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November 7, 2017


PRT Market Primed For Growth

As pension plans continue to de-risk and funded levels rise, the Canadian pension risk transfer (PRT) market is primed for continued growth and expansion, says a report from Eckler. In Canada, the amount of pension obligations transferred to insurers annually via buy-in and buy-out annuities has increased by more than 250 per cent over the last eight years. Until 2013, the annual amount of DB pension risk being annuitized fluctuated at around $1 billion. After a large jump in 2013, the annual size of the PRT market has grown steadily, with $2.7 billion being transacted in 2016. And 2017 is also shaping up to be a record-breaking year. Historically, the PRT market has been quieter during the first part of the year. However, over the first two quarters of 2017, $1.8 billion of DB pension risk had already been transferred to insurers via buy-in and buyout annuities – approximately triple the amount observed for the first half of 2016. Annual increases in the Canadian group annuity market have primarily stemmed from much greater participation by ongoing plans, whereas the market was previously dominated by terminating plans. In particular, buy-in annuities have become much more prevalent over the past five years, both for ongoing plans and as an interim strategy for plans in the process of terminating. Indeed, the availability and growing acceptance of buy-ins has helped support a growing PRT market. It says while most of the insurers surveyed estimated that the Canadian group annuity market could see between $8 and $10 billion in risk transferred over the next three years, some estimates reached as high as $15 billion.

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Plan Solvency Ratio Improves

As equity markets continued to rally, Aon’s median solvency ratio for Canadian defined benefit pension plans rose to 100.7 per cent in October, up 1.4 percentage points from the previous post-recession record set in September. “The ongoing equity market rally at home and abroad has led to the highest Aon Median Solvency Ratio in 15 years, despite the decline in long term interest rates in October” says Ian Struthers, a partner in the investment consulting practice at Aon Hewitt. “Over the last few months, a rising interest-rate environment and strong stock returns have meant that pension assets are growing while liabilities are lower due to higher bond yields. It’s a Goldilocks moment for pensions, but plan sponsors know it can’t last forever. That’s why we’re seeing more of them leverage their plans’ exceptional financial health to employ de-risking strategies, increase their interest rate hedge ratios, and thoroughly review their approach to diversification.” Of surveyed plans, 51.5 per cent were more than fully funded as of November 1, up 3.8 percentage points from the previous month.

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Global Commerce Transformation Offers Opportunity

Global commerce has been transformed over the past two decades offering new opportunities for investors. Rapid advancement in technology, free trade agreements, and the rise of multinationals in emerging markets has transformed the structure of the economic world today, changing the ways of thinking about global investing, not only in terms of opportunities but also portfolio allocations decisions. In the article ‘Shifting Global Trade Patterns Bring New Opportunities’ at the Benefits and Pensions Monitor website, the Capital Group’s Robert Lovelace, vice-chairman and portfolio manager; and David Polak, an equity investment specialist, examine some of these opportunities.

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Confidence In Responsible Investment Drops

There has been “a dramatic drop” in the number of institutional investors who are confident that responsible investment provides better financial returns, says Hermes Investment Management. It has found that fewer than half of the investors surveyed believed companies that focus on ESG produced better long-term returns, falling from 56 per cent in its annual ‘Responsible Capitalism Survey’ last year to 46 per cent this year. Another 33 per cent of respondents felt significant ESG risks with financial implications were not a reason to reject an otherwise attractive investment. However, 86 per cent believed fund managers should price in corporate governance risks as a core part of their investment analysis. 

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Appetite For Risk Reduced

Canadian investors showed reduced risk appetite over the previous month and quarter, while maintaining an average level of investment risk for the year, says Vanguard’s ‘Canadian Risk Speedometer.’ The one-month risk speedometer reading fell significantly to below average for September compared to August, with slightly below average investor risk appetite for the third quarter of the year. The risk speedometer for the year is just moderately above average although the recent trend is moving to investor preference for less risk in their investment portfolios. Fran Kinniry, a principal in Vanguard’s investment strategy group, says, “With risk appetite at average or lower levels, we appear to be seeing a trend towards broad-based asset allocators rather than fund selectors in the Canadian market. If true, we see this as a very positive development for investor outcomes and advisory practices.”

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Indexing Forces Managers To Up Their Game

The growth in indexing is (paradoxically) forcing active managers to up their game – a positive development for investors of all stripes, says David F. Lafferty, senior vice-president – chief market strategist, at Nataxis Global Asset Management. In its ‘Capital Market Notes,’ he says while active managers have always competed against each other, they have never had to confront a threat of this magnitude. But in a strange irony, the pressures emanating from cheap passive strategies may ultimately save the active management industry. “As Darwin demonstrated, the most adaptable species are the ones that ultimately survive. In this case, passive investing is forcing changes to active management that are long overdue,” he says. The pressures exerted by passive indexing are forcing active managers to tackle longstanding sources of inefficiency and underperformance. “By setting more appropriate fees and weeding out closet indexers, active strategies should rise in the competitive rankings,” he says.

