Investor Expectations Questioned
A report from Manulife Asset Management questions whether or not investor expectations regarding current market momentum are realistic, given that the cyclically adjusted price-earnings (CAPE) ratio has only ever been higher in 1929 and 2000 – years associated with major market corrections. Written by Paul Boyne, senior managing director and lead portfolio manager of the firm’s global equity strategy and team, the paper, it concludes that an investment approach focused on the intersection of value and quality could provide investors with the returns they seek, while offering downside protection. “This is an environment well-suited for active managers who understand the need to examine the world through critical lenses,” he says, noting the need to battle herd-mentality and short-termism.
Quebec Amending Annuity Rules
Quebec wants to add new elements for annuity purchasing policies, says a Morneau Shepell ‘News & Views.’ A draft regulation to amend the Supplemental Pension Plans Regulation says when an annuity purchase policy is established, to permit the plan to discharge its obligations, it must indicate, for example, that it has been established by the person or body who may amend the pension plan; the frequency at which and the circumstances under which annuity purchases may be made from an insurer; and whether the benefits of members and beneficiaries may be paid in part and the special conditions that apply to such a payment. In addition to addressing the content of the annuity purchase policy, the draft regulation also provides that the annuity purchased from an insurer must have the same characteristics as the pension payable under the plan and if no annuity of the type is available on the market due to its nature, in order to have an insurer guarantee the pension, it may be replaced by one similar characteristics of equal value. The provisions concerning the annuity purchase policy do not apply to municipal and university sector pension plans. Currently, these plans may purchase annuities, but this does not release the plan from its obligations to the members for whom these annuities were purchased.
Secondary Funds Better First Step
Secondary funds ‒ which buy positions, often at a discount, in private equity funds that are already active and making investments ‒ may be a better first step into private equity than funds-of-funds for institutional investors, says ‘When Secondaries Should Come First,’ a report from Cambridge Associates. “The private equity arena can seem overwhelming to new investors, so it makes sense for a newcomer to the asset class to seek a portfolio of private equity managers,” says Alex Shivananda, senior investment director at Cambridge and co-author of the report. “Secondary funds can help investors establish a foothold in private equity markets faster than funds-of-funds.” The main difference between private equity secondary funds and funds-of-funds is that the former can start generating returns much faster. Secondary funds typically acquire limited partnership interests in private equity funds that are already investing in their own right, which enables them to begin generating returns immediately. On the other hand, funds-of-funds raise capital to then commit to private equity funds, which themselves are also newly raised and just beginning to make investments in portfolio companies. In addition to occurring earlier, returns from secondary funds also tend to be stronger than those from funds-of-funds. In aggregate, as of June 30, 2016, secondary funds reported stronger results than funds-of-funds on a pooled internal rate of return basis and a total value to paid-in capital basis. One reason for the lower returns from funds-of-funds is that fees are being charged for a longer period before funds are actually put to work in underlying companies.
EAPAT Comes To End
The Employee Assistance Program Association of Toronto (EAPAT) is coming to an end. With the amalgamation of several EAP organizations; rising costs; and competing events for attendance, the board has voted to disband, says Peter MacDonald, its president. Its website (www.eapat.org) will be taken down September 1.
Integrated Closes Senior Loan
Integrated Asset Management Corp. and its private corporate debt group, IAM Private Debt Group, have closed a $23 million senior loan to DBG group Ltd. The capital raised by DBG will be used to repay current creditors, fund a cross-border asset purchase, and assist in working capital needs. DBG is a Canadian-based parts manufacturer to the heavy truck and auto industry. The company primarily provides the design and manufacture of metal stampings, structural welded, modular welded, and mechanical assemblies for truck manufacturers. It is located in Canada, Mexico, and now the United States with the closing of the capital raise.
