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December 6, 2019


Manitoba Reveals Pension Reform

The government of Manitoba has made its long-awaited announcement on solvency funding reform, says an Eckler ‘Special Notice.’ Bill 8, The Pension Benefits Amendment Act is the culmination of a two-year-long consultation between the government and stakeholders designed to modernize Manitoba’s pension regulations and reduce red tape while safeguarding the security of pensions in the province. Significant changes include allowing plan members who transfer a pension benefit credit to a locked-in retirement account or life income fund to unlock amounts under certain financial hardships and fully unlock amounts at age 65; allowing plans to permit members who continue to be employed after normal retirement age to stop contributing to the plan and to stop accruing benefits; permitting the use of solvency reserve accounts to fund plan solvency deficiencies; eliminating regulator approval for unlocking; introducing amendments to permit specified multi-employer pension plans; and allowing greater flexibility when dividing pension assets on relationship breakdown. Although not explicitly referenced in Bill 8 and not contained in the changes to the act, the province’s press release announced the change most highly anticipated by plan sponsors: to relax the solvency funding target for defined benefit pension plans to 85 per cent. Under Bill 8, defined benefit plan administrators can set up a separate account within the existing pension fund to provide for a solvency reserve. Payments into the solvency reserve account are restricted to those made by the employer solely in respect of a solvency deficiency. Transfers from any other pension fund account cannot be deposited in the solvency reserve account. The introduction of solvency reserve accounts is a welcome change for DB plans with funding solvency deficiencies since the amounts held in the solvency reserve account are available for withdrawal subject to prescribed restrictions. Likewise, upon plan wind-up and settlement of all benefits, any amounts remaining in a solvency reserve account would revert to the employer. However, the province has maintained its decision announced in June 2019 to not move forward with the Pension Commission’s recommendation to permit a new target benefit/shared risk plan design for single employer and multi-employer plans. As the investment process continues to evolve, common standards have become essential tools in helping investors to measure, evaluate, and describe their portfolios.

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APP Far From Slam Dunk

The case for creating an Alberta Pension Plan (APP) is straightforward – at least on the surface, says Bob Baldwin, a former chair of the Canada Pension Plan (CPP) advisory board with more than 40 years of experience in various pension management and research roles. However, it is far from a slam dunk. Some analyses that promote the advantage of an APP focus exclusively on the base benefits and ignore the newly-created additional CPP benefits. Base benefits – benefits that were in place before the creation of additional benefits that are now being phased-in – are the major component of the Canada Pension Plan (CPP). They are financed primarily by a direct transfer of income from working age contributors to retired beneficiaries. The higher the ratio of contributors to beneficiaries, the lower the contribution rate. A relatively youthful population will have a relatively low contribution rate and an older population will have a high contribution rate. Because Alberta is relatively young, it is argued that Alberta could create an APP that would be similar to the CPP in its benefit provisions and financing with a lower contribution rate. However, this demographic advantage is basically irrelevant to the additional benefits because they are to be fully funded with invested contributions and returns, he says. Some also tend to assume that administrative costs for the APP will be at the same level as for the CPP. This is very unlikely given the economies of scale that exist in pension administration. Startup costs will be substantial. Alberta will have to create a capacity to collect contributions, calculate and pay benefits, maintain earnings records, and adjudicate disputes. The government will have to add APP-related analytical capacity. “All things considered, the creation of a separate APP looks less like a slam dunk than a three-point shot from midcourt,” says Baldwin.

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Domtar Purchases Group Buy-out

Domtar Corporation has entered into an agreement with Sun Life to purchase group annuity buy-out contracts and to transfer approximately $360 million in obligations and related assets from its defined benefit pension plans in Ontario. In addition, it will convert approximately $101 million of existing buy-in annuities with existing insurers into buy-out annuities to complete the full transfer of these obligations. The annuity buy-out transactions will transfer responsibility for pension benefits for approximately 1,265 Domtar retirees and spouses in receipt of survivor pensions. The transactions will enable Domtar to reduce risk associated with volatility in its pension plan obligations and assets.

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Year-end Bonuses Increasing

Some workers will be bringing home bigger pay cheques this month. Research from Robert Half says nearly two-thirds of senior managers polled (64 per cent) in Canada said their company offers year-end bonuses. Of those respondents, a third (33 per cent) noted their organizations plan to increase bonuses this year, while 64 per cent plan to keep them the same. Only three per cent of executives anticipate reducing the amount given to employees. A survey of workers had 27 per cent saying they expect a bonus this year. David King, senior district president for Robert Half, says, “Year-end bonuses are an opportunity for companies to recognize employee accomplishments throughout the year while demonstrating they care about their worker’s individual needs and priorities.”

