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December 15, 2017


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.”

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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.”

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Asset Management Adapts To Challenges

The global asset management industry is increasingly adapting to challenges facing the business, such as the move from active to passive strategies by investors, says Moody’s Investors Service. It has raised its outlook for global asset managers from negative to stable, citing the industry’s progress at responding to issues such as evolving investor appetites, coupled with solid underlying economic growth. The industry is developing new products that aim to meet investor demand by blending aspects of active and passive management and by utilizing passive instruments within active disciplines. “With greater focus on outcomes for investors, products are being designed to address risks across multiple asset classes. Products such as ‘smart beta’ and multi-asset portfolios are designed to balance risk and return opportunities for investors,” the report says.

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OPTrust Head Earns Crystal Globe

OPTrust President and CEO Hugh O’Reilly has won a CORPaTH Crystal Globe award in acknowledgement of OPTrust’s ongoing efforts to promote defined benefit pension plans globally. The award was presented at CORPaTH’s annual awards banquet. “It’s an honour to be recognized in this way for the work that OPTrust does,” O’Reilly says. “We are facing challenging times in the delivery of retirement security, in Canada and around the world. OPTrust has an excellent track record of delivering secure, reliable pensions to our members, and we are always looking for opportunities to share what we’ve learned and extend pension coverage wherever possible.” CORPaTH is an alliance of trustees, consultants, asset managers, administrators, elected officials, and other professionals who oversee pension assets and other types of retirement income products. It works to promote and protect defined benefit pension plans, and to provide education on these issues to all stakeholders.

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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.

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December 14, 2017


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.”

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Teachers’ Could Look At Blue Jays

The Ontario Teachers’ Pension Plan could look at acquiring the Toronto Blue Jays if Rogers Communications Inc. puts the team up for sale. Rogers has said it would consider the move and Ron Mock, chief executive officer at Teachers’, told BNN this week that it has “the capability of analyzing sports franchises like Maple Leaf Sports & Entertainment.It sold its majority share of MLSE to Bell and Rogers in 2011 for about $1.07 billion and Mock called it an “excellent investment while we had it. We’re always prepared to look at anything and, from that perspective, we have to keep our ear to the ground to make sure we’re not missing potential opportunities out in the marketplace.”

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Tweak Protects New Parents

An agreement to tweak the Canada Pension Plan (CPP) rules will better protect the retirement benefits of new parents, particularly mothers, says CARP. The federal and provincial finance ministers have agreed in principle to introduce a feature to CPP designed to protect the value of retirement benefits during periods of low or no earnings, namely when the birth or adoption of children impacts work. A drop-in mechanism would assign an imputed income during periods when earnings drop substantially due to child rearing. For parents with a child under the age of seven, the enhanced CPP would drop in the parent’s average earnings for the previous five years in terms of calculating retirement benefits. This will ensure any interruptions in earnings due to child rearing do not count against an individual for the purpose of the CPP they’ll earn in retirement.

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Market Value Of Assets Down

The market value of assets held by Canadian trusteed pension funds was $1.78 trillion in the second quarter, down one per cent compared with the previous quarter, says Statistics Canada. However, this is up 7.5 per cent from the second quarter of 2016. Pension fund investments held in stocks decreased 4.6 per cent to $501.3 billion, while investments in bonds remained relatively stable, up 0.5 per cent to $589 billion. Foreign investments totaled $612.1 billion, accounting for 34.5 per cent of total pension fund assets. Pension fund revenue declined one per cent in the quarter, following a 14.8 per cent decrease in the first quarter. Profits on the sales of securities fell 21.9 per cent compared with the first quarter, while investment income rose 20 per cent to $14.4 billion. Expenditures increased 43.8 per cent to $30.4 billion in the second quarter, after falling 5.6 per cent in the first quarter.

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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.

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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. 

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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.

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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.

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Murray Joins Williamson

John Murray is a principal consultant at The Williamson Group ‒ A Cowan Company. Most recently, he was director of sales, Ontario and western Canada, at ClaimSecure. Prior to that, he was a senior sales consultant at RBC Insurance.

