Medical Cost Inflation Trends Lower
In Canada, medical cost inflation, both gross and net of general inflation, is trending lower than both the global and the North American average, reversing a multi-year trend that had seen inflation approach historical norms of approximately eight per cent, says a report from Aon Hewitt. Its analysis of extended healthcare plans shows medical costs in Canada are expected to rise by six per cent in 2018 – down two percentage points from 2017 – on a gross basis. Assuming an annual general inflation rate of 2.1 per cent for 2018, the net medical trend rate is expected to be only 3.9 per cent, down from 6.1 per cent last year. The decline in cost inflation is a reprieve for Canadian employers, who are already facing some of the highest prescription drug costs in the world. Yet the outlook is not clear. The report says mental health issues, aging, and physical inactivity are expected to be prime drivers of future claims in Canada and will likely contribute significantly to plan utilization. Meanwhile, the introduction of new specialty and biologic drugs, especially immunomodulators, is already having an impact on benefit plan costs. “More moderate cost inflation is welcome news in the short term, but the underlying trends pushing medical costs up long term are only going to accelerate,” says Anthony Perlman, senior vice-president and national practice leader, health and benefits, Aon Hewitt Canada. “Employers and their insurers should be taking this opportunity to assess the impact of those trends and to explore ways to take advantage of plan management options that can help them mitigate cost increases and ensure sustainable utilization.”
Employers Struggle With Retirement Readiness
Canadian employers are struggling to improve the retirement readiness of their employees, with few organizations tracking the impact of their defined contribution retirement programs or measuring their outcome, says a survey from Willis Towers Watson. Its ‘2017 Canadian Defined Contribution Pulse Survey’ indicates that only about a quarter of survey respondents (26 per cent) measure the retirement readiness of their employees at least every three years. Thirty per cent monitor this periodically. The most common approach, for 40 per cent of respondents, has been to take no action at all. Ofelia Isabel, Canadian DC business leader at Willis Towers Watson, says, “this is particularly concerning when we know that employees often do not have realistic expectations about the costs of living in retirement, or the expected returns on their savings. We also know that opportunities exist for organizations to improve employee outcomes and get more impact for the financial contributions they make to their DC plans. But, what is typically happening, is that sponsors are spending a lot of money without any clear measure of what impact those plans are having.”
Dougherty Gets New Role; Goulet Joins Sun Life
Kevin Dougherty, currently president of Sun Life Financial Canada, will become executive vice-president, innovation and partnerships, and Jacques Goulet will be appointed president of Sun Life Financial Canada. In his newly-created role, Dougherty will focus exclusively on accelerating growth through innovation and critical organizational capabilities. He will be responsible for digital Health Solutions, the insurance research lab, and external innovation partnerships, accelerating data analytics capabilities and use of artificial intelligence in its operations and business models, and the reinsurance business. Goulet will join the firm from Mercer where he is president, health, and wealth with responsibility for the firm’s global retirement, health, investment consulting, and investment management businesses. The appointments are effective January 15, 2018.
Engaging Older Workers Could Help Growth
Greater engagement of older workers in Canada, those aged 55 to 69, could lead to US$51.3 billion in GDP growth among other economic benefits in Canada, says the ‘PwC Golden Age Index.’ Canada, which ranks 16th out of 34 OECD countries, has a lower employment rate amongst older workers than notable OECD countries including Korea, Germany, Japan, and Sweden. However, those over the age of 65 will constitute 23 per cent of the Canadian population by 2031. The number of Canadian workers over the age of 65 has drastically increased by 140 per cent over the past decade. “Canada’s remains in the middle of the pack of OECD countries when it comes to realizing the value of older workers, leaving room for much needed improvement,” says Karen Forward, partner, people and organization, at PwC Canada. “Addressing how older workers can actively participate in the labour workforce and implementing supportive work environments and policies are key to Canada’s future economic prosperity. Improvements are possible when there is a cultural shift ‒ there is an opportunity for organizations to lead the way by innovating their development programs and creating a sustainable work environment that contributes to the quality of life of its workers.”
