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July 13, 2018


Key Trends Have Run Course

The two key global market trends of early 2018 ‒ U.S. growth leadership and the U.S. dollar bounce ‒ have run their course, says Russell Investments’ ‘2018 Global Market Outlook – Q3 Update.’ It is watching for any escalation in the trade war issue and keeping an eye on the yield curve for a U.S. recession warning. However, it believes the latter seems unlikely before late 2019. Assessing the U.S. economy at mid-year, it expects it can continue with above-trend growth through mid-2019. However, U.S. Federal Reserve policies appear on track to invert the yield curve by the end of this year. Given the usual lags, this means an elevated risk of recession by the end of 2019 and through 2020. For Europe, it says economic growth has cooled, but is still above trend and corporate earnings are growing at a healthy pace. However, the threats to global trade and Brexit are bigger dangers for Europe than other threats, such as Italian politics. For Asia-Pacific, fears of a significant China slowdown are overdone and the rest of developing Asia has shown good resilience to the rising U.S. dollar.

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Millennials Benefit From Pension Plan Improvements

Millennials in the U.S. are the first generation to fully benefit from improvements made to retirement plans over the last decade and it shows now in their retirement savings habits and attitudes, finds a survey from Empower Institute. Millennials – those who were born after 1981 – are on track to replace 75 per cent of their income in retirement compared to Generation X workers who are on track to replace 61 per cent and Baby Boomers who are on track to replace 58 per cent. The landmark ‘Pension Protection Act of 2006’ – enacted at the time when Millennials began entering the workforce – allowed automatic enrollment of plan participants, automatic escalation of participants’ contributions and acknowledged the significance of employer contributions to employee accounts, among other reforms. In the ensuing 12 years, the reforms allowed by the legislation have made it possible for defined contribution plans to offer a new mix of innovative components. Today, 41 per cent of Millennials are automatically enrolled in a DC plan, compared to 38 per cent of Gen Xers and 33 per cent of Baby Boomers. Additionally, 38 per cent of Millennials are enrolled in a plan with auto escalation features. The survey also reveals that attitudes about retirement planning differ among the generations. For example, Millennials have the least investable assets now compared to Gen Xers and Baby Boomers who have been in the workforce longer; however, they are seeking advice and have formal retirement plans in higher rates than older generations.

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OMERS Private Equity Completes Premise Health Acquisition

OMERS Private Equity, the private equity arm of OMERS, has completed its acquisition of Premise Health from Water Street Healthcare Partners and Walgreens Boots Alliance. Based in Brentwood, TN, Premise is a direct healthcare company that contracts with organizations, including many larger employers, to provide health and wellness solutions to member and dependent populations. Through onsite, nearsite, and virtual health access, Premise offers a range of services including primary care, pharmacy, occupational health, physical therapy, fitness, and other related services. The company serves over 275 clients, via more than 600 health and wellness centres. “The investment in Premise is consistent with OMERS Private Equity’s strategy of acquiring industry leading companies with world class management teams.  Premise is a very strong addition to our growing healthcare services portfolio,” says Michael Graham, head of North American private equity at OMERS.

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Acquisitions Part Of Hub Benefits Solution Strategy

Global insurance brokerage Hub International Limited (Hub) has acquired two employee benefits brokerages – Optimum Group Benefits & Insurance Services Ltd. based in Coquitlam, BC, and Wm. W. Hammond Insurance Agency Incorporated in Leamington, ON. Since January of this year, Hub has acquired seven Canadian employee benefits brokerages with the intent to purchase additional firms to reach $100 million in employee benefits commission and fee revenue by 2021. The acquisitions are part of a corporate strategy to develop an employee benefits solution for the mid-market in Canada. “While mid-sized companies currently have the option of working with a large brokerage for employee benefit solutions, it’s challenging for those brokers to provide the resources necessary to drive value to the mid-market clients,” says Tina Osen, president of Hub International Canada. “Hub’s shared service model enables our customers to retain a relationship with their local broker while gaining access to the tailored insurance solutions of a leading global brokerage.” Hub appointed Faizal Mitha as chief innovation officer of Hub’s Canadian Employee Benefits business. Mitha has worked for both major carriers and top employers as well as co-founded one of the fastest growing employee benefits insure-tech companies in Canada.

