Interest Rates Hiked
The Bank of Canada has raised its benchmark interest rate 0.75 per cent from 0.5 per cent. This marks the first increase in seven years. It made the decision to hike rates to close the gap between Canada’s monetary policy and future inflation. “Recent data have bolstered the bank’s confidence in its outlook for above-potential growth and the absorption of excess capacity in the economy,” it says. While it does say there has been recent softness in inflation, the bank predicts it will return to close to two per cent by the middle of 2018. The next scheduled rate announcement is September 6.
CV Review Updated
The Canadian Institute of Actuaries (CIA) has provided an update on its review of the Commuted Value (CV) Standard, says Morneau Shepell’s ‘News & Views.’ This standard is used to determine the lump sum value of pension benefits payable from registered pension plans. For a typical defined benefit pension plan, the new approach being considered remains similar, although the changes recommended would reduce the lump sums paid to members by as much as five per cent. This would lead to lower solvency liabilities and could reduce contribution requirements. For multi-employer plans, the impact is far more significant. The proposed changes would modify how lump sum payments for these members are calculated, so that they would receive their proportionate share of the plan assets on the same basis as used for funding purposes. For defined benefit plans, he current approach determines a value based on current yields of Government of Canada Bonds with a fixed spread of 0.9 per cent added to the interest rates. The CIA is now expected to recommend that the yields of provincial bonds and corporate bonds, in addition to Government of Canada bonds, be taken into account when calculating lump sums. The proposed approach would lead to a reduction of lump sum amounts by up to five per cent, based on current market conditions. For multi-employer plans, currently, the same CV rules as for other DB plans apply to multi-employer plans. The proposed changes would have such plans paying the members their proportionate share of the plan assets. This could significantly reduce the lump sums, possibly by as much as 50 per cent of the current levels, although the exact level will vary a lot for different plans.
CPPIB In Irish Gas Venture
The Canada Pension Plan Investment Board (CPPIB) and Vermilion Energy Inc. has formed a strategic partnership in the Corrib Natural Gas Field in Ireland. CPPIB will acquire Shell Exploration Company B.V.’s 45 per cent interest in the project with Vermilion operating the assets after completion of the acquisition. Through its wholly owned subsidiary, CPP Investment Board Europe S.a.r.l., CPPIB has also entered into a definitive purchase and sale agreement with Shell to acquire 100 per cent of Shell E&P Ireland Limited, which holds Shell’s 45 per cent interest in Corrib. Corrib is located 83 kilometers off the northwest coast of Ireland. The field has a gross plant capacity of approximately 350 million cubic feet of natural gas per day, provides approximately 60 per cent of Ireland’s natural gas consumption and constitutes approximately 95 per cent of Ireland’s gas production.
Perry Joins Northern Trust
Andrea Perry is a senior client relationship manager at Northern Trust Canada for the Atlantic region, serving both institutional investors and asset management firms. A 30-year veteran of the investment industry, she comes from an investment management firm where she was responsible for developing and executing business development strategy and growth initiatives specifically in Atlantic Canada.
Managers Feel Impact Of Growing Challenges
The global money management industry felt the impact this past year of the growing challenges it faces, even as assets under management (AUM) grew, says a study from Boston Consulting Group. Assets under management totaled $69.1 trillion as of December 31, up seven per cent from the previous year’s total of $64.6 trillion, primarily due to market gains. Net new inflows remained primarily flat at 1.5 per cent of beginning-of-the-year AUM, the same as the previous year. On a regional basis, AUM increased in all regions except for the Middle East and Africa. North American AUM increased to $33 trillion in 2016, up six per cent from the year before. Despite the growth and the market appreciation, revenue and profit in the industry were down primarily due to fee pressure from the continuing shift away from traditional core active strategies where even in more specialized asset classes such as small cap equities, emerging markets, or high yield, people are going passive. Net revenues fell to $112 billion from $114 billion, a 1.8 per cent decrease from the year before. The last time revenue dropped was from 2007 to 2008, from $100 billion down to $80 billion.
BMW Freezes UK Plans
BMW workers have voted to accept the freezing of two UK pension plans, says Unite, their trade union. It says 81.5 per cent of its members that work at BMW Group’s car plants in four locations “backed a revised offer bringing a long-running pensions dispute to an end.” BMW proposed freezing the two plans in September. Its latest annual report showed UK defined benefit assets of €8.7 billion as of December 31, with a deficit of €1.6 billion. Under the revised offer, the plans will be closed and participants moved into a defined contribution plan. The DC plan was launched in 2014 and has more than 2,000 participants in the UK. The company matches employee contributions, plus six per cent, to a maximum 10 per cent employee and 16 per cent employer contribution.
