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October 19, 2017


Canadian Workers Need Future Proofing

Canadian policy-makers and business leaders need to prepare Canadian workers now for the disruption that machine learning and artificial intelligence is having on the economy, says a report from the Human Resources Professionals Association (HRPA) and Deloitte Canada. ‘The Intelligence Revolution: Future Proofing Canada’s Workforce’ concludes that a national conversation on how jobs will change and the capabilities needed to respond to that change is needed urgently. Key recommendations in the report for governments and business include the need to modernize provincial labour laws and the social safety net to reflect the realities of the ‘gig economy;’ rethinking a universal basic income; reimagining how schools are organized from physical setup to the school year itself; and empowering Canadian workers to manage their careers and thrive in the new world of work. “If we agree we are experiencing a so-called second industrial revolution which is changing what a job means, affecting the work we do, and how we do it, then we have to anticipate that amongst global jurisdictions there will be winners and losers,” says Stephen Harrington, national lead, talent strategy, at Deloitte in Canada and co-author of the report. “It is critical that as a nation, as a business community, we understand the future of work and take action.”

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Climate Becomes Part Of Every Caisse Decision

The Caisse de dépôt et placement du Québec (CDPQ) has put in place its investment strategy to address climate change. This strategy covers the entire portfolio and sets out targets and actions to make a constructive contribution, as an investor, to the transition toward a low carbon global economy and to seize profitable investment opportunities. Michael Sabia, its president and chief executive officer, says “Our strategy is based on a fundamental commitment. From now on, climate change will factor in each and every investment decision we make across the breadth of our portfolio.” It has set a short-term target to increase its investments in low carbon assets by over $8 billion and a medium-term target to reduce its carbon footprint by 25 per cent per dollar invested. This strategy is a first step for CDPQ, which will be better positioned to seize profitable investment opportunities and contribute to the fight against climate change.

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Americas Fall Behind On ESG

Portfolio managers and data analysts in North and South America continue to fall behind the Europe, Middle East and Africa, and Asia-Pacific regions in their use of ESG factors in their investment decisions and analysis, says a report by the CFA Institute. Although environmental, social, and governance (ESG) consideration was up for all regions from the institute’s 2015 survey, Europe, the Middle East, and Africa replaced Asia-Pacific as the region where investors are most likely to take ESG issues into account at 85 per cent, up from 74 per cent in 2015. Meanwhile, some 81 per cent and 68 per cent of investors in the Asia-Pacific and Americas, respectively, said they take ESG factors into account, up from 78 per cent and 59 per cent in 2015. EMEA was also the region where most respondents said they receive training on ESG issues ‒ 43 per cent compared to 30 per cent and 28 per cent for the Americas and Asia-Pacific, respectively. Seventy-five per cent of all respondents would like employees to receive training on ESG issues. Among the 27 per cent of investors globally who do not factor ESG issues into their investment decision-making, 66 per cent said they would if there was client demand, up from 57 per cent in 2015, followed by a proven link between ESG investing and financial performance at 53 per cent (compared to 48 per cent in 2015).

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Institutions Lag On Emerging Technologies

As emerging technologies disrupt traditional financial services value chains, many institutions are lagging in implementing effective strategies, says ‘Forging the future: how financial institutions are embracing fintech to evolve and grow,’ a report from KPMG. It says banks, insurers, and asset management companies believe technologies like artificial intelligence, blockchain, and the internet of things are redefining the very nature of financial services. Fifty-seven per cent of respondents believe ’emerging financial technologies’ are the greatest source of disruption today, followed by ‘growing global regulatory uncertainty’ at 51 per cent and ‘new business models’ at 46 per cent. Addressing the organizational response to fintech is proving challenging to many institutions. Only 46 per cent of respondents say their institution has a clear fintech strategy in place, with 42 per cent indicating a strategy is in development and 10 per cent having no fintech strategy at all. Of those with a strategy, only 47 per cent believe it is well-aligned with the challenges posed by fintech.

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HSBC Global Joins RIA

HSBC Global Asset Management (Canada) Ltd has become an associate member of the Responsible Investment Association (RIA). Marc Cevey, chief executive officer of HSBC Global Asset Management (Canada) Ltd., says “We have extensive experience in responsible investment and believe good management of environmental, social, and governance risks contribute to long-term business success.” It signed onto the UN Principles for Responsible investment in 2006 when the policies were first launched. The RIA is a national, membership-based organization that is committed to advancing responsible investment, which refers to the incorporation of environmental, social, and governance (ESG) factors into the selection and management of investments.

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Advisors Turn Bullish

After a relatively flat quarter, Canadian investment advisors have turned quite bullish on Canadian equities, energy, and a number of other industry benchmarks, says the ‘Q4 2017 Advisor Sentiment Survey’ by Horizons ETFs Management (Canada) Inc. The survey shows Canadian investment advisors have turned positive on equity indices after extremely high levels of bearish sentiment in the ‘Q3 2017 Advisor Sentiment Survey.’ On the S&P/TSX 60 Index, 62 per cent of advisors in the fourth quarter survey stated they are bullish on the Canadian blue-chip equity index, compared to the 42 per cent surveyed last quarter. Similarly, bullish sentiment on Canadian financials and energy has also picked up since last quarter, rising to 62 per cent from 54 per cent on financials and 53 per cent versus 40 per cent on energy equities.

