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January 25, 2021


Ontario Teachers’ Commits To Low Carbon

Building on over a decade of climate change efforts, Ontario Teachers’ Pension Plan Board (Ontario Teachers’) has made a commitment to achieve net-zero greenhouse gas emissions by 2050. This is a meaningful decision that advances Ontario Teachers’ mission to deliver retirement security for its members, while creating a positive impact for its partners and the communities where it operates. “As a global pension plan, we will leverage our scale and influence to transition to a low-carbon economy and create a sustainable climate future,” says Jo Taylor, its president and CEO. Over the coming months, it will establish concrete targets for portfolio emissions and investments in climate solutions. Key elements of its net-zero approach will include increasing investments in climate-friendly investments and solutions; ensuring portfolio companies manage and report their emissions annually; working with portfolio companies to achieve net zero emissions by 2050; and using the proceeds from its green bond offering to invest in climate friendly opportunities.

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Infrastructure Attributes Drive Proliferation

Although the pandemic is likely to negatively impact 2020-year-end fundraising, the attractive attributes that private infrastructure offers investors will drive assets under management to higher levels and new strategies will proliferate, says Cerulli Associates. The distinctive characteristics of infrastructure assets result in a unique risk and return profile, it says. While returns are generally lower and less volatile, advocates perceive real assets as safe and defensive and less correlated with other asset classes. Their long asset lives and often large investment sizes make them particularly attractive to larger investors, such as insurance general accounts, pensions, and sovereign wealth funds (SWFs) that seek to put substantial capital to work in long-life assets that match their long-term liabilities. Digital infrastructure ‒ which includes fiber networks, telecommunication towers, and data centres ‒ was one of the fastest-growing segments of infrastructure investment in 2020. By prompting a dramatic shift to work- and school-at-home, the pandemic highlighted the need for connectivity. The demand for sustainable investments is also a key driver shaping infrastructure investing. Specifically, clean energy, water, and waste water assets have become increasingly attractive to a growing pool of investors seeking sustainable or socially responsible investments.

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Markets Start Year With Positive Momentum

Financial markets entered 2021 with strong positive momentum, on the back of vaccine breakthroughs followed by nearly instantaneous rollout around the world. As a result, says Alessio de Longis, senior portfolio manager and head of tactical asset allocation for Invesco Investment Solutions, the global recovery continues. Overall, there is strong evidence for a “clockwise” evolution in the global business cycle. It is expected to move forward into an expansion regime, rather than backward into a contraction, barring any exogenous shock. Hence, the U.S. is moving into an expansion regime, joining China and the rest of emerging markets. While other developed economies are still improving at a slower pace given renewed lockdown measures in the fourth quarter of 2020, they are expected to catch up to the rest of the world over the next few quarters. Furthermore, economic and financial market volatility tend to decline as the economy moves into an expansion phase, which should further support risk taking and investor confidence over the next few months.

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FORUM Seeks Speakers

The CPBI is looking for speakers for its ‘CPBI FORUM 2021.’ This is an opportunity to share research, expertise, or experience to share with CPBI members. To submit a proposal, complete this form attached here  and return it to forum@cpbi-icra.ca by February 8. All submissions will receive a reply by March 1 to confirm if a proposal has been accepted, is in consideration, or has been declined. CPBI FORUM 2021 takes place June 14 to the 18. Registration opens February 1.

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ESG ETFs Reach Milestone

Assets invested in ESG (environmental, social, and governance) ETFs and ETPs reached a new milestone of US$187 billion at the end of 2020, says ETFGI, increasing by 206 per cent in 2020. During December, ESG ETFs and ETPs gathered net inflows of US$18.46 billion bringing 2020 net inflows to US$88.95 billion which significantly greater than the US$27.79 billion gathered in 2019.

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Generating 2x Discussed

‘Hunting for 2x/25 per cent IRR in the Secondary Market’ will be examined February 2 at a Unigestion session. A panel of private equity experts will provide a market update, identify the key ingredients for a good secondary deal, and generating 2x while maintaining a risk aware approach. Information is at https://www.unigestion.com/event/hunting-for-2x-25-irr-in-the-secondary-market/

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January 22, 2021


High Cost Drug Claims Growing

Measured as a percentage of overall drug benefits paid by insurers, high-cost drugs (including rare disease drugs) associated with EP3-based insurance plans accounted for less than two per cent of claimants. but grew from 35 per cent to 42 per cent of costs in the three years leading up to 2019, says the Canadian Drug Insurance Pooling Corporation. In 2019, its high-cost drug sharing framework provided coverage to 27,000 Canadians whose annual drug costs exceed $10,000, an increase of 17 per cent over 2018. Since 2017, there have been 210 new drugs where paid claims per employee exceeded $10,000. In 2019, employees or their dependents using these new drugs represented 11.3 per cent of the total high-cost drug claims paid. “The financial impact of high-cost drugs on private insurance plans continues to significantly grow year-over-year adding more financial pressure to these plans. Canadians now pay some of the highest patented drug costs in the world,” says Dan Berty, its executive director. However, implementation of the long-planned reforms to the federal Patent Medicines Prices Review Board would further assist in reducing cost pressures. The reduction in prescription drug prices resulting from the PMPRB changes is expected to save Canadian employers hundreds of millions of dollars per year.

