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May 17, 2019


Equities Level Retirement Savings Field

Defined contribution pension plan members can level the retirement savings playing field by continuing to invest a percentage of their funds in equities, says Joseph Nunes, co-founder and executive chairman of Actuarial Solutions Inc. The general theory is that with a possible 30- or 40-year retirement, moving all investments to fixed income investments or an annuity is walking away from the equity market too quickly. “The problem for most retirees is that the possibility of outliving their nest-egg is real,” he says. Roughly speaking, only a quarter of males 65 years old will die within three years of their expected lifetime of 86.5. Assuming a retiree targets their expected lifetime, about 35 per cent of retirees will leave more than three years of money on the table and about 40 per cent will run out of money more than three years before they die.

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Uncertainty Shock From Brexit Growing

It is clear that the Brexit vote and the ensuing failure to achieve an agreement has created a powerful, persistent uncertainty shock that is growing, says Kristina Hooper, a global market strategist at Invesco Ltd. The UK has not yet arrived at a customs agreement and there remains the very real possibility that it could “crash out” of the European Union without any trade agreements in place. While the extension granted by the European Union has temporarily averted a “crash out,” it has extended the period of extreme policy uncertainty, which is likely to continue to depress business investment. Research has found that uncertainty not only reduces the level of investment, but it also lowers the sensitivity of businesses to changes in economic policy. In other words, in periods of uncertainty, changes in fiscal or monetary policy do not have as much of an effect on business investment. This is a “chilling effect” that can render policy less effective at achieving its objectives. This year, Brexit has created a seismic level of policy uncertainty and it will likely be used by economists for years to come as a case study in how policy uncertainty impacts economic growth. In earlier surveys, 40 per cent of firms cited Brexit as one of their top sources of uncertainty; in the most recent surveys, 48 per cent of firms cited Brexit as one of their top sources of uncertainty. And companies are not just delaying investment; in some cases, they are ending investment. This makes the disappointing results in terms of UK capital spending understandable.

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CAP Replacement Rate Improves

Positive stock and bond markets in the first quarter of 2019 helped to improve gross replacement rates for capital accumulation plans (CAPs) from the all-time lows observed at the end of 2018, says Eckler’s ‘CAPit.’ The income a typical male CAP member could replace from their workplace plan and government benefits rose almost a full percentage point to 57 per cent, while females experienced a similar gain to finish the quarter at a 56 per cent replacement rate. Over time, investment markets and interest rates have impacted a plan member’s ability to generate replacement income. Government benefits (the Canada Pension Plan and Old Age Security) have historically provided about 32 per cent of the replacement income for Canadian workers. The recent enhancements to the CPP (Canada Pension Plan) mean that it will continue to play a growing role in ensuring Canadians have guaranteed income for life. It is important to remember that CPP benefits are based on the number of years a person has been in the Canadian workforce and their earnings. While the goal of CPP is to eventually replace 33 per cent of a worker’s income, currently the average CPP paid is considerably less than the maximum ($7,800 versus $13,800 annually). Given the number of workers nearing retirement, with fewer years to benefit from the enhancement, many Canadians will continue to need to look beyond CPP for additional sources of guaranteed income.

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UK Testing ESG Qualification

The UK branch of the CFA Institute has launched a qualification in ESG (environmental, social, and governance) investing. The ‘Certificate in ESG Investing’ is designed to meet increased demand for ESG industry knowledge and skills. Revealed at the CFA Institute Annual Conference in London, UK, the certificate is recognized by the Principles of Responsible Investment (PRI), the UN-sponsored body and proponent of responsible investment. It will be available to investment professionals later this year and could be made available in other countries, once the UK pilot program had been successfully tested.

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Companies Engaging On ESG

Last year was a pivotal year for engaging with companies on environmental, social, and governance (ESG) issues, says BMO Global Asset Management’s ‘Responsible Investment Annual Review.’ It says 54 per cent were linked to sustainable development goals, or SDGs, while the rest were related to corporate governance. It was a particularly pivotal year for the development and implementation of climate strategies, says Alice Evans, co-head of responsible investment at BMO Global Asset Management. “We have seen significant improvement following engagement. We have also seen traction in improving working conditions and workers’ rights and addressing corruption.”

