Industry News

May 9, 2017


New Active Unfolding

There was a time when ‘active management’ in investing meant beating the market through active trading. However, recently, a new form of active management is unfolding, says Keith Ambachtsheer, president of KPA Advisory Services. In the article ‘Fostering ‘Long-Termism’ in Investing’ at the Benefits and Pensions Monitor website, he says a growing body of evidence supports the logic that this ‘active ownership’ form of investing is not only good for society, but for its implementers and their clients as well. In the article, he offers eight concrete measures to that end.

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PIAC Supports Disclosure

The Pension Investment Association of Canada (PIAC) supports requiring issuers to disclose existing policies on ethics, diversity, anti-corruption, human rights, the environment, and health and safety. In a letter to the Toronto Stock Exchange commenting on amendments to the Toronto Stock Exchange Company manual, it says that disclosing, and regularly updating, policies and procedures in respect of such issues would allow investors to assess the extent to which corporate decisions may contribute to or detract from shareholder value. Additionally, proxy voting analysis in respect of environmental, social, and governance proposals often requires consideration of the proposal in light of the current disclosure available from the issuer. Website disclosure of such information would ensure that investors support proposals that request reasonable disclosure of additional information while opposing proposals that request duplicative or overly prescriptive information. It recognizes that disclosing governance documents on the company website and ensuring that such documents remain up to date will result in an increased regulatory burden to listed issuers. However, it agrees with the TSX’s conclusion that the benefit of increased and centralized access to issuer information outweighs the regulatory burden of disclosing such information. As long-term institutional investors in the global equity markets, it says proxy voting allows its members to promote better corporate governance and corporate responsibility with the objective of enhancing issuer performance and shareholder value.

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Strong Issuance Continues

Canadian ETF industry assets reached $126.3 billion as at April 30, an increase of $3.3 billion from March 31, says the Canadian ETF Association. Ongoing strong net issuance continued, with a post first round French election results ‘risk on’ rally otherwise favourably impacting markets contribution and a flagging Canadian dollar also boosting aggregate assets expressed in Canadian dollars. April aggregate inflows are estimated at C$3.2 billion, resulting in total net inflows of $2 billion, once outflows of $1.2 billion are taken into account. April also saw the arrival of two additional players in the industry; Desjardins and Manulife.

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Education And Communication Underutilized

Nearly half of employers use technology for benefits enrollment, yet few (22 per cent) take advantage of technology for benefits education and communication, says research from LIMRA. However, 41 per cent of employers who do not have technology for benefits communications say they are interested in adding it in the future. The survey finds 47 per cent use technology for annual open enrollment and 42 per cent use it for enrollment of new hires. Thirty per cent use it for benefit administration. The factors that influence a company’s use of technology include size, age of the workforce, how long the company has been in business, location of the company, and the type of industry.

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Brexit May Cost Passporting Rights

The asset management industry is preparing for Brexit on the basis that the UK will not retain passporting rights or equivalence, says Cerulli Associates. It has found that asset managers are drawing up flexible contingency plans that can be introduced in phases, starting with the bare minimum required to continue operating in the European Union. Most asset managers are assuming that the UK will not retain its passporting rights. Also, there is no guarantee that EU financial regulator ESMA will continue to accept the UK’s equivalence if the regulatory regime changes. Consequently, managers need to find an EU-based business partner to offer management services to continental clients or open a subsidiary operation in the EU. While most large asset managers have fund operations in Luxembourg and Ireland, roles such as distribution, sales, and portfolio management are currently often located in the UK. The question of what constitutes ‘substance’ in terms of the functions and staff levels of a subsidiary operation and whether firms would be required to relocate portfolio managers is not clear.

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Integrated Reopens Fund

Integrated Asset Management Corp. and its real estate team, IAM Real Estate Group, have re-opened for investment the IAM Real Property Fund. Originally launched in 2014, the fund is now an open investment vehicle, having been closed for the initial investment period. It is currently at $150 million, as of April 30, and comprises a portfolio of 21 properties in four provinces.

