Industry News

March 15, 2017


Investors Raise Exposure To Higher Risk

Faced with volatility, greater risks, and still-low yields, institutional investors are raising their exposure to higher-risk assets in pursuit of better returns, says an international survey of institutional investors by Natixis Global Asset Management. At the same time, they are doubling down on risk management to better balance long-term growth objectives and liquidity needs, but say they need better ways of identifying risk across their portfolios. Sixty-two per cent of institutional managers feel they can handle near-term market risk despite greater volatility which they say poses the biggest risk to their performance. Their top organizational concern, however, is low yield. Given the prospect for greater volatility and persistence of low interest rates, few institutions are relying on traditional portfolio strategies to meet their performance goals. Instead they are increasing their exposure to equities and alternatives and turning to illiquid assets and the private markets for risk-managed return generation and yield replacement. “While risk factors change over time, the challenge for institutional investors remains to deliver long-term results while navigating short-term market pressures,” says David Giunta, CEO for the United States and Canada. “Given their mandates, avoiding risk is not an option for institutional investors. They have to beat the odds or change the game and they are doing so by balancing risks and embracing alternatives to traditional 60/40 portfolio construction, but always with an eye on their long-term objectives.” The survey found 67 per cent of institutional investors think private equity provides higher risk-adjusted returns than traditional asset classes and more than half (55 per cent) believe private equity provides better diversification than traditional stocks. As well, 73 per cent think private debt provides higher risk-adjusted returns than traditional bond investments. About one-third (34 per cent) of institutions report that they are planning to increase allocations to real assets, including real estate, infrastructure, and aircraft financing, in the next 12 months. As seen with their broader views on private markets, 63 per cent of institutional decision-makers’ primary goal for investing in real assets is earning higher returns.

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Evolving QDIA Emerging In U.S.

Evolving qualified default investment alternatives (QDIA) structures and retirement income flexibility are two emergent trends for the U.S. defined contribution industry in 2017, says research from Cerulli Associates. “Asset managers should closely watch product development in QDIA trends in the DC market,” says Bing Waldert, managing director at Cerulli. “These products represent an opportunity for asset managers with capabilities in the multi-asset-class space. Multi-asset-class solutions are one of the key ways in which asset managers are redistributing their intellectual capital to compete against the continuing rise of passive products.” It shows nearly half of mega plan sponsors believe that participants should leave their assets in plan at retirement and take income from the 401(k). A second key development to watch in mega plans is to see whether they adapt to become a retirement income platform. 401(k) plans do not provide the desired flexibility for retired investors to use them as an income platform. Consultants should work with plan sponsors to modify plan documents to allow greater flexibility, it says.

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‘Bad Inflation’ Possible With Trump

Now that Donald Trump has assumed office as president of the U.S., focus has begun to shift to parts of his agenda that could prove to be growth depleting, accompanied by ‘bad’ inflation, says Erik Weisman, a fixed income portfolio manager with MFS. In the article Labour And Capital In The Age Of Trump’ at the Benefits and Pensions Monitor website, he says in the early days of his administration, his attention has been focused squarely on international trade and immigration which has created concern among investors. Additionally, there are general concerns that whatever fiscal policy emerges from the new administration will take longer to unfold and be smaller than the markets have priced in to date.

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Borealis Acquires Stake In Kemble

Borealis Infrastructure, the infrastructure investment manager of OMERS, and Wren House Infrastructure Management Limited, the infrastructure investing arm of the Kuwait Investment Authority, will acquire a 26 per cent stake in Kemble Water Holdings Limited, the ultimate holding company of Thames Water Utilities Limited, from Macquarie Infrastructure & Real Assets. Other large shareholders in Kemble include pension funds and other long-term investors from the UK and around the world. Thames Water is the UK’s largest water and waste water services provider serving 15 million customers across London, the Thames Valley, and surrounding areas. It supplies 2.6 billion litres of drinking water per day and treats 4.4 billion litres of waste water per day.

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Fundraising Difficult For Hedge Funds

Despite the better performance environment over the past 12 months, fundraising remains difficult for hedge funds as investors continue to reduce or consolidate their portfolios. However, some strategies may be better placed to attract fresh inflows: nearly a quarter of active hedge fund investors surveyed by Preqin at the end of 2016 stated that they intended to increase their exposure to event driven and equity strategies, and these strategies are generating some of the highest returns through the year so far.”