Rogers Has New Role
Mary Anne Rogers (CHS) is vice-president, corporate services, at Matheis Financial Group. She brings three decades of experience in the financial services industry managing employee benefits, company sponsored savings programs, and providing executive support to clients. She has been manager, executive support services, at the firm since 1992.
Compliance Concerns Managers
Forty-three percent of alternatives manager executives believe their firms’ compliance programs could not pass a regulatory exam, says a survey by Cipperman Compliance Services. It found 32 per cent of executives at broker-dealers and 25 per cent at traditional money managers have the same belief. The survey shows that 64 per cent of money managers and 68 per cent of broker-dealers said their prospective clients ask to review their compliance resources, while only 26 per cent of alternatives managers said they did. Traditional managers and broker-dealers also were far more confident than alternatives managers that their cybersecurity and data protection met regulatory requirements.
Aberdeen And Standard Life Complete Merger
The merger of Aberdeen Asset Management PLC and Standard Life plc has been completed, forming Standard Life Aberdeen plc, one of the world’s largest investment companies with assets under administration of £670 billion. The merger harnesses Standard Life’s and Aberdeen’s complementary investment and savings capabilities. It creates an investment group with institutional and wholesale distribution franchises.
CPPIB Acquires Land In India
Island Star Mall Developers Pvt. Ltd., the strategic investment platform owned by the Phoenix Mills Ltd. (PML), and the Canada Pension Plan Investment Board (CPPBI) has acquired a land parcel in Pune, India. The acquired land has a development potential of approximately 1.6 million square feet of which approximately one million square feet is planned as premium retail development. This will be PML’s second MarketCity mall development in Pune. Pune is the eighth largest city in India with a population of 5.75 million. The proposed new mall will be the largest retail destination in West Pune.
PSP In Australian Land Bid
Land Services SA is the preferred bidder for the 40-year commercialization of the South Australian Land Services Group. Land Services SA is a consortium comprising Macquarie Infrastructure & Real Assets (MIRA) and its managed funds and the Public Sector Pension Investment Board (PSP Investments). As part of its bid, Land Services SA will invest in the establishment of an innovation hub in Adelaide to encourage new businesses and investment in the start-up sector.
Streeter Heads DC
Matthew Streeter (CFA) is vice-president of defined contribution and retirement at Franklin Templeton Investments Canada. An industry veteran with 16 years of institutional investment management and banking experience, he has held senior positions at asset management and financial technology companies.
Program Provides Pension Certificate
The Canadian Pension and Benefits Institute (CPBI), in partnership with the HRPA, will offer a pension plan certificate program again this fall. Content will range from an introduction to the key elements of a Canadian retirement arrangement and its context to an-depth look into the guiding principles of retirement plans. The three levels of the program will take place September 12 to 14 in Toronto, ON. For information, visit Pension Certificate
Nova Scotia Offers Solvency Relief
Nova Scotia has followed other Canadian provinces and territories offering either temporary solvency relief (as in Ontario and British Columbia) or moving away from solvency funding entirely (as in Quebec and currently being pursued in Ontario), says a McInnes Cooper ‘Legal Alert.’ The provincial government has implemented amendments to its pension benefits regulations to give registered defined benefit pension plans temporary solvency relief. The solvency amortization period for registered DB plans is extending from five to 15 years and they have the ability to reamortize existing solvency deficits from the current five-year payment schedule to a 15-year payment schedule. However, the 15-year funding period can only be accessed if the plan administrator gives notice and no more than one-third of members object. The move deals with a number of unintended adverse consequences of solvency funding rules including contribution instability and capital drain.
Manitoba Enabling PRPPs
The Manitoba government has passed enabling legislation allowing Manitobans to participate in pooled registered pension plans (PRPPs). Once the province signs the multilateral agreement with the federal government in the fall, licensed pension providers will be able to sign up employers and workers. PRPPs are a retirement savings option for employees who do not have a workplace pension plan which allows employers with limited means to offer their workers a pension managed by a third party, such as a large financial institution. Unlike a group RSP, employer contributions would not be regarded as a taxable benefit for the employee. And employers would be able to receive a tax credit for any contributions to their employees’ plan. With Manitoba’s participation, PRPPs will be available to more than 90 per cent of Canadians. Other participating provinces include Quebec, Saskatchewan, British Columbia, Nova Scotia, and Ontario.
