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March 15, 2019


Use Of Leverage Legitimate Strategy

The Pension Investment Association of Canada (PIAC) believes leverage is a legitimate strategy which can be managed effectively within a prudent person framework. In its comments on a communique from the Canadian Association of Pension Supervisory Authorities (CAPSA) on the review of leverage use within pension plans, it agrees with CAPSA that the use of leverage is becoming more common within pension plans, with the primary motive to achieve better asset-liability matching while maintaining adequate exposure to return-generating assets in a lower-return environment. However, the use of leverage at the fund level is a newer development as leverage has long been embedded in many underlying portfolio holdings such as equities, real estate, and non-recourse third-party managed funds. Governance, process, and expertise are key considerations. To the extent CAPSA does further work in this area, PIAC recommends it take a principles-based approach to policy development (rather than rules-based) given the varying situations and objectives that arise from plan to plan. As well, it notes Canada lacks policy consistency with pension plans required, in some instances, to incur extra costs and employ sub-optimal structuring to comply with Income Tax Act requirements as they pertain to borrowing. “This is analogous to the situation that existed with respect to the foreign property rule for many years,” it says. However, the use of leverage in pension funds is a complex issue requiring careful consideration and it is worth taking time to get policy right.

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Crypto Asset Platform Input Sought

The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) are seeking input from the fintech community, market participants, investors, and other stakeholders on how regulatory requirements may be tailored for crypto-asset trading platforms operating in Canada. Its ‘Joint Canadian Securities Administrators/Investment Industry Regulatory Organization of Canada Consultation Paper 21-402 Proposed Framework for Crypto-Asset Trading Platforms’ outlines a proposed regulatory framework that provides clarity for platforms, greater market integrity, and protection for investors. Louis Morisset, CSA chair and president and CEO of the Autorité des marchés financiers, says, “Platforms have told us that a tailored regulatory framework is welcome as they seek to build consumer confidence and expand their businesses across Canada and globally.” Securities regulators are taking steps to deepen their understanding of this area as digital and crypto assets continue to be a growing area of interest. Platforms, depending on how they operate and the crypto assets they make available for trading, may be subject to securities and/or derivatives regulation. Depending on their structure, they may also introduce novel features that create risks to investors and Canada’s capital markets that may not be fully addressed by the existing regulatory framework. Where securities legislation applies to platforms, the CSA and IIROC are considering a tailored regulatory framework to address these novel features and risks. The consultation paper is available on the websites of CSA members and IIROC. Comments should be submitted by May 15.

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ESG Options Face Headwinds

Despite an uptick in environmental, social, and governance (ESG)-focused conversations in the defined contribution market, ESG-oriented investment options face headwinds to widespread adoption, says Cerulli Associates. It says that fee sensitivity, the notion that ESG investing entails a trade-off in performance, and the regulatory environment in the DC market present barriers to adoption. Its survey data shows plan participants and plan sponsors are generally supportive of ESG-oriented investments in concept. However, plan sponsors ranked environmental and social responsibility among their most important attributes when selecting 401(k) plan investments. Long-term investment performance and cost of investments were the top-ranked attributes. “Data shows that plan sponsors care about ESG factors, but they place a greater emphasis on performance and price,” says Dan Cook, a research analyst in the retirement practice at Cerulli. Guidance issued by the U.S. Department of Labor (DOL) in 2018 raises an important point related to ESG investing in a DC plan context, he says. “ESG investments must be prudent options for all plan participants, not a select group or sub-segment.”

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Disability Management Scholarships Offered

WorkSafeBC and the Pacific Coast University for Workplace Health Sciences (PCU-WHS) are sponsoring a scholarship initiative designed to encourage and support students pursuing a career in disability management. The two-year pilot project commits up to $150,000 per year to allow a maximum of 25 students with the relevant prerequisites to transfer into the Bachelor of Disability Management degree program at PCU-WHS. Each student will be awarded $6,000, covering most of the tuition costs for each year of the two-year program. “These scholarships will ultimately help workers who’ve been injured access highly trained and qualified professionals to support their transition back to employment,” says Lee Loftus, vice-chair of WorkSafeBC’s board of directors. “Effective return-to-work programs are critical to maintaining an injured worker’s physical, mental, and financial health.” Students will be eligible for the scholarship after completing a two-year diploma or other prerequisites in a range of disciplines, but preferably in human resources, occupational health and safety, healthcare, social work, or business. Disability-management professionals collaborate with workers, employers, unions, health care providers, and workers’ compensation boards to maintain injured workers’ connections to their workplaces during recovery and facilitate their safe, early return to work.

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Employers Help With Investment

U.S. employers are becoming more helpful to employees when it comes to providing investment assistance, says a survey from the Plan Sponsor Council of America (PSCA). Its ‘61st Annual Survey of Profit Sharing and 401(k) Plans’ finds that tools like managed accounts and target-date funds continue to gain ground, with more than a third of companies now offering investment advice to participants. In addition to these, automatic features/qualified default investment alternatives and personalized investment advice from professionals are also offered. Results of the survey show that the use of professionally managed investments continues to rise, with nearly 40 per cent of plans offering the service, up from 39 per cent the previous survey and from 32 per cent from 10 years prior.