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Pennington Becomes CIO

Suzann Pennington (CFA) is chief Investment officer (CIO) at Foresters Asset Management Inc. She is an investment professional with over 30 years of industry experience and brings a wealth of knowledge, proven investment expertise, and leadership ability to the role. She will be assuming responsibilities from R. Gregory Ross, the current CIO and head of fixed income, who as president and chief executive officer will be focusing his efforts on building its business.

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Pooling Pricing Examined

De-mystifying Pooling Pricing: The Past, Present and Future of Pooling Practices’ will be the focus of a Benefits Breakfast Club session. Sessions will discuss how underwriters set pooling rates, address claims trends, and forecast the future impact on large amount pooling and working with plans where one or more health claims are charged to the EP3 and/or insurer pools. It takes place March 23 in Cambridge, ON. For information, visit Pooling Pricing

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March 14, 2017


OPTrust Outpaces Benchmarks

OPTrust achieved an investment return of six per cent for the total fund, net of external management fees and outpaced all of its benchmarks. The organization also received high scores with members and retirees rating their satisfaction with a score of 9.1 out of 10, says its ‘2016 Funded Status Report.’ “The measure of success that matters the most is the plan’s fully funded status,” says Hugh O’Reilly, president and CEO of OPTrust. “We are risk allocators, not asset allocators. That’s why the true goal behind short-term performance is the long-term funded position,” ensuring its ability “to pay pensions today and preserve pensions for tomorrow.” The plan remained fully funded in 2016 on a regulatory filing basis. Its real discount rate was lowered to 3.4 per cent, net of inflation, from 3.55 per cent in 2015, reflecting increased actuarial margins and reducing the risk of future losses due to investment returns falling short of the expected cost of members’ future pensions. The funding valuation confirmed deferred investment gains of $681 million at the end of 2016, which should further improve funded status in the years to come. OPTrust introduced its member-driven investing (MDI) strategy in 2015 with a singular focus to increase the likelihood of plan certainty by balancing the objectives of sustainability and stability to better align the plan’s outcomes with members’ needs. During 2016, OPTrust began implementing MDI through dynamic portfolio construction of the total fund with its illiquid and liquid strategies. Its net assets increased to $19 billion at year-end, compared to $18.4 billion as at December 31, 2015.

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Healthcare To Consume More Spending

Healthcare spending by provincial governments has increased by 116 per cent since 2001 and even though increases have slowed recently, healthcare is projected to consume an even larger portion of program spending over the next 15 years, says a Fraser Institute study. “Following more than a decade of marked healthcare spending increases, Canadians may wonder why historically long wait times and a lack of access to doctors and life-saving equipment remain staples of Canadian healthcare,” says Bacchus Barua, senior economist for healthcare studies at the Fraser Institute and co-author of ‘The Sustainability of HealthCare Spending in Canada, 2017.’ By 2031, the study estimates healthcare spending will consume 42.6 per cent of all provincial program spending (on average), up from 40.1 per cent in 2016 and 37.6 per cent in 2001. In Alberta, which had the largest increase over the 15-year period, healthcare spending grew by a 191 per cent ‒ almost doubling GDP growth ‒ followed by Saskatchewan (137 per cent), Manitoba (123 per cent), and Ontario (114 per cent). And when measured relative to the size of the economy, healthcare spending is also on the rise. While provincial healthcare spending (in total) represented only about six per cent of Canada’s GDP in 2001, it is projected to grow to 9.3 per cent by 2031. “As healthcare spending continues to grow and consume a larger share of provincial program spending and the economy, there’s either less money available for other important priorities or governments may have to raise taxes and/or run deficits to cover the increasing costs,” Barua says.

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Penalty Considered For Genetic Testing

U.S. employers could impose hefty penalties on employees who decline to participate in genetic testing as part of workplace wellness programs if a bill approved by a House committee this week becomes law. While employers, in general, don’t have that power under existing federal laws that protect genetic privacy and non-discrimination, this bill would allow employers to get around that if the information is collected as part of workplace wellness programs. Under the Affordable Care Act, employers are allowed to discount health insurance premiums by up to 50 per cent for employees who voluntarily participate in a wellness program. The 2008 Genetic Information Nondiscrimination Act (GINA) prohibits discrimination by health insurers and employers based on the information that people carry in their genes. But the law states that employee participation must be entirely voluntary, with no incentives to provide it, or penalties for not providing it. The proposed legislation would allow employers to impose penalties of up to 30 per cent of the total cost of the employee’s health insurance on those who choose to keep such information private.