Police Get Pension Agreement
Montreal police officers have voted in favour of a new collective agreement which will gradually increase contributions to the police pension plan from seven per cent on January 1 to 13.75 per cent on January 1, 2020. The city’s contribution will be reduced to the same level. This means by 2020, the cost of the pension plan will be shared equally, as required by legislation adopted by Quebec’s government.
CPP Net Assets Grow
The Canada Pension Plan (CPP) Fund ended its first quarter of fiscal 2018 on June 30 with net assets of $326.5 billion, compared to $316.7 billion at the end of fiscal 2017. The $9.8 billion increase in assets for the quarter consisted of $5.7 billion in net income after all Canada Pension Plan Investment Board (CPPIB) costs and $4.1 billion in net CPP contributions. The portfolio achieved 10-year and five-year net nominal returns of 6.9 per cent and 12.1 per cent, respectively, and a gross investment return of 1.9 per cent, or 1.8 per cent net of all costs, for the quarter. Mark Machin, president and CEO of the CPPIB, says “Each major CPPIB investment program contributed to first quarter results. Global equity markets produced a significant uplift and gains from fixed income improved. Meanwhile, the strengthening Canadian dollar against most major currencies applied downward pressure, a trend that accelerated in the first half of the current quarter.”
Caisse Beats Benchmark
Over five years, the weighted average annual return on the client funds of the Caisse de dépôt et placement du Québec reached 10.6 per cent, representing net investment results of $107.9 billion. This brings its net assets to $286.5 billion. Compared to its benchmark portfolio, its investment strategies generated $13.5 billion of value added. “In the first half of 2017, global equity markets continued producing good returns, while both volatility levels and interest rates remained low. In other words, it was an environment not all that different from what we’ve seen in recent years. That said, the weak performance of the Canadian stock market this year contrasts with its strong returns last year and with those of major markets abroad,” says Michael Sabia, president and chief executive officer of the Caisse. Looking ahead, he says a key question is the future of monetary policy as there appears to be an emerging bias among central banks in favour of tightening monetary conditions. “However, it remains to be seen whether these actions will be relatively modest and short-term or more substantial and sustained over a longer period.”
Ziedenberg Joins Capital Group
Speakers Added To Technology Session
Dr. Syed Haider, a senior consultant and orthopaedic surgeon from Markham Stouffville Hospital; and Karen Voin, assistant vice-president, group benefits and anti-fraud, from the Canadian Life and Health Insurance Association Inc.; have been added to the speakers at the Benefits and Pensions Monitor Meetings & Events ‘Technology and Healthcare Plan Innovation’ session. Haider will discuss the alarming increase globally of osteoarthritis of the knee. Voin will explain how legislative changes, technology advances, and new drug treatments can create opportunities for innovation and change to benefit plans. They join Tim Clarke, owner of tc Health Consulting, who will provide an overview of the companies eyeing the industry as one ready for disruption and what this might mean for how employers deliver health, benefits, and insurance programs to their employees in the near future; and Paul Clark, chief technology officer from WorldCare International Inc.; who will examine new healthcare technology developments, such as telepathology, which are providing more effective and efficient ways to improve outcomes. It takes place September 14 in Toronto, ON. For information, visit Healthcare Technology
Care For Elderly Leads To Pressure
Over one-quarter of employed Canadians provide care and assistance to an elderly family member, which may lead to significant physical, emotional, and financial pressures, says the Conference Board of Canada. Its report, ‘The Juggling Act: Balancing Work and Eldercare in Canada’ shows employees struggling to balance work and eldercare can experience elevated stress levels, absenteeism, and work interruptions. These include missing work, taking and making phone calls related to eldercare, and worrying about the care recipient while at work. It is estimated that eldercare obligations cost Canadian organizations an estimated $1.28 billion per year in lost productivity. While, successfully implemented eldercare strategies can benefit employers through retention and reduced absenteeism, only a minority of Canadian organizations have eldercare leave programs. Organizations looking to develop an eldercare strategy should assess the extent to which eldercare obligations are already affecting employees; consider measures like employee assistance programs that are already in place; align strategies such as days off, reduced work hours, or short periods of leave with needs; and make reasonable efforts to find accommodation solutions that work for both parties.