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BMO Among Most Ethical

BMO Financial Group has been recognized by the Ethisphere Institute as one of the ‘2019 World’s Most Ethical Companies.’ The recognition underscores the bank’s commitment to values-based leadership and ethical business practices. Central to its approach to fostering an ethical culture is its commitment to acting responsibly and being a powerful tool for promoting social good. “The trust between a bank and its customers is at the core of our relationship. It is our most valuable asset and at BMO we’ve been building it for more than 200 years,” says Darryl White, chief executive officer of BMO Financial Group. “We constantly strive to strengthen our relationships by meeting the highest standards of ethical behaviour, as we work together with our customers to achieve their financial objectives, and – with all of our stakeholders – build a more sustainable future.” Ethisphere says the 2019 honorees profoundly illustrate how companies continue to be the driving force for improving communities, building capable and empowered workforces, and fostering corporate cultures focused on ethics and a strong sense of purpose.

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Brookfield Acquires Portion Of Oaktree

Brookfield Asset Management will acquire about 62 per cent of Oaktree Capital Group’s business. Upon closing, Oaktree will become a private company, according to a filing with the U.S. SEC. Both Brookfield and Oaktree will continue to operate their respective businesses independently. The two companies together will have about $475 billion in assets under management. Oaktree is a global alternative investment management firm.

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Frishman Joins Morneau Shepell

Zev Frishman is senior strategic advisor at Morneau Shepell Asset & Risk Management. He joined the firm in 2016 as chief investment officer from Open Access where he was executive vice-president and chief investment officer. Additionally, he was a member of the Ontario Teachers’ Pension Plan investment team for 18 years.

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Pension Plans Examined

The CPBI Quebec Region’s ‘Pension Plans Level 1’ will look at all aspects of the management and administration of pension plans. Sessions will look at design and operation, responsibilities of the pension committee, and beneficiary designation. It takes place March 21 and 22 in Montreal, QC. For information, visit: Pension Plans

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March 14, 2019


Nova Scotia Protects DB Plans

The use of reserve accounts, the removal on limits on the use of letters of credit, and allowing for the discharge of liability for annuity buyouts that would let employees move their pension assets to insurance companies are among the measures being proposed to help manage and protect defined benefit pension plans in Nova Scotia. Karen Casey, its finance minister, says the goal is to help DB plans remain solvent by providing more flexibility and stability for employers and transparency and protection of existing benefits for employees. The reserve account provision would allow employers to create a separate account that they contribute to only. These would ensure that the plan has adequate assets should it wind up with the remaining assets returned to the employer if the plan is wound up and all obligations including those to its members are satisfied. With the annuity purchase discharge provision, the employer can give a one-time lump sum to an insurance company who would then distribute monthly payments to the employee. This is popular with employees because insurance companies are highly regulated and have their own insurance, which is another level of protection for individuals. About 92,000 Nova Scotians currently belong to about 132 DB pension plans registered in the province. The legislative changes under the Pension Benefits Act are expected to be proclaimed and take effect in the fall. The changes do not apply to the pension plans for teachers, civil servants, and members of the legislature whose pensions are regulated under separate pieces of legislation.

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Pharmacare Heads Labour Priorities

Universal national pharmacare and pensions and retirement security are the top two issues the federal government must address in the 2019 budget, says the Canadian Labour Congress. Its list of 10 priorities are required to provide what it calls a “fairness budget” that meets the needs of workers and their families. When calling on the government for a national pharmacare plan, it says the budget must outline the federal government’s plan and budget future expenditures to implement a universal, single-payer pharmacare program in Canada. Universal pharmacare won’t just ensure everyone has access to the life-saving medications they need, it will save households and employers billions of dollars as Canada is the only developed country in the world with a universal public healthcare system that does not include universal coverage for prescription drugs. As a result, more than 3.6 million Canadians cannot afford to fill their prescriptions and Canadians pay the third highest drug prices in the world. As well, with high-profile bankruptcies such as Sears leaving without the pension protection they had been promised, the federal government must take steps to ensure that workers who have paid for pensions throughout their working lifetime are not penalized if their employer enters insolvency. The government has many options for ending this injustice, it says, and budget 2019 should take steps to reform federal bankruptcy laws to ensure that plan members and retirees are protected, introduce mandatory pension insurance to look after pensions and benefits in bankruptcy, and implement better monitoring and regulation of companies that sponsor underfunded defined benefit pension plans.

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Pension Assets Edge Down

The market value of assets held by Canadian trusteed pension funds edged down 0.7 per cent in the third quarter to just under $1.9 trillion, says Statistics Canada. On a year-over-year basis, the market value of assets grew 7.3 per cent compared with the third quarter of 2017. Investments in real estate reported the largest increase for the second consecutive quarter, up 2.3 per cent to $191.1 billion. Investments in bonds had the largest decline, down 3.1 per cent to $591.4 billion, while the value of stock holdings decreased for the third consecutive quarter, down 0.9 per cent to $569.9 billion. Foreign investments edged down 0.5 per cent in the third quarter to $707.2 billion and accounted for 37.3 per cent of total holdings. Foreign bond investments declined 9.2 per cent to $80.5 billion. Foreign stock holdings decreased one per cent to $344.2 billion. Pension fund revenue edged down 1.3 per cent in the third quarter to $42.6 billion. Investment income led the decline, down 11.3 per cent to $13.2 billion, while total revenue from contributions decreased 8.5 per cent to $14.9 billion. Expenditures increased 0.5 per cent in the third quarter to $24.2 billion. Over 6.2 million Canadian workers belonged to employer-sponsored pension plans in the second quarter.