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Pensioners Face Hardships

Urgent action is required from the federal and Newfoundland and Labrador governments to alleviate life-threatening health crises and economic hardship for Cliffs Natural Resources pensioners, says the United Steelworkers (USW). “It has been more than a year since vital health benefits were taken away from these pensioners, widows, and laid-off workers. Their pensions have been slashed. They can’t afford to pay for medications and treatments they desperately need,” says Marty Warren, the USW’s director for Atlantic Canada and Ontario. The USW is calling for an emergency meeting with federal and provincial politicians to implement a plan for immediate assistance to the pensioners and former workers of Cliffs Natural Resources’ Wabush Mines operations. The pensioners saw their health benefits eliminated last year after the company closed its Canadian operations, which were placed under creditor protection under the Companies’ Creditors Arrangement Act (CCAA). The pension plan had not been fully funded and pensions were subsequently cut by 21 to 25 per cent.

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Emerging Markets See Inflows

Emerging market funds continued to see inflows last week, but investors pulled back from high yield due to the expected rise in U.S. interest rates, says EPFR Global. Overall, nearly $12 billion flowed into all equity funds in the five days up until March 8, while bond funds raised $4.6 billion and money market funds took in a net $26.6 billion. The ‘fair-to-good’ economic data and President Donald Trump’s reflationary agenda meant there were high expectations that U.S. rates will rise again this week. This kept money flowing into U.S. equity funds but also prompted investors to ‘pencil in’ stronger demand for emerging markets and commodities. At the emerging market country level, Brazil equity funds took in fresh money for the seventh consecutive week and flows into Chile equity funds climbed to an 18-week high. Junk’ bond funds had their biggest redemptions since mid-December.

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AIMCo Acquires Shares In Allied

Alberta Investment Management Corporation has signed a letter of commitment with Fairfax Financial Holdings Limited to invest US$500 million in order to indirectly acquire just over 10 per cent of the issued and outstanding shares of Allied World Assurance Company Holdings, AG. The investment in Allied World provides an opportunity to gain direct exposure to a global provider of innovative property, casualty, and specialty insurance and reinsurance solutions.

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CPPIB Invests In Logistics

The Canada Pension Plan Investment Board (CPPIB) has entered into agreements to invest alongside Ivanhoé Cambridge with real estate logistics specialist LOGOS to develop and acquire modern logistics facilities in Singapore and Indonesia. In Singapore, a key global logistics hub, CPPIB will initially commit S$200 million for an approximate 48 per cent stake which will be seeded by two fully leased existing multi-storey logistics warehouse facilities as well as one development opportunity. It will initially commit US$100 million in equity for an approximate 48 per cent stake in Indonesia which has an identified pipeline of development opportunities in Greater Jakarta. It will develop assets to meet the increasing demand for modern logistics facilities on the back of Indonesia’s compelling macroeconomic fundamentals, rapid eCommerce growth, and a growing logistics sector. CPPIB and Ivanhoé Cambridge will be equal partners in both joint ventures, with LOGOS, as the operating partner, holding the remaining stake in the ventures.

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Marchessault Heads BC Funds

Claude Marchessault is executive director of the British Columbia Teachers’ Pension Plan, College Pension Plan, and Public Service Pension plan. He replaces Bruce Kennedy, who retired and began in his new position March 1. Marchessault was an attorney in the pension, benefits, and executive compensation group at Dentons Canada.

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Medical Marijuana Examined At Session

Medical Marijuana in the Workplace’ will be examined at a CPBI Pacific session. Shelley Kee, senior vice-president of group business at Pacific Blue Cross, will offer insight into the challenges of medical marijuana as it gains acceptance into treatment protocols in a number of disease states. It takes place May 9 in Vancouver, BC. For information, visit Medical Marijuana

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March 13, 2017


ESG Incorporation Challenges Remain

Environmental, social, and governance investing is important to the alternative investment management industry, although incorporation challenges remain, says a survey from the Chartered Alternative Investment Analyst Association and private equity manager Adveq. It found 77 per cent of CAIA members ‒ including asset owners, asset managers, and consultants ‒ say ESG investing is more important now than it was three years ago and 78 per cent predict ESG investing will be more important three years from now than it is today. However, only 52 per cent of asset owners and managers now incorporate ESG factors into their investment decisions with ethical principles, constituents’ demands, and business opportunities driving their incorporation. Holding some investors back, particularly in the U.S., is the emphasis on short-term earnings, along with the low funding levels at some public pension funds where officials might feel they can’t afford the long-term play that is responsible investing. The biggest hurdles to ESG incorporation are a lack of standardized, comparable data on material sustainability issues; managing varied constituency requirements; finding suitable investments; and a lack of ESG-dedicated resources.