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Roberts Has New Role

Trish Roberts is relationship executive, strategic accounts, relationship management, at CIBC Mellon. She has more than 16 years of service at the company, most recently as senior account manager.

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Pensions Level Examined

‘Pensions Level 1’ will be the focus of a session offered by the CPBI Quebec Region. This program is aimed at administrators and pension trustees who would like to acquire basic notions on the various aspects of managing and administering pension plans. It takes place November 20 and 21 in Quebec City, QC. For information, contact quebec@cpbi-0icra.ca

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October 18, 2017


People Becoming More Involved In Own Healthcare

A transition to a patient-centric approach to health is now taking place, says Anjila Arora, director, pharmaceutical benefits, at Sun Life Financial. She told attendees at the Benefits and Pensions Monitor Meetings & Events’ ‘Drug Pooling and Supplemental Drugs’ session that healthcare used to be a one-way process from the physician to the patient; what she termed ‘Health 1.0.’ As technology allowed patients to become more educated, they became more involved and the standard of care advanced to ‘Health 2.0.’ Now ‘Health 3.0,’ where patients are no longer passive but actively involved, is occurring, she said. This evolution, known as patient engagement, has been enabled by technology. “Technological advancements are bringing healthcare to the patient’s fingertips.” Technological and digital health tools are helping to manage diseases and keep people aware of their health. People can get apps and accessories for their phones or smart devices, for example, that offer telemedicine on demand. They can check their heart rate, temperature, or take an EKG and send it off to their doctor. Sun Life Financial has even launched ‘Ella,’ an interactive digital coach that will help clients fully utilize their benefits and pensions plans. Ella was built on Sun Life’s digital benefits assistant, a client engagement platform that was launched in 2016 and uses advanced analytics and big data technology to present an array of helpful and important ideas to clients at key life moments. These and other advancements in healthcare are pushing the industry to a patient-centric approach, “and patients will lead this trend,” says Arora.

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Mental Health Generates Significant Costs

Mental health issues generate significant costs related to short- and long-term disability, workforce absenteeism, and productivity loss as well as the cost of drugs and psychological counseling services, says the Willis Towers Watson survey on mental health. Driven by the need to mitigate these costs, nearly all of the survey respondents say that improving workforce mental health over the next three years is a priority. The survey results indicate that employer mental health activities, where they exist, are largely focused on stress management, mental health training, and financial well-being support. About a third of respondents (36 per cent) currently offer stress management or resilience programs and half are planning to do so in the next three years. Over 40 per cent also offer financial well-being coaching and support. As well, more than half of the respondents have also taken steps to integrate various health and well-being program components into a larger program. However, finding solutions to resolve mental health related absence and disability and controlling the associated costs, is still a challenge. A majority of respondents (76 per cent) do not believe their programs are effective at controlling absence and disability costs and 81 per cent do not believe the mental health programs they offer are optimally used by employees.

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ASO Plans Paralyzed By Perceived Lack Of Information

ASO plan sponsors dominate the drug plan landscape in terms of spend. However, a lack of transparency in pricing and a perceived lack of predictive information to quantify risk is paralyzing these plans so that they are faced with either increasing attachment points and/or paying higher premiums, says Mike Sullivan, chief executive officer of Cubic Health. Speaking at Benefits and Pensions Monitor Meetings & Events’ ‘Drug Pooling and Supplemental Drugs’ session, he said ASO plans are relying on high-level retrospective plan experience and not looking to quantify their own plan-specific risk.  “ASO plans have no idea about stop-loss or what to do about it. They are paralyzed because they have very little information. They struggle with high-level aggregate information like anyone else,” he said. “Retrospective information is totally useless because the past is not indicator of the future. Carriers are also not using predictive data as they should be.” Sullivan suggested plans start by looking at how well the current plan design is containing costs and where resources being spent inefficiently could be optimized. As well, they should look at the plan’s own unique risk profile to see what can be quantified using predictive analytics. Predictive analytics that quantify plan-specific future risk will need to consider multiple factors including prevalence of key disease states, demographic profile, disease severity profile, brand drug pipeline and changes in clinical guidelines, biosimilar and generic drugs, and existing plan design. They must then implement a strategic, customized plan design based on the information they’ve pulled together. This is an important conversation the all stakeholders and the entire industry can come together to work on, said Sullivan. Going forward, “we will see more international and creative solutions because that is going to be required.”

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Marijuana Could Drive Benefits Usage Up

With the likely legalization of recreational marijuana looming, an increasing number of individuals will view medical cannabis as an acceptable form of treatment, which can drive a benefit plan’s usage up, says a Morneau Shepell ‘News & Views.’ Undoubtedly, the pressure is likely to increase on plan sponsors to provide coverage and the potential cost impact for marijuana could be significant. Insurance companies are still hesitant to provide specifics on the projected cost impact, citing a lack of credible data. Nonetheless, the estimated cost of a regular marijuana user is projected to be around $10,000 per year. Beyond group benefits, medical marijuana in the workplace raises a number of concerns for employers and relevant policies should be proactively reviewed or created.

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CFA Societies Canada Created

A collaboration of the CFA Institute and the 12 Canadian member societies has resulted in the formation of CFA Societies Canada. Its mission is to build brand awareness of the CFA designation and to advocate for the highest standards of integrity and ethics for the ultimate benefit of Canadian investors. It will focus on three primary objectives ‒ regulatory outreach: a proactive regulatory policy advocate for investors; thought leadership: a leading researcher and analyst on policy solutions; and media outreach: a strong voice for ethics and standards in investment management. In addition to leading Canadian advocacy efforts, CFA Societies Canada will manage national projects for the 12 societies, including brand awareness programs, compensation surveys, and university student competitions.