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Submissions For Research Award Sought

The CFA Society Toronto and Hillsdale Investment Management are seeking submissions for the 11th annual ‘Canadian Investment Research Award.’ The award is open to global researchers conducting research related to Canadian capital markets including both academics (professors and students) and practitioners. Papers with multiple authors are welcome. The winning research paper will be awarded $$10,000, be acknowledged at CFA Society Toronto’s annual awards reception, and on social media channels. The submission deadline is to be determined. For further information and a submission form, contact CFA Society Toronto at awards@cfatoronto.ca.

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PERE Hits Record Mark

The private equity real estate (PERE) industry reached a record $900 billion in assets under management as of June 2018, marking a new high for a sector that has grown from strength to strength in recent years. Preqin’s ‘2019 Private Equity Real Estate Market Outlook’ says fundraising has remained strong, deal-making is at record levels, and investor appetite is high. Looking ahead, fund managers are optimistic about the future of the industry and there are a record number of funds seeking capital. But there are serious challenges ahead, it says, including high asset pricing that is putting pressure on future return prospects. Both fund managers and investors foresee a market correction in the coming months. This suggests that the months ahead will be turbulent for PERE fund managers and may help explain why investors are increasingly looking to commit to large, established fund managers over smaller firms. As the fundraising and deals markets continue to bifurcate, the industry is likely to become even more difficult to navigate for both parties.

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Teachers’ Adds Renewable Energy

Ownership of BluEarth Renewables LP has been transferred to the Ontario Teachers’ Pension Plan and DIF Infrastructure V. BluEarth Renewables delivers renewable energy to the power grid every day. An independent power producer, it acquires, develops, builds, owns, and operates wind, hydro, and solar facilities across North America.

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Rheaume Joins Mercer

Michel Rheaume is director, OCIO services, central Canada, at Mercer. Most recently, he was a vice-president and client portfolio manager at Invesco Canada. He has also held similar positions at Foyston, Gordon & Payne and Phillips, Hager & North Investment Management.

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Alternative Data Discussed

AIMA and the CAIA will present ‘Hunting for Data-Driven Alpha.’ Jennifer Tkachuk-Tremblay, head of business development at Delphia; Jesse Richmand, a partner at CoVenture; and Katherine Glass-Hardenbergh, a vice-president at Acadian Asset Management; will discuss how alternative data and technology can create investment opportunities in today’s market environment. It takes place May 30 in Montreal, QC. For information, visit Alternative Data

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May 16, 2019


Cross-generational Workplace Asset To Company

A cross-generational workplace is an asset to a company, says research from Ricoh Canada. Respondents across the United States and Canada showed 71 per cent find this is the case and 76 per cent of those same workers enjoy working alongside colleagues of different ages. Additionally, today’s workforce is more united than ever in its demand for a seismic change in the way business is conducted in the future. It’s no longer enough to measure just financial success, employees from across the generations are calling on businesses to be a force for good and drive positive change in the world. They believe the line between personal and professional worlds is blurring as technology frees workers from the traditional office set-up. “Today’s workforce is unique, as was the workforce 20 years ago, and 20 years before that,” says Donna Venable, executive vice-president, human resources and deputy general manager, shared services, at Ricoh Americas. “The truth is today’s current workforce, which consists of more generations than ever before, is unified. We’re seeing a greater understanding that no action is too small to contribute to the bigger picture and therefore a realization that the collective impact businesses can have will be significant to helping ensure a better future for generations to come. In a time of often unpleasant news, this unification is a positive statement.”