Aon Offers Retiree Benefits
Aon plc has released ‘Aon Choice, Retiree Health Exchange.’ It relieves organizations of the financial obligation of offering retiree benefits, while providing retiring employees products and benefits tailored to meet their individual and lifestyle needs. It is due to go live in September. In Canada, it evolved from ‘Aon Choice, Active Exchange,’ a benefits solution for employees currently active in the workforce. The launch of both the active and retiree exchange solutions addresses the trend for Canadians to customize elements of the total rewards they receive from their employers.
CI Acquires Sentry
CI Financial Corp. will acquire Sentry Investments Corp., combining two of Canada’s largest independent active asset managers. Under the agreement, CI will acquire all of the outstanding shares of Sentry and its subsidiary, Sentry Investments Inc. Sentry manages a diverse lineup of over 45 mutual fund mandates and other investment solutions with approximately $19.1 billion in assets (as of July 31, 2017). Following the completion of the acquisition, Sentry will remain a standalone brand and will continue to provide its investment products to Canadian investors. The transaction will increase CI’s assets under management by 16 per cent to approximately $140 billion, from $120.4 billion at July 31, 2017.
CDPQ Buys Shares Of Sebia
Astorg and Montagu, two pan-European private equity investors, have entered into a binding agreement with the Caisse de dépôt et placement du Québec (CDPQ) for the sale of a significant minority stake in Sebia. Headquartered in Lisses, France, Sebia is a global multi-specialty in-vitro diagnostics company focusing on oncology, genetic haemoglobin, and metabolic disorders. The company is one of the pioneers of clinical electrophoresis. With the support of CDPQ, Sebia intends to pursue the successful strategy of the past years, based on the reinforcement of its leadership position in multiple myeloma diagnostics, the global expansion of its diabetes franchise, and the continued search for other highly-promising applications for its differentiated technology.
Luyten Has New Role
de Bever Discusses Challenges
Leo de Bever, former chief executive officer and president of the Alberta Investment Management Corporation, will discuss the challenges and opportunities the current geo-political environment presents for pension plan investments at the CPBI Southern Alberta ‘Professional Development Day 2017 (Investments).’ The session also features sessions on the future of renewable energy and reducing carbon emissions; emerging issues in fiduciary responsibility with respect to group retirement plan investments; nvestment strategies for defined benefit and defined contribution plans in a low interest rate environment. It takes place October 19 in Calgary, AB. To register, visit Professional Development
CLHIA Calls For Earlier Annuity Purchases
For many Canadian retirees, there is an increasing need to convert some or all of the savings accumulated in their defined contribution pensions, RRSPs, RRIFs, PRPPs, and TFSAs into guaranteed lifetime income streams, says the Canadian Life and Health Insurance Association (CLHIA). In its recommendations for the upcoming 2018 federal budget, it says annuities payable for life are the most effective way to provide such guaranteed incomes. However, requiring Canadians to wait until retirement to choose such income options exposes them to significant “interest rate” risk, since the income that can be provided from an annuity depends on market rates when they make that choice. One way to minimize this risk and increase retirement incomes is to allow gradual annuity purchases prior to the cusp of retirement, even though income payments from those annuities will not start until retirement or later. Unfortunately, the “laddering” of “deferred annuity” purchases over several years appears to conflict with current tax and pension law (although such purchases were permitted prior to 1980 and are still permitted in some pension plans). It would also make sense to permit some further flexibility beyond retirement, allowing consumers within tax-deferred plans to retain investment control and exposure to investment market growth to a later date. As well, allowing consumers to use part of their tax-deferred savings prior to, for instance, age 65 to provide a guaranteed income starting at age 85 or later may provide significant longevity protection to individuals and reduce the long-term cost of public income security programs. These options would allow 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 since those savings are already exempt from tax reporting until actually paid out of such plans, it says.