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Bond Investors Leverage New Tools

Corporate bond investors are making up for the loss of market liquidity by deploying new tools that leverage data and analytics and technologies providers are working to meet that demand, says a Greenwich Associates report. ‘Technology Transforming a Vast Corporate Bond Market’ says with electronic trading in the corporate bond market maturing, liquidity providers are increasingly responding to RFQs below a certain size and/or risk threshold with no input from the trader using algorithms to calculate a price appropriate for that particular request. This allows dealers to handle the ever-increasing number of RFQs more efficiently, and clients, in turn, receive prices quicker. “If providing buyers and sellers of corporate bonds with tools that allow them to trade with each other marks the first phase of the market’s evolution, gathering, analyzing, and putting to work data is phase two,” says Kevin McPartland, head of Greenwich Associates market structure and technology research, and author of the report. Technology has also enabled the rise of new liquidity sources. For example, the growth of ETFs would be impossible without technology to manage the basis risk and possible tracking errors inherent in using index products, it says.

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Financial Stress Impacts Work Performance

Many Canadians are challenged by debt, are worried about their local economy, and are not saving enough for retirement, says the Canadian Payroll Association (CPA). In support of Financial Literacy Month which it now taking place, its ‘National Payroll Week (NPW) Employee Survey’ results also show that working Canadians are experiencing a high level of financial stress, ultimately impacting their work performance, and that too few are keeping a close eye on their finances. Half of employees feel that financial stress is impacting their work performance. However, Canadian workers have a strong appetite for employer-provided financial education programs, with an astonishing 82 per cent indicating they would be interested if employers offered information at work. But, workers have timing expectations as 54 per cent would prefer that employers offered lunch and learns, but only eight per cent would be interested if information was offered after work hours. “Financial stress affects both mental and physical health which can impact workplace productivity. Increased financial literacy can help reduce financial stress,” says Jane Rooney, financial literacy leader at the Financial Consumer Agency of Canada. “Employers are in a unique position to reach people where they are and help them develop the knowledge, skills, and confidence to make informed decisions. The results benefit everyone.”  

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Global Assets Rose In 2016

The total value of assets managed by the world’s largest 500 managers rose 5.8 per cent to $81.2 trillion in 2016, says a report from Willis Towers Watson. Assets under management (AUM) for North American managers increased 7.7 per cent in 2016 to $47.4 trillion, while assets managed by European managers grew 2.8 per cent to $25.8 trillion. Despite the rise in European AUM, UK-based managers’ assets fell for the second consecutive year, declining 4.5 per cent in 2016 to $6.3 trillion. The report says 78.4 per cent of total assets in the survey are actively managed. However, that is down from 79.7 per cent from the previous year as passive management’s share continues to rise. Equity assets made up 44.3 per cent of the total assets, while fixed income assets comprised 34.4 per cent for a total of 78.7 per cent which is an increase of three per cent from 2015. Alternative assets saw a 5.1 per cent increase by the end of 2016, while equities share rose 4.1 per cent from the previous year.

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Medisys Opens New Clinic

Medisys Health Group Inc. is celebrating its 30th year and opening a new clinic and head office in downtown Montreal, QC. The 26,000-square-foot clinic spans two floors in one of Montreal’s largest towers. The executive and preventive health clinic is located on the 21st floor and, operating under Medisys’ occupational health brand, Horizon Occupational Health Solutions occupies the 22nd floor. The new clinic enables the delivery of a range of onsite medical services including cardiology, medical dermatology, aesthetic dermatology, psychology, and internal medicine. It was founded in 1987 by Dr. Sheldon Elman who transformed his Montreal-based family practice to offer his clients services focused on prevention. Today, it has 25 clinics across 15 cities.

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OMERS Ups Its Stake

OMERS Infrastructure Management Inc. has purchased an additional 4.36 per cent interest in Kemble Water Holdings Limited, the ultimate holding company of Thames Water Utilities Limited, from Hermes Investment Management. Following completion of the transaction, OMERS Infrastructure will increase its overall interest in Thames Water to about 27 per cent.

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Hirsh Joins Starlight

Glen Hirsh is chief operating officer at Starlight Investments. He has 20 years of experience in the real estate and financial services sectors and previously served as vice-president in the strategy and finance group at Oxford Properties. He has also held the position of managing director and head of the real estate investment banking group at National Bank Financial.

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Machin Discusses CPPIB

Mark Machin, president and CEO of the Canada Pension Plan Investment Board (CPPIB), will discuss its investment strategy, global outlook, and role in helping to ensure the sustainability of the Canada Pension Plan at an Economic Club of Canada session. It takes place November 20 in Toronto, ON. For information, visit CPPIB Discussed

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November 6, 2017


Quebec Mirrors CPP Enhancement

Quebecers will see their contributions to the province’s public pension plan start to rise in 2019 as it mirrors the rest of the country where Canada Pension Plan contributions and benefits are being enhanced. Quebec Bill 149 requires both workers and employers to gradually pay more into the plan starting in 2019, amounting to a one per cent increase in contributions for both workers and employers by 2025. Every extra dollar paid into the pension plan will lead to an average six-fold increase in benefits in retirement. It also raises the limit on maximum pensionable earnings. The cap on earnings, now set at $55,300, will rise to $63,000 by 2025. There will also be corresponding increases in disability and surviving spouse’s pensions. With the harmonization of the two plans, people will be able to work in Quebec, move to Ontario, and come back, all while maintaining the same pension coverage. The Quebec government is, however, concerned about the increased cost of contributions to small businesses and the next provincial budget will look at ways to lessen that impact.

