Income Gap Could Hurt Portfolios

Institutional investors have increasingly begun to realize that the gap between the very wealthy and all others has become one of the most socioeconomic issues of these times, says Steve Lydenberg, founder and CEO of The Investment Integration Project (TIIP). Speaking at the ‘Investing to Address Income Inequality’ event sponsored by the Shareholder Association for Research & Education (SHARE), the Principles for Responsible Investing (PRI), and TIIP during ‘Canada’s Responsible Investment Week,’ he said it has the potential to negatively impact institutional investor portfolios, increase financial and social system-level instability, lower output and slow economic growth, and contribute to the rise of nationalistic populism and tendencies toward isolationism and protectionism. William Burckart, president and COO of TIIP, said income inequality is an issue for developing and developed countries alike. To deal with it, three key leverage points need to be reconnected ‒ employee relations, taxes, and CEO compensation ‒ and small interventions in these can create big changes. Rosa van den Beemt, senior ESG analyst at NEI, said there is an opportunity for engagement as there is a growing understanding among companies that this is important, not just because of reputational risk, but due to the risk to the economy. However, because the topic is new, proponents need to mobilize and get people to understand these issues. George Wong, ESG integration manager at the New York State Common Retirement Fund, said human capital management coalition is one example of how investors have come together to engage on income inequality. Maria Clara Renton, a senior analyst at OPTrust, said given the nature of the plan’s members, employment practices are important and they are really an underlying governance issue.

BoC Opens Door To Higher Rates

The Bank of Canada (BoC) has opened the door to bring interest rates close to three per cent, says Randall Malcolm, senior managing director at Sun Life Investment Management. While the increase in the overnight rate by 25 bps to 1.75 per cent was widely expected, the tone of the statement was “hawkish,” he said. “While many expected dropping the ‘gradual’ wording, it was a surprise to replace it with the intention to bring policy rates to neutral.” Rates close to three per cent are much higher than what the market priced in. While the BoC was upbeat with the economic outlook and pointed out that the U.S./Mexico/Canada agreement reduced trade uncertainty, the main question for the BoC is how households will react to higher interest rates. Markets reacted to the news with the Loonie rallying almost a point against the U.S. dollar and the two-year swap rate rose four bps after the announcement. But interest rates at the long end of the curve did not move and “it seems the market did not believe the BoC could hike rates as much as it wanted,” he said.

Foundation Offers Financial Education Grants

The Alberta Investment Management Corporation (AIMCo) has launched a foundation for financial education. An independent registered charitable organization focused on the improvement of financial literacy in Alberta, the AIMCo Foundation for Financial Education is an employee-led and funded initiative that aims to provide access to scholarships, grants, and volunteerism opportunities for AIMCo employees. Upon its launch, the foundation will provide grants to not-for-profit, community-based programs offering financial literacy or empowerment education and services throughout Alberta, as well as post-secondary institutions offering formal education in finance. The grant application cycle will commence in January with initiatives funded on a rolling-basis.

Non-communicable Disease Impact Grows

The impact of non-communicable diseases worldwide on healthcare costs is increasing, says Aon’s ‘2019 Global Medical Trend Report.’ Cancer and cardiovascular ailments, such as high blood pressure, diabetes, and respiratory conditions, were the most prevalent health conditions driving healthcare claims around the world. The report also confirms the growing prevalence of risks from unhealthy personal habits around the world such as high blood pressure, high cholesterol, physical inactivity, bad nutrition, and obesity.  “Many of the global risk factors often lead to chronic conditions with long medical cost tails that make them expensive to treat and result in long term medical cost increases,” says Tim Nimmer, chief healthcare actuary at Aon. “Employers can play a key role by motivating individuals and their families to take a more active role in managing their health, including participating in health and well-being activities and better managing chronic conditions.” To mitigate costs, it found that companies continue to use traditional strategies such as adjusting plan designs, controlling unreasonable plan utilization, and negotiating premium rates with carriers. As well, employers are being proactive and are increasingly creating programs to reduce chronic conditions such as screenings, healthy eating, and physical activity promotional programs.

Hedge Fund Assets Hit Record Level

Hedge fund assets increased to a record level in the most recent quarter despite redemptions from some of the main strategies, says HFR. Assets under management reached $3.24 trillion at the end of the third quarter, driven by an $8.4 billion increase due to performance. This increase occurred despite ongoing redemptions from macro, event-driven, and relative value strategies. For the year, investors have redeemed an estimated $11.1 billion of hedge fund industry capital, although total hedge fund assets have increased by $34.4 billion.

Brosseau Joins Aetna

Laurent Brosseau is sales vice-president at Aetna. Previously, he was director, business development, at SSQ, a firm he joined in 2013 as an operations consultant.

Session Looks At Investment Opportunities

The continuing low interest rate environment is prompting pension plans to seek new investment opportunities to generate the returns they need to match their liabilities. Wilfred Hahn, founder and global strategic advisor from Forstrong Asset Management Inc.; Kelly Hastings, chief risk officer from CIBC Mellon; and Julie Cays, chief investment officer from the CAAT Pension Plan; will provide their insights on how pension funds are investing their money now and what they will be considering in the future at the Benefits and Pensions Monitor ‘Pension Investment Trends’ session. It takes place November 13 in Toronto, ON. For information, visit Investment Trends