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CPP Net Assets Increase

The Canada Pension Plan (CPP) Fund ended its fiscal year on March 31 with net assets of $392 billion compared to $356.1 billion at the end of fiscal 2018. The $35.9 billion increase in assets consisted of $32 billion in net income after all Canada Pension Plan Investment Board (CPPIB) costs and $3.9 billion in net CPP contributions. The fund, which includes the combination of both the base CPP and additional CPP accounts, achieved 10-year and five-year annualized net nominal returns of 11.1 per cent and 10.7 per cent, respectively. Mark Machin, president and chief executive officer at CPPIB, says, “We have gradually built a diversified, global investment platform and focused on executing our multi-year strategy – these are key drivers of our financial performance and our future success.”

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Fiera Acquires Foresters Canadian Asset Business

Foresters Financial will sell the outstanding shares of its Canadian asset management business, Foresters Asset Management Inc., to Fiera Capital Corporation. This transaction is aligned with Foresters’ strategic plan to continue to focus on and invest in its core life insurance business. It follows the organization’s announcement in April to sell assets related to its U.S. asset management, mutual funds, and broker dealer and advisory businesses. Fiera will merge the Foresters Asset Management business into its existing Canadian operations.

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Medavie Tests Pharmacogenetic Testing

Medavie Blue Cross is giving plan members and their treating physicians a new tool in their continued effort to prescribe the right medication at the right dose for optimal health outcomes. The company has launched a pharmacogenetic testing pilot to help plan members determine the best medications specifically for them, leveraging GeneYouIn’s ‘Pillcheck’ system. “Our overall goal with this pilot is to help our plan members with an active disability claim find the medication that is right for them,” says Marc Avaria, vice-president, product and disability management, at Medavie Blue Cross. “We understand how disappointing and frustrating it can be when a medication doesn’t work as intended. By bringing the Pillcheck system into our suite of offerings, we’re giving our disability claimants access to a new form of personalized care that aims to get them on the path to wellbeing as soon as possible.”

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Manulife Helps With Behavioural Economics

Manulife Investment Management is partnering with Beworks, a behavioural consulting firm and research institute, to help advisors and their clients through market volatility with the help of important behavioural economics principles. This new initiative will enable advisors to access scientific-led research through presentations from across Canada and a newly launched ‘Advisor Volatility Toolkit’ microsite with videos – including the ‘Upside of Down’ documentary –, white papers and other resources to guide them through market instability. Speaking at a screening of the documentary, Dr David Lewis, chief client officer at BEworks, said people are living longer so they have to save more or spend less in retirement. While they don’t have the financial literacy needed to make these decisions, they are being forced to do so especially with the shift from defined benefit to defined contribution pension plans. Compounding this is humans are not fundamentally rational. Their biases keep them away from making only useful decisions and, as a result, they suffer the consequences. Biases which impact decisions include over-confidence where they refuse or ignore advice; loss aversion which makes them sell assets too quickly; representative bias where they believe what is happening now will continue for the future; and the illusion of control where they believe they can control seemingly random events. Advisors can help overcome these and biases and help people make better decisions, he said.

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Gender Diversity Priorities Missing

While the Pension Investment Association of Canada (PIAC) supports the priorities of the Ontario Securities Commission (OSC) to promote confidence in Ontario’s capital markets, reduce regulatory burden, facilitate financial innovation, and strengthen the commission’s capabilities, it is disappointed to see no priorities related to corporate governance; reporting and disclosures of environmental, social, and governance (ESG) risks by issuers; say-on-pay; and gender diversity in its ‘Statement of Priorities.’ Notwithstanding its support for burden reduction, it says it should not be advanced at the expense of other investor protections which the commission previously established as priorities, but has not yet completed. These include corporate governance, ESG risk disclosure, and gender diversity. “We do not see sufficient improvement here, either in regulatory guidance nor issuer behaviour, for the commission to abandon these priorities and therefore urge they be reinstated in the work plan,” it says in a letter to the OSC.

