Industry News

July 20, 2017


Retirement Deficit Hits $70 Trillion

The global retirement savings deficit is $70 trillion and in Canada alone, this deficit reached $2.7 trillion in 2015 and is expected to reach $13.4 trillion by 2050, says a Mercer whitepaper. ‘Bold Ideas for Mending the Long-Term Savings Gap’ says there are numerous factors contributing to this deficit in Canada, including the trends towards self-employment and fewer private sector workers in defined benefit pension plans. It says 15 per cent of the Canadian workforce is currently self-employed and this group of workers lacks easy access to employer-sponsored long-term savings plans and DB plans in Canada have fallen from 71 per cent in 2004 to 45 per cent in 2014. The research outlines the importance of multiple stakeholders coming together to take meaningful action against the savings deficit. Stakeholders include governments, employers, and financial intermediaries, all of whom have the incentive and the ability to help mend the long-term savings gap. Each group also stands to benefit by helping to ensure that their citizens, employees, and customers are able to save efficiently and appropriately for the future. Louis Gagnon, senior partner and CEO of Mercer Canada, believes the issue of financial security is not just about retirement, but instead about broader financial wellness concerns that plague individuals at varied life stages and ultimately undermine social and employment productivity.

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Single Number Can’t Address Funding Status

“A single number often cannot comprehensively address an issue as complex as the obligation or funded status of a pension plan,” says the American Academy of Actuaries. Its ‘Issue Brief’ shows while reports may indicate that a defined benefit retirement plan is underfunded, employer claims their plan is in solid financial shape and consistent with its financial plan could also be true. The primary reason why there is more than one right number for reporting pension funding is that different measurements of actuarial obligations can communicate very different information. Settlement measurements can include measurements designed to show how much it would cost a plan sponsor to transfer the responsibility of supporting a plan to an insurance company or other financial institution. A budget measurement could represent an estimate of how much money the plan would need to have in order for a projection to show that the assets are expected to be sufficient to cover projected benefit payments. One difference between a budget measurement and a settlement calculation is that the budget approach includes an estimate of the future investment returns that the plan assets will earn, including any expected incremental return from investing in risky assets. For most diversified investment portfolios, such an estimate is inherently uncertain and assumptions can vary among those making the calculation. “A settlement valuation relies only on financial information available in today’s financial markets,” says the paper.

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Longevity Annuity Can Add Retirement Wealth

Defined contribution retirement plan participants can gain retirement wealth from the offering of a longevity annuity within their plans, says research from the finance department at Goethe University and from the Wharton School at the University of Pennsylvania. Using a model developed to quantify the impact of the availability of longevity annuity contracts for a range of retiree types, it found that introducing a longevity income annuity (LIA) into the DC plan investment menu is attractive to the majority of plan participants. Overall, older individuals would commit eight per cent to 15 per cent of plan balances at age 65 to an LIA that begins payouts at age 85. Longevity income annuities are deferred life annuities that start payouts on or before age 85. When participants can select their own optimal annuitization rates, welfare increases by five per cent to 20 per cent of average retirement plan accruals as of age 66 compared to not having access to LIAs. If plan sponsors defaulted participants into an LIA using 10 per cent of their retirement age plan assets, this would only slightly reduce the participants well-being in retirement compared to the optimum.

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European ETF Assets Decline

There was a slight decrease in the assets under management (AUM) in the European ETF industry in June despite several billion euros of inflows, mainly into bonds, says Thomson Reuters Lipper. AUM in the European ETF industry fell to €577.8 billion from €577.9 billion at the end of May. The slight decrease happened despite net inflows of €7.7 billion over the month. Bond ETFs saw €4.2 billion of inflows, the highest among asset classes, and equity ETFs saw the second highest inflows with €3.5 billion invested.

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Carayannis Joins CI

Spyro Carayannis (CFA, CAIA) is vice-president ‒ institutional sales at CI Institutional Asset Management. Most recently, he was a vice-president at Guardian Capital. Prior to that, he was a principal at Mercer Investment Consulting.