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Employers Need To Understand Generations

With up to four generational cohorts of employees working for organizations, each with very distinct characteristics, employers need to understand these generations, says Trish Miller, a consulting actuary at Willis Towers Watson. She told the CPBI Southern Alberta Region session ‘Building Employee Financial Well-Being’ each generation is at a different life stage and has different concerns about their financial well-being and retirement savings. Many Canadians in the workforce are concerned about their financial well-being with 74 per cent believing they are facing a less comfortable retirement than their parents and one in five with financial problems that are negatively impacting their lives. This should concern employers because employees who struggle with financial issues have higher rates of absence and are more stressed and less productive than employees without financial worries. This productivity loss can total big dollars, says Dan Morrison, a senior retirement consultant at Willis Towers Watson. To help alleviate some of these financial pressures, he suggested simplifying retirement planning for employees through the use of technology and plain language as employees are more likely to engage in financial planning if they have simple tools that are user friendly, easy to understand, and can help them make smart decisions about their future.

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Sponsors Need To Help Retirees Too

Retirement plan sponsors should not just help their current workers, but those who have retired, says Vanguard. To accomplish this, it has recommendations centered around allowing retirees to keep their money in the plan and create income streams. As many plans force people to cash out when they reach a certain age, such as 65 or 70½, it is asking plans to consider lifting such requirements and permit retirees to take partial, ad hoc distributions. Just as plans permit new employees to roll over assets from previous plans to consolidate their assets and better manage them, it believes that plans should open the gates to permit retirees to include outside assets. And since even retirees need to grow their assets. it believes plans should offer investment options for retirees along with education and advice.

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Environment Key Area Of Proxy Focus

The environment and corporate political activity remain key areas of focus for shareholder proposals this proxy season, says a report by non-profit shareholder advocacy groups As You Sow, Sustainable Investments Institute, and Proxy Impact. Environment-related proposals accounted for 26 per cent of the 430 shareholder proposals filed as of February 15, followed by political activity at 21 per cent; human/labour rights, 18 per cent; and sustainability, 12 per cent. Within environment, climate change remains a primary focus, although the total number of proposals focused solely on climate change dropped to 82 this year from 94 this time last year, says ‘Proxy Preview 2017.’ Investors continue to encourage more carbon tracking and risk management disclosure. Corporation political activity also remains a key issue for shareholder activists, although the percentage of political activity-related proposals is down six percentage points from last year to 20 per cent. For the fifth straight year, lobbying disclosure proposals surpassed proposals on election spending. With human rights, the Israeli-Palestinian conflict remains a big focus, accounting for some 20 proposals. New this year are proposals that focus on banks and energy companies’ indigenous-rights policies, inspired by the Dakota Access Pipeline controversy.

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Private Equity Satisfies Investors

Private equity investors indicated that they were very satisfied with the asset class and its performance in 2016 and will commit more capital to the asset class in 2017 than the year before, says a Preqin survey. This comes despite the level of unspent capital held by fund managers reaching a record high, with subsequent impacts on asset valuations and deal-making competition. There are concerns among fund managers that these pressures will affect future performance. However, although some investors have expressed reduced confidence in private equity’s ability to meet their objectives, almost half now expect their portfolios to outperform public markets by more than four per cent.

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HR Association Has New Name

HRMA, the Human Resource Management Association, is now CPHR BC & YK, the Chartered Professionals in Human Resources of British Columbia & Yukon. Similarly, member associations in Manitoba, Saskatchewan, and Newfoundland & Labrador have already changed their name to reflect the national designation and the global standard of human resources excellence ‒ CPHR. Anthony Ariganello, president and CEO of CPHR BC & YK,’ says the “changes reflect the fact that HR professionals today are impactful, high-value, trustworthy business leaders with unique expertise in delivering on business outcomes while supporting the success of individuals.” The profession in Canada is now officially represented nationally and internationally by the Chartered Professionals in Human Resources Canada (CPHR/CRHA Canada). CPHR Canada includes HR professionals in all Canada’s provinces and territories except Ontario.