Separate DC Act Suggested
An overhaul of the Pension Benefits Standards Act (PBSA) or even a separate defined contribution act was one of the recommendations that came out of Eckler’s ‘2017 CAP Legal Forum.’ It says from a payroll tax perspective, it’s cheaper to offer a DC plan than an RRSP, so making DC plans easier to implement could cause more plan sponsors to switch back from RRSPs. Part of the challenge to making changes is a lack of impetus. The pension industry has been talking about impending DC class action lawsuits for years, but Canada hasn’t seen any significant lawsuits so far. One reason is that the first major wave of DC members hasn’t retired yet ‒ but that’s about to happen ‒ so efficacy of the DC system will soon be proven. If lawsuits do occur, they will likely be against the insurance companies, because they’re holding most of the DC assets and providing most of the tools. With the current lack of clarity regarding administration and oversight of DC plans, if a group of members are unhappy with their outcomes, there are valid arguments against most of the decisions made by plan sponsors. In this grey environment, plan sponsors need to protect themselves by demonstrating they’ve established processes and are following them.
Retirement Preparedness Concerns HR Leaders
More than 90 per cent of HR leaders are concerned about how well their employees are prepared for retirement, says Morneau Shepell’s annual ‘Trends in Human Resources’ survey. This is a growing concern because an increasing proportion of employees today are covered under defined contribution retirement plans that do not offer guaranteed payments after retirement. HR leaders are exploring a range of solutions from providing better education for employees (58 per cent) to offering them decumulation options when they retire (27 per cent) and allowing retirees to purchase insurance at discounted costs through online retiree marketplaces or other options (23 per cent).
Employers Look For Ways To Trim Expenses
With an expected five per cent hike in healthcare benefit costs, large U.S employers are looking at new ways to trim expenses while offering employees a broader set of services, including telehealth assistance and on-site health centres, says the ‘Large Employers’ 2018 Health Care Strategy and Plan Design Survey’ by the National Business Group on Health (NBGH). It says the total cost of offering medical and pharmacy services will jump to about $13,482 per employee, the fifth consecutive year of healthcare costs increases. While utilizing cost-sharing strategies will remain an integral part of cutting costs, the survey finds large employers are also turning to plan design changes and new services in order to make offering healthcare benefits more efficient. For example, nearly all employers (96 per cent) plan on offering telehealth services next year in the states where these are allowed. More than half (56 per cent) plan to provide telehealth for behavioural health services. That is more than double the percentage this year.
Swedlove Becomes Fellow
Frank Swedlove is a senior fellow of the C.D. Howe Institute. The president of Swedlove Consulting Inc., a public policy consulting company, was president and CEO of the Canadian Life and Health Insurance Association from July 2007 to June 2017. He also served as the first chair of the Global Federation of Insurance Associations (GFIA) from 2012 to 2014. Previous to his involvement with the insurance industry, he had a lengthy career in public service.
Trustees Explore Strategies
SHARE’s ‘Trustee Responsible Investment Master Class’ provides experienced trustees with the opportunity to explore strategies for embedding responsible investment into pension fund governance and investment oversight in an interactive and hands-on setting. It takes place October 10 in Toronto, ON. For information, visit Trustee Class