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Caisse Adds To Terminal Holdings

The Caisse de dépôt et placement du Québec has acquired a 45 per cent interest in DP World Chile, which operates terminals in Puerto Central and Puerto Lirquen. Located in San Antonio and Gran Concepción, the terminals serve Chile’s main consumption and industrial centres. Two years ago, the Caisse partnered with DP World to create a US$3.7-billion platform to invest in ports and terminals globally. DP World holds 55 per cent of the platform and the Caisse holds the remaining 45 per cent. The two new assets in Chile join a portfolio of ports, which includes terminals in Vancouver and Prince Rupert in Canada.

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Factors Focus Of Session

‘Talking Factors: Finding the Right Approach for Institutional Investors’ will be examined by panel of experts at an S&P DJI and Northern Trust Asset Management session. They will discuss the multiple ways investors can access factors and risk premia including which combination of active, passive, single-, and multi-factor approaches may best serve institutional investors; correlations among factors and how combining them can influence risk and return in a range of market cycles; and how both fundamental active management and factor indexing can capture similar risk premia It takes place May 29 in Toronto, ON. For information, visit Talking Factors

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May 15, 2019


Returns Possible In Disrupted World

It is possible to achieve long-term double digit returns from traditional, liquid equities in a world full of disruption, says Michael Hughes, senior vice-president, client portfolio manager, at Guardian Capital Advisors. Speaking on ‘Patient Equity Investing In A World Full Of Disruption’ at Benefits and Pensions Monitor’s Meeting & Events’ ‘Pension Investment Strategies’ session, he said investors need to find the right managers and take a closer, smarter look at their portfolios. There are clear pointers to the kinds of managers that can achieve double-digit returns; high active share and long-terminism are key ingredients. “Passive investing is just not good enough and the closer your manager is to the index, the worse it will be.” As well, when it comes to what to invest in, disruption must be taken into account. Hughes said investors must be selective and look a little bit into the future and think their way through disruption. For example, retail is one of the most disrupted industries. However, there are retailers that are doing the disrupting versus being disrupted. “Retail is being disrupted from two ends, because it’s accompanied by a major bifurcation in income,” said Hughes. People at the lower level of the income spectrum have less money to spend on discretionary items than they did 10 years ago, while people at the top end have increased disposable income. As a result, “retailers at the two ends of the spectrum are doing perfectly well. The high-end boutiques and the dollar/thrift stores are increasing their space; it’s the middle ground where problems are arising.”

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OPTrust Makes Progress On Climate

OPTrust made tangible progress in measuring total fund exposure to climate risk during the first year of reporting on its climate action framework and year two reporting in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Its ‘2018 Responsible Investing Report,’ details its RI results and philosophy directing the integration of environmental, social, and governance (ESG) factors into its investment strategy. This year, it joined the Investor Leadership to promote gender diversity, develop infrastructure investment in emerging economies, and improve financial reporting related to climate change. In response to its divestment from public market tobacco firms the previous year, it endorsed the Tobacco-Free Finance Pledge, among other advocacy priorities outlined in the report. “Our members need to know they can count on their pension to be there when they retire. With an investment horizon that spans several decades, we cannot ignore ESG factors that could affect our performance,” says James C. Davis, its chief investment officer. “Our responsible investing strategy is aligned with members’ interests to keep the plan fully funded at the lowest risk level while recognizing global events and market forces.” Its RI philosophy is applied across the fund’s globally diversified portfolio. Regardless of the investment size and type – roads, railways, office towers, or renewable energy – the impact of material ESG issues are considered as part of the due diligence process for every investment decision.

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Managers Must Manage Around Volatility

Volatility may be here to stay and investors will need to address it and manage around it, says Christopher Marx, senior investment strategist – equities, at AllianceBernstein. Speaking at the Benefits and Pensions Monitor’s Meeting & Events’ ‘Pension Investment Strategies’ session on ‘Volatility And Its Discontents,’ he said “it feels better when the market goes up, but that’s volatility too.” Marx said investors must manage their portfolios and their emotional state because the fear of loss can be very costly. There are many things that cause volatility, from politics and exposure to government policies to a company’s business model. “You don’t just have to accept it, you can solve some of that volatility in the construction of your portfolio; be active and manage around it,” he said. He added that there are methods of analysis to measure the impacts of certain risks. For example, different industry sectors are more or less sensitive to exogenous factors such as falling markets or rising interest rates. Portfolio managers can also invest in asset classes that are linked to certain economic cycles. As well, they can select securities which have a better chance of reducing volatility. “Knowing how the pieces add together is really important in managing a portfolio.”