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Organization Helps Mitigate High Drug Costs

With the prescription drug environment in Canada rapidly evolving and costs escalating as a result, drug insurance plans are facing considerable new risk. The Canadian Drug Insurance Pooling Corporation (CDIPC) is a not-for-profit organization that was established five years ago to help maintain the viability of drug plans in light of these changes, says Dan Berty, executive director of the CDIPC. Speaking at Benefits and Pensions Monitor Meetings & Events’ ‘Drug Pooling and Supplemental Drugs’ session, he said today’s environment presents a whole different concept of insurance than even just a few years ago “and the pace of change has accelerated dramatically.” Through 2005, with a few exceptions, extended health insurance was largely predictable in year-over-year costs. At the time, large claims often had caps. “Fast forward to 2017 and the frequency and occurrence of these large high-cost drugs and the development have dramatically increased. The relative value and appropriateness of patents and the general starting place of costing are big issues in Canada, as they are across the world.” And there will be continued increased frequency of high cost drugs, said Berty. CDIPC was created with a trifold intent to maintain plan affordability, avoid non-coverage impacts, and allow the market to remain competitive. It does this by sharing/pooling high cost claims with other employers and among insurers. All fully-insured drug plans were grandfathered into the pooling regime in January 2012.

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Impact Of GST/HST Of Great Importance

As part of a balanced investing strategy, pension plans hold partnership interests, thus making the impact of any GST/HST on investment returns a matter of great importance, says Kevin Fahey, chair of the Pension Investment Association of Canada (PIAC). In a letter responding to Finance Canada’s GST/HST draft legislative and regulatory proposals, he says PIAC believes the government of Canada should, in considering tax policy affecting pension plan investments, take into account that pension plans play an important role in Canadian society and the economy. Its membership invests contributions made by employees and employers to provide secure, stable retirement income for working Canadians. They also provide a long-term source of stable capital, which adds to the stability of the Canadian economy during periods of financial stress. It is concerned the current proposals will further limit investment opportunities in Canada given that certain Canadian partnerships will incur unrecoverable GST/HST resulting in reduced investment returns for the benefit of Canadian pensioners. 

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Administrator Appointed For Sears Canada Plan

The Ontario Superintendent of Financial Services has appointed Morneau Shepell to take over the administration of the Sears Canada Inc. Registered Retirement Plan, effective immediately. Given the liquidation sale approval Order made by the Ontario Superior Court of Justice on October 13, the superintendent has determined it is inevitable that the Sears plan will need to be wound up, although the effective date and details of the wind up are still to be determined. Morneau Shepell was selected through a competitive tendering process. The Sears Canada pension plan is registered in Ontario because the plurality of its plan members are employed in the province. The Financial Services Commission of Ontario (FSCO) regulates the Sears Canada plan on behalf of pension regulators from other Canadian jurisdictions. The Pension Benefits Act in Ontario requires that the assets of the Sears plan be maintained separate and apart from the company’s assets. The assets cannot be accessed by the company’s creditors.

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State Street Administers For Fiera

State Street Corporation will act as the primary fund administration provider for the Canadian division of Fiera Capital Corporation. The decision reflects an expanded relationship with State Street and International Financial Data Services (IFDS), a joint venture of State Street and DST Systems Inc., including fund administration and transfer agency services which will be provided for Fiera Capital’s Canadian mutual and pooled funds. State Street has provided a number of investment servicing solutions in Canada to Fiera Capital since 2009.

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Dieters Bet On Weight Loss

HealthyWage.com has found a way to help dieters overcome their short-term financial woes and spur weight loss from the start, all boosting business bottom lines, by applying ‘double-incentivization’ methodology. The company’s various diet-for-dollars programs ‒ team-based challenges and other ‒ allow participants to make a wager upfront tied to their intended weight-loss, for which they’ll receive a cash prize payout if they achieve their goal in the allotted time. Reportedly overall, more than 200,000 HealthyWage.com participants across America have collectively lost over 10 million pounds and gained over $2.5 million in cash prizes for their success.

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CPPIB Completes Parkway Merger

The Canada Pension Plan Investment Board (CPPIB) and Parkway, Inc., a Houston-TX based real estate investment trust, have completed the previously announced merger of Parkway with an affiliate of CPPIB for US$1.2 billion. Under the terms of the merger agreement, Parkway stockholders are entitled to receive cash payments totaling US$23.05 per share for each share of common stock held from the record date of Parkway’s cash dividend through the closing date.

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Lantz To Lead RIA

Dustyn Lanz will succeed Deb Abbey as chief executive officer of the Responsible Investment Association (RIA). Lanz currently serves as chief operating officer and has worked with the RIA since 2013. He has played a central role in growing its membership base and strengthening its brand and communications initiatives over the last four years. Abbey will retire following a successful five-year tenure in the role.