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Greschner Joins George & Bell

Mike Greschner is a senior consultant at George & Bell Consulting. Based in Vancouver, BC, he will provide health benefits services to clients in Western Canada. Until recently, he was the chief actuary at a large international human resource consulting firm. 

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Benefits Focus Of Session

‘Benefits 101’ is the focus of a CPBI Southern Alberta Region session. It will provide an introduction to employee benefits with a focus on insurance principles and underwriting arrangements; plan design options including flexible benefits; and administration and communication considerations. It takes place May 17 in Calgary, AB. For information, visit Benefits 101

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May 8, 2017


OCIO Model Fills Gap

For defined benefit plans that do not have in-house investment capabilities, the outsourced chief investment officer (OCIO) model is a means of filling the gap between the resources required to run efficient investment strategies and the typically constrained governance budget of a pension plan, says Willis Towers Watson. Its report challenges some myths about using OCIOs. It says a concern among some sponsors and investment committees is that by delegating some decision-making to a specialist, they are no longer in control of their plan and potential investment outcomes. However, its report says that investment committees still control the objectives and the constraints within which the plan operates. It also challenges the argument that OCIOs are conflicted because they profit from their position as both advisor and investment implementer. A good service will always command a fee. In the OCIO model, fees should be transparent and separate from any management fees.

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Senior Leaders Share Examples

Senior leaders from both public and private sector employer sponsored plans across the country shared examples of meaningful plan sponsor driven solutions that have supported responsible cost containment, risk mitigation, and re-investment in other benefits, empowering both the plan sponsor and their members at Cubic Health’s third annual ‘Cubic Forum’ last week This year’s program focused on modernization of plan contracts, effective management of high-cost claims, reinsurance and innovative risk mitigation through analytics, responsible coverage of medical cannabis, detection and prevention of benefits fraud, positively impacting OPEBs through the drug plan benefit, and using predictive and integrated analytics to impact disability management. An update of the current health benefits marketplace in Canada was also presented.

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RESEARCH: OPTrust Climate Paper Shortlisted

The OPTrust’s position paper ‘Climate Change: Delivering on Disclosure’ has been shortlisted for an ‘RI Innovation & Industry Leadership Award.’ OPTrust is the only Canadian pension fund in its category for the award, which recognizes best practice in the responsible investment, ESG, and sustainable finance community. “We are honoured that our approach to drive standardized measures for carbon disclosure in the investment industry was recognized. Climate change is one of the most complex issues we face, which is why we’re taking bold steps to help investors understand and mitigate the risks to our portfolios,” says Hugh O’Reilly, OPTrust president and CEO. It was released in January together with an assessment and analysis of the fund’s climate risk exposure across the total fund in a report by Mercer titled ‘OPTrust: Portfolio Climate Risk Assessment.’ The paper is on the Benefits and Pensions Monitor website at Climate Change. The winners will be announced on June 6.

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Liptrap Steps Into New Role

Morneau Shepell welcomed Stephen Liptrap to his new role as president and CEO, succeeding Alan Torrie who retired from the position last Friday. Liptrap has been with the company since 2008 and has more than 25 years of senior executive experience. He was appointed chief operating officer just under a year ago. In addressing the board and shareholders at its annual meeting, Liptrap talked about the impact of a rapidly changing world and how the company will continue to deliver consistently strong results. “At the end of the day, it’s how we provide insights and innovative solutions to our clients as their businesses change that allows us to deliver consistent results,” he said. “It is the strength of our people and our agility that allow us to deliver consistent results in all market conditions and all states of change. That has been our history and that will be our future.”