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Event Focuses On Alternative Strategies

The Canadian Association of Alternative Strategies and Assets (CAASA) Annual Conference will feature timely and topical panels, keynote speaking sessions, and a selection of curated roundtables. It will include investor-only panels with free registration for representatives from pensions, endowments, and foundations. It takes place November 6 to 7 at the Hyatt Regency Montreal in Montreal, QC. For more information, visit CAASA

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July 12, 2018


Prolonged Low Interest Rates Could Affect Financial Stability

Low market interest rates for a long time could have implications for financial stability as well as for the health of individual financial institutions, finds a report by the Committee on the Global Financial System (CGFS). Financial stability implications of a prolonged period of low interest rates identifies channels through which a ‘low-for-long’ interest rate scenario might affect the health of banks, insurance companies, and private pension funds. This scenario would be harder on insurers and pension funds than on banks. Even though the CGFS analysis did not show that measures of firms’ financial soundness dropped significantly, prolonged low rates could still involve material risks to financial stability. In particular, a ‘snapback,’ involving an unexpected sudden increase in market rates from currently low levels, could affect banks’ solvency and create liquidity issues for insurers and pension funds. “The first line of defence against these risks should be to continue to build resilience in the financial system by encouraging adequate capital, liquidity, and risk management,” says Philip Lowe, chair of CGFS and governor of the Reserve Bank of Australia. “But the report also underscores the need to monitor institutions’ exposures in a comprehensive way, including through stress tests.”

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Morneau Shepell To Acquire LifeWorks

Morneau Shepell Inc. plans to acquire LifeWorks Corporation Ltd. in a transaction that is expected to close in late July. LifeWorks is a global employee assistance program (EAP) and wellness provider with a recurring revenue business model and a technology platform that delivers an integrated employee offering. As a result of the acquisition, Morneau Shepell will be able to deliver a comprehensive portfolio of services designed to build and sustain mental and physical health in addition to addressing issues through clinical treatment. The acquisition will add the capability to deliver many of its existing services through LifeWorks’ software as a service (SaaS) recurring revenue model, enhancing cross-selling opportunities for well-being services and increasing utilization through an integrated platform. Morneau Shepell says the transaction is an opportunity to grow its U.S. and global footprint and build on its technology capabilities.

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Canadians Not Saving Enough For Retirement

Canadians are behind their global peers when it comes to retirement investing and, similar to investors across the globe, exhibit a wide gap between expectations and the financial realities of life in retirement, finds a report by Schroders. The annual ‘Global Investor Study’ finds that Canadians save an average of 11.9 per cent of their income specifically for retirement, less than the Americas average of 13.9 per cent and the global average of 12.2 per cent. The cost of retirement is vastly underestimated; Canadians believe they should be saving an average of 13.6 per cent compared to 16.1 per cent of the Americas and 14.4 per cent globally. On top of that, retirees need more income than expected. Canadians close to retirement (ages 55 and over) predict they will need an average of 71 per cent of their current salary or income to live comfortably in retirement, while in reality, retirees in Canada are receiving 61 per cent of their final salary annually. To help Canadians work toward their unique retirement goals, Schroders recently launched the Schroder MyRetirement Funds, target date funds that are built upon research of the Canadian market and exclusively designed for Canadians. Intended to be a lifelong investment solution, the funds aim to address the specific challenges of each stage of an individual’s life, including delivering a predictable income stream in the retirement years. The funds offer five-year vintages from 2015 through 2060, taking into account an individual’s age, lifespan, and income, as well as offering the ability to readjust accordingly.

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Ways To Offload DB Management Eyed

UK companies are eyeing ways to offload the management of their defined benefit pensions, as unmet liabilities continue to put a strain on corporate balance sheets, a Willis Towers Watson poll has found. Nearly three-quarters of trustees and 61 per cent of pension managers said schemes were likely to outsource more administrative or secretarial functions. Meanwhile, 55 per cent of trustees and 48 per cent of pension managers believed the use of fiduciary managers, or outsourced CIOs, would become more common. As of last June, the average UK DB scheme was 88.7 per cent funded, according to a funding analysis by the Pensions Regulator.

 

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Rowe Appointed CFO

Karen Rowe is chief financial officer at CIBC Mellon. Previously, she was managing director, head of investment finance, Canada Pension Plan Investment Board (CPPIB). She brings more than 25 years of leadership experience to the role.