Progress Being Made On Governance
Index and exchange traded fund providers are making good progress in corporate governance, but more work is needed to enhance disclosure and communication, says Morningstar. Its research report, ‘Passive Fund Providers Take an Active Approach to Investment Stewardship,’ highlighted six key findings on the stewardship activities of the money managers. “The shift to index investing hasn’t led to an abdication of stewardship responsibilities,” says the report. On the contrary, index managers such as BlackRock, Vanguard Group, and State Street Global Advisors are increasingly taking an active role in the oversight of investee companies. However, it did find a range of stewardship practices based on scale, investment style, philosophy, region, and history. As well, managers are increasingly committed to using tools such as proxy voting and engagement in efforts to improve environmental, social, and governance activities among their holdings which has coincided with increasing demands from investors for more focus on responsible investment and increased pressure from regulators to exercise strong corporate oversight.
Electronic Market Makers Largely Unknown
Liquidity from electronic market makers has become an integral part of the U.S. equity market, but the firms that deliver it remain largely unknown to many institutional investors whose trades often involve these little-understood firms, says a Greenwich Associates report. ‘U.S. Equity Market Makers: Fear of the Unknown’ says this opacity has created a level of fear among investors about the quality and reliability of electronic market makers. Market making in U.S. equity markets has changed significantly in the last two decades, it says, as the system, once ruled by large banks and brokers making markets on the NYSE floor or on Nasdaq’s electronic order book, is now dominated by smaller, less well-known electronic market makers. It concludes that institutional investors are unfamiliar with who these electronic market makers are and how they operate, and are skeptical about the quality of the liquidity these firms provide. “Buy-side traders think the risks associated with electronic market makers might actually be greater than the benefits they create,” says Richard Johnson, vice president of market structure and technology at Greenwich Associates and author of the report.
BlackRock Wants Climate Risk Alignment
BlackRock is urging the companies it invests in to align their climate risk reporting with the recommendations issued by the Financial Stability Board Task Force on Climate-related Disclosures in June. In letters issued to roughly 120 companies over the past week, it said the firm views the task force’s recommendations as a means to achieve the comparability and consistency of reporting that is important to investors. It asked that companies assess the recommendations and provide insight on how their current reporting aligns with them, whether they intend to adopt them, and if they anticipate any obstacles in their adoption. The letters were sent to companies that BlackRock feels have material climate risk inherent in their business operations.
Private Debt Fees Fall
The average management fee charged by private debt funds has fallen to a 10-year low among 2017 vintage funds, says the ‘December 2017 Preqin Private Debt Spotlight.’ The median fee applied during the investment period is just 1.5 per cent, while the mean fee charged is marginally higher at 1.52 per cent. This is down from median and mean fees of 1.75 per cent and 1.76 per cent respectively for 2016 vintage funds and is the fourth consecutive year that management fees have stayed flat or fallen. This is driven in part by the proliferation of direct lending funds, which charge the lowest median fee of any debt type at just 1.5 per cent. However, not all private debt fund types have average fees of less than two per cent and, in fact, the average fees charged by venture debt funds sit significantly above that, with a mean of 2.3 per cent and a median of 2.5 per cent. This may be in part because the investment process for venture debt deals is more labour-intensive or because specialized and oversubscribed funds are better able to resist downward fee pressure.