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Disability Trends Examined

Paula Pettit, an associate from Miller Thomson; and Youlanda Hart, director of organizational consulting from Sun Life Financial’ will offer insights and solutions on the drivers of disability costs in the workplace at the Benefits and Pensions Monitor Meetings & Events ‘Disability Trends and Risks’ session. Topics examined will include the use of an integrated approach which brings together prevention, early intervention, and the management of the ever-growing number of workers with chronic diseases to create environments which help employees return-to-work. It takes place May 25 in Toronto, ON. For information, visit Return To Work

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May 5, 2017


UK Gold Standard For Infrastructure

The British and Australian approaches are something to look at as the gold standard for government partnerships with large institutional investors on infrastructure projects, says Ron Mock, CEO of the Ontario Teachers’ Pension Plan. Speaking at the International Finance Club of Montreal, he said the UK pioneered the modern partnership to such investments in, for example, ports, airports, rail, water, and energy. Since 2010, Australia has raised A$90 billion from these partnerships, much of which was invested straight back into the new infrastructure projects. Unfortunately, he said, getting the right plan in place is often a reality only when governments end up with their backs to the wall and, rather than choosing a solution, they are forced to find one.

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New Business Offers More Inflows

Money managers across the U.S. and Europe that work to serve new institutional clients could see $1.5 trillion in inflows through 2021, says research by Casey Quirk, a practice of Deloitte Consulting. It warned, however, that those choosing to focus instead on their legacy institutional offerings, deciding against enhancing sales and service models, will experience more than $770 billion in outflows over the same period. It says money managers must branch out to defined contribution, subadvisory, family offices, and certain retail investors in order to attract new assets. They will likely need to alter sales structures and strategies to work effectively with what it terms ‘emerging buyer groups,’ rather than taking incremental steps in differentiating offerings in a saturated and competitive environment.

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Employee Contracts Could Save Hassle

Employers could save a lot of hassle if they would only create written employee contracts, says George Vassos, an employment and labour lawyer with Littler LLP. Speaking at the Canadian Group Insurance Brokers’ ‘May Seminar,’ he said an employee contract is fundamental to eliminate a lot of potential grief because it gives employers something to argue should a case go to court or arbitration. “Employees usually have a leg up on employers because they are seen as a vulnerable group and deserve the support of the law,” said Vassos. So, employers need to do everything they can to have a strong case and avoid arbitration or court. This includes putting the terms of potential termination of work and benefits due to disability in as many places as possible, including a signed employee contract for non-union employees, company policies, and benefits booklets and reaffirming these terms where possible. Employers are at risk of violating human rights laws and unlawful dismissal or unlawful termination of benefits, among other things, “and this can become very costly,” said Vassos.

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Research: Private Debt Offers Opportunity

The majority of institutional investors hold only publicly traded bonds within their investment grade portfolios, says TD Asset Management. Because they are publicly traded, these bonds offer liquidity ‒ holdings can easily be sold at any time. However, not many institutional investors require their investment grade allocation to be 100 per cent liquid 100 per cent of the time. For those without this requirement, it says private debt offers a unique opportunity to give up some excess liquidity in exchange for additional yield, safety, and diversification in the research report ‘Enhancing Your Investment Grade Allocation with Private Debt,’ at the Benefits and Pensions Monitor website

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WSIB Wants To Hear About Stress

The Workplace Safety and Insurance Board (WSIB) wants to hear from Ontarians about its plans for supporting people who suffer from work-related chronic mental stress. It is now accepting public input on its proposed chronic mental stress program, available at wsib.on.ca. The consultation dealing with chronic mental stress follows the government of Ontario tabling legislation as part of its 2017 budget that would, if passed, expand the entitlement for injured workers by allowing compensation for work-related chronic mental stress. Anyone wishing to submit comments should visit Stress Consultation

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DGAM Signs PRI

Desjardins Group’s portfolio manager, Desjardins Global Asset Management (DGAM), is making its commitment to responsible investment official by becoming a signatory of the Principles for Responsible Investment (PRI). DGAM, which has been serving institutional and private clients since 2003, began to incorporate ESG strategies into its portfolio management approach in 2012, with help from providers such as MSCI. “By factoring in ESG criteria, we’re able to go beyond the traditional financial analysis of the companies we invest in. Adopting the PRI shows that we’re committed to growing our responsible investment expertise,” says Nicolas Richard, DGAM’s chief operating officer. “Since November 2016, we have a team of responsible investment specialists precisely to make headway in this area.” The PRI initiative, launched in 2006 and supported by the United Nations, has nearly 1,700 signatories from over 50 countries, representing US$62 trillion in assets under management.