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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

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December 13, 2017


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.”

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Alternatives Used To Diversify

Institutional investors are increasingly turning to alternative assets to diversify as they navigate an environment characterized by low yields, geopolitical concerns, and a growing set of investment risks, says Allianz Global Investors’ annual Risk Monitor survey. It shows 70 per cent invest in alternative investment classes. Among this group, 31 per cent say it is to diversify their portfolio. Other reasons include to establish a low correlation with other strategies (19 per cent), to seek higher returns than conventional debt or equity investments offer (17 per cent), and to reduce portfolio volatility (17 per cent). However, 48 per cent said they would invest more in alternatives if they felt more confident about measuring the risk associated with these asset classes. To achieve particular goals, 30 per cent of institutional investors turn to real estate equity and infrastructure equity. Another 24 per cent use relative value/arbitrage strategies. When seeking higher returns, these investors use private corporate equity (49 per cent), event-driven strategies (30 per cent), and infrastructure equity (27 per cent).

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Direct Cost Of Patented Drugs Stable

There is no spending crisis regarding patented drugs in Canada, says a study published by the Canadian Health Policy Institute (CHPI). Adjusting for real economic factors like population, CPI and GDP, the total direct cost burden from patented drugs is stable and moderate. Prices are also stable and moderate relative to CPI or comparable countries.Facts about the cost of patented drugs in Canada found that the total direct cost from sales of patented drugs accounted for less than 41 per cent of the total drugs related expenditure reported by the Canadian Institute for Health Information in 2016. Adjusting for national population growth and general price inflation over time reveals that patented drugs have experienced near zero real cost growth for the last decade and patented drugs accounted for only 6.7 per cent of total public and private health spending in Canada in 2016.

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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.

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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.

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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.

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CIBC Mellon Selected As Provider

CIBC Mellon has been selected as a service provider to deliver global custody, pension fund trustee, accounting, pensioner payments, information delivery, and cash administration for the Business Development Bank of Canada (BDC) employee pension plan and its underlying C$1.5 billion pension fund. BDC’s mandate supports Canadian entrepreneurs in building strong and competitive businesses.

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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.

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December 12, 2017


401(k) Accounts Targeted By Fraudsters

A lawsuit filed in the U.S. District Court for the District of Colorado shows large retirement plan recordkeepers and service providers are increasingly seen as targets for fraudsters. In November of last year, the FBI Denver, CO, division was contacted by Great-West Financial with allegations of fraudulent transfers from clients’ 401(k) accounts from JP Morgan. At that time, the lawsuit says Great-West Financial had 20 participants affected and a loss of at least $1 million dollars with a potential loss in excess of $2 million. It provided the FBI with a general explanation of how the unauthorized transfers were accomplished. Individual plan participants established accounts online. The Great-West call centre assisted as needed when contacted by a plan participant. Once authenticated using biographical identifiers for the plan participant, the plan participant had access to accounts and information could be changed or updated and disbursements can be requested. Its Great-West’s investigation found unauthorized individual(s) have been fraudulently using this process to obtain access to funds held in retirement accounts and transferred them to other bank accounts without the consent or knowledge of the plan participant/account holder. The U.S. Attorney’s complaint shows analysis of the stolen funds reveals that the ringleader of this illegal activity is receiving wires from multiple fraud schemes and appears to have no personal income coming into the account other than small dollar amount cash deposits.

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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.

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Structured Finance Markets Appear Stable

The credit outlook for the structured finance market in Canada and the United States appears stable heading into the new year, but there are risks on the horizon, says Fitch Ratings. The stable outlook is currently supported by the positive macro environment in the U.S. as it expects gross domestic product growth to average approximately 2.5 per cent in the U.S. over the next 18 months. Interest rates are expected to head higher in Canada and the U.S. However, the report sees U.S. rate hikes as “manageable,” while the prospect of rising rates is risky in Canada given elevated consumer indebtedness. This makes Canadian asset performance much more vulnerable to expected rate increases.