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Toll Road Acquisition Closes

Northleaf Capital Partners has reached financial close on its acquisition of a 33.3 per cent equity interest in Northwest Parkway, a toll road located in Denver, CO. Northleaf joined with its consortium partners DIF Infrastructure IV and HICL Infrastructure Company Limited to together acquire a 100 per cent equity interest in the parkway from Brisa, a Portuguese toll-road operator. With the investment, Northleaf and its consortium partners own the rights to operate and maintain the parkway, a 14 kilometre section of the beltway system extending around Denver, for the remaining 90 years of the original 99-year concession. The road, which opened in 2003, benefits from strong traffic history and connects with several important toll and non-toll highways.

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Turner Returns

Marcus Turner is a director and senior investment consultant at Willis Towers Watson. He was most recently an investment principal at Morneau Shepell. This marks his return to Willis Towers Watson as he spent eight years there previously as a senior investment consultant.

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Merton Speaks At Conference

Robert Merton, the Alfred Nobel Memorial Prize Winner in Economic Sciences, is the featured speaker at the CFA Society’s ‘Toronto 2017 Annual Spring Pension Conference.’ Other speakers include Julie Cays, chief investment officer at the CAAT Pension Plan; Robert Cultraro, chief investment officer for the Hydro One Pension Plan; James Davis, chief investment officer at OP Trust; and Malcolm Hamilton, an actuary and senior fellow at the C.D. Howe Institute. It takes place March 30 in Toronto, ON. For information, visit Pension Conference

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March 10, 2017


HOOPP Assets Reach Record High

The funded status of the Healthcare of Ontario Pension Plan (HOOPP) at the end of 2016 was 122 per cent. Its net assets reached a record $70.4 billion, up from $63.9 billion in 2015, following a rate of return on investments of 10.35 per cent in 2016. As a result of the plan’s stable funding position, contribution rates made by HOOPP members and their employers have remained at the same level since 2004 and the board of trustees has committed to maintaining these rates until 2018. Investment income for the year was $6.6 billion compared to $3.1 billion in 2015 and the fund’s 10.35 per cent investment return exceeded its portfolio benchmark by 4.23 per cent or $2.7 billion. Its 10-year annualized return stands at 9.08 per cent and its 20-year annualized return is 9.12 per cent. However, “we consider the true measure of our success to be our funded status as this demonstrates our ability to meet our current and future pension obligations,” says Jim Keohane, HOOPP president and CEO.

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Engaged Owners Optimize Long-term Value

The Canada Pension Plan Investment Board (CPPIB) believes that being an active and engaged owner of companies in which it invests helps it to optimize their long-term value, which in turn helps to safeguard the CPP fund. One of the core ways it engages with the public companies it invests in is by voting at their shareholder meetings. “This is a critical way to convey our views on company affairs and to influence decisions of the board of directors and management,” it says. Public market equities account for almost one of every three dollars it manages – making it the CPPIB’s largest asset class by a sizeable margin. It votes at shareholder meetings by proxy and in the year ended June 30, 2016, it voted on more than 51,000 items at almost 5,000 shareholder meetings. These meetings took place in all regions of the world, with the majority in Asia-Pacific (1,936) followed by North America (1,878), and Europe (644). The items on which it votes vary depending on the market requirements that apply and on the issues specific to the industry or company.

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Investors Turn To Fixed Income ETFs

Canadian institutional investors, who have led the world in their innovative applications of exchange traded funds to realize their investment strategies, are increasingly turning to ETFs not just for equity allocations, but also for smart beta and fixed income strategies, says a Greenwich Associates study. In its fourth annual study of institutional ETF use, sponsored by BlackRock Asset Management Limited (BlackRock Canada), found that the increasing innovation in ETF adoption is building on Canadian institutions’ strong reliance on ETFs. Participating institutional investors hold an average of 16 per cent of total assets under management in ETFs and more than a quarter of respondents planned to increase their ETF holdings in the next 12 months. One driver of growth in institutional adoption has been the increasing use of ETFs as an important means to express strategy, as opposed to tactics. In fact, more than half ‒ 58 per cent ‒ of institutions characterize their ETF holdings as strategic in nature and nearly two-thirds (63 per cent) hold their ETF investments for a year or longer, the threshold normally considered a ‘strategic’ investment.