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Medicalization Of Unhappiness Examined

Peter Gove, innovation leader, health management, at Green Shield Canada will discuss ‘The Medicalization of Unhappiness’ at a CPBI Southern Alberta Region session. He will examine the changing medical and social landscape that has led to the proliferation of mental health diagnoses and the widespread prescribing of anti-depressants. It takes place September 21 in Calgary, AB. For information, visit Medicalization of Unhappiness

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July 19, 2017


Canada Falls One Place

Canada fell one place to number 11 in retirement security among 43 countries, says the ‘2017 Global Retirement Index’ from Natixis Global Asset Management. Several factors affected the overall score for Canada (76 per cent) in this year’s index. Canada’s position in the material wellbeing category declined because of rising levels of income inequality. In the income inequality indicator, Canada ranks 21st, which is considerably better than the U.S. ranking (38th), but indicates that many Canadians are missing out on economic growth and may be struggling to save for a secure retirement as a result. Canada finished among the top 10 countries for financial stability. Its tax pressure indicator score (15th) was improved compared to other countries and there was an increase in the five-year average of real interest rates, which tends to grow the level of wealth of retirees. Canada’s governance score is strong and it ranks ninth among all GRI countries. But its old-age dependency ratio, which measures the proportion of people age 65 and older to those of working age, has increased, which stresses the government programs that support retirees. Ed Farrington, executive vice-president of retirement for Natixis Global Asset Management, says “the population is getting older, making retirement security one of the most pressing social issues facing the world. Factors such as increasing longevity, income inequality, and the impact of monetary policy on personal savings and pension liabilities are challenging the long-standing assumptions about how individuals plan for and live in retirement.”

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bcIMC Generates $680 Million

The British Columbia Investment Management Corporation (bcIMC) had an annual combined pension return, net of costs, of 12.4 per cent for the fiscal year ended March 31, versus a combined market benchmark of 11.7 per cent. This generated $680 million in added value for its pension plan clients. Infrastructure, private equity, real estate, and renewable resources outperformed for the calendar year and delivered above-benchmark returns. Tactical decisions to underweight fixed income in favour of public equities provided value-added returns. A key contributor was the outperformance of global equities relative to their benchmark. In a low return environment for fixed income, the decision to underweight nominal bonds added value and was further enhanced by outperformance relative to the benchmark. Strong performance in illiquid asset investments also provided value-add.

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Liquid Alternative Strategies Can Enhance Risk/Return Profile

After many years of persistent financial repression, coupled with heightened volatility in the capital markets, investors are increasingly challenging the role played by high-rated government bonds as a core holding. Consequently, numerous investors are looking for new sources of returns in their portfolios which, to date, have been dominated by equity and interest rate risks. In his research, ‘Alternatives ‒ Liquid alternative strategies as an answer to the low interest rate Environment,’ Dr. Wolfgang Mader, of AllianzGI Global Solutions, argues that liquid alternative investment strategies, which are frequently available in a UCITS-compliant mutual fund format (and which may also be referred to as absolute return strategies), can offer a viable means of enhancing the risk/return profile of a portfolio and, in some cases, offer a bond-like, or even bond-substitute, return profile. He says this can add an important element of return and diversification to investors’ overall portfolios. The article is available here on the Benefits and Pensions Monitor website.

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Labour Calls For Pharmacare

Labour leaders from across Canada are urging provincial and territorial premiers to lobby the federal government for a national pharmacare plan to ensure all Canadians have access to medications and to bring down the costs of the current system. They urge the premiers to push for a single-payer program, which would give Canadians bulk purchasing power to obtain competitively priced prescription drugs. “Canada’s piece-meal multi-payer drug system is expensive, inefficient, and doesn’t ensure people receive the life-saving prescriptions they need,” says Gil McGowan, president of the Alberta Federation of Labour. “Canadians are spending millions of dollars a year on this patchwork of multi-payer funding, paying among the highest prices worldwide for prescription medications, squandering money that’s desperately needed to cover other healthcare investments.” Canada’s public per capita prescription drug spending in 2014 was second highest amongst OECD countries, at $772 per person. Further, Canada is the only country with universal healthcare that does not have a universal program for prescription coverage.

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Ffrench Joins Northleaf

Kathleen Ffrench is vice-president, sales, at Northleaf Capital Partners. Most recently, she was head of institutional sales, Eastern Canada, at Sun Life Financial, a firm she joined in March of 2014 as regional director, group retirement services, from Standard Life Investments.

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July 18, 2017


OSFI Issues PRPP Guidance

The Office of the Superintendent of Financial Institutions (OSFI) has issued guidance on the default investment options that firms offering pooled registered pension plans (PRPPs) can provide to investors that don’t make their own investment decisions when they are first enrolled in the plan. Under the PRPP rules, plan administrators can provide plan members with a default investment if an investor doesn’t make a choice among the options presented to him or her within at least 60 days. The rules require that the default option must be a balanced fund or a portfolio of investments that takes into account the age of the investor (such as a target date fund). OSFI’s guidance sets out its expectations for these default investments. It also sets out the regulator’s expectations for the characteristics of target date funds, including the basic expectation that the fund’s asset mix would shift toward lower equities exposure as the investor ages and that these funds are not expected to consider the individual risk tolerance of particular investors.