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Technology Contributes To Burnout

Almost half of employees are unhappy in their work in part due to poor work/life balance and feeling underappreciated in their role, says Teem, a developer of cloud-based meeting tools and analytics that help workplaces optimize productivity. Its second annual ‘Employee Happiness’ report says although there is excitement around emerging workplace technologies, it is clear that mismanagement of workplace technology can be a contributing factor to employee burnout and poor office communication. Unhappy workplaces are created by poor communication, stifling workplace design, and lack of guidelines concerning communication and tech use when not on the clock, among other factors. “New technologies are rapidly overhauling everything about how we work. Business must remain flexible to keep pace. Our data shows that employees associate these tools with happiness, and by extension productivity,” says Shaun Ritchie, CEO, and co-founder of Teem. “It also shows the value of having proper equipment, usage guidelines, and training to avoid burnout.”

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Ethical Practices Protect Pensions

Pension fund investing has a current and future role in protecting pensioners’ financial security by investing in companies that are currently engaging in ethical business practices, says a report by the International Transport Workers’ Federation (ITF). While most pension fund policies in many countries, such as the Netherlands, Sweden, and Denmark, refer to international standards that include labour rights such as ILO (International Labour Organization), core conventions, and the UN Global Compact, almost one-third of funds, make no reference to international standards. The UK accounts for two-thirds of the funds in this group by number which is particularly worrying given that the UK has the largest pool of retirement assets in Europe, and the second largest in the OECD. Of the funds studies, 42 funds had policies to exclude stocks if they “failed to comply with the fund’s policy or are unresponsive to engagement.”

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Employee Engagement Examined

How One Organization Is Moving the Bar on Employee Engagement’ will be the focus of a CPBI Saskatchewan Region session. Kelley Orban, senior director of stakeholder relations at the Saskatchewan Healthcare Employees’ Pension Plan (SHEPP), will provide high level engagement results and outline how SHEPP has developed and implemented people practices that not only support employee engagement, but have increased it through a variety of organizational changes. It takes place May 17 in Saskatoon, SK. Information is at Saskatoon Session. May 18, it will be held in Regina. For information, visit Regina Session 

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May 4, 2017


Employers Need To Act Now On Drug Plans

The cost of specialty prescription drugs to treat conditions like cancer and hepatitis has doubled over the past decade, and with more high-priced drugs in development, private sector employers need to act now to preserve benefits for their members, says the Express Scripts ‘Canada Drug Trend Report.’ The report shows that private plan spending increased again in 2016 and that rising drug costs, particularly related to high cost drugs and high cost patients, undermine the ability of employers to continue to offer a prescription drug benefit to their employees. “More and more employers are limiting employee access to treatment coverage in an attempt to protect drug plan sustainability because they don’t understand they have other, better options available to them,” says Michael Biskey, president of Express Scripts Canada. It says employers need to act today to introduce comprehensive managed plans, before cost increases become insurmountable. Additional key findings from the study show spending on high cost drugs (those used to treat complex, chronic conditions such as hepatitis C and cancer) grew from 13 per cent of total drug spending in 2007 to 30 per cent in 2016 and 14 per cent of plan members now account for 72 per cent of total plan spending. One out of every $5 spent on prescription drugs in 2016 paid for medication for diabetes or an inflammatory condition. Cancer treatments dominate the drug development pipeline and a continued shift from hospital-administered drugs (covered by public plans) to self-administered drugs is expected to mean more private sector claims and higher costs in the future.