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Buy Lists Challenge Managers

Buy lists ‒ by a significant margin ‒ are the most challenging aspect of all European alternatives manager interactions with consultants, says Cerulli Associates. Its report, ‘European Alternative Products and Strategies 2017: Innovation in the Fast Evolving Alternatives Industry,’ shows the barriers to selection are substantial and include having assets under management of less than US$105 million and having a track record shorter than three years. In addition, their originality and unconventionality ‒ which should be their key strengths ‒ can prevent alternatives products being considered for traditional consultant short lists, simply because there is no satisfying benchmark. The good news for alternatives managers is that consultants are experiencing a period of upheaval. Their traditional, conservative approach has been unable to address the market forces currently at play. Cerulli believes that alternatives managers now have an opportunity to help reshape the way consultants think, to be considered for revised recommended lists and solutions, and to re-engage directly with consultant clients.

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Fiera Acquires Thames Water

Fiera Infrastructure Inc., through its wholly-owned subsidiary, Aquila GP Inc., has acquired an additional equity interest in Thames Water. The increase in equity interest comes through investment in Kemble Water Holdings Limited, the ultimate holding company of Thames Water, and further solidifies Fiera Infrastructure’s governance through a position on the board of directors. Thames Water is the largest provider of water and sewerage services in the UK, supplying 2.6 billion litres of clean drinking water and safely removing 4.4 billion litres of wastewater for over 15 million customers across London and the Thames Valley region.

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Private Equity Assets Hit New High

Private equity firms had a record $2.49 trillion in assets as of December 31 and 319 new firms launched in 2016, says a report by Boston Consulting Group. ‘Capitalizing on the New Golden Age in Private Equity’ says this is up four per cent from $2.4 trillion in total worldwide assets under management at the end of 2015. However, the private equity industry has close to $900 billion in dry powder, up from $839 billion as of September 30, 2016. There are forces that could end the ‘golden age in private equity,’ including intensifying competition and investors’ continued culling of manager relationships as they commit larger amounts of capital with fewer numbers of managers.

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Teachers’ Enters Development Partnership

Anbaric, a leader in the development of clean energy transmission and microgrid projects, and Ontario Teachers’ Pension Plan (Ontario Teachers’) have partnered to create a new development company, Anbaric Development Partners. The partnership will develop clean energy infrastructure projects in North America, accelerating the revitalization of aging transmission networks.

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Larson Joins Wolseley

Kirk Larson is vice-president of human resources (HR) with Wolseley Canada Inc. With nearly 30 years of management experience in HR, he joins Wolseley from Rolls-Royce Limited where he held several progressive executive HR positions.

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CPBI Ontario Offers Benefits Certificate

The CPBI Ontario region is offering a ‘Canadian Benefits Program Certificate.’ Those that pass the three levels will receive a CPBI/HRPA accredited certificate. The levels are an introduction to the key elements of a Canadian benefits program; an in-depth look into cost management and claims management strategies and pricing; and an examination of the drug and disability plan landscape. It takes place April 5 to 7 in Toronto, ON. For information, visit www.hrpa.ca

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PCMA Conference Looks At Diversification

Bringing Diversification to Canadian Investors’ is the theme of the 6th Annual PCMA Private Capital Markets Conference. The Private Capital Markets Association of Canada event takes place April 20 in Toronto, ON. For information, visit Bringing Diversification

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March 9, 2017


Voluntary Pensions Don’t Deliver

A voluntary employer pension system will not deliver the retirement savings model that Canadians need, says Dr. Elizabeth Shilton, a senior fellow at the Queen’s Centre for Law in the Contemporary Workplace and a McMurtry visiting fellow at the Osgoode Hall Law School. Speaking on ‘Empty Promises: Why Workplace Pension Law Doesn’t Deliver Pensions’ at the Osgoode Professional Development Certificate in Pension Law program, she said workplace pension plans are in deep trouble. Coverage has been in decline since the 1970s and plans are not coming back. Defined benefit plans are being replaced by defined contribution plans, RRSPs, and pooled retirement pension plans which are little more than savings accounts. A fundamental point is that the system was generated by economic forces and rules that no longer exist. Voluntary employer sponsored pension plans were created by employers to meet their need to attract and retain employees, not to meet the retirement needs of employees. Employers loved DB because they were loss costly as those who left for retirement for any reasons lost their benefits and the pension could be paid at the discretion of the employer. In fact, up until pension reform of the 1960s and 1970s, employers had no obligation to pay out pensions at all, she said. As well, the end of mandatory retirement meant they were no longer a viable method to get older, less productive workers out of the workforce. The fixes that came in the 1960s and 1970s to address the guarantee of benefits served to increase the cost to employers driving them away from providing plans. The jointly sponsored plans in the private sector serve as an example of how mandatory pension coverage can work.