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Public Sector Plans Examined

The Canadian Public Sector Pensions and Benefits Conference will tackle the unique challenges encountered by the public sector. Conference sessions will look at solutions to ensure the viability of pension and health and welfare funds and the issues they face. Topics include real asset pitfalls, climate change, privacy and reputation risks, mental health, governance, and the impact of legal cannabis. It takes place August 15 to 16 at Le Centre Sheraton Montreal Hotel in Montreal, QC. For more information, visit IFEBP

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July 11, 2018


TD Bank Group To Acquire Greystone Managed Investments

The Toronto-Dominion Bank has entered into an agreement with Greystone Capital Management Inc. (GCMI), parent company of Greystone Managed Investments Inc. (Greystone), whereby, subject to regulatory approval, TD will acquire GCMI. “Greystone’s leadership in alternative investments is a perfect complement to TDAM’s traditional investment products,” says Leo Salom, group head, wealth management and TD insurance, TD Bank Group. Founded in 1988 and headquartered in Regina, SK, Greystone is a privately-owned institutional asset manager with nearly 200 employees. Providing multi-asset class investment capabilities, Greystone integrates traditional and alternative investment solutions, with a specialty in real estate investments. With this transaction, TD will add Greystone’s $36 billion in assets under management to their existing $357 billion under management, bringing the pro forma total to approximately $393 billion assets under management at TD. Following the completion of the transaction, Greystone will operate and serve clients under the name TD Greystone Asset Management while continuing to operate out of Regina.

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Equities Overtake Fixed Income In Sovereign Segment

Equities have now overtaken bonds to become the lead asset class for sovereigns across active, passive, and factor strategy, finds the sixth annual ‘Invesco Global Sovereign Asset Management Study.’ The study shows the average allocation to equities has increased to 33 per cent from 29 per cent in 2017. The increase in equity allocations has been driven by a number of factors, including the equity bull market. On average, equity returns were 8.7 per cent amongst respondents, which significantly supported strong outcomes at portfolio level (9.4 per cent in 2017, up from 4.1 per cent in 2016). With allocations to equities increasing over the past five years, as a result, nearly half of sovereign investors are now incrementally or materially overweight in equities. Whilst many sovereign investors are content to remain overweight, some are not comfortable with the status quo. More than a third (35 per cent) plan to reduce equity weightings over the medium term, with the intent overall to make small reductions rather than cut significantly. Of those looking to reduce weightings, many are driven by views that equity valuations are high on both absolute and relative bases, and that markets are at risk of correction, either due to geo-political or economic cycles. Specific issues acting as headwinds to equity markets include macro concerns such as the possibility of a trade war, China, valuations, and inflation. As allocations to equities increase, passive management, and to an extent factor investing, have made significant inroads into portfolios. Over the last three years, just under half (45 per cent) of sovereign investors undertook some degree of rotation out of active strategies into passive and factor investing to the point where less than half of equity portfolios are now actively managed. Within equity portfolios, factor investing is gaining prominence, and this looks likely to remain the case in the near future.

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Investment Management Critically Important

The UK’s Investment Association says investment management, alongside the need to increase pension contributions, are critically important if today’s defined contribution savers are to have a more secure and prosperous retirement. While auto-enrolment has been a game-changer bringing nine million new savers into the pensions system, in order to achieve the best outcomes for both new and existing savers, the investment process needs to be front and centre for DC schemes. Its paper builds on the existing direction of travel in the key areas of investment governance and transparency, while also seeking to respond effectively to the changing needs and priorities of the economy and society. It sets out a range of measures and recommendations that will create a firm foundation for the future including a clear objective for savers so they know what their pension scheme is aiming to deliver for them; further work to encourage greater engagement, particularly to achieve sufficient contribution rates; and increasing opportunities for savers to invest in a more responsible and sustainable way.

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Thrive Savings Launches Financial Wellness Benefit

Thrive Savings has launched a financial wellness benefit, Thrive Savings, on the Apple App Store and Google Play Store in Canada. With a growing number of workers living paycheck to paycheck, businesses can offer this benefit to employees to help them break out of this cycle. “Personal money matters are a complex and emotional subject, often whispered about and never addressed,” says Jordan Wimmer, chief executive officer and founder of Thrive Savings. “We know that 48 per cent of Canadians live month to month in a state of high anxiety and stress about their money. We’re enabling workplaces and organizations to facilitate the prosperity of their workforce with minimal setup and maximum result.” A unique code is generated for each organization that is given to its employees to enter in-app. Members simply create their account, tell Thrive their work-category and select and customize their goals. Thrive automatically personalizes savings amounts and frequencies based on employees’ job type, income, spending, and earning profile. Employers have the option to match, top-up, or add a bonus towards an employees’ savings goal.

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Riendeau Leads Corporate Development

Colin Riendeau is executive vice-president and head of corporate development at PIMCO. He has more than 13 years of experience in financial services, most recently at Apollo, where he was a member of the firm’s strategy team.