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Hedge Funds Get Opportunity To Outperform

Hedge funds and private equity managers will get more opportunities to outperform now that central banks around the world have started to normalize their monetary policies, says J.P. Morgan Asset Management. Its ‘2018 Long-Term Capital Market Assumptions’ notes that with central banks buying bonds and other securities for years to keep interest rates low, global assets have been rising in lockstep and hedge funds and others have had fewer opportunities to distinguish themselves with winning picks. Now that central banks are starting to pull back from that strategy, securities and sectors will theoretically rise and fall based on fundamental characteristics. However, manager selection is particularly important when it comes to alternative investments and can add a significant amount of outperformance. For example, the median private equity manager is expected to return 7.25 per cent, whereas those in the top quartile will return in the mid-teen range.

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GPs To Increase Focus On ESG

Over three-quarters (78 per cent) of private equity investors expect general partners (GPs) to increase their focus on managing environmental, social, and governance (ESG) considerations in their portfolios over the next two years, says a study by Intertrust. It shows a majority (55 per cent) of investors think that GPs are most likely to begin their ESG drive with adopting the Principles for Responsible Investment (PRI), a voluntary set of investment principles that offer a menu of possible actions for incorporating ESG issues into investment practice. Nearly half (48 per cent) expect to see GPs starting to integrate ESG into all aspects of the investment process including due diligence, risk analysis, and investment committee decision-making. Four in 10 (39 per cent) believe GPs will start to report ESG performance at portfolio company level. The biggest obstacles preventing the adoption of ESG requirements are cost and resource constraints (51 per cent) followed by applying an effective ESG evaluation model (39 per cent) and a knowledge shortage at GP level (38 per cent).

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Ontarians Trust Pharmacists With Cannabis

With new polling data revealing Ontarians overwhelmingly trust their pharmacists to dispense medicinal cannabis in the province, the Ontario Pharmacists Association (OPA) is calling on the government of Ontario to work with the federal government to update existing regulations to allow pharmacists in community pharmacies to safely dispense it. A clear majority of adult Ontarians (70 per cent) agree medicinal cannabis should be dispensed by pharmacists and a majority of adult Ontarians (56 per cent) prefer that medicinal cannabis be dispensed by pharmacists, as opposed to other delivery methods. Three-quarters of adult Ontarians agree that patients should be able to obtain medicinal cannabis products from pharmacists, so they can receive counselling and advice and can ask questions before receiving the product. Under existing regulations, a patient needs to be assessed by their healthcare provider and provided with a medical document for medicinal cannabis, after which they register directly with a licensed producer who processes their request and mails the product to the patient’s home. Unlike with other prescriptions, patients currently cannot access medicinal cannabis products at their local pharmacy.

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Financial Retention Keeps Talent

The effectiveness of financial retention agreements to ensure that acquired talent remains with the new company during a merger or acquisition has improved over the past three years, says Willis Towers Watson. Its ‘2017 Global M&A Retention Study’ found that 79 per cent of acquirers are successful in retaining at least 80 per cent of their employees with agreements through the end of the retention period. In its prior survey (2014) on global M&A retention, 68 per cent met this threshold. However, it’s a different story one year after the retention period ends. After that one year, only about one-half of these companies retain at least 80 per cent of employees who signed agreements. “It’s a tale of two results. Acquirers have made good strides at keeping key talent for an initial period, but there’s room for improvement one year later,” says Mary Cianni, global M&A practice lead, Willis Towers Watson. “Companies are not using the retention period to capture hearts and minds to keep talent on board for the long term ‒ and help ensure success of the merger over a longer period.” Cash bonuses, most commonly expressed as a percentage of base salary, remain the primary financial award in retention agreements for senior leaders (77 per cent) and other key employees (80 per cent).

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Fund Indices Increase In October

All but one of the 44 Morningstar Research Inc. fund indices increased during October, with a majority of the indices increasing between two per cent and four per cent. Nine indices increased by more than four per cent. The best-performing fund index for the month was the one that tracks the Asia Pacific Equity category, which increased 7.7 per cent. Along with the currency effect, funds in this category benefited from strong gains by Japanese stocks, with the Nikkei 225 Index gaining 8.1 per cent for the month when measured in local currency. South Korean stocks, which on average account for 10.7 per cent of fund assets in this category, were also a major contributor, with the KOSPI Composite Index gaining 5.4 per cent and the South Korean currency appreciating by 5.9 per cent against the loonie. The fund index that tracks the Asia Pacific ex-Japan Equity category was the second-best performer in October with a 7.1 per cent increase. Funds in this category typically hold a majority of their assets in stocks from South Korea and Greater China. Canadian stocks had a solid month in October, as the S&P/TSX Composite Index broke through the 16,000 mark for the first time and ended the month with a 2.7 per cent total return. However, without the benefit of currency effects, funds that invest in domestic equities underperformed their foreign peers.