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Alternative AUM Increase

The world’s largest 100 alternative asset managers saw assets under management (AUM) increase by 10 per cent in 2016, rising to $4 trillion, says the 2017 edition of Willis Towers Watson’s ‘Global Alternatives Survey.’ The survey shows that of the top 100 alternative investment managers, real estate managers have the largest share of assets (35 per cent and over $1.4 trillion), followed by private equity fund managers (18 per cent and $695 billion), and hedge funds (17 per cent and $675 billion. In terms of the growth in asset classes, illiquid credit (nine per cent and $360 billion) saw the largest percentage increase over the 12-month period, with AUM rising from $178 billion to $360 billion. Conversely, assets allocated to direct hedge fund strategies fell over the period, from $755 billion to $675 billion. North America continues to be the largest destination for alternative asset manager allocations (54 per cent). Overall, 33 per cent of alternative assets are invested in Europe and eight per cent in Asia Pacific, with six per cent invested in the rest of the world. Pension fund assets represent a third (33 per cent) of assets at $1.6 trillion, up nine per cent compared to last year’s study, and represent 51 per cent of their total AUM.

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Quebec Reaches Generic Drug Deal

Quebec believes it will save at least $1.5 billion over five years after reaching an agreement with pharmaceutical companies to lower prices for generic drugs. The deal will take effect in the fall and marks the end of negotiations during which the government threatened to pursue competitive bidding. Canada’s second-most populous province spends about $800 million on generic drugs each year and has been trying to reduce healthcare costs by instituting changes affecting doctors, pharmacists, and others. The government will use the savings on healthcare services. Private insurers will also benefit from the new negotiated prices, though it will be up to them to decide whether to translate the savings into lower premiums, it says.

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Indicators Point To Growth

Indicators of rising business investment, healthy consumer spending, a robust housing sector, and an improving labour market are all pointing to continued economic growth in Canada, says the HSBC Bank Canada Asset Management ‘July 2017 Outlook.’ However, reasons for guarded optimism remain relevant. It says its decision to continue to harvest gains in equities during the second quarter does not in any way undermine its long-term view favouring them. It remains cautiously optimistic, but also feels Canadian equity investors should temper their expectations if they are basing their growth projections on the impressive performance of previous quarters. Interest rate hikes are a vote of confidence in the growing strength of global economies. But because interest rates are at such historically low levels, even with some modest rate increases, overall monetary policy will remain supportive of economic growth. Central banks are likely to maintain real inflation-adjusted rates at particularly low levels, even in the U.S. This will be supportive of the continued economic recovery over the long run, it says.

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Hermes Sells Stake To CPPIB

Hermes Investment Management will sell a 50 per cent equity stake in Milton Park to the Canada Pension Plan Investment Board (CPPIB). Located in the Thames Valley region of the UK, Milton Park accommodates global science and technology companies as well as emerging businesses, including a number of spin-off organizations from the nearby University of Oxford. At 250 acres, it is one of Europe’s largest and most successful integrated business, science, and technology parks and home to over 250 organizations.

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Kelly Joins Brokers Trust

Lori Kelly is a group benefits and life insurance administrator at Brokers Trust Insurance Group Inc. Most recently, she was a benefits specialist at the Canadian Public Accountability Board. She has also been manager of wellness and disability and manager of benefits at Scotiabank.

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July 17, 2017


Semi-annual Reporting Interests PIAC

The Pension Investment Association of Canada (PIAC) is particularly interested in the CSA’s proposal allowing for semi-annual reporting to reduce issuers’ reporting burden while fostering a longer-term view by management. In a letter to securities regulators across Canada responding to ‘CSA Consultation Paper 51-404 ‒ Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers,’ Kevin Fahey, its chair, says PIAC believes quarterly reporting and guidance encourages short-term thinking wherein issuers make decisions to meet near-term market demands resulting in less than optimal outcomes for shareholders and pension plan beneficiaries. “However, we understand investors require regular and consistent disclosure to analyze changes in an issuer’s financial and operational performance. We are cautious about the potential impact on transparency from this proposal and suggest that if semi-annual reporting is implemented, reporting requirements must sufficiently disclose any material changes to the issuers’ business activities and business plans on a timely basis,” he says.  