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60/40 No Longer Enough

A 60/40 allocation to equities and bonds is no longer likely to be enough to offer investors the outcomes and diversification required to reach their long-term objectives making alternative investments increasingly critical to the investor’s portfolio, say investment analysts at the 8th edition of the AIM Summit, taking place on April 7 in Abu Dhabi. Zachary Cefaratti, CEO of Dubai-based Dalma Capital estimates the alternative investment industry currently represents over $10 trillion in assets under management today. He forecasts this “to grow to $14 trillion by 2023. As we enter the late stages of economic and credit cycles, investors increasingly consider alternative investment and uncorrelated assets.” A typically so-called ‘diversified’ portfolio of stocks and bonds has over the last decade been almost in step with the stock market. Alternative investments will typically reduce this correlation and lower the erosion impact of market volatility. This is why they are becoming, for many, a critical part of the mix, but one that has been to date too often overlooked. Raha Moradi, managing partner of the AIM Summit, says: “Alternatives have a valuable place in an investor’s portfolio. A speculator seeks a quick return and is willing to take on risk. But an investor actively tries to minimize risk and does so by mingling together asset classes with low or negative correlations with each other.” 

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Growth, Value Gap Widest In 70 Years

The pricing gap between growth and value stocks is its widest in 70 years, says an AB Bernstein study. And the dynamic of costly stocks getting more expensive and cheap ones getting cheaper is an opportunity to be exploited, it says, as already this year, value has shown some evidence of a comeback. Value as a style tends to perform better than average when there have been extreme troughs in the earnings revisions balance series, particularly six to 12 months following the point of most aggressive downgrades. As a result, over the long haul, value investors come out ahead because, once overlooked stocks get attention, the upside is lucrative. As well, earning downgrades, in particular regarding growth stocks, are rife these days for 2019’s first quarter. The last time value stocks were on top was from the end of the dot-com bubble at the start of the last decade until the 2008 financial crisis.

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Encouragement Keeps Balances In Plans

If defined contribution plans encourage departing employees to keep their balances in their plans for at least a year, there’s a good chance participants will retain their accounts in the plan, says a study by Alight Solutions. It tracked participants in plans for which it is the recordkeeper from 2008 through 2017 and analyzed participants’ behaviour after they decide to retire or take another job. Those who take action to take a withdrawal do it relatively soon after leaving. The percentage of participants taking a distribution ‒ either a cash out or a rollover ‒ within the first year of leaving their employer ranged from 55 per cent to 60 per cent. The percentage of people taking a distribution from their plans between one year and two years after leaving employment ranged from 14 per cent to 16 per cent. As well, retirees are more likely to keep their money in plans if the plans allow installment distributions. Installment distributions are gaining popularity. A previous survey found that 66 per cent allowed automatic installment distributions in 2017, up from 51 per cent in 2007.

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PSP Acquires Student Accommodations

Greystar Real Estate Partners LLC, a global investor, developer, and manager of rental housing – alongside Joint Venture partners, a subsidiary of the Public Sector Pension Investment Board and Allianz Real Estate – has exchanged contracts to acquire a large purpose-built student accommodation asset in the UK’s Shoreditch from Apache Capital Partners. The purchase of the Paul St. East scheme – in the heart of London’s tech quarter and close to Amazon’s east London office – is one of the biggest single-lot transactions in the history of sector in the UK. It reflects the ongoing attractiveness of London where demand for high-quality student accommodation continues to outstrip supply. Apache Capital plans to re-invest funds from the deal into its own build-to-rent pipeline with Moda Living, a national multi-family pipeline with 6,500 apartments across nine cities.

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Shu Joins GroupHEALTH

Han Shu (CPA, CA) is director of finance at GroupHEALTH Benefit Solutions. Based in its Surrey, B.C., head office, she will lead the finance team and oversee and direct the accounting, financial reporting, tax, and treasury functions. Most recently, she was with Deloitte Touche Tohmatsu Limited. 

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Focus Put On Individual

‘Partners in Prevention 2019: Health & Safety Conference & Trade Show’ will focus its attention on the individual – the ‘safety superhero’ who advocates for health and safety in their workplace. Sessions will be featured on millennial management, ‘Cannabis ‒ Six Months In,’ and big data and its future in safety. A mental health in the workplace forum will also be featured. It takes place April 30 and May 1 in Toronto, ON. For information, visit Health & Safety

