first time since 2014, as capital distributions reached a record $131 billion.
Wilson Has New Role
ESG Factor Effects Quantified
Environmental, social, and governance (ESG) factors are increasingly important in defining institutional portfolios. However, once ESG factors have been incorporated into investment decision-making, it can be difficult to paint a clear picture of their impact. A significant amount of academic evidence indicates that integrating ESG factors has a favourable long-term impact on corporate performance as measured by accounting and risk and return metrics. This means gauging and interpreting their influence remains a challenge. Andrew Sweeney, vice-president and portfolio manager at Phillips, Hager & North Investment Management/RBC Global Asset Management Inc., will explore this challenge and consider current methods for rating and ranking ESG criteria at an Association of Canadian Pension Management session. It takes place August 21 in Toronto, ON. For information, visit ACPM ESG
Lupus Strains Healthcare Systems
A study by Arthritis Research Canada shows that lupus – an autoimmune disease – places significant financial strain on healthcare systems even before diagnosis. The healthcare costs for individuals with systemic lupus erythematosus (SLE) – the most common form of systemic autoimmune rheumatic disease – in the years leading up to a diagnosis are significantly higher compared to those of the general population. “The spike in pre-diagnosis costs is partly due to tests involved in seeking care for an undiagnosed disease,” says Dr. Antonio Aviña-Zubieta, a senior research scientist at Arthritis Research Canada and BC Lupus Society research scholar. “The timeline from initial symptoms to full-blown lupus often spans two years and, sometimes, even longer.” The findings suggest that, over the two years before diagnosis, these patients – mainly young women – amass extra healthcare costs from lupus that exceed $21 million. “These numbers reveal that early detection is key to reducing the burden that lupus places on healthcare systems around the world,” Aviña-Zubieta says. “Earlier diagnosis and intervention has also been shown to reduce complications or damage.”
When it comes to the eTrading revolution in financial markets, the main action has shifted to new frontiers like high-yield bonds and those changing at the hands of new regulations like cash equities, where the impacts of MiFID II and advances in automated trading technology have triggered a surge in eTrading, says a Greenwich Associates report.ver the past two years, top-line growth in eTrading has slowed from revolutionary to evolutionary, due mainly to the fact that the world’s most electronic markets like FX and index CDS are likely near their eTrading limits for current technology. The research shows there are still pockets of growth. For example, high-yield corporate bonds saw the share of total global institutional trading volume executed electronically jumping to 14 per cent in 2017 from just nine per cent in 2015. In addition, eTrading grew to 36 per cent of global institutional cash equities trading volume in 2017 from just 32 per cent in 2015.
Smart Homes Deliver Wellness
As healthcare shifts from reactive to proactive care, a huge market is opening up for automation products that can help deliver health and wellness services through smart homes, says Frost & Sullivan’s ‘Vision 2025 ‒ Healthcare in the Smart Home’ analysis. Broadband connectivity, development of smart sensors, and the decreasing costs of devices have already made it possible to offer aging-in-place, chronic disease management, and post-acute care services in smart homes. However, digital health vendors are striving to take telehealth to the next level by developing solutions that will allow care givers to check on the health of all the residents of the house, not just the patient’s, by monitoring diet and nutrition, the environment, and overall wellness. The health and wellness segment of connected homes market revenues was $6.67 billion and it is expected to grow to $22.26 billion by 2022, at a compound annual growth rate (CAGR) of 27.3 per cent between 2017 and 2022.
Rise People Partners With Cowan
Rise People, a digital HR and payroll software platform, is partnering with Cowan Insurance Group to deliver an integrated human resources and insurance solution to Canadian businesses looking to streamline people management and fuel more fulfilling employee experiences. Following Rise People’s rollout of its national partner program in 2017, the company is now expanding the program to include Cowan, an independent provider of group benefits, insurance, and wealth management services to Canadians. The program enriches the user experience through a fully digital, unified solution for their customers’ people management and insurance needs, including HR, payroll, and insurance benefits.
Morocco Faces Plan Bankruptcy
Despite reforms, Morocco’s pension fund will operate on a ‘technical’ deficit starting in 2018 and a total deficit in 2027. Its reserves will be bankrupt in 2044, says a report on social protection by the Economic, Social, and Environmental Council (CECE). Since 2014, the Moroccan pension fund (CMR) has been facing a deficit due to the lack of many factors, namely, common political vision, a formal strategy, an integrated accounting system, and a unified system of information regarding social protection. The two major pension funds for government employees are CMR and the Collective Retirement Benefit Scheme (RCAR). The National Social Security Fund (CNSS) covers private sector employees. To prevent CMR’s collapse, the government had begun to raise the retirement age for most government employees from 60 to 62, beginning in July 2015. The retirement age was set to be gradually raised ‒ by six months every year ‒ until it reaches 65 years. It also aims to gradually increase the pension contributions (now 12 per cent) of both employees’ salaries and employers to 14 per cent in January 2019. However, the CECE report says further reform is needed to ensure long-term financial balance.