European Venture Capital Grows
European venture capital fundraising hit in 2016, up 16 per cent from €5.5 billion a year earlier, says Invest Europe, the trade association representing Europe’s private equity, venture capital, and infrastructure sectors. Its report shows some 73 per cent of the capital came from investors in the largest European countries, with French investors responsible for more than half of the that capital. North American institutional investors invested 9.2 per cent of this capital, compared to 10.5 per cent the year before. As well, venture capital fund sizes increased with as many as 13 funds raising in excess of €100 million last year. Fund managers invested 44 per cent of capital in information and communications technology companies. The second highest amount, 27 per cent, went to biotechnology and healthcare.
Investors Raise Funds For Children Health Programs
‘Capitalize for Kids (C4K)’ engages the investing community to support life-changing children’s brain and mental health programs. Its ‘Investors Conference’ is a funding initiative where all proceeds go to help solve the challenges facing children affected by these issues. It will bring together more than 400 world-class investors from prominent family offices, pension funds, and non-profit organizations. Additionally, some of the world’s top money managers and thought leaders will present their highest conviction ideas and discuss industry trends and challenges. It takes place October 18 to 19 in Toronto, ON. For more information, visit www.capitalizeforkids.org
PIAC Commends Ontario Budget
The Pension Investment Association of Canada (PIAC) commends the government of Ontario for addressing pension issues of key concern to its members in the provincial budget. In a letter to Charles Sousa, the minister of finance, Kevin Fahey, PIAC’s chair, says these changes include defined benefit plan funding reform; full discharge of liability on annuities purchased for retired or deferred vested members; and the need for variable benefits from defined contribution pension plans. “For several years now, PIAC has advocated for fundamental changes to the funding regimes across Canada to better balance sustainability and prudential objectives. We are pleased to see the May 2017 budget announcement that plans registered in Ontario that are solvency funded at a level of 85 per cent or more will be exempt from further solvency funding. This is a significant positive development and we look forward to seeing the detailed regulation,” he says. The announcement of full discharge of liability when an annuity is purchased from an insurance company is another important step in financial sustainability for defined benefit plans. It also commends the government on the announcement of a consultation on DC decumulation issues, including variable benefits payments.
Publicly-listed Companies Shrinking
The number of publicly listed companies in the U.S. has roughly halved since 1996, says research from Pantheon. ‘The Shrinking Public Market and Why it Matters’ finds this trend has “spanned multiple economic cycles and has impacted countries across the globe.” It also believes the phenomenon is likely to persist and have a significant impact on institutional investors. Reasons underlying the trend of shrinking markets are numerous and various, but two of the clearest drivers include the “increased net cost of listing,” which has resulted in fewer initial public offerings bringing new companies into the market, as well as the fact that merger activity continues to remove companies from public exchanges far faster than they are added. The result is that, for large-scale and long-term institutional investors especially, the public market “no longer offers the full breadth of opportunities historically available, and consequently investors may consider a broader basket of alternatives to access younger and more rapidly growing companies.”
Mahmood Joins Algonquin
Impact Of Technology Examined
How technology and new approaches to the business could radically change the group benefits industry in Canada in a short period of time and the impact of healthcare technology such as wearables and the internet of things (IoT) will be among the areas examined at the Benefits and Pensions Monitor Meetings & Events ‘Technology and Healthcare Plan Innovation’ half-day session. Expert speakers include Tim Clarke, owner of tc Health Consulting, and Paul Clark, chief technology officer from WorldCare International Inc. It takes place September 14 in Toronto, ON. For information, visit Technology Impact
Smaller Firms Can Turn Profit
Most alternative investment management firms are able to turn a profit and expand with considerably less than $100 million in assets, says a survey of sub-$500 million firms by the Alternative Investment Management Association (AIMA) and GPP, a boutique prime broker. The joint survey found that the average break-even point is around $86 million, while around a third are able to break even with $50 million in assets or less. Break-even was found to be highest among global macro hedge fund firms that responded to the survey and smallest for alternative credit fund managers. The research shed new light on the impact of broader trends and themes on this segment of the industry such as fee pressures, the impact of post-crisis regulations, demands for ever greater methods of alignment of interests, and the optimum mix between having dedicated in-house staff and outsourcing.
OMERS Acquires Minority Stake
OMERS Private Equity, the private equity arm of OMERS, has acquired a minority stake in National Veterinary Associates (NVA). The transaction is in partnership with NVA’s leadership team and funds affiliated with Ares Management, L.P., which will continue as the majority equity holder of NVA. NVA is the largest independent owner-operator of veterinary hospitals, pet boarding, and daycare centres in the United States, Canada, Australia, and New Zealand with 502 location
Pacific Blue Cross Union Locked Out
CUPE 1816 members on rotating legal job actions against Pacific Blue Cross have been locked out. In an eMail to employees on June 30, the company stated that future withdrawals of labour by the union would result in CUPE 1816 members being prevented from returning to work until the week after the job action. According to the British Columbia Labour Code, a “lockout” is defined as any suspension of work by an employer aimed at compelling workers to agree to employer conditions of work. CUPE 1816 President Beth Miller says the union is not prepared to return to work under the terms and conditions defined by the employer.