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March 13, 2019


SHARE Steps Up Decent Work Agenda

The Shareholder Association for Research & Education (SHARE) is stepping up its efforts to put decent work on the agenda of North American companies. It has filed multiple shareholder proposals calling specifically for clearer standards for decent work, board oversight of workplace risks, due diligence on worker rights down the supply chain, and enhanced measurement and disclosure of workplace practices. Over the past year, it has worked with its institutional investor clients to engage with more than 20 companies on decent work and, over the past few months, has filed decent work-related resolutions at several of these companies. “Although institutional investors are increasingly aware that a company’s workforce is a fundamental asset and key to its long-term success, progress on valuing decent work by corporate boards and chief executives has been slow in Canada and the U.S.,” says Shannon Rohan, director of responsible investment leadership at SHARE. “Employee development, health and safety, and labour standards influence a company’s performance for better or for worse,” she says. “Companies that take aggressive cost-cutting approaches to their workforce can experience both reputational and operational risks with potential financial consequences.” SHARE’s guidance when voting shares on behalf of its clients is to vote against directors if the board has not carried out its responsibilities in a way that protects the value of the company including as a result of poor employee relations. “Quite frankly, the slow progress on valuing decent work is raising red flags for our clients,” she says. “In the context of growing income inequality, social unrest, and political instability, our investor clients are increasing their efforts to put decent work front and centre in their engagement with companies.”

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Alphabetical Lists Skew Selection

Investors tend to select funds at the top of an alphabetically organized list of funds, says a white paper by Saint Louis University, Seton Hall University, Kansas State University, and the Ipsos Behavioral Science Center. This means, says ‘Alphabeticity Bias in 401(k) Investing,’ 401(k) fund choices with early alphabet names will be chosen more often than later alphabet named funds. It says it found that “the same fund appearing in multiple plans in the sample receives a significantly higher allocation when it is listed closer to the top of the plan menu.” The more complex the investment menu, the greater the alphabet bias, it says, and the bias is displayed equally regardless of the sophistication of the investor, as measured by their profession. “This is even true for professionals employed in the financial sector.” It suggests that plan sponsors could request that their third-party administrators “strategically order funds so the effect of alphabeticity bias results in a favourable outcome for participants.” Funds could be, for example, be listed instead in ascending order by expense ratio rather than alphabetically which would help reduce investment fees paid by plan participants. Alternatively, low volatility funds would be placed at the top of the fund menu.

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BCI Real Estate Open To Investors

RBC Global Asset Management Inc. (RBC GAM), the British Columbia Investment Management Corporation (BCI), and QuadReal Property Group (QuadReal) have made a portfolio over 40 of BCI’s existing Canadian real estate assets, with a total value in excess of $7 billion, available to institutional investors. Institutional investors may participate by investing in an income-producing Canadian commercial real estate strategy through the RBC Canadian Core Real Estate Fund. The fund will be established and managed by RBC GAM and is expected to be open for investment in the third quarter of 2019. It will aim to deliver an attractive income stream and total returns with limited volatility, along with inflation protection and low correlation to other asset classes. It is expected to become an equal owner with BCI in all of the portfolio’s properties through a multi-stage vend-in process. The initiative supports BCI’s objective to internationally diversify its real estate portfolio while maintaining a strong domestic core. QuadReal will continue to manage the properties on behalf of BCI and the fund, ensuring a seamless continuity of management and a disciplined focus on asset level performance.

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Guideline Offered For Un-locatable Members

Un-locatable pension plan members and an update to the 2014 defined contribution plan guidelines have been published by CAPSA, the association of pension regulators across Canada. In the article ‘CAPSA Sets New Guidelines’ at the Benefits and Pensions Monitor website, Sonia Mak, a pensions and benefits lawyer at Borden Ladner Gervais, LLP, looks at the latest requirement put forward by CAPSA.

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CWT Appointed As Trustee

Canadian Western Trust (CWT) has been appointed as the registered plans trustee for certain subsidiaries of CI Financial Corp. As part of the new mandate, it will act as trustee for registered plans for CI Financial’s subsidiaries CI Investments Inc., Assante Capital Management Ltd., and Assante Financial Management Ltd. Affected clients are being notified of the appointment which became effective March 2. Canadian Western Trust, a wholly-owned subsidiary of Canadian Western Bank and a member of the CWB Financial Group, provides personalized trustee and custodial solutions for mid-sized pension plans, brokerage firms, investment managers, endowments, individual mortgage investors, and other investment pools.

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OPTrust Recognized For Innovation

OPTrust has been awarded the ‘Innovation in Institutional Investment Award’ at the ‘2019 Volatility & Risk Premia Awards.’ Other nominees included the Abu Dhabi Investment Authority, Japan’s Government Pension Investment Fund, and Australia’s SAS Trustee Corporation (State Super). OPTrust was recognized by the organizers as “holding the standard for modern institutional investors.” Examples cited include internally developed algorithms that inform shifting risk in the total fund portfolio, as well as the use of artificial intelligence as a tool to enhance asset allocation strategy. The world is changing at an increasingly rapid pace and embracing that change is fundamental to delivering on our pension promise to our members,” says James Davis, OPTrust’s CIO. “Protecting the long-term interests of our members is at the core of everything we do. That is why we innovate.”