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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.

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Hedge Fund Returns Positive Again

Hedge funds marked November with 13 consecutive monthly increases in returns, driven partly by ongoing U.S. economic growth, says Hedge Fund Research (HFR). Its Fund Weighted Composite Index gained 0.5 per cent in November, led by equity hedge and special situations funds. Event-driven hedge funds also advanced as corporate merger and acquisition activity accelerated through November and into December with large transactions at various stages of completion.

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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.

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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’sThe 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

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December 11, 2017


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.

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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.

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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.

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American Expect Larger Role For Individuals

Over the next 10 years, Americans expect the role for individuals and government entities in individual financial security to be larger, says a survey by the American Benefits Council. More than half (52 per cent) think individuals will play a larger role in health insurance and retirement savings, while 45 per cent say the federal government will. Thirty-nine per cent predict state governments will play a larger role in health insurance and retirement savings, while only 29 per cent expect employers to do so. Among those employed, 35 per cent say employer-provided health insurance benefits will be most important to them within the next 10 years. Thirty-one per cent chose an employer-provided pension or defined contribution plan as their first choice. And, 60 per cent of those surveyed would take more generous, higher quality benefits in exchange for less take home pay.

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DC Plans Being Tailored To Company Demographics

Today, defined contribution plans are participants’ primary, or even their sole, retirement savings vehicle and many are tailored for the needs of a company’s unique demographics, says Willis Towers Watson. In a white paper, Redefining DC Plans for the Future: Top 10 Updates to our DC Vocabulary for 2018, it says in the past, sponsors and advisers measured plan success by looking at participation, deferral rates, and account balances. Today, the focus has shifted to outcomes and participants’ retirement readiness. As well, previously employers focused on participant inertia by educating them on the importance of signing up for the plan, saving enough, and allocating their portfolio appropriately. Employers now realize they can leverage that same inertia by automatically enrolling participants into their plan and auto-escalating their contributions. Finally, it says ‘investment menus used to offer a plethora of choices. Today, they have been pared down and many offer custom multi-manager options focused on participant retirement objectives.

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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.

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Environment Positive For Risk Assets

Economic growth remains strong and synchronized across both developed and emerging economies which is a positive environment for risk assets, says HSBC Asset Management’s ‘Investment Monthly. However, pricing is becoming increasingly stretched in a number of markets. For U.S. and global high yield credits, although default and downgrade risks are low, the measure of implied credit risk premia (compensation for bearing credit risk) has compressed even further and the margin of safety is very thin. Better rewards come from equities as a way to benefit from a strong economic backdrop as relative valuations and fundamentals favour Japan, the eurozone, and EMs. 

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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. 

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Caisse Purchases Innocap Shares

The Caisse de dépôt et placement du Québec has purchased of share capital and issued a loan to invest in Innocap Investment Management Inc. The Montréal, QC-based firm is a leader in the managed accounts industry, as well as in operational, financial, and regulatory risk management solutions. As at October 31, the company and its subsidiaries managed US$5.7 billion in assets for institutional investors, financial institutions, and fund managers in North America, Europe, and Asia. The transaction allows Innocap’s management team to become a shareholder alongside the Caisse and BNP Paribas, which has been a shareholder of the company since 2007.

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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.

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CPPIB Invests IN GHKLP

The Canada Pension Plan Investment Board (CPPIB) has invested C$320 million to acquire an interest in Goodman Hong Kong Logistics Partnership (GHKLP). GHKLP is one of Goodman’s flagship logistics partnerships, with the largest portfolio of high quality, modern logistics properties in Hong Kong. The partnership has seen strong performance since its inception in 2006, with positive economic and market fundamentals such as limited supply of quality industrial real estate in Hong Kong combined with growing demand from international retailers and distribution companies, supporting consistent market outperformance. 

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Pagé Leads Vancouver Business

Philippe Pagé is office leader for Mercer Canada’s health business in Vancouver, BC. He has over 15 years of group benefits consulting experience and has held senior level roles in western Canada.

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