Banks Adopting Gold Despite New Basel Rules
Private banks were found to be undercapitalized after the financial crisis began in 2007. This forced taxpayers, through governments, to bail out many banks and prompted development of a global set of tougher international banking regulations known as Basel III. Basel III rules are supposed to come into full force in 2018. However, regulatory and market pressure is pushing banks to comply with the rules sooner than that. During the 2008 financial crisis, gold was used in international settlements as a zero-risk asset after many decades of being sidelined in the monetary system. Since then, the world’s central banks have been substantially increasing their official gold reserves. However, as of 2017, gold still represents a fraction of global financial assets. Gold as percentage of global financial assets in the 1960s was 10 times that of 2015. Nick Barisheff, founder, president, and CEO of Bullion Management Group Inc., discusses the relationship between the Basel rules and gold in his article, ‘Gold: A Zero-Risk Monetary Asset,’ available at Benefits and Pensions Magazine online.
Majority Of Funds Suffer Losses
Forty of the 44 Morningstar Research Inc. fund indices decreased in the month of June, while 32 increased during the quarter ended June 30. Most fund categories posted negative performance for the month of June. Aside from the two Morningstar Canada Fund Indices that track money market categories, the only fund indices that increased during the month were preferred share fixed income, up 3.3 per cent, and financial services equity, up 2.9 per cent. The worst performers for the month were natural resources equity, European equity, and energy equity, which decreased by 3.7 per cent, 4.2 per cent, and 5.6 per cent, respectively. The best-performing fund index for the quarter was the one that tracks the Greater China equity category, which increased 5.7 per cent over the three-month period even with a 1.9 per cent drop in June. Funds in that category were bolstered by strong performance on the Hong Kong stock market, where the Hang Seng Index gained 6.9 per cent over three months. Despite adverse currency effects, Greater China equity funds have been the best performers in Canada so far in 2017, collectively gaining 17.1 per cent over the first six months.
Henderson Moves To Sun Life
Sears Canada Wants To Suspend Some Benefits
Sears Canada wants approval to suspend some benefits for its retired employees as well as special payments to its defined benefit pension plan. It had already indicated in its initial court filings on June 22 that it planned to suspend life insurance, health, and dental benefits to certain employees during the restructuring. The restructuring hasn’t affected monthly pension payments to the retirement plan’s beneficiaries. It will also ask the Ontario Superior Court on July 13 to extend court protection from creditors to October 4, giving it time to seek out potential investors and buyers and consult with its landlords, employees, suppliers, and creditors.
Employers Feel Unprepared About Legal Marijuana
With less than one year until the legalization of marijuana in Canada, a study reveals that employers feel unprepared for the impact the increased drug use may have on the workplace. A Human Resources Professionals Association (HRPA) survey found over 45 per cent of respondents do not believe their current workplace policies adequately address the potential new issues that may arise with the legalization and expected increased use of marijuana. Its whitepaper ‒ ‘Clearing the Haze: The Impacts of Marijuana on the Workplace’ ‒ makes 10 recommendations to governments and employers to ensure that they are prepared for the increased use of marijuana and the affects that will inevitably have on the workplace. These recommendations include that the government maintain two regulatory streams for medical and recreational cannabis and ensuring employers are prepared to answer questions about coverage of medical marijuana in their extended healthcare plans.
Sun Life Patch Going On Raptor Jerseys
The Toronto Raptors will feature a Sun Life Assurance Company of Canada jersey patch, the first in the team’s history. The Sun Life patch will appear on the front left shoulder of Raptors game jerseys starting next season. Jersey sponsorships will be introduced league-wide beginning next season as part of a three-year NBA pilot program. This marks an expansion of their partnership on a program in support of diabetes awareness and prevention.
OPTrust Invests In JEA
OPTrust has made a strategic investment in James Evans & Associates (JEA) Ltd., a provider of pension administration services in Canada and the U.S. and one of its long-standing service providers. “JEA plays an essential role in the pension administration system at OPTrust,” says Hugh O’Reilly, OPTrust president and CEO. “Our investment in JEA represents a strategic investment with a valued provider that fits within the plan’s approach to innovation, strategic relationships, and serving our members.”
CPPIB Shuffles Staff
Neil Beaumont is joining the Canada Pension Plan Investment Board (CPPIB) as senior managing director and chief financial and risk officer on July 24. He was most recently vice-president, finance minerals America, at BHP Billiton. Graeme Eadie will step back from his role as global head of real assets effective July 15. He will continue to work with CPPIB in a general management role with a focus on investment approval processes. Ed Cass is senior managing director and global head of real assets. He was formerly senior managing director and chief investment strategist. He will take on this new role effective July 15. He has been with CPPIB since 2008, initially heading up the global capital markets group. Geoffrey Rubin is senior managing director and chief investment strategist. He was most recently managing director, head of portfolio construction and research. Prior to joining CPPIB in 2011, he held finance roles within Fannie Mae and Capital One Financial.