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Property Flows More Robust

Flows into Europe’s property funds are likely to be more robust than those into other asset classes in 2019, says Cerulli Associates. This is because their diversification benefits attract investors ‒ especially those with a longer-term outlook. It believes that liquidity remains a concern, given the risk of Brexit turmoil. However, it notes that the UK’s Financial Conduct Authority is seeking ways to avoid a repeat of the string of property fund suspensions in 2016. In the immediate aftermath of the UK voting to leave the European Union, several firms suspended trading in property funds for months. With investors rushing for the exit, properties could not be sold fast enough to raise the cash. “Property funds have seen their share of turmoil in recent years. Brexit is an obvious cause for concern, given its effect on UK property funds,” says André Schnurrenberger, managing director, Europe, at Cerulli. “But that is only the latest manifestation. Time and again, events have served as sharp reminders for the open-end property sector of the perils of daily dealing in funds in which it takes months to buy and sell the underlying assets.”

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ESMA Identifies Liquidity Risks

Leverage and liquidity risks in certain segments of the alternative investment funds sector have been identified in a European Securities and Markets Authority (ESMA) statistical report on the region’s alternative funds sector. It found that alt funds now make up about a third of the total fund industry, with €4.9 trillion in total assets under management (AUM). Approximately 19 per cent of alt funds are owned by retail investors, with 81 per cent held by institutional investors. Overall, the alt funds market has a “relatively low risk profile,” the report says. However, the hedge fund segment is “highly leveraged,” primarily due to its use of derivatives, rather than direct borrowing. As well, real estate funds represent a “significant” liquidity risk as they invest in illiquid assets while allowing investors to redeem their shares over a short time frame. Investors can redeem up to 20 per cent of real estate fund holdings in a given week, but funds can liquidate only eight per cent of their assets per week. This liquidity mismatch “is a concern,” it says, particularly given the higher proportion of retail investors invested in the funds (26 per cent).

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Caisse Finances Mofang

Mofang Apartments, a Chinese institutional for-rental apartment operator, has completed Series D financing, led by the Caisse de dépôt et placement du Québec (CDPQ). Mofang is currently the largest domestic operator by number of operational rooms.

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ADP Canada Unveils Suite

ADP Canada has unveiled a new suite of high-performance features for ADP Workforce Now. It says this will make it easier for Canadian companies to manage their HR needs and offers seamless cross-border capabilities, broader mobile access to HR tools in real-time, simplified talent management, and AI powered recruiting. The cross-border capability provides a unified experience for Canadian organizations to manage employees in both Canada and the United States, using a single HR solution. Talent management is streamlined providing companies with one system to attract, acquire, engage, and develop top talent and AI can help companies accelerate their recruiting efforts and to streamline their decision-making process by providing access to current, historic, and predictive data.

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ETF Inflows Continue

ETFs and ETPs listed globally gathered net inflows of US$44.31 billion in February, bringing year-to-date net inflows to US$61.66 billion, says ETFGI. Assets invested in the global ETF/ETP industry finished the month up 3.15 per cent, from US$5.16 trillion at the end of January, to reach a record US$5.32 trillion. This marks 61 consecutive months of net inflows into ETFs/ETPs listed globally.

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First State Adds To Team

John Ma is a director with First State Investments. With 20 years of infrastructure experience, he will oversee the origination and assessment of new investment opportunities in North America. Most recently, he was chief of staff at the Port Authority of New York and New Jersey. Diloshini Seneviratne has been appointed to the board of the management companies that oversee some of its funds. Previously, she was responsible for developing, building, and launching the CALSTRS infrastructure portfolio. Leigh Cruess is a senior advisor. He spent the last 18 years with Enbridge where he held senior roles. Terry Mah is a senior advisor. He has an extensive career in the water sector, having been with the Veolia Group for almost 20 years.

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Morneau Addresses Economy

Finance Minister Bill Morneau will speak about the changing nature of Canada’s economy and how the government’s plan to invest in the middle class is building a better future for all Canadians at an Economic of Club of Canada event. It takes place March 20 in Ottawa, ON. For information, visit Minister Of Finance

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March 12, 2019


HOOPP Assets Grow

The assets in the Healthcare of Ontario Pension Plan (HOOPP) reached $79 billion at the end of 2018, up from $77.8 billion at the end of 2017. Funded status at the end of the year was 121 per cent compared to 122 per cent the prior year. Investment return for 2018 was 2.17 per cent compared to 10.88 per cent in 2017. Of the 2.17 per cent return in 2018, 0.01 per cent was benchmark return and 2.16 per cent came from value-added from active management decisions. Investment income was $1.7 billion for the year compared to $7.6 billion in 2017. The liability hedge portfolio generated a return of $1.1 billion (real estate and fixed income strategies were the main contributors), while the return seeking portfolio generated a return of $600 million with private equity and other alternative strategies the main contributors. The fund’s 10-year annualized return is 11.19 per cent and its 20-year annualized return is 8.52 per cent. “To ensure we deliver on our pension promise to members, our investment strategy takes a very long-term view while anticipating and adapting to market changes,” says Jim Keohane, its president and CEO. “Our approach allows us to preserve value even during turbulent and challenging investment environments.” As a result of its funded status, it was able to provide the maximum increase in the cost of living adjustment (COLA) allowed under the plan and contribution rates have remained unchanged since 2004.