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Canassurance Joins Alliance

The Canassurance Hospital Service Association and Blue Cross Life Insurance Company of Canada will enter into a Canada-wide alliance as of January 2, 2020. Blue Cross Canassurance will become a shareholder of Blue Cross Life, in alignment with the other members of the Canadian Association of Blue Cross Plans. Founded over 75 years ago, Canassurance contributed to introducing health and travel insurance to Quebec and Ontario.

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CPPIB Invests In NIIF

The Canada Pension Plan Investment Board (CPPIB) will invest up to US$600 million through the National Investment and Infrastructure Fund (NIIF) of India master fund. This includes a commitment of US$150 million in the NIIF Master Fund and co-investment rights of up to US$450 million in future opportunities to invest alongside the NIIF Master Fund. With CPPIB’s investment, NIIF Master Fund now has US$2.1 billion in commitments and has achieved its initially targeted fund size. CPPIB will also become a shareholder in National Investment and Infrastructure Fund Limited, NIIF’s investment management company.

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Tahbazian Joins CIBC Mellon

Ash Tahbazian is chief relationship and revenue officer at CIBC Mellon. In this newly-created role, he has overall responsibility for the company’s relationship management and relationship development functions. With more than 25 years of asset servicing experience, he most recently served as senior vice-president, head of U.S. asset owner relationship management, at State Street.

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Panel Looks At Climate Change Strategies

A plenary panel will look at strategies that investors are employing to align with the Paris Agreement goal on climate change at the ‘SHARE Investor Summit 2020.’ Under the theme of ‘The Power of Many,’ the summit will address key issues including inequality, the future of work, and reconciliation. It takes place in February 19 to 21, 2020, in Vancouver, BC. For more information, visit SHARE Summit

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December 5, 2019


Shareholder Needs No Longer Priority

Canadian institutional investors no longer want shareholder needs to be prioritized above the needs of all other stakeholders, says the ‘Edelman Trust Barometer Special Report: Institutional Investors.’ The report notes that 91 per cent of Canadian institutional investors agree that maximizing shareholder returns can no longer be the primary goal of a corporation and that business leaders must balance the needs of shareholders with those of employees, customers, suppliers, and local communities to drive long-term business success and lower the risk of multi-stakeholder activism. David Ryan, executive vice-president, corporate and financial communications, at Edelman, says, “Canadian institutional investors are looking at how companies treat every one of their key stakeholder groups to measure the attractiveness of their investment value proposals. A healthy corporate culture, strong talent retention, customer service, and community impact are looked at just as closely as financial key performance indicators. It is apparent that companies need to nurture all of their stakeholder groups equally to drive long-term success.” The research surveyed institutional investors across six countries ‒ the U.S., Canada, the UK, Germany, the Netherlands, and Japan), representing firms that collectively manage over $9 trillion in assets.

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Quebec Open To Healthcare Entrepreneurship

While governments keep shovelling billions of dollars into the country’s healthcare systems, and results continue to disappoint, a strong majority of Quebecers are open to entrepreneurship in order to alleviate the lack of service, all while maintaining the universal coverage of care. Indeed, across the country, it is Quebec that is the most open to this, says a poll for the MEI. It found 75 per cent of Quebecers, Manitobans, and Saskatchewanians agree that private entrepreneurs should be allowed to provide more care, as long as the government pays for it. For the country as a whole, the level of support is 68 per cent, with only 20 per cent opposed. In Quebec, 55 per cent agree that private companies should be allowed to manage public hospitals, compared to 42 per cent nationally. As well, 63 per cent of Canadians believe that individuals should have the right to buy private health insurance if they are not treated within a reasonable time. The proportion is similar from one province to the next. They also want ‒ at 67 ‒ per cent for their employer to provide them with access to virtual consultations with a doctor.