Murray Joins Williamson
Full Day Planned On Cannabis
The International Foundation of Employee Benefit Plans (IFEBP) ‘Canadian Health and Wellness Innovations Conference’ will feature a full day on medical marijuana. Sessions will include legal issues with substance abuse in the workplace, medical cannabis and benefits plans, and a doctor’s description of the medical uses of cannabis. Theme of the conference is ‘Transforming Health Care for the Next Generation’ and it will also include sessions on chronic disease and mental health. It takes place February 25 to 28 in Victoria, BC. For information, visit Wellness Innovations
Pressure Increases On Major Institutional Investors
Major institutional investors around the world (defined benefit plans, sovereign wealth funds, central banks, and insurance companies) are under increasing pressure to meet long-term investment goals while simultaneously protecting against the risk of major asset draw-downs, says Cerulli Associates. “These goals are spurring fundamental changes in institutional asset allocation, the types of investment strategies used, how an institution works with outside asset managers, and institutions’ view on the value of investment consulting services,” says Alexi Maravel, a director at Cerulli. Global institutions that may have in the past solely had direct relationships with asset managers are increasingly using the services of investment consultants on a tactical basis. Other institutions that have exclusively relied on traditional consulting advisory relationships are now seeking to work directly with asset managers. ‘Global (Institutional) Gatekeepers 2017: Worldwide Trends in Institutional Distribution’ says, for example, this can be seen in the interest of institutions in Asia (excluding Japan) seeking investments outside their home markets, such as alternatives investments and environmental, social, and governance (ESG) strategies. “In a region largely known for a lack of consultant-intermediation between institutions and asset managers, nearly half (50 per cent) of the respondents to ‘Cerulli’s 2017 Institutional Manager Survey for Asia ex-Japan’ expect institutional clients’ greater use of consulting services for specific services, such as risk management and compliance,” he says. “In the same survey, more than three-quarters (76.2 per cent) of asset manager respondents say they expect to maintain their consultant relationships as a means of accessing new markets or institutional demand for different types of strategies.”
Canada Poised To Lead Growth
With the global economy on track to post the strongest growth since 2014, Canada is poised to be the G7’s growth leader in 2017, says an ‘RBC Economic Outlook.’ Buoyed by consumer spending and housing activity delivering strong gains early in the year, it expects real gross domestic product (GDP) to grow 2.9 per cent in 2017. The forecast calls for slower, but still above-potential, growth of 1.9 per cent in 2018, with growth moderating to 1.6 per cent in 2019, in line with potential. “This was a highly unusual year for the global economy with heightened political uncertainty accompanied by strong financial market performance and accelerating economic growth,” says Craig Wright, senior vice-president and chief economist at RBC. “Canada’s robust growth in 2017 is likely to moderate somewhat in 2018 as key economic drivers shift, but we still anticipate the economy will continue to outperform its potential.” While the Canadian consumer and an active housing market powered growth in 2017, the dominant forces driving the economy are likely to change in 2018. Government spending on infrastructure and a moderate increase in business investment, which began to recover in 2017, are forecast to support economic growth next year. Canadian exports are expected to strengthen mildly in 2018, although the outcome of the NAFTA negotiations has the potential to stymie both exports and investment next year.
Vanguard Leads Blockchain Effort
Vanguard, in collaboration with the Center for Research in Security Prices (CRSP) and technology provider Symbiont, is leading an effort to simplify the index data sharing process through blockchain technology. This partnership will enable index data to move instantly between index providers and market participants over one decentralized database. “Using this platform, investment managers will be able to instantly distribute, receive, and process index data, resulting in better benchmark tracking and significant cost savings that potentially results in better returns for our clients,” says Warren Pennington, a principal in Vanguard’s Investment Management Group. Over the last several months, CRSP has distributed daily index data to Vanguard in a testing environment through Symbiont’s blockchain platform. Delivering the data via a blockchain and automating workflows with smart contracts has served to expedite data delivery, eliminate the need for manual updates, and reduce risks.
Investment Consultants Fail To Consider ESG
Many investment consultants are failing to consider environmental, social, and governance (ESG) issues in their investment advice, says a report by the Principles for Responsible Investment. ‘Working towards a sustainable financial system: investment consultant services review’ found three barriers to taking ESG into consideration among consultants: market structure, industry practice, and policy and regulation. It suggests a number of actions that could be taken to overcome these hurdles. For example, with market structure, the PRI suggests that small to medium and resource-constrained asset owners pool and clearly express their ESG service demands. It also said the PRI could explore the development of a quality standard for the consultant market with professional bodies or regulators.