 

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July 10, 2018


DB Plan Funding Improves Despite Rising Volatility

The solvency position of Canadian defined benefit pension plans continued to improve during the second quarter of 2018. The Mercer Pension Health Index, which represents the solvency ratio of a hypothetical plan, stood at 107 per cent on June 29, up from 106 per cent on March 30 and the beginning of the year. The median solvency ratio of the pension plans of Mercer clients was at 99 per cent on June 29, up from 98 per cent at March 30 and 97 per cent at the end of 2017. Almost half of all Canadian pension plans are now fully funded. The funded position of pension plans was boosted by strong equity market performance, despite the retreat in the last few weeks of June. Long-term interest rates ended the quarter roughly unchanged from the end of the first quarter. Canadian pension plans are remarkably well-funded, despite the persistence of low interest rates. However, financial markets remain volatile due to geo-political uncertainty, particularly whether the current drift towards protectionist policies will accelerate or recede. Mercer says sponsors of closed and frozen defined benefit plans need to urgently consider whether their current risk profile makes sense given their strong financial position and the risks looming on the horizon. Many of these plans are far too exposed to investment risk given their strong funded position and shrinking time horizon. The upside benefit of generating further surplus is far outweighed by the downside risk of large deficits re-emerging.

 

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Performance Perception Hampers ESG

One of the biggest hurdles in turning ESG (environmental, social, and governance) interest into actual investment, both by current users of ESG portfolios and non-users, is the perceived impact on investment performance, says Cerulli Associates’ ‘U.S. Monthly Product Trends’ report. It says among ESG users, only 19 per cent state that sustainable investment returns are a major factor driving their demand for ESG. Of advisers not currently using ESG, 35 per cent say that a negative impact on investment performance is a significant factor preventing them from implementing it. With individual and institutional investors exploring the topic with greater interest, asset managers have prioritized incorporating ESG factors into their investment processes. While this is a positive step for the development of ESG, conversations with distribution partners have not necessarily led to actual investment among financial advisers and their institutional or individual clients. It argues that “true ESG integration” requires the application of material ESG factors “with intentionality,” in a process driven by actionable and robust data that is aggregated from both proprietary and third-party sources.

 

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Plan Members To Get Diabetes Management Tools

Starting in August, Great-West Life plan members who use insulin to manage their diabetes may be eligible for coverage of continuous glucose monitoring (CGM) devices, sensors, and transmitters that provides continuous readings all day, even while asleep. The CGM system includes a reader, wearable sensors, and a transmitter which are used to measure interstitial fluid glucose levels. Results automatically go to a smart device or reader every five minutes. With continuous monitoring all day and night, users can avoid glucose highs and lows, and are alerted right away when levels stray out of the norm. This coverage is being added alongside the FreeStyle Libre flash glucose monitor (FGM) and sensors, which were added to most Great-West Life plans in April. The FreeStyle Libre system includes a reader and wearable sensors which are used to measure glucose levels and provide results on demand. The FreeStyle Libre is indicated for measuring interstitial fluid glucose levels in adults aged 18 years and older, who have at least two years of experience in self-managing their diabetes.

 

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Barsky Joins CIBC

Zachary Barsky is an associate, institutional advisory group, at CIBC. Most recently, he was a senior investment analyst at Willis Towers Watson, a firm he joined in October of 2015 from Zurich North America where he was a claims specialist.

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Singhania Discusses India Equity Markets

Sunil Singhania, CFA, founder of Abakkus Asset Managers LLP, board member of the CFA Institute, and chairman of the Investment Committee at the CFA Institute, will be the guest at the CFA Society Toronto’s ‘Fireside Chat.’ He will discuss the growing importance of India in the global economy and share his perspectives on the past and present dynamics for international investors seeking exposures to India equity markets. He will also speak to leadership in financial services and talk about his professional experiences. He was the first individual from India to be elected as a member of the CFA Institute Board of Governors. The luncheon takes place July 17 at the CFA Society Toronto in Toronto, ON. For more information, visit Fireside Chat