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Alternative Managers More Transient

As the world of alternative assets continues to grow and evolve, reaching $9.45 trillion in assets under management as at December 2018, fund managers have become more transient in their service provider relationships. As a result, service providers have had to adapt quickly to meet their needs, says Preqin’s ‘Service Providers in Alternative Assets Report.’ It says as the industry has become more global, regulatory demands have increased, technology has advanced, and competition has ramped up. However, dissatisfaction with the quality of service and cost have been the main reasons why private capital fund managers have chosen to change their service providers. In the past 12 months, 46 per cent and 31 per cent of fund managers have changed their accountants and fund auditors respectively. Furthermore, the survey finds that the smaller fund managers are, the more likely they are to have changed service providers.

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TELUS Expands Care For Aging

TELUS Health will expand its LivingWell Companion personal emergency response service (PERS) to support more aging Canadians across the country. Through the acquisition of DirectAlert, which has more than 15 years of experience providing emergency response across Canada, it will provide safety and security for aging Canadians who want to live independently at home for longer. DirectAlert will continue providing service under the ‘DirectAlert by TELUS Health’ brand into early 2020, ensuring a smooth transition for current customers so they can continue benefiting from the same consistent, uninterrupted local emergency response. By early next year, all TELUS PERS customers will be backed by the LivingWell Companion brand nationally and will be supported by increased service capabilities including multi-lingual support and proactive alerting to empower aging Canadians to take control of their own health and live happier and healthier lives.

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Data Analysis Becoming Valued Skill

Data analysis will be the most valued skill on trading desks over the next five years, says Greenwich Associates. As a result, ‘The Future of Trading: Redefining Data’ says 85 per cent of capital markets professionals plan to increase their spending on data management technology during this time. The financial services industry currently spends $1.4 billion annually on consolidated market data feeds and market participants pay another $300 million per year on alternative data. That spending appears to be going nowhere but up. About 95 per cent of capital markets professionals expect alternative data to become more valuable in the next three to five years and more than 75 per cent say the same about direct market data feeds. “Market participants now have access to tools that allow them to make sense of nearly unfathomable amounts of both structured market data and completely unstructured information,” says Kevin McPartland, head of research in Greenwich Associates’ market structure and technology group and author of the report. “Putting data to good use will require an influx of new talent to the trading floor and data analysis will be the most valuable skill on trading desks over the next five years.”

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Active Creates Hidden Risks In Capacity

An argument that active management is needed to avoid capacity issues in factor investing does not hold for a number of reasons, says a Scientific Beta study. ‘Do We Need Active Management to Tackle Capacity Issues in Factor Investing? Exposing Flaws in the Analysis of Blitz and Marchesini (2019)’ shows that systematic rules allow investability to be improved with full transparency. Active management is not only unnecessary; it also creates hidden risks for investors due to a lack of transparency. Dr Noël Amenc, CEO of Scientific Beta, says, “Although the criticism in the Blitz-Marchesini paper builds on logical fallacies and is not backed by evidence, it does align with intuitive claims about the dangers of indexing. It may be convenient to rely on such intuitive arguments – they correspond to widely held beliefs – but answering questions about investability requires careful analysis of the facts. Index providers and replicators need to offer transparency and evidence to allow for factual analysis. In their due diligence, index investors need to address how the index provider achieves investability and how the passive manager adds value when replicating the index.”

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Papadimitriou Joins Desjardins

Bill Papadimitriou is regional vice-president, business development, group and business insurance, Ontario, at Desjardins Insurance. With 25 years of experience in group insurance, most recently, he was director, business development, for a major insurance company.

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Session Looks At Pension Law

The ‘Osgoode Certificate in Pension Law’ equips participants with what they need to navigate this often complex and liability-laden area effectively. Sessions will be held Toronto, ON, for six days between February 5 and March 11, 2020. For information, visit Pension Law Certificate

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Commuted Value 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 December 2019 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)
You can use this spreadsheet to compare the interest rates which you may have calculated and/or you can download the spreadsheet to your own computer. Another actuary has already provided a peer review of the updated rates in this spreadsheet and determined that he/she agrees with the results.

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December 4, 2019


Institutional Investors Focus On Active

Institutional investors will remain focused on active management to guide them through more volatile markets, says a global survey of institutional investors by Natixis Investment Managers. As well, ‘The waiting game: Ten market trends institutional investors are watching for in 2020’ shows 74 per cent of institutional investors say the market environment in 2020 is likely to be favourable for active portfolio management. Accordingly, investors continue to increase their allocations to active strategies while their use of passive strategies continues to decline. Current allocations are split 71 per cent active and 29 per cent passive, up from 64 per cent allocated to active management and 36 per cent to passive when surveyed in 2015. As investors have flocked to passive investments in recent years, institutional investors see significant risks ahead for individual investors and markets in general. Most significantly, 54 per cent of institutional investors believe the excessive use of passive index funds suggests the market is ignoring fundamentals. “Previous studies have told us that institutions have been increasingly cautious in their outlook and their portfolio positions reflect those concerns,” says Dave Goodsell, executive director of the Natixis Center for Investor Insight. “The sentiment from institutional investors tells us that the question is not whether risk and volatility will impact markets and volatility, but when.”