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Every Strategy Will Look Like Hedge

Going forward every investment strategy will look more like a hedge fund of 10 years ago, says Barry Allan, a founding partner at Marret Asset Management. In the ‘Allocating to Alternative Strategies to Improve Portfolio Performance’ session at Alternative IQ’s ‘Showcasing Canada’s Award Winning Hedge Funds’ event, he said looking broadly at how hedge strategies have evolved over the past 15 years, it is not that hedge funds have lost ground, it is that long strategies have become more hedge-like. Long only strategies have become more long-short and the average mutual fund has more hedging tools in it that it ever had. Brian D’Costa, founder and president of Algonquin Capital, said one of the issues with hedge funds is there is an awkward fixation with size. Hedge fund managers become millionaires by growing the size of their fund so there is a motivation to get bigger, to reach institutional size. However, many strategies that generate returns are not institutional size and some strategies are no longer viable as they get bigger. Jason Landau, a portfolio manager at Waratah Capital Advisors, said there is always a place in portfolios for strategies which deliver alpha. As well, if there is a pullback in equities, investors will again value hedge funds. And, he noted, it has been nearly 10 years since the last downturn in 2008.

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ETFs Offer Enhanced Liquidity

Exchange-traded funds (ETFs) offer a unique hybrid structure with enhanced liquidity for investors, says Cary Blake, institutional sales executive with Vanguard Investments Canada Inc. Speaking at the Benefits and Pensions Monitor Meeting & Events ‘Exchange Traded Funds’ event, he said ETFs have characteristics of a traditional fund like a pooled or mutual fund in the sense that it is a pooled vehicle where individuals can come together and, in a single transaction, purchase and hold a diversified basket of underlying securities. It also has characteristics of an individual stock in that it trades on the stock exchange where you have to interact with another investor on the exchange. The fund structure and the underlying securities and basket of securities is basically a primary market and the activity that is occurring on the exchange is like a secondary market. “In the case of the ETF, you are purchasing shares from another investor and, importantly, a financial intermediary then bridges the relationship between investors on the exchange and the fund sponsor and the fund itself. The authorized participants play a very critical role here and help with providing the incremental liquidity. The vast majority of the ETF trading activity for seasoned ETFs is occurring in the secondary market between natural buyers and sellers, not necessarily accessing that primary market liquidity, which still exists. So in a sense, this is additive liquidity enhancing what you would experience in the primary market.”

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Value Of Pension Funds Grows

The market value of employer-sponsored pension funds grew 3.9 per cent in the third quarter of 2016 to $1.7 trillion, following a 1.8 per cent increase in the second quarter, says Statistics Canada. Pension fund investments in stocks grew 5.3 per cent in the third quarter, surpassing the 4.3 per cent gain in the value of shares on the Toronto Stock Exchange for the same period. The value of bond holdings increased 4.1 per cent, while investments in mortgages grew 4.6 per cent. Pension fund revenues declined 12.3 per cent in the third quarter, compared with a 55.4 per cent increase in the second quarter. Employer and employee contributions fell 7.3 per cent to $13.5 billion. Meanwhile, investment income decreased by 23.4 per cent, compared with a 19.8 per cent gain in the second quarter. The decline in revenue was offset in part by an 8.3 per cent increase in profits from the sale of securities. Expenditures fell 11 per cent due to reduced pension payments, administration costs, and cash withdrawals from the funds. This decrease in expenditures helped offset lower revenues, but the overall result was a decline in net income, which fell from $29.2 billion in the second quarter to $25.4 billion in the third quarter.