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Investors Remain Bearish

Investors remain bearish on the economy despite the recent rally in equity markets, says the Bank of America Merrill Lynch’s monthly fund manager survey. A net 46 per cent of surveyed investors this month expect global growth to weaken over the next 12 months, down from 60 per cent the previous month. Meanwhile, 55 per cent of investors are saying they expect secular stagnation over the next year, up from 14 per cent in January. This month saw a slight uptick in inflation expectations, with a net 21 per cent expecting the global consumer price index to rise over the next year, up two percentage points from January. Last month saw the second biggest two-month collapse in inflation expectations on record, down 51 percentage points to just a net 19 per cent. This month’s survey saw investors move from equities into cash, bringing the cash allocation to a net 44 per cent, up six percentage points from January, the biggest overweight since the middle of the global financial crisis in January 2009.A possible trade war remains the biggest tail risk for managers, with a net 29 per cent of respondents putting it at the top of a list of concerns, up from the 27 per cent that cited it as the biggest concern in January. Rounding out the top three are a China slowdown (21 per cent) and a corporate credit crunch (12 per cent).

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Diversification Needed To Navigate Markets

Volatility is expected to return to normalized levels which will make navigating markets even more challenging. This means investors will need to identify true sources of diversification of risk and return in their portfolio and think about that from an optimal perspective, says Neil Blundell, global head of client solutions at Invesco Ltd. Speaking at the Benefits and Pensions Monitor’s Meeting & Events’ ‘Pension Investment Strategies’ session, he said the place to begin is to determine whether the current portfolio aligns to the investor’s expectations. A decomposition of the existing portfolio can determine what drives the portfolio, the intended bets, the unintended bets, and the factor biases. There are many considerations to determine the right asset mix and navigate the asset allocation based on the current market cycle. Blundell said it can be helpful to look at shorter- and longer-term horizons to compare forecast returns. One area of investing that comes up often in conversations is factor investing, he said. Investors need to look at what factor investing means to them and which ones are rewarded versus unrewarded. The portfolio should be tilted towards more rewarded factors where an investor can capture a little more premia over the general market over a longer horizon. Some rewarded factors include quality, value, and momentum. “In many cases, blending factors that have reward premium in an equal risk-balanced way will get you in a better position and closer to the efficient frontier than potentially cap-weighted indices.”

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Negative Fee ETF ‘A Gimmick’

A new ETF in the U.S. shouldn’t be seen as a negative fee product, says Hector McNeil, co-founder of HANetf. Approved by the SEC, he says this is simply a waiver to encourage early investors and more markedly grab news headlines. The ETF actually has a management fee of 29bps (basis points), with a six month fee waiver of 34bps, something investors may not actually be aware of. “That is a gimmick,” he says, and it won’t create much value for investors as ETFs and funds generally often start with low assets under management (AUM) and don’t operate at breakeven, so they aren’t giving away much.” It is just marketing spend and if “someone took an established $10 billion AUM ETF and dropped the fee to be minus 5bps then that would be good news for investors.”

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Nestlé Canada Earns EAP Award

Nestlé Canada, whose EAP (employee assistance program) is LifeWorks by Morneau Shepell, won the 15th Annual Corporate Award of Excellence for innovation and the impact of its EAP in the workplace. Nestlé expanded its focus on the physical safety of its employees to an integrated EAP strategy that prioritized both mental and physical well-being in and out of the workplace. They also focused on improving financial health, with the goal of helping to reduce personal debt ratios of Canadians who carry high debt. “Focusing on the mental, physical, and financial health of our employees has demonstrably improved the well-being of our EAP users,” says Alastair MacDonald, senior vice-president of human resources at Nestlé Canada. “Absenteeism is down by more than half and more than three-quarters of our EAP users report higher resiliency to job stressors. More importantly, we’re seeing an increase in our EAP usage, meaning improved health, well-being, and productivity for more of our people.”