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‘Targeted Invitations’ Launched

Liquidnet, a global institutional trading network, has launched ‘Targeted Invitations’ as part of its introduction of its Virtual High Touch (VHT) to Canada. VHT is a buy-side technology that brings together advanced data analysis, adaptive learning algorithms, liquidity search tools, and real-time analytics into the trading experience. ‘Targeted Invitations’ allow buy-side traders to seek out additional block liquidity by sending actionable invitations within the Liquidnet community, while still keeping both sides anonymous.

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Colbourne Moves To TDAM

Scott Colbourne is managing director, global active fixed income, for TD Asset Management Inc. (TDAM). He will lead a team of fixed income portfolio managers who will be responsible for delivering its suite of active global and Canadian income oriented products. He has nearly 30 years of global active fixed oncome experience from large Canadian mutual funds and hedge funds. Prior to this, he was co-CIO at Sprott Asset Management.

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Pension Challenges Examined

Theme of the ‘BC Pension Leadership Forum 2018’ isFacing Challenges, Finding Solutions.’ The SHARE event is co-hosted by the BC Federation of Labour and preceded by a full-day ‘Pension Boot Camp’ for beginners and a ‘Trustee Responsible Investment Master Class’ for experienced trustees. It takes place February 21 and 22 in Vancouver, BC. For information, visit Forum 2018

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November 3, 2017


Institutions Pulled Into Global Real Estate

In Canada, institutional investors have not been pushed into global real estate allocations, they have been pulled, says Catherine Ann Marshall, president of RealAlts. She told the ‘Invesco 2nd Annual Global Real Estate Forum’ that the modern age of real estate allocations in Canada started around 2000 when larger institutions became very committed to the sector because they believed it had been institutionalized. However, when they looked forward and considered how large pension funds in Canada could get, they realized they would run out of investable real estate in Canada. This prompted them to take a total global view, she said. There are justifications for going global. The global market gives investors more stable and slightly higher returns over long period of time. And, just as it is difficult to diversify traditional asset classes, the domestic real estate market lacks exposure to some areas like high tech and the new economy. Around the world, allocations to global real estate have been creeping up over the last five or six years, said Tim Bellman, head of global research at Invesco Canada. It is now around 10 per cent, he said, but this is misleading as some funds have an allocation of 20 per cent and some have nothing. Robert Cultraro, chief investment and pension officer at Ontario Hydro, said its pension plan was a global leader in direct investment in real estate 20 years ago with 20 per cent of its portfolio invested in that area. However, in the late ’90s, the Ontario government split the company into four different entities, splitting the pension fund. As a result, a decision was made to take a fund approach instead of the direct one. Left with legacy of real estate assets, over a period of 15 years it divested out of almost all direct real estate. In 2009/2010, it reallocated its exposure to real estate to five per cent with the objective to invest in global real estate and did so through REITs.

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Plan Language Needs To Be Checked

Employers need to check the language in their plans especially if they are collectively bargained, says Margot Blight, of Borden Ladner Gervais. She told the ‘Demographic Challenges in the Post-retirement Era’ session at its ‘20th Annual Labour and Employment Law Symposium’ that most plans tend to stop providing coverage at age 65, although that has been challenged on constitutional grounds. For employers with just a few employees over the age of, to provide coverage for them for drugs or dental, they can probably just go to their insurer and arrange for a plan. The problem is with group life and LTD. These do end at age 65 and employees need to know this. However, in collectively bargained plans, if the language is unchanged since before the end of mandatory retirement, it gets complicated. If the plan language says all employees will be enrolled in the benefit plan, the employer could end up being the insurer for these benefits. If this is part of the contractual arrangement, the employer needs to go back to the bargaining table and get this language renegotiated.

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‘Roof’ Possible Source Of Income

The development of delivery drones could create ‘roof’ income for some offices, says Tim Bellman, head of global research at Invesco Canada. In a talk on the ‘Opportunities in global real estate’ at the ‘Invesco 2nd Annual Global Real Estate Forum,’ he said that drones and other technology will have an impact on real estate for investors. Drones could affect building design to accommodate deliveries, including the use of the roof. eCommerce and the sharing economy could increase leasing demand for office and data centre space. However, this could also have a negative impact on retail space as more activity takes place online. Online activity could also change demand for healthcare facilities, medical offices, and seniors housing. All of these are changing buildings and will change the way investments are made, he said.

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Solvency Funding Coming

More permanent changes in defined benefit pension funding requirements could be coming, says Sonia Mak, of Borden Ladner Gervais. Speaking in the ‘ ‘Must Know’ Retirement Savings and Benefits Developments’ at its ‘20th Annual Labour and Employment Law Symposium,’ she said reviews of solvency funding is now place in places like Ontario. While temporary solvency funding relief has been used in different ways across Canada, Quebec has already moved from solvency funding and it is expected Ontario will introduce legislation later this year to deal with solvency funding and enhance going-concern funding with provisions for reserves and a solvency funding ratio for plans below 80 per cent. She also said derisking efforts using annuities is gaining popularity and regulators are paying more attention to them. However, plans purchasing annuities need to be aware that they are not relieved of their funding liability if the insurer becomes bankrupt. Quebec is reviewing if employers can be granted relief if certain conditions satisfied.