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Tech Is New Macro

Tech is the new macro, says Kevin Hebner, managing director, global portfolio management, Epoch Investment Partners. Speaking at the CPBI Signature Series ‘Investment Trends’ seminar on an ‘Equity Market Outlook,’ he said its effects include downward pressure on wages and core services. It also has a dislocative impact on labour and while the jobs lost as a result of technology will eventually be replaced, it won’t happen as the technology is introduced into the workplace. He also said equity return drivers are getting back to normal although the last five years have been exceptional despite a tepid growth environment. The multiple expansion of P/Es have been turbo-charged and, as a result, investors are moving into a world where they have to concentrate on earnings growth. However, mild multiple contractions will take place as QE (quantitative easing) is withdrawn and interest rates go up gradually.

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Data Lacking On Who Uses Letters Of Credit

There is a troubling lack of available data as to which organizations have been using letters of credit in place of cash contributions to pension funds, says a report from the School of Public Policy. Its report examines available evidence on the motivations for the use of standby letters of credit (SBLC) to fund shortfalls. It says that they are proving useful for some companies, although the exact reasons why are unclear. However, some companies that would appear to have plenty of capital flexibility are using them, so the rationale for their use might not be what the policy anticipated. Meanwhile, it is unclear why so many other companies have chosen not to avail themselves of this temporary pension funding relief, despite the advantages it offers for avoiding the risk of trapped surpluses. Taken together, it would seem that there are signs that the policy changes allowing pension funding relief might be serving their purpose and might be helping companies that could use it, but there is a worrying lack of information to be sure how well they are working and what problems may loom. It certainly seems like a close review is in order, says the report.

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Environment Perfect For OCIOs

The environment is perfect for Outsourced CIO (OCIO) services to come into play, says Anna Zalewski, a counsel, pensions and benefits, at Osler. She told the ‘Outsourcing CIO Function’ session at its ‘Annual Pensions & Benefits Seminar’ that plan sponsors are opting for this solution for a variety of reasons. They face increasing complexity from regulation, have a desire to invest in alternatives to improve returns, and may want more real time decision-making. As well, organizations are stretched and may not have the inhouse expertise to manage some assets. They may even have a fiduciary duty to do if they do not the expertise, she said. However, they need to be prepared to manage possible conflicts, said John Black, a partner, corporate, at Osler. There are a number of models for the OCIO solution. They can range from advisory to full discretionary authority; allocating a portion of plan assets or all of them; and determining if assets can be placed in the OCIO’s funds. The latter may make sense if it reduces costs by creating economies of scale. Before entering into an OCIO arrangement, these and other responsibilities need to be clear. As well, a strategy needs to be in place for exiting an OCIO relationship, said Black. The arrangement needs to be based on contractual building blocks which protect the pension fund, he said.

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Mostly Guessing Now On Trump

While the potential impact of U.S. President Donald Trump is both positive and negative, right now what is happening is a lot of guessing, says Eric Lascelles, chief economist, RBC Asset Management. He told the ‘Policy uncertainty to the fore’ at the CPBI Signature Series ‘Investment Trends Seminar’ that fiscal stimulus is possible as his plans for infrastructure spending and tax cuts are positives. As well, deregulation could help small businesses. On the negative side, trade barriers, tighter immigration, and populism are negatives. These are mean less economic growth in the long run and the net effect of his policies may be negligible. Also hampering him is that his popularity has fallen and this hurts the odds of bringing in strong policies.

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ROM Merger First Of Kind

The merger of the Royal Ontario Museum (ROM) pension plan with the CAAT plan was the first single employer pension plan (SEPP) to jointly sponsored pension plan (JSPP) transfer allowed under Ontario pension rules. In fact, it wasn’t possible before 2016, but it shows there is clearly a need to find different solutions to derisk the employers side, says Derek Dobson, CEO and plan manager of the CAAT pension plan. The merger actually came about during a meeting between Ontario’s universities about creating a CAAT-like pension. The ROM plan was actually once part of the University of Toronto plan and expressed interest in a merger, he said. For CAAT members, the merger improves the outcome of plan by growing its assets and membership base. As well, from a risk management perspective, it made sense as at the time there were talks about closing plans and converting them to defined contribution plans. A larger plan would be more difficult to change, he said. For ROM, the merger got it out of a solvency underfunding situation and created cost certainty, said Evan Howard, CAAT’s vice-president, pension management. It also got them out of the pension business, eliminating the soft costs of managing a pension plan, and allows them to focus on running a museum. Dobson said since the merger they have talked to about 15 plans in both the private and public sectors about joining the CAAT plan so there definitely is interest and opportunities for other mergers. He expects a third to a half of these plans to join CAAT or other plans. And while the private sector is not permitted to enter these arrangements, they have had “soft conversations” about it, he thinks something will come forward. Howard said the province, in fact, has the power to prescribe the merger solution to apply to plans outside the public sector.