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Annuity Sales Set New Record

Last year was another record-breaking year for buy-in and buy-out annuity sales in Canada, says Eckler’s ‘Pension Risk Transfer Report.” In closing out 2018 at $4.5 billion, an increase by $800 million billion over 2017, they reached their highest level yet. This 20 per cent increase in the volume of group annuities bought by Canadian pension plans continues the trend of growth observed in 2017, where sales increased by more than a third over 2016. As well, breaking the $4 billion sales threshold marks a significant milestone for the Canadian pension risk transfer market. In 2008, the annual amount annuitized in Canada sat at approximately $1 billion. Since then, annual risk transfer premiums have increased steadily, driven by larger transaction sizes and increased innovation. Buy-in annuities, which were a relatively new and innovative form of risk transfer in Canada less than a decade ago, are now a standard offering of eight of the nine insurers serving the market. In fact, in 2017 buy-in annuities made up more than 50 per cent of the pension risk transfer (PRT) market, demonstrative of their status as a strategic investment of choice. However, through 2018, the market saw the proportion of total group annuity sales represented by buy-in annuities fall to below 15 per cent. In 2018, perhaps driven by strong equity market returns and modestly increasing bond yields through the first part of the year, buy-out annuities for ongoing plans dominated the PRT market, representing $3 billion of the total $4.5 billion transferred. Larger transaction sizes also continue to be observed in the Canadian market. In 2016, the average annuity transaction was approximately $29 million; in 2018, that figure had increased to $40 million. ‘Jumbo’ transactions are also becoming more commonplace. Last year saw the completion of a $700 million buy-out annuity undertaken by Alcoa Corporation with three insurers.

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Employers Focus On Benefits Flexibility

Canadian employers are increasingly focusing their employee benefits plans on flexibility and mental health, says the Conference Board of Canada’s ‘Benefits Benchmarking 2019’ report. It says while traditional healthcare plans remain the most common, nearly two-thirds of Canadian employers are now offering more innovative healthcare spending accounts (HCSAs) to employees. “As Canadian employers look to appeal to a multi-generational workforce, flexibility, and choice are the key watchwords for health and wellness benefits,” says Monica Haberl, senior research associate for the board. “Supplementing fixed benefits plans with healthcare spending accounts provides flexibility and choice to employees while keeping business costs predictable.” Employers are also focusing more on preventative health measures and medicines, as well as investment in benefits technologies such as tele or virtual healthcare and counselling, pharmacogenetics, and fitness and wellness apps to encourage wellness and try to prevent illness before it occurs. Approximately two-thirds of organizations report enhancement or introduction of strategies to help employees with their mental health and wellness. Benefits costs remain relatively steady at 10 per cent of payroll or an average of $9,011 per full-time equivalent. That said, cost containment remains the key priority for organizations. More than one-third (34 per cent) of organizations ranked cost containment as the top priority for their benefits strategy.

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Crypto Trading Venue Set To Open

MidChains, a blockchain-based financial exchange, is set to be the first crypto trading venue to open under the Abu Dhabi Global Market’s newly-established crypto assets regulatory framework. It is targeting institutional and professional investors and, pending regulatory approval, plans to launch a platform containing institutional services including order management, execution via an over the counter desk, custody services, and compliance features. The exchange is set to launch in the UAE in August.

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Patient-Supported Solutions Proposed For Endodontic Care

FDI World Dental Federation (FDI) is proposing patient-centered solutions to improve endodontic health. Endodontic care treats the damage done to the blood vessels, nerves, and tissues in and around the tooth. This damage is often caused by untreated dental caries, which affects 2.4 billion people worldwide. In its ‘White Paper on Endodontic Care,’ rather than focusing purely on the roots of the tooth, this paper calls for endodontic care to address a broader set of health outcomes that directly affect the patient, including teeth retention and impact on overall health. Patients are concerned with eliminating pain and keeping the affected tooth healthy and strong over the long term. Considering the patient’s perspective in the provision of endodontic care has significant implications for existing treatment guidelines. Dr. Kathryn Kell, the FDI’s president, says, “We need to shift away from treatment outcomes that focus solely on technical goals and clinical symptoms after treatment and take a closer look at how we can deliver better care to our patients.”

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UK Savings Culture In Danger

The UK’s blossoming savings culture is in danger of “fading away” unless pensions adapt to changing demographics and employment habits, says a white paper by Bravura. ‘Pensions and protection in the ‘nudge’ era’ warns that the government and pensions industry risk undoing the good work of auto-enrolment unless policy and products evolve to meet the needs of future generations. The pensions system is already under huge stress caused in part by a sharp decrease in the working age population as well as a shift to more flexible working patterns which are less suited to ‘nudge’ principles that are central to auto-enrolment, the paper argues. To ensure a savings culture in the UK is maintained, key challenges in areas like policy and self-employment must be overcome. The impact of successive governments’ tinkering with pensions policy to boost the national coffers is a constant challenge, increasing distrust and turning potential savers off long-term savings into pensions and driving up assets sitting in low-paying cash accounts. As well, the nudge principles that have brought so many employed people into pension saving have not been utilized effectively with the self-employed. Tackling under-saving among these workers, especially within the ‘gig’ economy, should be a major focus of the government and providers alike, it says.