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July 9, 2018


Protection, Fairness, Rules Top Priorities For OSC

Protecting investors, keeping markets fair and efficient, and reviewing current rules and practices to find ways to minimize regulatory burden for market participants are some of the key areas of focus for the Ontario Securities Commission (OSC) as published in its ‘2018-2019 Statement of Priorities.’ The document sets out the 15 priority areas where the OSC intends to focus resources and actions over the coming year as well as the expected outcomes. The organization received 20 comment letters on the draft of the statement and feedback was broadly supportive of the proposed priorities, including continued improvements to investor protection and efforts to increase the deterrent impact of enforcement actions. This final publication of the ‘2018-2019 Statement of Priorities’ includes a priority related to the continued review of the effectiveness of the disclosure requirements regarding women on boards and in executive officer positions. The OSC also published its ‘Report on the Statement of Priorities for Fiscal 2017-2018,’ which details its performance against the priorities set out in the ‘2017-2018 Statement of Priorities.’ Key accomplishments in fiscal 2017-2018 include several investor protection-focused initiatives such as work on the newly-proposed Client Focused Reforms and policy decision on embedded fees, the development of a seniors strategy, and a ban on binary options. The report also highlights the OSC’s collection efforts, which include an innovative pilot project with a specialty law firm. Additionally, the OSC reported on its approach to innovation in the market, brought about by the emergence of fintech and crypto assets, as well as the OSC’s investments in its own data management, analysis systems, and platforms.

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British Columbia Releases EHT Implementation Details

The British Columbia Ministry of Finance has released an Employer Health Tax (EHT) tax notice as part of the next steps toward the elimination of Medical Services Plan (MSP) premiums and transition to the EHT. The tax notice includes implementation information on effective rates, calculation and scheduling, remuneration, payroll definition, rules regarding installment payments, locational and threshold rules for non-profits, and other technical implementation details. For over a decade, British Columbia has been the only province to maintain MSP fees. The transition to the EHT includes funding that ensures public services will not be impacted. The ministry says administration of MSP premiums is costly and inefficient. The transition to the EHT will result in savings of over $50 million annually on an ongoing basis. The elimination of MSP premiums and introduction of the EHT will result in a net tax decrease of approximately $800 million per year for British Columbians. Families will save as much as $1,800, and individuals will save up to $900 each year. The government will introduce legislation in fall 2018 to implement the EHT, which will apply to all employers in January 2019. A full list of the implementation details can be found at the BC Ministry of Finance’s EHT tax notice

 

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AIMCo Announces Acquisition Of Edmonton Tower

The Alberta Investment Management Corporation (AIMCo), on behalf of certain of its clients, has acquired the Edmonton Tower in ICE District from ICE District Properties. The terms of the transaction, which closed on July 5, will not be disclosed. Edmonton Tower, which opened in 2016, is a 27-storey, LEED-Gold office tower. With over $2 billion in assets under development in phase one and a similar scale investment envisioned for phase two, ICE District is a transformational, mixed-use, sports, and entertainment project in downtown Edmonton, AB. ICE District Properties in collaboration with Katz Group Real Estate, ONE Properties, and Oilers Entertainment Group will continue to oversee all aspects of development and operation of ICE

District.

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HOOPP Invests In Yogurt Brand

The Healthcare of Ontario Pension Plan (HOOPP) has invested in Greek yogurt brand, Chobani. HOOPP Capital Partners, the defined benefit plan’s private capital investment team, has acquired a minority equity investment in the company. As a result of the transaction, TPG, a global alternative investment firm, has exited its investment in the company. Terms of the deal were not disclosed, though HOOPP will be given one board seat as part of its investment. Chobani has been in business for 10 years and, during that time, has expanded its manufacturing and operations from New Berlin, NY, to Twin Falls, ID, and South Victoria, Australia, with sales offices throughout the U.S. and Mexico.

 

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CPPIB Meets In Latin America

The Canada Pension Plan Investment Board (CPPIB) held its fourth international board meeting in late June in Latin America. The board says this region is important because it provides enormous investment opportunity as it initiates its 2025 growth strategy and invests one third of the fund in emerging markets. The international board meeting program allowed senior management and the board to enhance their knowledge of each region and understand the various opportunities and challenges they will have when deploying capital there. By hosting this year’s meeting in Brazil and Chile, CPPIB leadership gained first-hand perspective and direct access to input from the local Brazil team, regional experts, and family-owned businesses aligned with the board’s long-term investment horizon. At the meeting, CPPIB announced a $175 million equity target for a 20 per cent interest in the newly established Goodman Brazil Logistics Partnership. The deal not only capitalizes on Brazil’s growing demand for high-quality logistics spaces, but it also allows CPPIB to add to the $13.2 billion already invested in Latin America.

 

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Wazette Has New Role

Kevin Wazette is an analyst, derivatives and fixed income, at HOOPP (Healthcare of Ontario Pension Plan). He brings a wealth of experience from his previous role as senior manager, investment risk monitoring, compliance and valuation. He joined the plan in 2007 from CIBC where he was a senior analyst for the treasury middle office.

 

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