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Return Weaker For DB Plans

Canadian defined benefit plans experienced a weaker return in the third quarter, says the Northern Trust Canadian Defined Benefit Pension Plan universe. “The median Canadian plan returned -0.7 per cent for the quarter, reversing the trend of positive returns earned in the first two quarters of 2017,” says Arti Sharma, president and CEO of Northern Trust Canada. “The two interest rate hikes in the quarter resulted in a negative impact on the returns of pension plans. Pension plans with longer duration bonds underperformed as the yield curve rose over this period. Despite the weaker results experienced this quarter, Canadian pension plans continue to enjoy a healthy return of 4.4 per cent year-to-date.” The S&P TSX Composite Index, supported by an increase in crude oil prices and positive economic sentiment, gained 3.7 per cent in the third quarter. Seven of the 11 GICs sectors closed the quarter positively, with energy stocks gaining 6.6 per cent on the back of rallying oil prices. Sectors that are defensive in nature such as utilities and consumer staples underperformed.

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Funded Status Of MEPPs Improves

The funded status of the Segal Group’s model multi-employer pension plan (MEPP) increased by four percentage points last quarter to 101 per cent. The increase was primarily due to a four per cent drop in liabilities, as the overall investment return of the model plan’s portfolio was almost zero. “The third quarter was marked by the Bank of Canada’s two consecutive rate hikes, which resulted in a negative quarter for fixed income,” says Ruo Tan, president of Segal Rogerscasey Canada. The Canadian equity market rose as the mining sector picked up and stabilization of oil prices helped the energy sector. “The positive return and low market volatility for U.S. equities demonstrates that investors remained optimistic on strong U.S. corporate earnings, low inflation and a tight job market,” he says.”

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Investment Firms Unprepared For MiFID II

North American investment firms are unprepared for new regulations under the Markets in Financial Instruments Directive (MiFID II) that will take effect in January, says a survey from SimCorp. It found that only 23 per cent of investors are ‘extremely confident’ they have a plan in place to meet requirements under MiFID II, the second phase of European Union rules that will require brokerage firms to unbundle research and trading fees. Seventy-seven per cent said they are ‘either somewhat or not at all confident.’ MiFID II takes effect on January 3.

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Value Of Workplace Wellness Emphasized

To help employers better understand the value of workplace wellness programs, the Canadian Centre for Occupational Health and Safety (CCOHS) has launched the eCourse, ‘Business Case for Workplace Wellness.’ With many workers in Canada spending the majority of their waking hours at work each day, employers are starting to realize the importance of offering workplace wellness programs and the positive impact they can have. The course provides business owners, managers, and supervisors with an introduction to establishing a workplace wellness program. It can be accessed at www.ccohs.ca/products/courses/wellness/

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Stefanelli Joins William Blair

Jason R. Stefanelli is director, Canada, for William Blair. With more than 18 years of experience in the investment management industry, he will be responsible for bringing William Blair’s specialized client service resources and tailored global investment strategies to institutional investors across Canada. Most recently, he was director, pensions and global business development, at Cambridge Associates, LLC.

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Session Examines Pension Trends

How active hedging can reduce risk and enhance returns in a global portfolio, the evolving complexity in the pension industry, and an update on what statements of investment policies and procedures (SIPPs) in Ontario are saying in terms of ESG (environment, social, and governance) disclosure will be among the areas explored at the Benefits and Pensions Monitor ‘Pension Investment Trends’ session. Speakers include Michael Long, senior policy analyst at the Financial Services Commission of Ontario (FSCO); Tim Rourke, vice-president, segment lead, pensions and asset owners at CIBC Mellon; and Momtchil Pojarliev, deputy head of currencies at BNP Paribas Asset Management It takes place November 9 in Toronto, ON. For information, visit Pension Trends

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November 2, 2017


Balance Needed In Plans

There needs to be a balance of value and affordability with benefits plans, says Denise Balch, of Connex Health. Speaking at the Canadian Group Insurance Brokers and Benefits Breakfast Club ‘Threats/Challenges to your Business’ session, she said change is not new and challenge is not new. However, “we must all learn to thrive in a challenging environment and embrace it. It may not be our preference, but doomsday talk and fear mongering are not the solution. Finding new way to overcome challenges is the future.” And while new drugs and procedures come at a cost, “there needs to be a balance of affordability and value. It is not a question of paying or not paying,” she said, it is “is the outcome worth the investment?” Dave Patriarche, of Mainstay Insurance; said the use of drug caps in plans is increasing. Data from Telus from 2012 shows about 9.4 per cent of plans had a maximum drug spend which impacted about 13.3 per cent of members. But it has to be higher now, he said. Anecdotal evidence suggests that 43 per cent of third-party administrator plans were capped and if drug costs rise, more will move this way even though he is opposed to them. Joan Weir, of the Canadian Life and Health Insurance Association; said while drug costs have risen to $11 billion from $10.8 billion in 2015, she can’t understand why more attention isn’t being paid to dental costs which have reached $7.9 billion. She said she is also puzzled because market statistics show the number of Canadians covered by benefit plans has reached 80 per cent, up from 67 per cent 10 years ago. Yet more and more Canadians are working as contractors and on a contingent basis where they likely do not have benefits.