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Pension Finances Weaker Due To Stimulus

Pension plans expect to enter the next recession with their finances weaker than ever thanks to years of economic stimulus, says a study by Amundi and Create-Research. It found that nearly 80 per cent of surveyed pension plans believe that quantitative easing (QE) has inexorably inflated global debt and sown the seeds of the next financial crisis. Although two thirds of respondents attributed the stabilization of financial markets after the Lehman Brothers collapse to QE. However, the concern is that QE is running out of steam in all key regions where it has been implemented. It is currently at the point of diminishing returns and has undermined the finances of pension plans. So deeply is it now entrenched in the investor psyche, it will be very hard to unravel without huge market volatility. As risk appetite diminishes, capital preservation has become top of the agenda. As long as QE lasts, nearly 60 per cent of respondents said they will favour equities.

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Chronic Disease On Sponsors’ Minds

Chronic disease appears to be increasingly on plan sponsors’ minds, with good reason given its dominance in drug and disability claims, says a Telus ‘Health Benefits Hub.’ Four out of five plan sponsors (82 per cent) would like their health benefit plan to do more to support people with chronic conditions, says the ‘2019 Sanofi Canada Healthcare Survey.’ This desire aligns well with the wishes of plan members who have chronic conditions: 87 per cent of those plan members surveyed would like to know more about their condition and how to treat it. At least half of plan members reported having at least one chronic condition and 42 per cent said they experience chronic pain. Given the alignment between plan sponsors and plan members and the large population that could potentially benefit, the evolution of health benefits and wellness programming to better support chronic disease management appears self-evident. Plan sponsors’ concerns about costs are the biggest barrier to taking action, followed at some distance by a perceived lack of offerings from insurance providers and not having the right data/information to know where to focus. However, over the past few years there have been encouraging signs that employers can, indeed, make important contributions to employee health. Innovations in treatment and access to quality care, as well as the potential to better leverage technology and claims data to focus efforts and tailor offerings, open the door to cost-effective opportunities to support chronic disease management.

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Walter Global Purchases Stake In Quadra

Walter Global Asset Management has purchased a minority stake in Quadra Capital Partners LLP, an asset management firm specialized in alternative investments with offices in London, Paris, and Madrid. To help achieve its objective of accelerating Quadra Capital’s growth, Walter Global will leverage its extensive distribution network of institutional and family investors and help form strategic alliances with portfolio managers to diversify Quadra Capital’s offering. Quadra Capital will use Montréal, QC, as a base for its first foray into the North American market.

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Torstar Merger With CAAT Completed

The Financial Services Regulatory Authority of Ontario (FSRA) has consented to the merger of the eight Torstar defined benefit pension plans into the Colleges of Applied Arts and Technology Pension Plan and  the transfer of assets from these plans to CAAT has been completed. The transfer of assets was the final stage of the merger process. CAAT has now assumed responsibility for all pension benefit payments to members of the Torstar Plans.

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CI Partners with Demographic Expert

CI Financial Corp. is partnering with Joseph Coughlin, a world-renowned researcher into demographic change and founder and director of the Massachusetts Institute of Technology AgeLab. He will advise CI and financial advisors on how to better serve aging and retired clients whose needs and expectations are changing dramatically.

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Shoppers’ Opens Cannabis Portal

Shoppers Drug Mart Corp. has now opened its online medical cannabis portal across the country. The ‘Medical Cannabis by Shoppers’ program launched in Ontario and Alberta earlier this year and is now available to all provinces and territories. Although it doesn’t let registered medical cannabis patients buy the drug directly from the Canadian pharmacy chain, it does promise support for medical cannabis users through the online platform and a call centre. It will also be able to help registered patients find a product that suits their needs and advise them on how to use it and, if they do not have a physician or a nurse practitioner to authorize its use, medical consultations with healthcare professionals will be available through the online platform.