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UTAM Backs RIA Policy

University of Toronto Asset Management (UTAM) was pleased to see on International Women’s Day the publication by the Responsible Investment Association (RIA) of its ‘Board Diversity Policy. It promotes diversity and inclusion in management and on company boards. As a member of the RIA, the Canadian Coalition for Good Governance, and the Canadian Investor Chapter of the 30 per cent Club, as well as through the ISS Sustainability Guidelines for its proxy voting, it sets standards and targets for the composition of its board. Lisa Becker, its chief operating officer, and her board colleagues on the RIA’s governance policy committee were key to the drafting of this policy which strives for equal gender representation and inclusion of other dimensions of diversity on RIA’s board and in its management.

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PSP Investment Closes

The Wittur Group has successfully closed the minority investment of PSP Investments Holding Europe Ltd, a wholly-owned subsidiary of Canada’s Public Sector Pension Investment Board into the company. Specifically, PSP Investments has acquired a 32 per cent stake in a parent company of Wittur International Holding GmbH from a company controlled by Bain Capital Private Equity. Bain Capital will continue as majority investor in the Wittur Group.

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Blundell Moves Up

Alec Blundell is executive vice-president and chief operating officer of Co-operators Life Insurance Company and president and chief operating officer for the CUMIS Group Limited, effective March 18. He has 25 years of experience in the insurance industry, moving to CUMIS in 1994. In 2010, he lead pricing and product support for individual insurance and wealth management at Co-operators Life and was appointed to his current role ‒ vice-president, individual insurance and chief actuary, Co-operators Life ‒ in 2013. In his new role, he will be responsible for leading overall aspects of life, group benefits, and wealth manufacturing and operations.

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Drug Cost Drivers Examined

‘Private Plan Drug Cost Drivers & Forecasting’ will be the focus of a Canadian Group Insurance Brokers (CGIB) and Benefits Breakfast Club session. Brad Millson, of IQVIA Canada, will share preliminary results from new research taking a closer look at what is driving growth in Canada’s private drug plans. This session will provide new insight into the factors that have contributed to growth in the private drug plans that should assist brokers and advisors in providing direction to plan sponsors. Denise Balch, of Connex Health, and Dave Patriarche, of the CGIB, will discuss the integration between public and private programs such as OHIP+ which will likely be changed at the end of March to make private payers first payers again and the integration of programs like EI, LTD, and CPP or drug benefits like OHIP+, ODB, EAP, Trillium, and private drug plans. It takes place April 3 in Vaughan, ON. For information, visit Drug Plan Drivers

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Commuted Value Interest Rate Assumptions

The interest assumptions required to calculate commuted values and marriage breakdown values for an event which occurs in any month up to and including March 2019 are now available at www.an-actual-actuary.com. An Excel spreadsheet on the website contains nine worksheets:
• Commuted Values February 2011 CIA
• Marital Breakdown: CSOP 4300 ‒ January 2012
• Ontario (Bill 133) Prior Rates – Rates for Ontario Marital Breakdown with valuation date prior to January 1, 2012
• Annuity Proxy for Solvency Calculations for Non-Indexed & Fully-Indexed Pensions
• Minimum Interest on Employee Required Contributions
• HISTORICAL Marital Breakdown: CSOP 4300 ‒ May 2009 (Now Frozen)
• HISTORICAL: Commuted Values ‒ 2009 Basis (Now Frozen)
• HISTORICAL: Commuted Values ‒ 2005 Basis (Now Frozen)
• HISTORICAL: Commuted Values ‒ 1993 Basis (Now Frozen)
You can use this spreadsheet to compare the interest rates which you may have calculated and/or you can download the spreadsheet to your own computer. Another actuary has already provided a peer review of the updated rates in this spreadsheet and determined that he/she agrees with the results.

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March 11, 2019


Group Wants Commitment To Gender Diversity Votes

A group of Canadian institutional investors, lead by NEI Investments and Addenda Capital, have invited other investors to join them in committing to vote for gender diversity at Canadian boards. “Canadian society is richly diverse, but is not currently reflected in the boardrooms of Canadian corporations. While research shows slow progress has been made, even if half of the Canadian director replacement nominees would be women it would still take 30 years to reach gender parity,” says Brian Minns, vice-president, sustainable investing, at Addenda and co-chair of the Toronto Responsible Investing Working Group. Investor signatories to the Voting for Diversity Canadian Investor Statement of Voting Intentions commit to using their voting rights to withhold votes from relevant director candidates at Canadian boards that lack gender diversity and making known to Canadian companies where absence of diversity may impact or has impacted director voting decisions. The initiative was announced Friday on International Women’s Day.

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CAAT Plan Funding Improves

The CAAT Pension Plan stands 120 per cent funded on a going-concern basis, with a funding reserve of $2.6 billion, based on its latest actuarial valuation as at January 1. This is an improvement over last year’s valuation that showed the plan 118 per cent funded with a funding reserve of $2.3 billion. Based on the plan’s funding policy, its governors determined that allocating additional reserves to further strengthen benefit security is the most prudent option at this time. Funding reserves maintain the plan’s resilience and cushion it against future economic or demographic shocks. As part of this review, the discount rate has been lowered to 5.5 per cent from 5.6 per cent. The discount rate, reflects the asset mix, expected long-term market returns on the investment portfolio, and the plan’s risk tolerance. The valuation assumes that members retiring today can expect to live on average to age 89. “The funded ratio serves as a core measure of benefit security. With a funded status at 120 per cent, we continue to provide strong benefit security and great value to members. Our long-term assessments continue to project that the plan will remain strong and resilient into the future and as the plan grows, we look forward to continuing to provide great value and benefit security to members and their families,” says Derek W. Dobson, its CEO and plan manager.