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ETFs Offer Strategies To Institutional Investors

The use of exchange-traded funds (ETFs) by institutional investors is going to grow exponentially, with a variety of different strategies available, says Bobby Eng, vice-president and head of SPDR ETF business development, Canada, with State Street Global Advisors Ltd. Speaking at the Benefits and Pensions Monitor Meeting & Events ‘Exchange Traded Funds’ event, he said it is still in the early adoption phase at this point for institutions, but there are enough different types of strategies available that one or more should resonate with institutional investors. Some of the more common strategies include cash equitization – putting money to work in a very efficient quick and effective manner in a low-cost fashion by finding the ETF with the required exposure. “With one single trade, you can get that exposure, as opposed to searching for a manager or a pool fund, which can cause a cash drag in the portfolio,” he said. “Transaction costs are fairly minimal and there are tons of choices.” Ultimately, said Eng, “ETFs are used as a tool and we want to make sure these tools are available to you.”

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Trump Can’t Fix Jobs Issue

The effectiveness of U.S. President Donald Trump’s policies will not lift the economy as he expects and could result in a debt crisis, says Benjamin Tal, deputy chief economist at CIBC Capital Markets. Speaking on ‘Alternative Facts’ at Alternative IQ’s ‘Showcasing Canada’s Award Winning Hedge Funds’ session, he said the problem is that Trump is trying to solve the jobs issue and it has no solution. That is why he will likely be a one-term president. It is not about trade, he said. Jobs were leaving the U.S. long ago and the labour force participation rate is down and there are millions of people not in the labour force or even looking. In fact, long-term unemployment is higher now than during the 1991 economic crisis. And Canada is not immune to this. Canadians are the most educated in the OECD. However, it is also number one in terms of educated people living in poverty because education is not translating into job because the popular fields of study are unchanged from 50 years ago. People are not being educated in the areas where the jobs are. The debt crisis will come about because, despite comparisons, Trump is not Ronald Reagan. When Reagan embarked on his economic recovery program, the debt to GDP ratio was around 30 per cent. It is now over 100 per cent and to pay for his programs Trump will have to borrow. However, Tal said this will cause battles with Congress.

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Institutional Investors Drive ETF Growth

Investment in exchange-traded funds (ETFs) is growing rapidly, with institutional investors as a large driver of that growth, says Pat Dunwoody, executive director of the Canadian ETF Association (CETFA). Speaking at the Benefits and Pensions Monitor Meeting & Events ‘Exchange Traded Funds’ event, she said that based on studies she has seen, it’s just a matter of time for ETFs to overtake mutual funds in assets under management. One of the reasons behind the slower uptake had been the lack of access by Mutual Fund Dealers Association of Canada (MFDA) members, an issue which should be resolved by the second quarter of this year. “ETFs have been legally available to MFDA firms, they’ve just never had access to the exchanges to be able to trade them,” said Dunwoody. “By this summer, finally, a process will be built to provide MFDA firms and their clients access to ETFs.” This could increase ETF assets under management by as much as $20 billion by 2019.

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Caisse Invests In Water Activities

The Caisse de dépôt et placement du Québec and SUEZ have entered into an agreement with General Electric Company to acquire its water and process technologies business, a leading provider of water treatment solutions. This creates a new self-standing business unit within SUEZ encompassing all industrial water activities with a global focus. Long-term demand for water treatment equipment, chemicals, and services are expected to remain strong both as a consequence of growing water scarcity and the impact of global warming on the water cycle. The Caisse is looking to increase its exposure to the water sector and views this investment as a way to generate long-term value.

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Miskovsky Has New Role

Sandra Miskovsky is a corporate account executive at Manulife. She joined the firm in 2001 as a manager of client services and was, most recently, director of GRS product and marketing.

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Session Examines Mental Health

Maura Cooperberg, from Morneau Shepell, will shatter popular myths and misconceptions about mental health and increase the understanding of the causes and symptoms of it at the CPBI Ontario ‘Benefits Outlook Signature Series ‒ Mental Health Awareness Seminar.’ It takes place March 22 in Toronto, ON. For information, visit Mental Health

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Conference Addresses Human Resources

Human resources professionals now have concerns that add further complexity to their roles. These controversial areas of concern are the foundation for the Retail Council of Canada’s ‘2017 Human Resources Conference.’ Speakers include Jim Caldwell, executive vice-president, big box retail, at Lowe’s Companies Canada ULC. Topics include marijuana, mental health, mergers, and Millennials. It takes place April 19 in Mississauga, ON. For more information, visit www.RetailCouncil.org

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