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GSC Invests In Fintech Fund

Green Shield Canada (GSC) is investing in the global fintech fund Portag3 Ventures II LP and collaborating with its broader ecosystem as GSC strives to bring health and insurance solutions to clients and enhance the overall customer experience. “Our mission is to deliver meaningful solutions to improve health and well-being and we believe working with the Portag3 team provides an opportunity to accelerate a number of our efforts in this regard,” says Zahid Salman, GSC’s president and CEO. “We were attracted by their solid track record of finding innovative, early-stage ventures that are well-positioned to scale and deliver significant value to the customers they serve.” Customer expectations are quickly evolving and technology can enable the new business and delivery models needed to meet them, he says.

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Hurst Has New Role

Dana Hurst is senior director, health solutions, at People Corporation. She joined the firm in 2012 as a wellness specialist and was, most recently, director of wellness solutions. Prior to that she was a health and wellness consultant at Sun Life Financial/Buffett & Company Worksite Wellness.

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Global Outlook Offered

The CPBI Saskatchewan Region’s ‘2020 Global Economic Outlook & Investment Strategy’ will provide an assessment of the global macroeconomic backdrop. Candice Bangsund, vice-president and portfolio manager, global asset allocation, at Fiera Capital, will also discuss major economic and central bank developments in both the developed and emerging world and the implications for financial markets and portfolio strategy in 2020. It takes place January 15 in Saskatoon and January 16 in Regina. Information on the Saskatoon session is at Saskatoon Outlook and can be found at Regina Outlook for the Regina session.

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December 3, 2019


Enhanced Access To Annuities Needed

Governments should enhance access to annuities, says a Canadian Life and Health Insurance Association Inc. (CLHIA) report. Its paper argues in favour of new measures to facilitate the development of products that provide stable, long-term retirement income. The federal budget included measures to allow the use of annuity products ‒ advanced life deferred annuities (ALDAs) and variable payment life annuities (VPLAs) ‒ in certain retirement plans. In particular, the CLHIA is calling on the government to enable the use of annuities within tax-free savings accounts (TFSAs). “Canadians should be permitted to elect to use their TFSAs to supplement retirement income savings via life annuities in the same tax-effective manner as for individuals who simply draw-down TFSA balances as a source of retirement funding,” it says. It also calls on governments to revise tax rules to allow VPLAs to pool participants from various registered plans. Under current rules, it says that VPLAs will only be commercially viable for plans with at least 20,000 active members.

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ESG Definition Needed

While ESG (environment, social, and governance) is “huge right now,” the issue is what it is and how does it fit in funds, says Carol E. Derk, a lawyer with Borden Ladner Gervais. Speaking in the ‘How Regulations are Impacting Investor Choice, at the ‘ETFGI Global ETF Insights Summit,’ she said while there is a lot of information, including information not available to the public, a definition of ESG is most critical. Margaret Gunawan, head of Canada legal and compliance for BlackRock, said regulators are looking to see if ESG will create its own taxonomy. It is very nuanced, she said, from screening at one end of the spectrum to philanthropic at the other. Much of the conversation centres around how investors want to act on their morals. While it is an investment decision, the job of the manager is to generate returns, but they need to make sure they don’t take away choice or social purpose, she said. Desmond Alvares, director of operations and CFO at Emerge Canada, said some fund are declaring themselves as ESG compliant although they may only meet minimal standards. In other cases, they are developing strategies to create ESG funds. However, Derek said the same standards cannot be applied across industries. The oil and gas industry in Canada, for example, is not seen at ESG friendly even though some companies are taking steps to be sustainable which may make them ESG friendly. Raymond Chan, director of investment funds and structured products at the Ontario Securities Commission, said there is also the risk management part. It is a risk that needs to be managed and, if it becomes mainstream, it is something managers will need to look at.

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Private Equity Moderates Portfolios For Climate Change

Almost three in five European and Asia-Pacific investors plan to modify their private equity portfolios in the next five years to combat climate change, says the ‘Coller Capital Global Private Equity Barometer.’ Limited partners (LPs) that do expect change to their investment strategies are broadly planning to replace oil and gas exposure with investment in renewable energy and climate-friendly products and services. However, less than a third of North American investors are planning a similar change. Commitments to private debt funds are plateauing, with equal proportions – 21 per cent – planning to accelerate or slow their pace of commitment to private debt funds over the next two years. The survey showed that 45 per cent of European investors believe their private equity portfolios need modifying to prepare them for the next economic downturn; North American and Asia-Pacific investors, however, were less sanguine, with 70 per cent and 80 per cent, respectively, planning to make the changes. Nine out of 10 LPs recognize the significant risks to their medium-term private equity returns posed by today’s macro-environment and high asset prices. Despite this economic background, 80 per cent expect to achieve annual net returns of more than 11 per cent from across their private equity portfolios in the next three to five years.