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BFL Acquires Summit

BFL CANADA has acquired Summit Insurance Brokers Inc., located in Prince George, BC. Founded in the late 1990s, this firm serves clients in central and northern British Columbia and brings expertise in industrial, commercial, and farm risks to BFL CANADA. It specializes in services for the forestry, logging, agriculture, and transportation, as well as suppliers to the oil and gas and mining industries. In addition, clients include small type or hobby farms and auto businesses.

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Pharmacare Options Explored

The CPBI Southern Alberta Region will look at ‘Exploring Pharmacare Options: A Critical Analysis’ with Warren Xu, public policy analyst at GlaxoSmithKline. He will summarize some of the pharmacare options and assess each according to four pharmacare principals. It takes place June 13 in Calgary, AB. For information, visit Pharmacare Options

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May 14, 2019


DC Plans Must Overcome ESG Myths

Defined contribution executives seeking to incorporate ESG principles into their investment lineups must overcome a series of myths that might dissuade them, says a report by the Defined Contribution Institutional Investment Association. It says that environmental, social, and governance (ESG) factors “historically have been misperceived.” Today’s ESG criteria are more comprehensive than in the earliest days of ESG investing, it says, and they are “increasingly independent of moral stances,” saying it’s a myth that there is insufficient research to support the concept of sustainable investing. It also challenged as myth that plan participants aren’t interested in this investing approach, that ESG investing is incompatible with fiduciary responsibilities, and that adding ESG-themed funds is identical to incorporating ESG principles into investment lineups. The DCIIA report identifies ESG integration as having a broad impact because it incorporates ESG criteria for all funds. This strategy requires “a thorough understanding of how ESG factors can be material in investment decision-making.”

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Retirement Delayed To Help Children

The ‘Student Debt Survey,’ a Leger poll conducted on behalf of FP Canada, has found 16 per cent of Canadian parents say providing financial support for their children’s post-secondary education has forced them to postpone their retirement. That’s the case for nearly a quarter of Atlantic Canadians with adult children (23 per cent) and one-in-five respondents in Manitoba and Saskatchewan (19 per cent). The survey reveals that eight-in-10 (82 per cent) Canadians with children under 18 say they intend to assist their children with post-secondary costs and they’re expecting this to have an even bigger long-term impact on their finances than they were two years ago. Nearly half of parents (48 per cent) say they expect that providing this financial support will cause them to postpone their retirement, up from 41 per cent in FP Canada’s 2017 survey.

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Transparency Of Climate-related Risk Should Be Improved

The energy sector has estimated potential climate-related financial losses of between $1 trillion and $4 trillion. On top of that, $20 trillion of assets globally could become worthless if climate change and the burning of fossil fuels is not properly addressed. In their article, ‘Improving Transparency Of Climate-related Risks In The Upstream Oil And Gas Sector,’ authors Kate Woolerton, senior accountant for the regulatory team at Carbon Tracker, and Rob Schuwerk, executive director of Carbon Tracker North America, say that climate-related risks are clearly material to the upstream oil and gas sector and warrant disclosure. The article states that transparency over future capital expenditure plans and project sanctioning criteria is critical. It looks at reserves and resources classifications and treatments as well as critical disclosures that would allow investors to fully understand a company’s potential exposure to climate risk. The article is available on the Benefits and Pensions Monitor website.

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Factors Explain Bond Performance

A bond portfolio’s exposure to investment factors is what “really counts” in its returns, even if the portfolio is not explicitly labelled a factor strategy, says an Invesco study. ‘Active bond returns – powered by factors’ shows factors could have explained 66 per cent of a bond manager’s outperformance over the past decade. Investment factors are directly observable characteristics of securities, which can be used as part of live strategies to help investors achieve particular outcomes. The value factor – which identifies bonds priced lower than their peers – often helps explain excess returns. Additional fixed income factors include the carry factor, which explains risk-adjusted excess returns from holding higher-yielding bonds; the liquidity factor, which explains risk-adjusted excess returns from holding less liquid bonds; and the quality factor for risk-adjusted excess returns from holding low-volatility bonds.