Datta Joins Mackenzie
Arup Datta (CFA) will lead a global quantitative equity boutique for Mackenzie Financial Corporation. Based in Boston, MA, he joins the company from a U.S.-based institutional manager, where he was a partner, portfolio manager, and the head of international investments. He has more than 24 years of expertise in U.S., global, and emerging markets investing, with a focus on quantitative modelling.
Bitcoin Arrives On Exchanges
Institutional investors now have regulated routes into cryptocurrency with the arrival of Bitcoin futures on major U.S. exchanges. Starting this week, investors could trade Bitcoin futures on the Cboe Futures Exchange, a Chicago, IL-based options exchange. The contracts are based on the auction price for Bitcoin given by the Gemini Trust Company, the digital asset exchange. Next Monday, CME Group will launch its own Bitcoin futures based on its Bitcoin Reference Rate, a once-a-day measure of the U.S. dollar price of Bitcoin calculated with digital asset exchange Crypto Facilities. Its contracts will be subject to a variety of risk management tools to regulate trading of the cryptocurrency, including an initial margin of 35 per cent as well as position and intraday price limits. Nasdaq is also reportedly planning to launch a Bitcoin futures contract in 2018. The digital currency was trading at around $15,000 mid-day last Friday after starting the year below $1,000. However, the lack of regulation and volatility associated with cryptocurrencies have made Bitcoin a tough sell for institutional investors. The introduction of futures contracts is seen as evidence of the financial industry’s growing acceptance of cryptocurrencies.
Assets In CITS Grow
Assets in collective investment trusts (CITs) grew to roughly $2.8 trillion as of year-end 2016, representing a year-over-year growth of approximately 11.6 per cent, says Cerulli Associates. Its ‘North American Institutional Markets 2017: Strategies for Implementing Customized Services Across Client Segments’ report finds that many managers are revisiting their product offerings and considering how CITs could play a role in their business based on the increasing demand for lower-cost vehicles among institutions. This has caused many firms to explore the possibility of launching CITs to help meet this demand. Institutional investors are looking to commingled vehicles, such as CITs, because of their heightened sensitivity about fees paid to investment managers. It believes the primary reason an institution seeks out a CIT is the fact that it can often gain more favourable pricing compared to using other vehicles.
Kowalczyk Joins George & Bell
Tom Kowalczyk will join George & Bell Consulting as a senior consultant in 2018. He will provide actuarial and pension consulting services to its public and private sector, single and multi-employer pensions plans, endowments, foundations, and trusts client base in western Canada and the north. He has been in the industry for 16 years.
Rose Discusses Economy
John Rose, chief economist for the city of Edmonton, will discuss recent developments in Alberta and Edmonton in areas such as employment, inflation, and the housing market the CPBI Alberta North’s ‘The Economic Outlook for Edmonton and Alberta’ session. He will also review the medium- term outlook and the risks to that forecast. It takes place January 10 in Edmonton, AB. For information, Alberta Economy
Visible Leadership Elusive On Mental Health
While 74 per cent of CivicAction’s MindsMatter participants reported their organization has an employee and family assistance program, visible leadership continues to be elusive, with only 28 per cent of participants surveyed saying they were aware of senior leadership publicly demonstrating their commitment to mental health. Additionally, only 17 per cent of participants surveyed said senior leadership had established a process to track the mental well-being of the organization. “Senior leaders need to show they’re committed to better workplace mental health through words and actions,” says Paula Allen, vice-president of research and integrative solutions at Morneau Shepell and co-chair of CivicAction’s Mental Health in the Workplace Champions Council. “Employees need to see that an organization, from the top down, is intentionally reducing the risk of mental health issues in the first place, in addition to supporting people in times of need.” One and a half million employees are poised to benefit from more mental health-supportive workplaces from the MindsMatter online assessment. Since the program’s launch one year ago, over 600 employers from across Canada have completed the bilingual tool which provides employers with three actions and resources to better support their people’s mental health. A recent survey of participants shows approximately two-thirds had completed at least one of their MindsMatter actions or were planning to take that next step. Participants pointed to a number of activities they’ve spearheaded in their organization including the creation of an online wellness page, employee surveys on mental health, and investing in additional training.