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Sustainable Disclosure Rules Set

The European Parliament and European Union countries have agreed on sustainable investment disclosure rules for institutional investors. Under the rules, money managers, insurance companies, pension funds, and investment advisers are required to integrate environmental, social, and governance factors into their portfolios, disclosing in a consistent way how they invest. To improve the quality of information supplied to investors, they will now have to inform plan participants and savers how their activities are impacting the environment. They also require information about the adverse impact of investments, including assets that pollute water or damage biodiversity. Money managers, insurers, and advisers will be bound by a single disclosure tool box. The regulation also eliminates the possibility to make unsubstantiated or misleading claims, known as green washing, by investment firms about the sustainability focus of investment products they sell to investors. The rules are a part of the EU’s broader initiative on sustainability, the Sustainable Finance Action Plan.

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Market Entering New Paradigm

Financial markets are in the early stages of a new sector paradigm where they will be adapting to a new set of rules, says David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates. However, most market participants are still playing by the old rules. In the article ‘The Case For The New Sector Paradigm’ from his speech ‘The Year Of The Pig (Lipstick Won’t Help)’ at an ‘Investing Experts Speaker Series at Rotman’ session, he advises people to not be that person playing by the old rules. They have to play by the new rules because the markets are changing fast and in real time. The article is at the Benefits and Pensions Monitor website.

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March Madness Drain On Company

While March Madness, the U.S. college basketball tournament, has become more popular than ever before, thanks in large part to the worldwide betting that takes place, there is another cost which people may not expect: a downturn in employee productivity. “March Madness can be a drain on a company’s time and resources,” says Rob Wilson, employment trends expert and president of Employco USA. “With millions of Americans filling out brackets and managing their bets, you can bet that employee productivity takes a hit during this time of year.” Research shows that lost wages caused by employee distraction and poor productivity during March Madness could amount to losses of up to $1.9 billion. However, there are some ways to manage this. Employers should keep a close eye on employee internet usage as any time employees have free, unfettered access to the web, there is going to be a decrease in employee productivity. One solution is to offer employees one or two computers for personal use during their breaks. Rather than having employees use their computers or phones to check the score, provide a television in the break room or similar area. Company-wide reminders about in-office betting should be sent out to ensure that no March Madness takes place on company time. And employees should be required to ask for personal days in advance.

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Brexit Barely Impacts Infrastructure

Brexit has barely impacted the UK’s top investment destination status for infrastructure investors, says the 2019 edition of the EDHEC Infrastructure Institute survey. Despite the March 29 Brexit deadline, respondents ranked the UK as the market with the most potential for private infrastructure investment in the next five years, behind the U.S. and Australia. However, it did drop from second in the 2018 edition of the survey. Frederic Blanc-Brude, director of EDHECinfra says, “This is a very strong signal: long-term investors continue to believe in the credibility of the UK infrastructure sector, the viability of the British economy in the medium term, and the creditworthiness of its government.”

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SEI Expand BMO Relationship

SEI has expanded its existing asset management relationship with BMO Financial Group into the Asian market. To enable distribution to accredited Asian investors, it has registered 25 of its Dublin UCITS funds in Singapore. Last month, BMO launched a new solution comprised of four risk-profiled global strategic portfolios managed by SEI. These provide multiple levels of active management and diversification across six core asset classes: equity, fixed income, inflation sensitive, liquidity, absolute return, and income.

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Smart Beta ETFs Record Inflows

Equity-based smart beta ETFs and ETPs listed globally gathered net inflows of US$7.38 billion during January, says ETFGI. Total assets invested in the global smart beta ETF and ETP industry increased 10.1 per cent from US$618 billion at the end of December to US$680 billion. This marks the 36th consecutive month of net inflows into smart beta ETFs/ETPs.

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Oxford Selling Australian Buildings

Oxford Properties is selling 40 per cent of assets in Australia held in the former Investa Office Fund. The property arm of OMERS is selling 11 non-core properties. It has selected five buildings in Brisbane, one in Canberra, two in North Sydney, and two in central Sydney including its 50 per cent stake in Piccadilly Complex. Another building in Perth, also part of the collection, was sold last month. After paring back the portfolio, it will retain mostly Sydney central business district buildings, including Deutsche Bank Place and two office blocks in Melbourne CBD.

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Chen Joins Compensation Governance

Christopher Chen is managing director at Compensation Governance Partners, an independent advisor providing tailored solutions on executive compensation and governance matters. Most recently, he was senior client partner and executive pay and governance practice leader for Canada at Korn Ferry. Previously, he was also a senior executive compensation consultant at Willis Towers Watson and a human resources lawyer at Hicks Morley.

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Private Credit Examined

With private credit has become a mainstream source of debt financing, the Alternative Investment Management Association (AIMA) will present ‘Opportunities in Private Credit’ in association with Davies Ward Phillips & Vineberg LLP. A panel will also discuss tax, structuring and other key fund terms. It takes place April 3 in Montreal, QC. For information, visit Private Credit

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