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Caisse Finances Solar Assets

The Caisse de dépôt et placement du Québec will finance a portfolio of solar assets owned and managed by Lightsource BP. Lightsource BP is a global developer and operator of solar projects. It will initially be used to finance a diversified portfolio composed of over 100 solar projects located across various countries and totalling more than 700 MW. Over time, the facility could expand with further investment from Caisse funding assets developed through the Lightsource BP pipeline.

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Fridella Earns Award

Rita Fridella, president of LifeWorks and executive vice president of Morneau Shepell, won the 5th Annual Leadership Award for her 30+ year commitment to growth and innovation in the EAP industry. She advocates for more prevention-based models of care to transform employee assistance programs, building on traditional clinical treatment options with digital total well-being solutions that can support the entire global workforce. She has been instrumental in bringing digital EAP support to the forefront to improve outcomes, productivity, and well-being for clients and their employees.

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Three-legged Stool Opens Conference

‘The Three-Legged Stool: Is It Still Standing?’ is the opening plenary at the 2019 ACPM National Conference. Frank Wiginton, of Eckler; Dr. Robert L. Brown, professor emeritus at the University of Waterloo; and Frédéric Létourneau, of National Bank; will discuss areas such as which leg of the stool could (or should) take on more or less responsibility as it relates to the retirement system and where the accountability falls if the stool is broken. Theme of this year’s event ‘Shifting Currents: Negotiating Retirement Diversity.’ Others sessions include ‘Moving from DB to DC: The Insider Perspective,’ ‘Capital Accumulation Plans: How to Balance Flexibility with Retirement Adequacy?,’ and ‘The Quest for Sustainability in Pension Plans with Contingent Benefits.’ It takes place September 10 to 12 in Vancouver, BC. For information, visit: ACPM Conference

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May 13, 2019


U.S. Election Spikes MMT Interest

The recent spike in interest Modern Monetary Theory (MMT) is largely the result of a handful of prominent Democratic politicians – including presidential candidate Bernie Sanders – flirting with the idea in the lead up to the 2020 U.S. presidential election, says Eric Lascelles, chief economist for RBC Global Asset Management in an economic update. A challenge in critiquing the theory is that it continues to reside more in the qualitative realm than in the form of equations and so means something slightly different depending on the advocate. The central idea behind MMT is that the fiscal wing of the government should control the money supply. By doing this, governments could print money as desired and put it directly toward economic and social policy goals, rather than the present approach of allowing the money to trickle through the financial system before reaching the real economy. Unfortunately, there are several problems with this idea, he says. Unlimited money printing eventually creates serious problems in the form of more inflation, higher borrowing costs, and a weaker currency. Realistically, despite claims to the contrary, unlimited funding would encourage governments to expand without cease. Furthermore, the idea that the government would print money until full employment is achieved is not so different than the current approach. Today’s central banks already effectively pursues that aim, either explicitly (as in the case of the U.S. dual mandate) or indirectly (via inflation targeting, but with an eye on eliminating economic slack). The bottom line is that MMT probably wouldn’t work as intended in a real world setting, especially if meant to be used as a permanent policy tool.

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Two-step Approach Used For Opioids

Manulife has developed a two-step opioid management program focused on prevention and early intervention in use of the drug. There is an opioid crisis in Canada and 11 people in Canada die from an opioid overdose every day. Step one ensures patients start opioid treatment with a short-term supply; step two encourages the use of short-acting opioids first. Working together, these steps ensure side effects, risk tolerance, and dependence get monitored earlier, helping reduce the risk of chronic use. “We believe in promoting the safe and smart use of opioids, especially for people who are using them for the first time, or who haven’t used opioids regularly,” says Donna Carbell, head of group benefits at Manulife (Canada). “Through a much more holistic approach, we hope people will be better able to recover sooner, and with less chance of addiction or additional health issues caused by overuse. When fewer plan members need ongoing, long-term treatment, their plan’s drug costs and addiction management costs are lower.”