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Financial Health Of Plans Improves

As stock markets remained buoyant, the financial health of Canadian defined benefit pension plans defied falling bond yields and improved once again in April, says Aon Hewitt’s ‘Pension Plan Solvency Survey.’ It shows the median solvency ratio stood at 97.1 per cent, up marginally from April 1 when it was 96.7 per cent. Of surveyed plans, 40 per cent were more than fully funded as of May 1, a slight increase from April 1. The gross pension asset return for April was 2.4 per cent, as equity performance remained strong and bond prices recovered.

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Investors Scale Up Climate Action

The world’s biggest investors are rapidly scaling up action to protect their portfolios from climate risk, says the annual benchmark report on the global industry from the Asset Owners Disclosure Project. The ‘AODP Global Climate 500 Index’ says Canada is improving, but six pension funds with combined assets of $124 billion are still taking no action. This year it assesses asset managers for the first time and reveals that they are even more aware of the issue with 94 per cent taking action. The report is at Climate Index

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More Notice Better

The more notice employees can give when making changes to benefits and pension plans, the better, says Allan Wells, a partner, employment and labour, at Osler. In the ‘Changing employee benefits and pensions for active employees’ session at its ‘Annual Pensions & Benefits Seminar,’ he said the standard notification period is 24 months, but courts are chipping away at that. While less notice can be provided when, for example, a defined benefit plan is being converted to a defined contribution plan, any less notice when changing retiree benefits comes with risk. Jonathan Marin, an associate in pension and benefits at Osler, said in addition to labour law considerations on notice, sponsors considering plan changes also need to satisfy provincial pension plan guidelines for notification.

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Real Assets Impact Investment Funds

Investment funds invested in private real assets such as timber, real estate, and infrastructure and aim to advance environmental or social objectives in addition to generating a financial return, can generate returns comparable to similar funds that do not have specific environmental or social goals, says a report by Cambridge Associates in partnership with the Global Impact Investing Network (GIIN). The ‘Financial Performance of Real Assets Impact Investments’ report says real assets play a number of roles in institutional portfolios, providing diversification, current income, the potential for strong, long-term returns, and an inflation hedge. In addition to these benefits, real assets impact investment funds present opportunities for alignment with a number of important impact objectives. For example, many timber-focused impact funds pursue sustainable timber production or land conservation; real estate-focused impact funds are typically focused on green real estate and/or affordable housing; and most infrastructure-focused impact funds targeted renewable energy generation. The report launches three benchmarks which seek to increase the scale and effectiveness of impact investing around the world.

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Lai Fatt Defines Plan Sustainability

Paul Lai Fatt, a consultant at Morneau Shepell, will walk through the definition of pension plan sustainability and what has been done to attain that goal at ‘CPBI FORUM 2017.’ He will also share how plans can create a supporting structure that allows them to be viable for the long haul. Jean Michaud, managing director and senior commodity strategist at Core Commodity Management, will examine ‘Should Institutional Investors Divest From Carbon?’ and Tyler Amell, of Morneau Shepell Work & Health, will look at ‘The Impact of Chronic Disease on Health, Productivity and Engagement.’ It takes place June 5 to 7 in Winnipeg, MB. For information, visit FORUM 2017