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Francis Describes Sustainable Future

Shaun Francis, chair and CEO of Medcan and chair of EHE, will discuss some of the innovations he and his team have created to maintain a sustainable future in healthcare at an Economic Club of Canada session. He will explore technological advances such as digital hearing screening, enhanced video visits, and nutritional programs. It takes place November 8 in Toronto, ON. For information, visit Sustainable Future

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October 17, 2017


Career Jobs Never Actually Existed

While some have expressed the view that current American workers change jobs more frequently and have less employment security than was the case for past generations, the data on employee tenure ‒ the amount of time an individual has been with his or her current employer ‒ show that career jobs never actually existed for most workers and continue not to exist for most workers, says the Employee Benefit Research Institute. It says the median tenure with their current employers for all wage and salary workers ages 25 or older was 5.1 years in 2016, compared with 5.5 years in 2014 (highest year), 4.7 years in 1998-2002 (lowest years), and five years in 1983. Male workers aged 55 to 64 experienced the largest change in their median tenure from 1983 to 2016 from a level of 15.3 years, which would not be considered a full career, in 1983 to 9.5 years in 2006, 10.7 years in 2014, and 10.2 years in 2016. The highest median tenure level for females was 10.2 years for those ages 55 to 64 in 2014, which decreased to 10 years in 2016 but was above the 9.8 years in 1983. The median tenure of public sector workers has been significantly longer than the median tenure of private sector workers from 1983 to 2016. The public sector median tenure has ranged from two-thirds longer to just over two times longer. In 2016, the median tenure for public sector workers was 8.5 years compared to 4.1 years for private-sector workers. These results indicate that, historically, most workers have changed jobs during their working careers and all evidence suggests that they will continue to do so in the future. This persistence of job changing over working careers has several important implications ‒ potentially reduced or no defined benefit plan payments due to vesting schedules, lump sum distributions that can occur at job change, and public policy issues both through lower retirement incomes of the elderly population because of benefits lost at job change and the experience of the public sector labor force, which has workers with higher levels of longer tenure who are likely to be retiring soon.

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TFSAs Now Most Popular

TFSAs (tax-free savings accounts) are now the most popular retirement savings vehicle with Canadians, says the Office of the Superintendent of Financial Institutions (OSFI), surpassing RRSPs (registered retirement savings plans). It reports that 7.9 million taxpayers contributed to a TFSA in 2015, representing 30 per cent of taxpayers, up from 4.5 million in 2009. Meanwhile, just 23 per cent of taxpayers, six million, contributed to an RRSP in 2015. While RRSP usage was steady for taxpayers over age 55 between 2005 and 2015, their usage by all younger age groups declined. By income category, RRSP usage only increased for those earning between $60,000 and $80,000. In every other category, it declined. Additionally, the data show that the proportion of active plan members in defined benefit plans declined from 81 per cent to 67 per cent over the last 10 years. DB coverage in the public sector rose as it dropped from 70 per cent to 42 per cent in the private sector since 2005.

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People Struggle With Managing Risk

People in the United States, United Kingdom, and Australia are struggling to prepare for retirement because of increasing demands on them to manage their own risks, says an international survey by the American Academy of Actuaries, the Institute and Faculty of Actuaries, and the Actuaries Institute of Australia. It says while many people start planning, they can’t follow through because they aren’t equipped to address complex questions like how much they need to save for retirement, how they will cover the risk of an especially long life, or how they will handle unexpected costs associated with chronic health conditions as they age. In addition to calling for targeted financial education, the report recommends greater use of default features in private retirement plans and ensuring that public pension and social insurance systems are sustainable and adequate. All three countries are shifting away from defined benefit systems.

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Capital Should Be Aligned With Goals

Institutional investors’ capital should be aligned to the United Nations’ sustainable development goals to promote an inclusive and sustainable economy, says a UK National Advisory Board on Impact Investing report. It outlines five steps to reach this goal: adopt an inclusive and sustainable UK investment agenda; empower savers to invest in line with their values; put purpose at the heart of public procurement; accelerate the rise of purposeful business; and strengthen the UK’s role in international development finance. The report says pension funds, foundations, and other institutional investors should “seize on investment opportunities that help achieve the SDGs (sustainable development goals) in the UK.” Aligning institutional investment capital to the goals “can help address a range of pressing challenges, such as increasing investment into parts of the UK that are being left behind.”

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Pain Drives Opioid Crisis

Almost 90 per cent of Canadians suffered from muscle or joint pain in the last 12 months, says a report commissioned by the Canadian Chiropractic Association (CCA) and provincial chiropractic associations for ‘World Spine Day.’ Known as musculoskeletal (MSK) pain for its impact on the body’s muscles, bones, joints, tendons, and ligaments, ‘All Pain, No Gain: Shining a Light on Canada’s Back Pain and Opioid Crisis’ found that the most common types affecting people across the country are low back pain (54 per cent), headaches (50 per cent), knee pain (35 per cent), shoulder pain (34 per cent), and neck pain (34 per cent). It argues that as spine, muscle, and nervous system experts, chiropractors can help Canadians better manage their MSK pain while also reducing the use of unnecessary painkillers. However, Canadians are challenged by several hurdles preventing them from pursuing such options. This include financial barriers (29 per cent), issues with private insurance, and a lack of knowledge about and doctors not recommending non-pharmacological options (each 12 per cent). As a result, almost 80 per cent have taken medication to manage their MSK pain, including turning to opioids (14 per cent) and other prescriptions (13 per cent).