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AI Finds Its Way Into HR

As robotics and automation become key drivers of the new economy, a paper by the Human Resources Professionals Association (HRPA) reveals that the use of artificial intelligence (AI) has already found its way into human resources (HR) departments, a trend that is expected to further grow in the coming years. “The future is here and employers have good reasons to embrace AI’s increasing role in HR functions,” says Scott Allinson, vice-president of public affairs. “Utilizing AI is not about worker displacement, but a useful tool paired with human judgment to allow HR professionals to focus on strategic planning on an organizational level by reducing administrative burdens.” ‘A New Age of Opportunities: What Does Artificial Intelligence mean for HR Professionals?’ explores key areas in which AI can help organizations reduce the administrative burden, recruit, reduce bias, and improve employee engagement.

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Median Return Positive Once More

The median return of the BNY Mellon Canadian Master Trust Universe, a BNY Mellon Global Risk Solutions fund-level tracking service, was +0.55 per cent for the third quarter of 2017, marking the sixth straight quarter of positive results. The one-year return of +6.14 per cent was just below the Canadian Master Trust Universe’s 10-year annualized return of +6.17 per. Catherine Thrasher, managing director, global risk solutions, Canada, BNY Mellon Asset Servicing, says, “The top performing asset class in the third quarter is Canadian equities with a median return of +3.4 per cent. International equity was the best performing asset class over the one-year time horizon (+14.74 per cent). Fixed income underperformed in the third quarter and one-year time horizons with median returns of -2.01 per cent and -3.01 per cent, respectively.”

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Diversity Moves Up Agendas

Diversity is moving up asset owners’ agendas and is beginning to influence how they interact with providers, select managers, and structure their own trustee boards, says research by New Financial. ‘Diversity from an Investor’s Perspective’ found that 74 per cent of asset owners in the sample mention diversity in their annual reports, while 42 per cent said they are addressing diversity internally, across their investment functions, and on trustee boards. As well, 13 per cent of respondents said they use diversity as a theme for portfolio allocation. Assets owners are also stepping up engagement with their providers and diversity criteria are coming up more frequently in RFPs and investment consultants’ due diligence processes. The research also found that 21 per cent of respondents are setting their own diversity targets, mostly related to improving female representation.

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ESG Continues To Grow

More than a quarter of the $88 trillion assets under management globally are now invested according to environmental, social, and governance (ESG) principles, says a McKinsey & Co. study. It says sustainable investing with ESG integration into portfolios is growing at a rate of 17 per cent a year. ESG accounted for $22.89 trillion, or 26 per cent, of professionally managed assets in Asia, Australia, New Zealand, Canada, Europe, and the U.S. at the start of 2016. That compares with 21.5 per cent in 2012. European investors lead in sustainable investing, with 52.6 per cent of the region’s assets invested according to ESG factors at the beginning of 2016. Just over half of assets in Australia and New Zealand were invested in sustainable strategies, while 37.8 per cent of Canadian investments followed ESG principles. In the U.S., 21.6 per cent of assets were allocated to sustainable investments at the start of last year, while Asia was much farther behind on the trend. Only 3.4 per cent of Japanese assets were in sustainable investments, while Asian countries outside Japan had less than one per cent of assets tied to ESG.

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SADIE Streamlines Process

The Special Authorization Digital Exchange (SADIE) program will not change the criteria for drugs, says Ed Nyman, a senior project manager at the Ontario Ministry of Health. He told ‘The Ontario Exceptional Access Drug (EAP) Program is Improving’ session at a Canadian Group Insurance Brokers and Benefits Breakfast Club event that the purpose of the program is to make key government programs available online and improving ways stakeholders can engage with the ministry. Set to launch in 2018, it improves the process for access to drugs not covered by ODB (the Ontario Drug Benefit Plan) and for those individuals who have tried and failed using less expensive drug treatments. The process determines if patients meet certain clinical circumstances before covering the drugs. The current process is very labour intensive, he said. Applications need to be reviewed by doctors, pharmacists, and outside experts. It also puts a burden on prescribers who need to provide information. In fact, 20 per cent of requests have to go back for additional information, he said. SADIE is an effort to address these problems and streamline the process. An online service to access the exceptional access drug program, it will try to move to real time adjudication by automating the criteria. It will allow prescribers to fill in information online and get an approval in 30 seconds, said Nyman.

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Canadians Discuss Retirement Innovation

Jim Keohane, president and CEO of HOOPP; Hugh O’Reilly, president and CEO of OPTrust; and Hassan Yussuff, president of the Canadian Labour Congress; will discuss retirement innovation and reform that could be applied to the U.S. system at the Brookings Institution. Taking place today, it comes just as a new report from the U.S. Government Accountability Office calls for a comprehensive examination of the nation’s retirement system. Americans are faced with major challenges in achieving a financially secure retirement, including Social Security uncertainty and lack of universal access to retirement plans. Senior U.S. elected officials, policy-makers, pension/investment leaders, labour leaders, regulators, and experts will attend the convening session. The institute is a non-profit public policy organization whose mission is to conduct in-depth research that leads to new ideas for solving problems facing society at the local, national, and global level.

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Pro Health Acquisition Completed

Morneau Shepell has completed the acquisition of Pro Health Group, an EFAP and wellness program provider based in Quebec City, QC. Pro Health Group offers comprehensive expertise in mental and physical health, built around timely interventions with an accent on prevention, as well as support for employees and their families when they face challenges. These services complement Morneau Shepell’s EFAP work in Quebec.