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May 3, 2017


BC Court Rules Claim Invalid

In a precedent-setting decision, the British Columbia Supreme Court has held that a U.S. multi-employer pension plan’s claim for $1.25 billion against Canadian Companies’ Creditors Arrangement Act (CCAA) debtors was invalid, says an Osler, Hoskin & Harcourt LLP ‘Update.’ The claim was asserted pursuant to the U.S. long-arm controlled group liability provisions in the Employee Retirement Income Security Act of 1974 (ERISA). The court held that Canadian law, not ERISA, governed the pension plan’s claim. Walter Canada Group, a group of coal mining companies and partnerships all of which were established under Canadian corporate law but wholly owned by a U.S. parent company, Walter U.S., filed for CCAA protection in Canada, while Walter U.S. and its American subsidiaries entered proceedings under the U.S. Bankruptcy Code. One of the American subsidiaries had unfulfilled pension withdrawal liabilities to an American multi-employer pension plan. Although no Walter Canada Group entity was a party to the pension, the plan sought to claim this withdrawal liability from Walter Canada Group under a long arm statute, ERISA. The court said ERISA’s scheme of controlled group liability had the legal effect of dissolving the boundaries between Canadian and American corporations – ignoring the fundamental principle of separate corporate personality enshrined in Canadian law. As a result, the appropriate choice of law rule was the rule regarding corporate personalities: that the governing law was the law of the place of incorporation. Since Walter Canada Group is composed of Canadian entities, Canadian law applied.

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Caisse Adheres To Tax Laws

The Caisse de dépôt et placement du Québec has reaffirmed its commitment to protect and invest Québecers’ funds while adhering to the spirit and letter of all applicable tax laws. Following the publication of a report by the Journal de Montréal, it says as a public pension fund, it pays no tax in Québec and Canada. Investment returns are taxed when retirees receive their pension benefits. As such, the tax framework applicable to the Caisse is similar to that of registered retirement savings plans (RRSP), under which contributions and investment returns are tax-exempt, but withdrawals are taxable. Because retirees are taxed when their pension benefits are paid, any taxation of the Caisse’s investment returns represents a form of double taxation of retirees’ savings, which reduces the amount of their benefits. Indeed, in such cases, retirement savings are taxed once at the Caisse’s level and a second time when pension benefits are paid. This double taxation is unfair for Québec retirees. For this reason, la Caisse seeks to limit double taxation as much as possible.  

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Sideways Market Trend Continues

Lows in interest rates have probably yet to be seen as the sideways market runs its course, says Kim Shannon, president and co-chief investment officer of Sionna Investment Managers. Speaking at its ‘ 2017 Financial Market Review,’ she said secular bull runs are a rarity, not the norm and after major bull markets, markets trend sideways for 15 to 30 years. Sideways markets typically run sideways until the excess is taken out and P/Es return to single digits. Current earnings growth trends suggest single digit P/Es by 2022, although standard deviation event symmetry suggests that after an 18-year bull market, this sideways market could end in 2018. In any event, she said, investors can expect modest returns in both equities and bonds over the next decade, but equities returns will exceed bonds returns. This means it is time to bring equity allocations back to normal levels.

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Investors Want Modern Slavery Legislation

More than 30 major institutional investors are calling for the introduction of modern slavery legislation in Australia. They have signed a statement to a group of lawmakers in Australia that is conducting an inquiry into establishing a Modern Slavery Act in the country. “As investors, we believe human rights issues can present potential financial impacts through reputation damage and operational risks to our portfolio companies,” says their statement. “We therefore welcome a Modern Slavery Act which would improve transparency on how companies operating in Australia are managing modern slavery risks in their operations and supply chains.” The statement was organized by the Principles for Responsible Investment (PRI).