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Global VC Activity Value Increases

Global venture capital (VC) deal value increased by 55.3 per cent to $40.07 billion in the second quarter of 2017 propelled by an uptick in mega-deals around the world, says KPMG Enterprise’sVenture Pulse Q2 2017. Globally, the United States led VC investment, accounting for $21.8 billion, followed by Asia ($12.7 billion) and Europe ($4.1 billion). The increase in funding was strongly affected by a continued resurgence in mega-deals, including Didi Chuxing’s record-breaking $5.5 billion round and Toutiao’s $1 billion Series D round. Globally, there were nine deals at or over $500 million in value during the quarter. While deal value increased, the total number of deals fell for the fifth straight quarter in the quarter. The ongoing decline has affected the earliest deal stages the most, with angel and seed-stage deal count down for the ninth straight quarter – from a high of 2,674 in the first quarter of 2015 to just 1,310 this quarter.

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Manulife Continues As Champion

Manulife has extended its partnership with Excellence Canada, acting as its ‘Champion of Excellence for Mental Health at Work.’ Manulife’s belief that mental, physical, emotional, and financial wellbeing are all linked made this partnership extension a natural fit. It has developed a guide ‒ ‘Mental Health at Work Essentials’ ‒ on how to improve mental health at work for organizations of any size, in any industry. The guide can also help organizations successfully implement the ‘Voluntary National Standard of Canada for Psychological Health and Safety in the Workplace.’ The tools, templates, and strategies it contains allow organizations to build a foundation for a mentally safe and healthy workplace, while working towards certification from Excellence Canada.

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AIMA Publishes MiFID2 Guide

The Alternative Investment Management Association (AIMA) has published a guide for alternative investment managers to help them understand and implement the enhanced ‘best execution’ obligations under the European Union’s updated Markets in Financial Instruments Directive (MiFID2), which will apply from January 2018. ‘AIMA’s MiFID2 Best Execution Guide’ outlines the MiFID2 obligation to achieve the best possible results when executing transactions. These rules were originally introduced under MiFID1 and have now been enhanced in a number of areas. In order to meet the new requirements, firms will likely need to review their execution policies and client disclosures (such as investment management agreements) to ensure they meet the higher standards under MiFID2. Fund managers also will be required to publish annual reports about their choice of trading venues and brokers.

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Evergreen Acquisition Completed

Ivanhoé Cambridge has completed the acquisition of Evergreen Industrial Properties from TPG Real Estate. Evergreen is a U.S. light industrial real estate specialist that owns and operates a portfolio of more than 150 properties. In addition to high growth markets such as Seattle, WA; Denver, CO; and Charlotte, NC; the company has a significant presence in major distribution markets, including Atlanta, GA; Chicago, IL; and Dallas, TX. Evergreen’s facilities offer strategic infill locations to distribution, eCommerce, and light manufacturing customers with a focus on ‘last mile’ distribution. Ivanhoé Cambridge is a real estate subsidiary of the Caisse de dépôt et placement du Québec.

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Flavin Moves To Northern Trust

Shaun Flavin is head of North American institutional sales, responsible for asset servicing sales, including global custody and transition management, to large institutional investors in North America at Northern Trust. He has more than 25 years of experience in fund operations, institutional sales, and relationship management most recently in senior leadership roles at BNY Mellon.