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Trade Finance Emerging As Disruption

Once considered a staid business, trade finance could be emerging as a hub of innovation and disruptive change, says Greenwich Associates. The biggest driver of change in trade finance is the shift in strategy on the part of the world’s largest banks. Although the list of 2017 leaders in large corporate trade finance is still composed of global banks, their share of relationships (market penetration) have collectively decreased over the past six years. As well, retrenchment by big banks is still opening up new opportunities for other providers. Among large companies using trade finance, approximately 45 per cent of companies in the United States, about half of large European companies, and approximately 80 per cent of Asian companies will shift business among trade finance providers in 2018. “This ‘money in motion’ is providing fuel to a range of aggressive competitors, including both established, traditional banks and emerging non-bank firms,” says Don Raftery, managing director of Greenwich Associates.

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CPPIB Partners On Alpha Data Centre

The Canada Pension Plan Investment Board (CPPIB) has partnered with Alpha Investment Partners Limited and Keppel Data Centres Holdings Pte. Ltd., both of which are part of the Keppel Group, for an initial allocation of up to US$350 million alongside the Alpha Data Centre Fund (ADCF), with the option to invest another US$150 million. CPPIB’s latest commitment and option will bring the ADCF’s combined and co-investment interest up to US$1 billion, double the fund’s initial target size of US$500 million. When fully leveraged and invested, the fund will potentially have assets under management of approximately US$2.3 billion. ADCF aims to develop a portfolio of new and existing data centre assets in Asia Pacific and Europe.

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Hedge Funds Have Highest Monthly Return

Hedge funds made gains of +1.43 per cent in September, the highest monthly return seen since January. This has continued 2017’s strong run of performance as the ‘Preqin All-Strategies Hedge Fund’ benchmark has seen year-to-date gains reach +8.28 per cent, the highest return at this stage of the year for the benchmark since 2013. Event driven strategies funds generated the greatest return of any top-level strategy (+2.12 per cent), following incremental gains made in August (+0.19 per cent). Equity strategies funds posted returns of +1.93 per cent, bringing 2017 year-to-date returns to +10.72 per cent. In addition, all top level strategies recorded positive monthly returns for the seventh time this year. However, September brought a reversal of fortunes for CTAs. They returned -1.83 per cent, the lowest monthly return since August 2016 (-1.90 per cent). Euro-denominated CTAs in particular struggled, posting returns of -3.99 per cent.

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deQuartel Has New Role

Millia deQuartel is now service director, relationship management at CIBC Mellon. She has been with the firm since 1997, most recently as manager, institutional and pension accounting.

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Furman Provides Keynote

Jason Furman, an American economist who is a professor at Harvard University’s Kennedy School of Government and a senior fellow at the Peterson Institute for International Economics, is the keynote speaker at the CFA Society Toronto’s ‘2017 Annual Investment Dinner.’ Others speaking at the event are Donald A. Guloien, past president and former CEO at Manulife and Bob Prince, co-CIO at Bridgewater. It takes place November 15 in Toronto, ON. For information, visit Investment Dinner

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October 16, 2017


PIAC Wants Fundamental Solution

The Pension Investment Association of Canada (PIAC) believes Canada needs a fundamental solution to defined benefit pension plan funding rather than serial ‘temporary relief programs.’ In a letter to the pension regulation division of the province’s finance and treasury board commenting on Nova Scotia’s pension funding framework review and temporary solvency funding relief, Kevin Fahey, chair of PIAC, says the country need a better long-term funding model and a more effective valuation and funding methodology. It supports the proposal to require a funding reserve of an amount in excess of a plan’s liabilities that must be funded before the plan may take an action such as benefit improvements that could weaken the plan’s funded position. It also says while currently going concern deficiencies must be funded within a 15-year period, a shorter maximum funding period would increase benefit security. PIAC agrees with this approach in the context of an overall move away from solvency funding toward an enhanced going-concern regime. It also disagrees with a regulatory cap on discount rates for going concern valuations and believes the vast majority of Canadian plan sponsors use appropriately conservative return assumptions in line with their long-term investment policies. A single cap would not be appropriate for all plans as it would not distinguish among different investment policies. It also strongly supports statutory discharge of liability for pension plans where annuity buy-outs occur. “We believe there are a small number of reasonable conditions to achieve full discharge – e.g. annuities should be purchased from a qualified provider (i.e. regulated insurance company); the funded position of the plan should be no worse off after the buy-out than before; the purchased annuities should substantially replicate the terms of the pensions being discharged,” he says.

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Men Dominate Alternative Funds

Just under one in five employees at alternative fund management firms are female, says a Preqin overview. Its ‘Women in Alternative Assets’ report says this rate varies widely by role and consistently declines according to seniority. The highest proportion of women is seen among junior employees, where they constitute 29 per cent of the workforce. However, in each asset class the representation of women falls according to seniority and overall senior alternative assets staff consist of 11 per cent women. In the same way, women are best represented in investor relations/marketing teams, as high as 53 per cent at venture capital firms. The rate of women in investment teams is much smaller, as low as 10 per cent at hedge funds. The board of directors for an average alternative assets fund, meanwhile, only comprises five per cent female members.