Relying On Public Drugs Poses Significant Costs
Relying solely on public drug programs can pose a significant financial cost, especially for lower-income Canadians, as they require deductibles or premiums paid out-of-pocket before coverage kicks, says the Conference Board of Canada. Its report, ‘Understanding the Gap: A Pan-Canadian Analysis of Prescription Drug Insurance Coverage,’ says nearly two-thirds of Canadian households paid out-of-pocket on at least a portion of their prescription drugs in 2015. While most provinces try to limit the financial burden by using a sliding scale for deductibles based on household income, this can represent a disadvantage for lower income working Canadians. For example, the deductible can total up to $600 annually for an individual making $30,000 per year in British Columbia, while in Nova Scotia and Manitoba the deductibles are $900 and $1,410 per year, respectively. Some provinces impose premiums, such as Alberta, where residents under the age of 65 pay between $760 to $1,400 per year. Lower income Albertans are eligible to receive a subsidized rate that is 30 per cent of the full premium.
Treat DB Plan As Division Of Company
Many divisions of a company operate by borrowing money and investing it in the hopes of achieving a superior return. In this context, thinking of the defined benefit pension plan as a division within your company helps illustrate how asset allocation decisions in the pension plan affect financial leverage, even if this financial leverage doesn’t show up in traditional accounting presentations. In the Sun Life Financial DB SOLUTIONS InSights ‘The DB Pension Division: a new way to look at your DB pension plan and grow your company’ at the Benefits and Pensions Monitor website, how private sector companies are evaluating DB pension plan decisions in the context of their overall business in order to increase shareholder value is examined.
DOL Rule Tailwind For OCIO
The U.S. Department of Labor (DOL) conflict of interest rule provides a tailwind for the adoption of outsourced fiduciary services in the defined contribution plan market, says Cerulli Associates. Because of the growing awareness of the role and responsibilities of a fiduciary among plan sponsors and their intermediaries, there is more attention being paid to fiduciary service providers that will act in an ERISA 3(21) or ERISA 3(38) capacity relative to a DC plan’s fund lineup. In the mid-sized to large DC plan asset segments, the term ‘fiduciary services’ typically refers to outsourced chief investment officer or OCIO mandates. In a DC plan context, OCIO services can extend to the assets of the entire plan or specific investment options offered on the plan menu.
CDI Made Simple
A ‘Made Simple Guide on Cashflow Driven Investment (CDI),’ written and sponsored by Schroders, has been unveiled at the Pensions and Lifetime Savings Association’s (PLSA) Trustee Conference 2017. Cashflow Driven Investment is a strategy employed by defined benefit pension schemes to match liability cashflows with a wide range of bond and bond-like assets which on aggregate offer a higher yield than a portfolio of government bonds alone. Interest in CDI has intensified since the financial crisis, due to a combination of pension schemes maturing, funding levels improving, and an ever more diverse universe of fixed income or ‘contractual cashflow’ assets becoming available to pension schemes, making it increasingly important for trustees to understand this investment strategy.
Solar Projects Financing Closes
Connor, Clark & Lunn Infrastructure (CC&L) has closed two separate bond financings totaling approximately $359 million for the 50-megawatt Windsor Solar Project and the 50 megawatt Southgate Solar Project. The proceeds from these unrated private placement transactions – a $188 million financing for Windsor and a $171 million financing for Southgate – will be used to refinance the existing bank debt and swap facilities for these projects. Connor, Clark & Lunn Infrastructure has closed over $3 billion in solar debt financings in the Canadian and U.S. markets over the last several years. Located in Windsor, ON, the Windsor Solar Project is situated adjacent to the Windsor Airport. The Southgate Solar Project is located in the township of Southgate in western Ontario. Both projects achieved commercial operation in 2016 following approximately 12-month construction period. The solar power generated by the projects is being sold to the Independent Electricity System Operator (IESO) under a power purchase agreement.
Pagé Leads Vancouver Business