Irish Acquisition Completed
Great-West Lifeco Inc.’s Irish subsidiary, Irish Life Group Limited, has completed the acquisition of a strategic holding in Invesco Ltd (Ireland), Ireland’s largest Irish-owned independent financial consultancy. Established in 1991, Irish Life is a leading provider of life insurance, pensions, and investments in Ireland.
CPPIB Partners With ESR
The Canada Pension Plan Investment Board (CPPIB) is partnering with ESR and its Seoul, Korea-based subsidiary Kendall Square Asset Management to invest up to US$500 million in a newly established investment vehicle targeting modern logistics facilities in Korea. Kendall Square will identify new assets, support acquisitions, and provide asset management services to the portfolio. The portfolio will be comprised of Grade-A facilities in key locations servicing diverse tenant demands. CPPIB and ESR have been working together in the Korean logistics sector since 2015.
India, China Behind Increase In Global Assets
Global assets under management (AUM) will continue to rise over the next five years, with those in Asia ex-Japan and Latin America growing at a far more rapid pace than those in other regions, says a Cerulli Associates report. ‘Global Markets 2018: Breaking Down Barriers as Opportunities Evolve’ says in emerging markets, rising incomes, the expansion of the middle class, and improved financial literacy will fuel demand. In developed economies, access to defined contribution pension schemes and an increased focus on retirement savings will underpin mutual fund growth. “The expanding middle class and increasing number of high-net-worth individuals in China and India will help ensure robust AUM growth in both countries,” says André Schnurrenberger, managing director, Europe, at Cerulli. “Over the past four years, India has recorded AUM growth of more than 20 per cent, achieved through a combination of new flows ‒ particularly into equity and balanced funds ‒ and market performance.” Global mutual fund AUM as a percentage of household financial assets in China jumped from 13.1 per cent in 2016 to 16 per cent in 2017. Together with India, China represents a massive growth opportunity for the asset management industry. However, developed and emerging markets do have things in common. In all regions, regulation is driving down fees and pushing flows into passive funds. In the institutional space, legislation aimed at shifting the responsibility for retirement income from the state to individuals is feeding flows into DC schemes.
Transparency ‘Worth It’
UK pension fund members could follow Holland in seeing a more than 30 per cent reduction in costs due to transparency rules, says Kas Bank, a Dutch asset servicer. Increased transparency about transaction costs and other expenses paid by Dutch pension schemes saw overall costs fall by 37 per cent ‒ with a number of investment managers replaced during the process. In Holland, the ‘FTK’ cost reporting framework has been active for seven years and schemes have had to report their costs to the regulator since 2015. As well as the 37 per cent average fall in cost to pension fund members, it also found the average pension management cost per pension scheme decreased by 31 per cent and the average investment cost per pension scheme decreased 37 per cent, making transparency “worth it,” it says. The UK introduced similar regulations about cost disclosures for defined contribution schemes this year.
More U.S. Asset Owners Using ESG Factors
More than 40 per cent of U.S. asset owners have incorporated environmental, social, and governance (ESG) factors into their investment decisions, up from 37 per cent in 2017 and 22 per cent in 2013, says ‘s annual ESG survey report. This is the highest level in the survey’s six-year history. However, 54 per cent of respondents said they do not incorporate ESG factors and three per cent said they were unsure, the 2018 survey found. Foundations continue to be the highest adopters of ESG investing by plan type. In 2018, 64 per cent of foundations reported incorporating ESG investing, up from 56 per cent in 2017. Only 20 per cent of corporate plans report adoption of ESG governance factors, down from 25 per cent in 2017. The top reasons cited for ESG incorporation were expectations to achieve an improved risk profile, fiduciary responsibility, and goals besides risk-adjusted returns. Reasons for not incorporating ESG factors were the plan does not consider factors that are not purely financial, followed by lack of research tying ESG to outperformance.
Members Should Review Investments
The Financial and Consumer Affairs Authority (FCAA) in Saskatchewan is reminding members who contribute to defined contribution pension plans that they should review their pension investments, says an Aon ‘Radar.’ It says reviewing pension investments periodically will let members know which funds their money is invested in and how well they are doing through investment earnings. As well, they should make sure they are the right fit and that they are comfortable with their pension investments. Many plans offer a selection of funds, so it’s important for members to know their options. They should consider the length of time to retirement to choose the most suitable investment options. Finally, they need to talk to their pension plan administrator if they are unsure or have questions.
ROI Key Factor In Selecting Data Set
The rise of advanced analytics has created a new industry of financial market alternative data providers with annual revenues that doubled over the past 12 months to $300 million and is on track for potentially even more spectacular growth ahead, says a Greenwich Associates report, ‘“Finding an edge in today’s competitive markets is no easy task and, increasingly, the search for alpha is centered on alternative data,” says , vice-president of Greenwich Associates market structure and technology and author of the report. The process for evaluating new data sources is not straightforward and often requires “cleaning” to ensure data quality. In addition, when investors compare alternative data sets and providers, they need to consider the strength of the signal, uniqueness, and how additive it is to the investment strategy. This makes evaluating the ROI a key factor for investors in determining the best data set to purchase.