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Trade Finance Offers Opportunity

Trade finance plays a critical role in international finance, yet most Canadian institutional investors are unfamiliar with this growing asset category. At the ‘Federated Learning Forum,’ Robert M. Kowit, senior vice-president, product specialist, with Federated; and Alexander R. Malaket, president of OPUS Advisory Services International Inc.; made the case that trade finance offers investors the potential for a source of uncorrelated return, with low volatility and attractive performance that adjusts with inflation. Trade finance refers to the short-term financing of international trade, which supports and enhances the physical flow of goods and services. It is characterized by self-liquidating transactions where the loan is repaid by the transaction proceeds and other risk mitigation techniques that are in place. The performance and repayment of a trade finance loan is based on the structure of the transaction. The goods being financed serve as collateral for the deal and are usually owned by the lenders via the agent bank. If there is a problem with the deal, the agent banks sell the collateral. The collateral cannot be seized by other creditors. That is a major point of distinction between trade finance and senior secured debt. The trade finance market is nearly $20 trillion, but it is fragmented with few sources of comprehensive data. Investing in it requires specialized expertise including intensive legal and operational due diligence, a deep understanding of risk and how to mitigate it, and relationships with the largest global banks.

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Monetization Theme Of Quarter

Monetary policy ‘normalization’ returned as a major theme this quarter, says a Mawer ‘Market Overview.’ As indicators for the global economy continued to show signs of strength, central bankers in major economies such as the U.S., Canada, China, and Europe have signaled that the end of a very loose monetary era is nigh. Markets may be facing an important inflection point. For Canadian investors, this monetary environment has landed close to home, with not one but two rate increases in the past three months, it says. Canada has been leading the pack among those countries that are tightening their monetary policies, resulting in the Canadian dollar strengthening appreciably versus a basket of major currencies. However, it views the increase in the Canadian dollar as a temporary headwind and the long-term case for investing globally remains compelling.

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Plan Sponsor Signs PRI

Bloomberg LP has become the first U.S. corporate plan sponsor to join the network of investors advocating for sustainable investing. It has joined the ‘Principles for Responsible Investment (PRI)’ in its capacity as a retirement plan sponsor. “A primary driver for Bloomberg’s decision to join the PRI was to enable its employees to proactively integrate ESG-themed funds into their own retirement investment strategies,” it says. It added an ESG-themed equity fund to its plan in June 2015 and has also updated its investment policy to integrate environmental, social, and governance considerations into the plan’s management and monitoring. Bloomberg already belongs to the PRI in its capacity as a service provider. There are 1,823 PRI signatories in total with 68 signatories from corporate pension or retirement providers based in Europe, Australia, Brazil, Canada, Japan, Mexico, and South Africa. The PRI is supported by the United Nations.

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Asian Insurers Move Assets Offshore

A growing number of insurers in Asia are moving assets offshore in search of better investment yields and long-dated instruments, creating fresh opportunities for foreign asset managers, says the ‘Cerulli Edge ‒ International Institutional Edition.’ It notes that although investment caps and restrictions remain in place in much of Asia ex-Japan, regulators are expanding the asset classes and markets in which insurers can invest. It cites Taiwan as an example. Foreign investments accounted for 63.3 per cent of collective asset allocation at the end of 2016 and Taiwanese life insurers account for the largest foreign investment allocations in Asia ex-Japan and their offshore investment foray shows no signs of abating, with several players aggressively buying high-yield offshore bonds. In addition to suffering the effects of the protracted low interest rate environment, Taiwanese life insurers also face dwindling underwriting opportunities at home. It has one of the highest ceilings for overseas investments in the region and the regulator has even made exceptions to the cap. It has also gradually relaxed overseas investment restrictions, allowing insurers, for example, to buy overseas commercial properties. It believes that over the next five years, China may surpass the volume of Korean insurance assets moved overseas. With only 2.14 per cent of total investable insurance assets allocated offshore at end of July 2016, the amount of overseas Chinese insurance investments seems small. However, insurance assets in the country have grown tremendously with total life insurance assets alone standing at US$1.8 trillion at the end of 2016, up 25.2 per cent on the previous year.

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Canadian Bond Market Busy

The Canadian bond market was unusually busy during the quiet summer months of 2017 as the Bank of Canada unexpectedly raised interest rates twice, says Leon Frazer & Associates’ ‘Q3 ‒ 2017 Quarterly Review.’ Probabilities for a single interest rate increase for the Bank of Canada in 2017 sat at nearly zero at the beginning of the second quarter and six months later, market participants are assigning a greater than 50 per cent probability for a third hike before the end of the year. The doubling of administered short-term interest rates from 0.5 per cent to one per cent sent reverberations through the entire Canadian bond market, it says as Canadian benchmark bonds of all maturities were down during the quarter, with 30-year long bonds declining more than six per cent. It estimates the Bank of Canada will follow the U.S. Federal Reserve on a more gradual path of interest rate increases going forward.

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AIMA Publishes New DDQ

The Alternative Investment Management Association (AIMA) has published a new edition of its flagship due diligence questionnaire (DDQ), 20 years after the first ‘AIMA DDQ’ helped to standardize the due diligence process for alternative investment managers and investors. The new ‘AIMA Illustrative Questionnaire for the Due Diligence of Investment Managers’ will be used by investors assessing hedge fund, private credit, and private equity managers. The first AIMA DDQ, published in 1997, was mostly geared to managed futures funds and contained around 100 questions about the investment manager and the fund. Subsequent editions included more investment strategies, reflected changing business practices, and took account of evolving regulations. The new DDQ covers, for the first time, private credit and private equity strategies as well as hedge funds. It also integrates the formerly separate DDQs specific to funds of funds managers and CTAs. Expanded modules exploring the investment manager’s governance and operations and risk management processes reflect the substantially expanded due diligence process being undertaken by investors today, it says.