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Disruptions Less Than Expected

Emerging threats and disruptors are not a new ideas, says Mel Mariampillai, a portfolio manager at Sionna Investment Managers. Participating in a panel discussion at its ‘2017 Investors Day’ with Marian Hoffmann, lead portfolio manager for the firm’s focused dividend strategy and large-cap strategy, and Dave Britton, a portfolio manager, he said concerns that disrupters like FinTech, Blockchain, and PayPal would jeopardize the banking interest were also raised when ATMs were first installed. They were supposed to put branches and tellers out of work, but now there are more branches than ever. Online banking was supposed to be another disruptor, but traditional banks built it into their business and they are now the biggest online banks. Hoffman said there has been lots of disruption in the energy space. With fossil fuels, horizontal drilling and fracking gave extraction companies access to land they couldn’t develop before and more resources are being extracted from the ground. This has resulted in falling prices and she believes they will stay down for some time. Renewable energy is also susceptible to change and disruptive forces. Wind and solar are becoming competitive with traditional carbon energy prices. Some disruptors are being talked about today, but may be a long way off, said Britton. Autonomous vehicles will be extremely disruptive, assuming they are ever completely autonomous. He said they will gradually develop through the car giving warnings to not needing anyone in car. When that happens, it will disrupt insurance, auto parts, and public transportation. If these vehicles reduce the number of accidents, it will result in lower auto insurance premiums and insurers will have to adjust to that.

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Returns Positive For Fourth Straight Quarter

The median return of the BNY Mellon Canadian Master Trust Universe, a BNY Mellon Global Risk Solutions fund-level tracking service, was +3.11 per cent for the first quarter of 2017, marking the fourth straight quarter of positive results. The one-year return of +11.22 per cent was above the Canadian Master Trust Universe’s 10-year annualized return of +5.97 per cent and marked the fourth consecutive quarter of positive one-year performance. “The Canadian plans are off to a healthy start for 2017 with 100 per cent of the plans posting positive results and a median return of +3.11 per cent for the first quarter,” says Catherine Thrasher, managing director, global risk solutions Canada, at BNY Mellon Asset Servicing. “Both plan types benefitted from higher allocations to outperforming international equities, the top performing asset class for the first quarter with a median return of +7.74 per cent. U.S. equity was the best performing asset class over the one-year time horizon (+21.65 per cent).”

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Dollar Depreciation Helps Indices

Thirty-eight of the 44 Morningstar Research Inc. fund indices increased during the month, including 18 indices that increased by more than two per cent. The depreciation of the Canadian dollar depreciated against all major world currencies due in part to falling oil prices and speculation over the future of trade agreements provided a boost to funds that focus on foreign equities and do not hedge their currency exposure. The steepest decline for the loonie was against the euro and the British pound, depreciating 4.5 per cent and 5.8 per cent, respectively. Combined with modest gains on European stock markets, this led to strong performance for funds in the European equity category which was the top-performing fund index in April with an increase of six per cent. Favourable currency effects and market gains also combined to produce good results for Asian equity funds. In the United States, the S&P 500 Index had a total return of one per cent while the U.S. dollar appreciated by 2.6 per cent against the loonie. As a result, funds in the U.S. equity category produced an aggregate gain of three per cent.

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AGF Joins ETF Group

AGF Investments Inc. has joined the Canadian ETF Association (CETFA). “With the launch of AGFiQ and our offering of ETF solutions, we believe we are bringing to market a differentiated and unique experience for Canadian investors,” says Jay Bhutani, senior vice-president, head of ETF strategy, at AGF Investment Inc. ETFs in Canada finished 2016 with $114 billion in assets, an increase of nearly $25 billion over the previous year and growth rate of approximately 20 per cent.

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Tasev Joins HumanaCare

Jennifer Tasev is vice-president of sales at HumanaCare. Her career spans two decades in financial services at RBC, Aon, and American Express and in technology at ADP.

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Trump Impact Examined

President Trump: Building a Vision or Repairing the Past?’ is the focus of a CPBI Alberta North session. Angus Watt, managing director, individual investor services, at National Bank Financial Wealth Management and CEO and partner at Angus Watt Advisory Group; will speak on the impact of U.S. President Donald Trump’s administration and the potential effect on the economy. It takes place May 10 in Edmonton, AB. For information, visit Trump’s Vision

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May 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 May 2017 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)

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