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Caisse Makes Solar Loan

La Caisse de dépôt et placement du Québec has made a US$40 million loan related to a portfolio of solar energy systems originated by Sunrun Inc., a U.S. provider of residential solar energy. Founded in 2007, Sunrun designs, develops, installs, sells, and maintains residential photovoltaic solar energy systems. With deployed installations of 1,027 MW as of June 30, the California-based company serves over 135,000 customers in 22 states and Washington, D.C.

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Vanguard Adds Funds

Vanguard Investments Canada Inc.’s Target Retirement 2060 and 2065 pooled funds are now available to qualified Canadian institutional investors, including plan sponsors. These funds provide age-appropriate asset allocation in a simple, yet sophisticated and low-cost solution for retirement investing. It now offers a total of 12 target-date funds in Canada, ranging in retirement years 2015 to 2065, in five-year increments. These target retirement funds, which invest in indexed pooled funds, gradually and automatically shift to a more conservative asset allocation as the target date draws near.

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RBC Appointed Custodian

RBC Investor & Treasury Services, part of Royal Bank of Canada, has been appointed custodian for Aviva Canada. It will provide custody, foreign exchange, and securities lending services on the insurance company’s corporate treasury assets. Aviva provides home, automobile, leisure/lifestyle, and business insurance to more than three million customers.

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Business Development Efforts Boosted

Sean Sirois is head of business development, Quebec and Eastern Canada; Andrew Post is director, institutional sales, central Canada; and Stian G. Andersen is head of business development, Western Canada, at Sun Life Institutional Investments (Canada) Inc. Sirois is responsible for marketing investment solutions to consultants, defined benefit pension plan sponsors, and other institutional investors. Most recently, he was vice-president of business development at IPSOL Capital. Post is responsible for marketing investment solutions to consultants, small to mid-sized defined benefit pension plan sponsors, and other institutional investors. He joined Sun Life Investment Management in 2015 as an institutional sales associate. Andersen is responsible for marketing investment solutions to consultants, defined benefit pension plan sponsors, and other institutional investors in the western Canada institutional markets. Prior to this, he was director, institutional business development and client relationships, for Sun Life Global Investments.

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Illiquid Investments Examined

The Saskatchewan Region CPBI will examine ‘Illiquid Investments ‒ Are they a Free Lunch?’ Brendan George, a partner at George & Bell Consulting, will review the reasons for the increase in allocations to illiquid assets. The session will cover issues including types of illiquid investments; risk and return expectation for traditional and illiquid asset classes; and the use of illiquid investments by Canadian institutional investors. It takes place November 15 in Saskatoon, SK, and November 16 in Regina. For information visit Saskatoon Session for the Saskatoon session and Regina Event for the one in Regina.

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November 1, 2017


ESG Now Global Phenomenon

ESG (environment, social, and governance) is a global phenomenon as a full 67 per cent of respondents to a global survey by RBC Global Asset Management (RBC GAM) use ESG principles as part of their investment approach. However, by region, ‘Responsible Investing: The Evolution of Ownership’ shows more investors in Europe (85 per cent) than in Canada (73 per cent) and the U.S. (49 per cent) incorporate ESG analysis. While these results suggest that responsible investing has moved into the mainstream, the survey also reveals how investor perceptions differ starkly by region. When it comes to ESG investing, there are sharp differences among institutional investors as to whether ESG analysis can mitigate risk and drive alpha in a portfolio. Some institutions plan to increase their exposure to ESG strategies in the near term while others are holding back, unconvinced of its value and unimpressed with available data about corporate performance on ESG. The survey also uncovered broad disagreement over the proper role of shareholders, industry groups, and regulators when it comes to improving corporate reporting and driving change on issues such as gender diversity among directors. “Globally, we are seeing a clear trend toward greater awareness, interest, and adoption of ESG analysis and responsible investing,” says Judy Cotte, vice-president and head of corporate governance and responsible investment at RBC GAM. “This survey reveals that many institutional investors are actively discussing these issues within their organizations and with consultants and stakeholders. And while some institutions are moving at a cautious pace, others are moving rapidly to adopt an ESG-based investment approach.”

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Contingent Workers Must Be Considered

Employers have to consider the implications the dynamic shift to contingent workers will have on their workforce, says a Mercer whitepaper. ‘Start Preparing For Super-temp Employees ‒ The Workforce Of Tomorrow’ says there are currently 1.8 million workers in Canada with temporary employment contracts, making the contingent workforce a reality. Younger workers are leading the way toward the free agent workforce as business necessity and the economic transformation to a knowledge-based economy are moving this trend further forward. This means employers need re-assess their talent management strategies, employee healthcare benefits plans, and employment costs and risks. They need to consider if they will move away from traditional employer provided benefits to minimize risk or change compensation strategies to account for increasingly skilled free agents.