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Lachapelle Joins Caisse

Jonathan Lachapelle (CFA) is advisory director, research, at the Caisse de dépôt et placement du Québec (CDPQ). He joined the CDPQ in April of this year from Fiera Capital where he was assistant manager, strategic investment partnerships.

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CPP Expansion Examined

CPP Alberta North will examine ‘Responding to CPP Expansion.’ Phil Rivard, vice-president of pension policy and funding for the Alberta Local Authorities Pension Plan Corp., will discuss the need and the merit of changing defined contribution and defined benefit plan designs to account for the scheduled expansion of Canada Pension Plan benefits and contributions. It takes place November 15 in Edmonton, AB. For information, visit CPP Expansion

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October 13, 2017


Fundamental Shift Needs To Take Place

There is a powerful economic argument to do things differently and a fundamental shift needs to take place at some point to make a commitment to disease prevention rather than treatment, says Dr. Greg Wells, a health and human performance expert. He told ‘The Three Pillars of Health’ session at the Medavie Benefits3 Conference this needs to take place because maintaining the treatment method will “see us run out of money.” Currently, the healthcare profession is trying to tackle the ‘Billion Person Problem’ around the world ‒ 25 per cent have been diagnosed with clinical sleeplessness, 58 per cent are overweight; 85 per cent don’t do enough physical activity to prevent a chronic disease; and the mental health challenge is that one of five will seek help for an issue. There is, he said, tremendous potential to do things differently and prevent all of these. The pathway to follow involves four steps ‒ sleep soundly, move more, eat smarter, and think clearly. For example, the leading cause of non-communicable diseases ‒ cancer, heart disease, cardiovascular disease, and metabolic disorders ‒ is a lack of physical exercise. One bout of exercise can reverse Type 2 diabetes for 24 to 48 hours. As well, there is a link between exercise and mental health. Walking 15 minutes per day can help prevent distress and post-traumatic stress disorder, he said. It doesn’t have to be hard, he said, it just needs to be done and it is free, he said.

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Real Estate Allocations Surpass Threshold

The real estate asset class continues to experience growth in institutional capital allocations. In fact, 2017 represents an important milestone in this regard, says the Hodes Weill & Associates and Cornell University’s fifth annual ‘Institutional Real Estate Allocations Monitor.’ This year’s survey revealed that for the first time, global institutional investors’ average target allocation to real estate surpassed the 10 per cent threshold. It shows that the average target real estate allocation increased to 10.1 per cent in 2017, up from 9.9 per cent in 2016 and 8.9 per cent in 2013 ‒ the year in which the survey was first conducted. Over the past five years, institutional portfolios have increased their exposure to real estate from 8.5 per cent to 9.1 per cent invested. Douglas Weill, managing partner at Hodes Weill & Associates, says, “Real estate has proven over time to be an important portfolio diversifier, producer of stable income, and hedge against inflation, which is why it’s no surprise that this strategic asset class now exceeds a target allocation of 10 per cent in global institutional portfolios.” However, the pace of target allocations is moderating. Approximately 22 per cent of institutional investors surveyed indicated that they expect to increase their target allocations over the next 12 months, down from 30 per cent in 2016. What’s more, the pace of increase in target allocations slowed to 20 basis points in 2017 compared to an average of 30 to 40 basis points per year since 2013.

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Demographics Put Pressure On Benefit Plans

The number of older workers, young workers, and middle age workers in the labour force is converging and this is putting pressure on benefits plans, says Derek Weir, manager of group benefit solutions at Medavie Blue Cross. In the ‘Insights into Chronic Disease Trends’ session at the Medavie Benefits3 Conference, he said that this is due, in part, to the financial crisis in 2008. Since then, older people are hanging on and working longer, even those over the age of 70. Yet, Canadians are not healthy. He said, for example, 52 per cent of Canadians are overweight which, combined with the aging of the population, causes a lot of healthcare utilization. The evidence bears this out. In the last decade, there has been a 76 per cent increase in diagnosed diabetes and every seven minutes someone in Canada dies of heart disease or stroke so there are lots of risk factors still at play. All of this is driving healthcare utilization as the health expenditure trend now is up to $6,298 per Canadian per year. However, while, for example, musculoskeletal-skeletal issues can be managed with massage, physiotherapy, and chiropractics, other than drugs, little is offered to manage chronic disease. Embedding it in a benefit plan and making people aware of the supports gives people more choice on how to manage their conditions.

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ESG Impact On Returns Concerns Investors

Nearly half of investors in Europe worry that investing with environmental, social, and governance (ESG) principles in mind will negatively impact returns over the long term, says Schroders’ ‘2017 Institutional Investor Study.’ In it, 47 per cent of investors in Europe cited long-term performance concerns as a barrier to adopting an ESG-oriented investment strategy. Europeans, on the margin, were the most concerned about hampering performance, with 45 per cent of Asian investors and 42 per cent of North Americans responding the same way. When asked if sustainability characteristics were relevant to infrastructure investing specifically, roughly one in five Asia-based institutional investors and a quarter of Europeans said they are. The results also show that investors had very different ideas when it came to equity investments, though. The vast majority ‒ 83 per cent in Europe, 77 per cent in North America ‒ deem sustainability as an important consideration when investing in shares. Additionally, there is considerable wariness around the use of social impact funds to generate profit. Globally, just nine per cent of investors said that profit would be their main motivation for using specialist social impact funds with a focus on human rights, poverty, or social welfare. However, 14 per cent of North Americans and just five per cent of Europeans saw profit as the main motivation for using these strategies.