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ETF Assets Grow At Compound Rate

Assets in ETFs (exchange traded funds) have grown at a compound rate of 20 per cent per year over the last 10 years to reach $6 trillion, says Deborah Fuhr, managing partner and founder of ETFGI, and will break through the $12 trillion mark within the next five years. She told the ‘30th Anniversary of ETFs – Retrospective & Perspectives’ session at the ‘ETFGI Global ETF Insights Summit’ that while it took mutual funds 66 years to reach the $1 trillion mark, ETFs reached that level in only 18 years. ETFs now hold $2.5 trillion more than hedge funds partly because hedge funds have not consistently delivered alpha even though “they can do everything.” She called them the only democratic investment as they are being used by everyone from institutions to individual investors and the tools are the same for all investors. While in the early days they were first used by traders, institutions quickly followed using them as sector futures and enabling them to go long or short investments. ETF use varies around world. The Bank of Japan, which holds 70 per cent of Japanese ETFs, has used them for QE (quantitative easing). In Latin America, pension regulators encourage ETF use for foreign exposure. Use of ETFs around the world is being embraced and more people are using them in more ways and in more markets, she said.

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ISS Expands Governance Evaluations

The responsible investment arm of proxy advisory firm Institutional Shareholder Services Inc., ISS ESG, is expanding its governance evaluations with the addition of environmentally driven executive compensation and shareholder rights considerations. The changes to its scoring methodology are designed to provide investors with more in-depth insight, particularly when it comes to sustainability. Among other things, the methodology will now identify environmental and social shareholder resolutions that receive the highest level of shareholder support. It has also added two new compensation-related considerations that aim to evaluate whether companies disclose any environmental and social performance metrics as part of their executive compensation plans.

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MacDonald Joins Westfield

Alexander MacDonald (CAIA, CIM) is president of Westfield Partners Ltd. Most recently, he was a senior vice-president at LOGiQ Global Partners, a firm he joined in 2016 from Integra Capital Management where he was senior vice-president, institutional sales and marketing.

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Property Index Presented

Simon Fairchild, executive director of MSCI, will kick off the ‘REALPAC/MSCI Canada Real Estate Investment Forum’ with the presentation of the 2019 results of the ‘Canada Quarterly Property Index.’ Then, REALPAC’s CEO Michael Brooks will moderate a panel of industry experts to discuss the results and state of the industry. It takes place February 6, 2020, in Montreal, QC. For information, visit REALPAC/MSCI

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December 2, 2019


Separate Pension Plans Can Suffer Shocks

The attraction of any separate provincial plan, is presumably a function of its ability to provide CPP-like benefits at less cost, say Alexandre Laurin, director of research, and Farah Omran, a policy analyst at the C.D. Howe Institute. In their memo to the provincial ministers of finance on ‘Opting out of the Canada Pension Plan’ on Alberta’s consideration of this, they say the contribution rate in a potential separate provincial pension plan would depend critically on the future path of pension benefits and contributory earnings on which contributions are paid. Each province’s share of overall CPP benefits is closely linked to its own share of the CPP population aged 60 and over and its share of overall CPP contributory earnings is closely linked to its share of the 15-to-59 year-old population. As well, the value of assets a separate provincial plan would obtain at the outset from the CPP Investment Board needs to be determined and considered. Provinces with disproportionately more current and future contributors, and like Alberta also contributing more per contributor on average, may expect a lower cost of providing CPP-like benefits. On the flipside, a disproportionately higher projected growth of beneficiaries, also like in Alberta, increases the cost of providing CPP-like benefits. In a country with free mobility of people, however, population projections can shift quickly and regional cost sharing provides greater stability of contributions and insurance against economic and demographic shocks. Quebec, which opted out of the CPP at inception, is a case in point. It is now dealing on its own with an unexpected older population by hiking contributions.