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July 14, 2017


CAPSA Seeks Comments On Future Agreement

The Canadian Association of Pension Supervisory Authorities (CAPSA) is looking for comments on its ‘Consultation on Proposed Changes to Funding and Asset Allocation Rules Under a Future Agreement Respecting Multi-jurisdictional Pension Plans.’ It is currently developing the future agreement respecting multi-jurisdictional pension plans which is intended to replace the 2016 Agreement and be signed by all governments in Canada that have pension legislation. The two most significant areas of the 2016 Agreement where changes are being considered are the funding rules that apply to a multijurisdictional defined benefit pension plan while it is ongoing and the rules for allocating the assets of such a plan between jurisdictions when certain major events occur (such as the wind up of the plan). Funding rules under option one are broadly similar to the 2016 Agreement. It would, as a starting point, apply the requirements of the pension legislation of the major authority for the plan instead of the pension legislation of any minor authority. If a particular benefit would not be required to be funded under the major authority’s legislation, but would be under a minor authority’s legislation, it would have to be funded for the plan members employed in that minor authority’s jurisdiction. For the allocation of a multi-jurisdictional defined benefit plan’s assets when a major plan event occurs, option one would allocate the plan’s assets pro-rata to the plan’s defined benefit liabilities related to each applicable jurisdiction. With option two, funding of a multi-jurisdictional DB plan while it is ongoing, it would apply the requirements of the pension legislation of the major authority for the plan instead of the pension legislation of any minor authority, but would also require additional funding under certain circumstances. It differs from option one and the 2016 Agreement in that it would include an additional funding requirement in situations where the major authority’s pension legislation would not require the pension plan’s defined benefits to be funded on a solvency basis, but a minor authority’s pension legislation would require such funding. Then, an additional liability would have to be calculated and funded based on the plan’s DB liabilities related to that minor authority. For the allocation of assets when a major plan event occurs, option two would allocate the plan’s assets pro-rata to the plan’s DB liabilities related to each applicable jurisdiction. Feedback can be made to Mohammed Jaffri, A/Policy Manager, CAPSA Secretariat, 5160 Yonge St., 16th Floor, Toronto, ON, M2N 6L9, eMail: capsa-acor@fsco.gov.on.ca by August 31. Electronic submissions are preferred.

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Sears Canada Extends Payments

Sears Canada has reached a deal over benefit and pension payments to retired and laid-off employees and surviving spouses. It had initially asked the court for permission to immediately halt payments for pension, health, and dental benefits and suspend payments to its underfunded defined benefit pension plan. However, it has now agreed to continue payments to retirees until September 30.

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OMERS Members Happy In Retirement

The vast majority of Ontario Municipal Employees Retirement System (OMERS) defined benefit pensioners are happy that they retired when they did, says a survey by the Municipal Retirees Organization Ontario (MROO). However, many have concerns about rising costs and, in retrospect, would have prepared differently for retired life. The ‘20-20 Hindsight MROO’s Retirement Readiness Survey’ indicated that 86 per cent of respondents believe they retired at the right time, which, for almost one-third (32 per cent) of those surveyed, was over 10 years ago. However, almost two-thirds (64 per cent) of respondents advised future retirees to think more about how to handle declining health in retirement. Respondents also recommended that retirees stay active and watch their diet to stay healthy for as long as possible.

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CAMIMH Names 2017 ‘Faces of Mental Illness’

The Canadian Alliance on Mental Illness and Mental Health (CAMIMH) has announced the five Canadians who have been chosen for the 15th annual ‘Faces of Mental Illness’ campaign. They are Rachel Beazley, of Winnipeg, MB; Martin Binette, of Montreal, QC; Chris Nihmey, of Ottawa, ON; Brian Rose, of Oshawa, ON; and Kharoll-Ann Souffrant, of Pierrefonds, QC. These representatives will participate in events that will help educate Canadians about living with mental illness and the importance of mental health. CAMIMH, in partnership with Bell Let’s Talk, will feature the ‘Faces’ in a national media outreach campaign which includes short videos that will be shared with parliamentarians at an event during Mental Illness Awareness Week (MIAW), which runs from October 1 to 7. Posters and postcards featuring the stories of each of the ‘Faces’ will be distributed to Canadians across the country. For more information, visit http://www.camimh.ca

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Manulife Considers John Hancock Options

Manulife Financial Corp. is reportedly flirting with divesting its U.S. operations. The Wall Street Journal says it has hired investment bankers from Morgan Stanley to assess strategic options for its John Hancock Financial Services Inc. division. It is contemplating an initial public offering or other spinoff. The U.S. division accounted for a little more than one-third of profits at Manulife last year and 56 per cent of its assets under management and administration.

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More Spending Planned On Operations And Technology

Seventy-six per cent of asset management firms expect to spend more on operations and technology in 2017, with an average increase of nine per cent, says SS&C Technologies Holdings, Inc. Its ‘AUG The Exchange’s Asset Management Operations and Compensation Study for 2017,’ sponsored by the Investment Advisor Association and SS&C Advent, shows security is a major theme, with an emphasis, not surprisingly, on cybersecurity. Regulatory/compliance and client relationship management are other high-ranking technology initiatives for the year. Also of note, the number of firms considering outsourcing certain technology and operations has climbed slowly but steadily from a year prior, as firms continue to focus on their core functions and look outside for other services.

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Lapointe Joins AlphaFixe

Jonathan Lapointe (FSA, FCIA) is vice-president, business development, and a partner at AlphaFixe Capital. He has 11 years of experience in the industry and most recently was business development manager at iA Financial Group.

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