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Care For Aging Biggest Challenge

“One of the biggest challenges we face as a society is how to care for aging population,” says Bernard Lord, chief executive officer at Medavie. Speaking at its Benefits3 Conference on an ‘An Integrated Approach to Healthcare,’ he said this challenge is different than those posed by fears of the next recession or the impact of climate as it is predictable ‒ “we know it is going to happen,” he said. The nature of the healthcare system has changed. Once it was around catching diseases or breaking bones. Both could be treated and the patient would recover. Now, with the aging population, it is chronic disease. Yet, while more is being spent on healthcare, the outcomes are no better. The system has to evolve to meet the needs of patients today ‒ people who will live a long time while managing some of these conditions, he said, and this will take innovation and transformation.

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No System Immune If Money Runs Out

In spite of the protections that exist, no public retirement system is completely immune to impairment if the money runs out, says a Cleveland Fed researcher. Millions of people’s retirements depend on the benefits U.S. state and local governments have promised them. At the same time, most state and local government pension funds don’t have the assets they need to cover their liabilities, says O. Emre Ergungor, a senior economic advisor at the Federal Reserve Bank of Cleveland. He considers an extreme case in which the restructuring of all state obligations is necessary for a sustained recovery (much like the current events in Puerto Rico). Drawing on legal precedents and the experience of Arkansas after its default in 1933, he concludes that in spite of the protections that exist, no public retirement system is completely immune to impairment if the money runs out. As of March 2017, state and local government pension funds had about 60 per cent of the assets they need to cover their liabilities, with the unfunded liability at nearly $1.9 trillion. “The important lesson is that in the absence of a dedicated judicial process for preserving the governmental functions of a state in debt renegotiations, sovereignty may offer meager protection for the interests of the general public and public employees,” says Ergunor.

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GPIF And World Bank Study ESG Use With Bonds

Japan’s Government Pension Investment Fund (GPIF) and the World Bank Group have pledged to partner on research aimed at extending the application of environmental, social, and governance (ESG) criteria to fixed income investments and other asset segments. However, a GPIF news release says said a number of issues need to be resolved before ESG factors can be applied to bond investments the way they’ve come to be taken into account for equity investments. Bonds would be the first focus of a joint study with the goal of promoting “benchmarks, guidelines, rating methodologies, disclosure frameworks, reporting templates, and risk analysis” for consideration of ESG-related criteria. While the World Bank has greater resources at its disposal, GPIF will contribute its own research staff ‒ as a long-term investor ‒ and possibly draw other big pension funds and sovereign wealth funds to the table through the Global Asset Owners’ Forum it launched in mid-2016. The Tokyo-based GPIF is the world’s largest pension fund with $1.3 trillion in assets as of June 30.

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Co-operators Partners With WorldCare On MSO

The Co-operators, in partnership with WorldCare International, Inc., has launched a research program that will provide participants and their physicians with an in-depth mental health medical second opinion (MSO). The MSO seeks to provide members with depression, anxiety, and other mental health concerns with a comprehensive and fully-customized evaluation so that they have the information, resources, and guidance needed to make optimal mental healthcare decisions with confidence. It will validate a diagnosis and provide treatment plan recommendations in addition to insight and resources for other possible approaches to help optimize the patient’s outcome.

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ETF/ETP Assets Reach New High

Assets invested in ETFs/ETPs listed in Canada have increased 28.2 per cent in the first nine months of the year to reach a new record of US$108 billion at the end of September 2017, says ETFGI’s September 2017 preliminary Canadian ETF and ETP industry insights report. ETFs and ETPs listed in Canada gathered US$13 million in net outflows in August and US$13.87 billion in year-to-date net inflows which is more than the US$9.46 billion in net inflows at this point last year and US$1.17 billion more than the US$12.70 billion net inflows gathered in all 2016. Equity ETFs/ETPs experienced net outflows of US$409 million in September, bringing year-to-date net inflows to US$6.4 billion, which is much greater than the net inflows of US$4.02 billion over the same period last year and more than the US$6.21 billion gathered in all 2016. Fixed income ETFs and ETPs gathered US$202 million in net inflows in September, growing year-to-date net inflows to US$3.69 billion, which is less than the same period last year which saw net inflows of US$4.32 billion. Commodity ETFs/ETPs had net outflows of US$1 million in September. Year-to-date, net inflows are at US$40 million, compared to net inflows of US$243 million over the same period last year.

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Audy Has New Role

Laurence Audy is an associate director, client relationships, defined benefit solutions, at Sun Life Financial. Most recently, she was a manager, client relationships, defined benefit solutions. She joined the firm in 2016 from Willis Towers Watson where she was a senior actuarial analyst.

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CPP Expansion Myths Dispelled

‘Myths and Realities of Canada’s Retirement System and the CPP’ will be examined at a CPBI Alberta South Expansion. Charles Lammam, director of fiscal studies at the Fraser Institute, will dispel five common myths used to argue for CPP expansion. It takes place November 16 in Calgary, AB. For information, visit CPP Expansion Myths

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