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Confidence Falls Over Brexit

Institutional investors are less confident regarding the UK’s departure from the European Union, with a fall in the proportion of respondents expecting positive global economic growth in the near to medium term, says State Street Corp.’s ‘Brexometer’ index. It shows 40 per cent of institutional investors expect positive growth in the next three to five years, compared with 45.1 per cent of respondents in the previous survey. The proportion of investors expecting Brexit to have an impact on their business operating models grew to 82 per cent from 72 per cent in the third-quarter survey. As well, 22 per cent think Brexit will have a significant impact versus 17 per cent in the previous survey. For asset allocation, 60 per cent of investors expect it to stay the same, up from 53.4 per cent in the last survey.

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Money Held By Managers To Double

The amount of money managed by investment managers around the world is set to almost double in size to US$145.4 trillion by 2025, says a report from PwC. However, it says the proportion held by active managers will decline from 71 per cent to 60 per cent and many asset management firms will need to take urgent action “if they’re to survive an exponential level of change” over the coming years. ‘Asset & Wealth Management Revolution: Embracing Exponential Change’ predicts active investments will continue to lose market share to passives and alternatives as passively-managed index-tracking funds will gain “huge” market share, rising from 17 per cent of assets under management (AuM) to 25 per cent in 2025. Alternatives are set to rise from 12 per cent to 15 per cent as assets increase from $10.1 trillion to $21.1 trillion.

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Engagement Pillar Of ESG

The UN PRI thinks engagement is a pillar of ESG (environment, social, and governance) integration, says Nalini Feuilloley, its head of Canada. In a panel discussion at the RBC Global Asset Management (RBC GAM) ‘Responsible Investing: The Evolution of Ownership’ survey session with Julie Cays, chief investment officer at the CAAT Pension Plan, Karen Lockridge, a principal in responsible investment at Mercer, and Michael Jantzi, CEO of Sustainalytics, she said engagement is very important as you “can’t effect change if you are not in the conversation.” This kind of dialogue, for example, is prompting some energy companies to evolve into clean tech, she said. Cays said engagement can be constructive. For example, the Canadian Coalition for Good Governance is moving into the ‘S’ and ‘E’ in its conversations with company boards of director and getting a good response on how they are dealing with these. The survey shows Canadian institutions are significantly more likely to view engagement with companies to be more effective than divestment. And while there is an argument for divestment in areas like tobacco, said Feuilloley, how this is implemented is important, said Lockridge. For many large funds, divesting from fossil fuels is not reasonable. However, they can divest themselves of certain companies which may not looking at reducing carbon. Part of the issue is information. Getting the right information and getting information that is material to investors is the issue, said Jantzi, and that is the right approach to take.

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Call Made To Examine Opioid Risks

A coalition of 30 investors representing more than $1.3 trillion in assets is calling on 10 opioid distributors and manufacturers to examine how they are responding to business risks related to opioids. Investors for Opioid Accountability says, “The opioid crisis has already taken many lives and is a blight on the pharmaceutical industry.” It calls on independent board chairs and directors of companies that manufacture and distribute opioids to fortify their leadership roles in protecting shareholder interests. This means addressing the risks associated with reputational harm, escalating fines, and mounting legal costs arising from the toll that misuse of opioids is causing.

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Teachers’ Partners In UK Airports

The Ontario Teachers’ Pension Plan, Australia’s New South Wales Treasury Corporation, and Sunsuper Superannuation Fund will become investment partners in Bristol Airport and Birmingham Airport, two of the UK’s leading regional airports. Ontario Teachers’ will sell 30 per cent of its stakes in both Bristol and Birmingham to the Treasury Corporation and Sunsuper who will each acquire a 15 per cent stake in the airport. Ontario Teachers’ is the largest private investor in airports in Europe, with holdings in five freehold airports: Copenhagen Airports, Brussels Airport, Bristol Airport, Birmingham Airport, and London City Airport. It has been an investor in the Bristol and Birmingham Airports since 2001. Bristol Airport is the ninth largest airport and Birmingham Airport the seventh largest in the UK.

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Caisse Makes Loan To Innergex

La Caisse de dépôt et placement du Québec has loaned $150 million to Innergex Renewable Energy Inc., an independent Canadian leader in renewable energy. The investment takes place as Innergex announces the acquisition of Alterra Power Corp., a renewable energy company operating in Canada, the United States, and Iceland. The transaction will allow Innergex to diversify its asset portfolio, both geographically and in terms of energy sources. In business since 1990, Innergex develops, owns, and operates hydroelectric power plants, wind farms, and solar farms. In addition to strengthening these three activity sectors, acquiring Alterra allows Innergex to integrate geothermal energy into its offering.

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Mann Gets New Role

Jay Mann (FSA) is senior director, total rewards, at CN. Most recently, he was director of compensation and pensions. He joined CN in 1994 as manager, SAP HR implementation.

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Keynotes Set For ISCEBS Event

‘Innovation Meets Personalization: Pharmacogenetics & Financial Technologies in Group Health and Retirement’ will be the topics at the Toronto Chapter ISCEBS’ biennial keynote speaker event. Simon Chan, CEO at BAL Consulting, will lead a discussion of FinTech and retirement which will be followed by a panel discussion with Michael Prouse, director of operations at Personalized Prescribing Inc., and Veronika Litinski, of GeneYouIn, on pharmacogenetics. It takes place November 22 in Toronto, ON. For information, visit ISCEBS Keynote

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November 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 November 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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