Hub Acquires Blackstone
Interest In Puget Acquired
OMERS Infrastructure has purchased an approximately 24 per cent interest in Puget Holdings LLC (Puget). Puget’s core business is Puget Sound Energy (PSE), a regulated utility that is Washington state’s oldest local energy company, providing electric and natural gas service to homes and businesses primarily in the Puget Sound area. More than one million customers rely on PSE for electricity, while more than 800,000 count on PSE for natural gas. OMERS Infrastructure is the infrastructure investment manager of OMERS, the defined benefit pension plan for municipal employees in the province of Ontario.
Guindo Joins Great-West
Issa Guindo is assistant vice-president, group customer data and analytics, at Great-West Life. In this role, he will assume leadership of the client and field support team which is responsible for providing group customer client analytics. Most recently, he was a senior manager at Deloitte, responsible for leading clients through data, analytics, and AI initiatives.
CLHIA Wants Access To Annuities Eased
The federal government should ease access to annuities for investors who have RRSPs and TSFAs and cut taxes on financial services institutions, says the Canadian Life and Health Insurance Association Inc. (CLHIA) in its submission to the House of Commons Standing Committee on Finance on the next federal budget. It recommends that the government enable more flexible annuity options within registered pensions, RRSPs, RRIFs, and TFSAs. It recommends allowing individuals within tax-advantaged savings and retirement plans to ‘lock in’ guaranteed income streams at opportune times while adding no cost to the tax system as those savings are already exempt from tax reporting until actually paid out of such plans. Tax costs associated with deferring payout are a reasonable trade-off for enhanced income security. The ongoing shift to defined contribution pension plans, RRSPs, RRIFs, PRPPs, and TFSAs from defined benefit pension plans places “undue onus on individuals to make sure they have sustainable retirement income. … New measures are needed to help Canadians attain guaranteed retirement income security,” says its submission. It also argues in the submission that it’s time for the federal government to eliminate, or reduce, the capital tax on Canadian financial institutions.
Regulators Creating ‘Global Sandbox’
Securities regulators from Canada, the U.S., the UK, Asia, and the Middle East are creating a “global sandbox” to facilitate innovation in the financial services sector on a cross-border basis. The initiative, known as the Global Financial Innovation Network (GFIN), aims to enable innovative firms to scale novel products and services across borders more quickly and efficiently. It also will enable collaborative policy work among regulators and facilitate co-operation between regulators in the realm of industry innovation. Regulators have launched a consultation to seek feedback on the GFIN’s proposed mission and priorities. The report is at GFIN. Feedback on the consultation is due October 14.
Secondary Market Transaction Volume Up
Transaction volume on the alternative investments secondary markets was up 26.2 per cent to $36.7 billion in the first half of this year compared with the first half of 2017, says Setter Capital, a secondary market brokerage firm. The private equity secondary market, which includes funds and direct investments, increased 29.8 per cent year-over-year, to $31.5 billion. Real estate secondaries dropped 2.4 per cent to $3.1 billion during the same period. urchases of infrastructure funds were up 46.6 per cent, while purchases of fund of funds and secondary funds were up 43.7 per cent to $1.4 billion and $960 million, respectively. Direct secondaries rose significantly, up 77.1 per cent to $13.64 billion ‒ $12.37 billion in private equity direct investments and $1.27 billion in real estate direct investments ‒ from $7.7 billion the same time the year prior. North American sellers accounted for the largest proportion of volume in the first half of 2018, selling $22.33 billion.
HUB Acquires Broker
PSP Makes Strategic Investment
Investcorp and the Public Sector Pension Investment Board (PSP Investments) are now strategic investors in United Talent Agency (UTA), a global talent and entertainment company. The influx of capital from Investcorp and PSP Investments will be used to accelerate momentum UTA has from its substantial growth in recent years. It will enhance its services and continue to invest in resources to support its clients and colleagues in a time of change and innovation in content creation and distribution.
Oikocredit Reviews Strategy
In the last year, Oikocredit has conducted a thorough-going review of its strategy, says Eugene Ellmen, its national director for Canada and the U.S. “We found that in spite of our successes in building a €1 billion organization, we have been trying to do too many things in too many markets. We need to focus our activities on the markets and sectors that we know best and concentrate our efforts to make the organization as efficient as possible.” This means it has closed some of its country and regional offices to focus its activities on regions that show the greatest promise to achieve its mission ‒ delivering maximum social impact for the low income people it serves. As part of this strategy, it will also focus its activities in its inflow countries. As a result, it will close the National Support Office (NSO) for Canada and the U.S., effective December 31, while maintaining its investment offering and investment partner relationships in Canada.
Impact Investing Examined
The MaRS Centre for Impact Investing ‘Social Finance Forum 2018’ will attract more than 500 investors, entrepreneurs, finance professionals, charity leaders, and public service. Featured speakers include Michael Baldinger, head of sustainable and impact investing at UBS Asset Management, and Marcia Moffat, managing director of BlackRock Canada. It takes place November 7 to 9 in Toronto, ON. For information, visit Social Finance