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Active Survives In Europe

Active management’s chances of living a longer life are better in Western Europe, says a McKinsey & Company report. From an asset-mix perspective, between 2013 and 2018 Western Europe did not experience the same market share displacement by passive strategies as the rest of the world (and specifically the U.S.). Active strategies still play a relevant role in capturing net flows especially in fixed income and multi-asset, it says. Although the shift to passive isn’t as extreme as in the U.S., asset managers in Europe can’t ignore the trend. Fee pressure is still acute and costs are high. As well, active management is being propped up in some countries such as Germany by captive bank networks.

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Break-Even Expected For Digital

With the healthcare industry increasingly going digital, blockchain technology provides the much-needed trust, security, and auditability for healthcare data on its intelligence journey, which allows blockchain to complement healthcare artificial intelligence (AI) and internet of things (IoT)-based data marketplace offerings, says a Frost & Sullivan analysis. ‘Global Blockchain Technology Market in the Healthcare Industry, 2018-2022’ says early commercial success, mainly across select use cases such as health professional credentialing, medical billing management, personal health records (PHR), and pharma supply chain track-and-trace, will help this market cross $500 million by 2022 at a compound annual growth rate (CARG) of 61.4 per cent. While payback may not be achieved for every dollar invested by 2022, a break-even stage is expected. “Health insurance payers, providers, and pharma companies are expected to adopt blockchain systems ahead of other healthcare industry stakeholders,” says Kamaljit Behera, its senior industry analyst, transformational health. “In the future, distributed ledger technology (DLT) will be leveraged by telehealth vendors and tech giants such as Apple, Amazon, Google, and Microsoft to monetize data science and analytical services with innovative patient-centric care models.”

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Index Funds Make Active Bets

Investors might think their index funds don’t actively bet on any companies or industry sectors, but research by index provider Syntax shows otherwise. It found several core market-capitalization-weighted equity indices, which are considered to be diversified, are now exhibiting elevated levels of a new measure called active business risk. This is defined as the risk of an index being overexposed to a particular sector as opposed to being neutral on the market. When active business risk is low, the index is broadly diversified. So, for example, from 2009 to 2018, the market wasn’t that vulnerable to shocks. However, an increase in exposure to companies with similar vulnerabilities usually results in more volatility for the index.

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ESG Ratings Available

MSCI’s ESG Research subsidiary will make its environmental, social, and corporate governance (ESG) ratings of companies publicly available. The ESG ratings of more than 2,800 companies – those making up the MSCI ACWI index – are accessible via a search tool on msci.com. Next year, a further 4,700 companies will be covered as MSCI ESG Research plans to make publicly available the ESG ratings for more than 7,500 companies in the MSCI ACWI Investable Markets Index. Users can see a given company’s ESG rating, ESG rating history, benchmark against peers, and key ESG-related issues affecting individual companies.

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HSBC Digitizes Transactions

HSBC has launched ‘Digital Vault,’ a custody blockchain platform to digitize the transaction records of private placements. The platform, developed by its securities services unit, will allow investors to access these records quickly and efficiently at a time when investment in the private asset markets is growing strongly. It enables global custody clients to access details of their private assets ‒ including equity, debt, and real estate ‒ directly and in real-time instead of having to request a search of paper-based records. Private placements, by their very nature, are tailor-made transactions whose records have not generally moved from paper to electronic format because of the lack of standardization.

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CDPQ Acquires PPP Stake

The Caisse de dépôt et placement du Québec (CDPQ) has acquired 24.9 per cent stake in the public-private partnership (PPP) contract for the trains, systems, operations, and maintenance of Sydney Metro, Australia’s biggest public transport project. The Metro North West Line opened in May 2019 with 13 metro stations in Sydney’s North West. It is being extended into the Sydney city centre and beyond to Bankstown by 2024, when Sydney will have 31 metro stations and a stand-alone 66-kilometre metro railway.

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Renaud Joins Cowan

Moe Renaud is vice-president, operations and product development, group benefits, at Cowan Insurance Group. He spent the past four years with Mercer Canada, most recently as Ottawa, ON, office leader. Prior to that, he was vice-president, health and benefits, at Aon.

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Summit Features Interactive Case Studies

The ‘Foundation, Endowment, and Not For Profit Investment Summit’ will explore the latest in investment strategies, risk management, asset allocation, and more. It also offers an opportunity to network with other foundation, endowment, and non-for-profit leaders. It features over 25 speakers and 15 interactive case studies. It takes place January 22 and 23 in Toronto, ON. For information, visit Foundations

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