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Credit ETFs Show Signs Of Declining Liquidity

The markets underpinning credit exchange traded funds are showing signs of declining liquidity that could spell trouble in the next downturn, says research from Moody’s Investor Service. “Unexpected market liquidity shortfalls could be most pronounced within ETFs tracking inherently illiquid markets, such as high-yield credit,” it says. “These ETF-specific risks, when coupled with an exogenous systemwide shock, could, in turn, amplify systemic risk.” The $3.4 trillion ETF market has grown rapidly during a period of “relative calm,” meaning it has yet to be tested by a period of high market distress. But the funds sometimes invest in instruments that become hard to sell in times of market stress, it says. ETF market makers and authorized participants looking for arbitrage opportunities trade dynamically to balance the supply and demand for ETF shares and their underlying assets, the report says. But if liquidity in underlying markets suddenly dried up, market makers would likely price that risk into their ETF quotes. This means investors may be in for a nasty surprise if and when their ETF’s liquidity profile starts to mirror that of its underlying assets, particularly in the less liquid fixed income markets. 

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DC Participation Climbs

Defined contribution plan participation in the U.S. continues to climb, says Fidelity Investments. Its ‘Building Financial Futures’ report shows in 2008, the average participation rate was 65.8 per cent. By 2018, it was 73.5 per cent. Among plans with automatic enrollment, those percentages went from 79.9 per cent to 88.3 per cent, while participation rates in plans without automatic enrolment ticked downward from 56.6 per cent to 52.3 per cent. It found 91 per cent of employees who are automatically enrolled do not opt out and that participation among Millennials has increased by 82 per cent in the past 10 years, due in part to automatic enrollment.

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Industrial Real Estate Goes To ‘More Strength’

The global industrial real estate market continues to go from “strength to even more strength,” says Mark E. Rose, chair and CEO of Avison Young. Its ‘Spring 2019 Global Industrial Market Report’ shows that eCommerce logistics, distribution, and warehousing requirements continue to drive the market and are increasing in line with online retail sales. While this demand has driven down supply, developers are increasingly becoming more innovative in regard to maximizing value through the repurposing of obsolete assets such as vacant big box retail stores and aged office buildings, as well as exploring multi-storey facilities which is a growing trend that caters to demand for close-in warehousing and distribution. The development pipeline remains robust, in terms of both product deliveries and new space under construction. The significant level of development has seen vacancy increase in some markets. Despite this situation, nearly all industrial markets remain significantly supply-constrained. All markets it monitors reported single-digit vacancy rates, while vacancy rates fell or remained flat year-over-year in more than half of the industrial markets surveyed. The strong demand and tight supply continue to put upward pressure on rental rates.

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Private Fixed Income Team Boosted

Elaad Keren is senior managing director and head of mid-markets lending and Jeff Mayer is managing director, head of private securitization finance, for the Canadian private fixed income business at Sun Life Investment Management. Keren will be responsible for sourcing and approving investment opportunities within North America, as well as driving innovation and differentiation supporting the mid-market portfolio. He brings 15 years of experience to the role and was previously with CWB Maxium Financial where he was a member of the senior management team. Mayer is responsible for oversight of the origination, structuring, funding, and monitoring of the North American private securitization assets, as well as business development to grow the asset class through North America. He has 16 years of progressive experience within its private fixed income business.

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Asian Debt Examined

Robert Petty, co-CEO and co-founder of Clearwater Capital, an Asian debt specialist asset management firm, will discuss when ‘East meets West: Investing in Asian Debt’ at a CFA Society Toronto session. He will discuss investing in Asia, distressed debt and private credit, fixed income investing, and portfolio management It takes place May 28 in Toronto, ON. For information, visit Asian Debt

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