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Plan Overview Section Expanded Without Value

The plan overview section in the ‘Updated CAPSA Guideline No. 7 on Funding Policies’ has been significantly expanded without necessarily adding any additional value to the policy, says the Association of Canadian Pension Management (ACPM). Many of the items listed are disclosed elsewhere and will frequently change, increasing the risk that the funding policy becomes out of date with new information. In addition, it says some of the information could be problematic to share in a public document. For example, in the key risks faced by plans, some potential risks have been included that could be addressed in the policy and not all will be relevant in all situations. In fact, some may be problematic in disclosing in a public document. For example, on the plan’s funded status or required contributions, the text “on the plan sponsor’s financial statements or cash flow” should be deleted. The comment on a deterioration of the “financial strength of the plan sponsor or employers” may also be problematic.

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Markets Living Two Stories

Currently in the markets, there are two stories going on, says Jas Thandi, a partner, global asset allocation, at Aon. He told its ‘Investing in 2021: The Real Risk/Reward Challenge’ that the first is recovery. The S&P 500 is rising rapidly market and reaching all-time highs. This is driven by a disconnect between markets and the economies of the U.S. and emerging and other markets. At the same time, the U.S. dollar is weakening and this is also indicative of a recovery story. Typically when markets move into more risk taking posture, the dollar weakens, equities rally, and risk capital generally does quite well and “we see this play out,” he said. The other story is reflation. “This is the idea that are we going to see inflation come back and move higher,” said Thandi. However, there is a risk element to this as well because if people are thinking that there is a larger risk premium out there for inflation, market price inflation increases. Russ Ivinjack, head of fund management at Aon, said, investors need to take a second to reassess diversifying their portfolios to see if there are other return drivers that can be added such as treasuries or investment grade corporate bonds. “Look for other diversified strategies that can help balance the portfolio. This goes to what we’ve called the resiliency theme,” he said. As well, investors need to seek risk premiums in markets that are not accessible from ETFs or index funds. “What this really is sourcing unique returns from manager skill,” he said.

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Transition In U.S. Shows Some Direction

The transition of power in the U.S. brings with it many uncertainties, but already there is some idea of which direction certain policy matters will take, says Michael White, portfolio manager and head of multi-asset strategy at Picton Mahoney Asset Management. While many of these are simply a mirror image reversal of some of former President Donald Trump’s controversial initiatives, others are more substantive and some may play a key role in relations with Canada. To start, there was the revocation of the Keystone XL pipeline permit, which gets things off to a bad start with Canadian officials who have worked for many years to get it approved. Higher emission standards as well as other pro-green energy initiatives will be back on the menu. These policy moves may actually help buoy global oil prices as they will undoubtedly hamper new oil supply from the U.S. In addition to friction on energy policy, the U.S. administration may also be picking a new battle over currency. It will support a “market-based” currency policy, which is a statement widely interpreted as allowing the U.S. dollar to depreciate. While no one wants a currency in free-fall, a weaker currency does generally help a country’s economy by making its exports cheaper. A stronger Canadian dollar might be welcome by some (such as consumers buying imported goods), but may hamper the export industry in Canada, especially on the commodity side. A weaker U.S. dollar is likely pro-inflationary as well, given most commodities are priced in U.S. dollars.

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CDPQ Buys Road In India

Bharat Road Network Limited, a road developer in India, along with its partners, will sell a BOT road project in the state of Odisha to the India Highway Concession Trust, an infrastructure investment trust set up by the Caisse de dépôt et placement du Québec (CDPQ). The agreement provides for the complete transfer of ownership of Shree Jagannath Expressway Private Limited, the special purpose vehicle (SPV) engaged in the development, operation, and maintenance of a 67-kilometre toll road project from Bhubaneswar to Chandikhole in Odisha. Project operations started in December 2011 with an initial concession period of 26 years.

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Lee Joins George & Bell

J.J. Lee has joined the pension team at George & Bell Consulting. He has worked in the pension field since 2009 and has experience providing solutions for clients with various retirement arrangements, including individual pension plans, supplemental arrangements, single-employer pension plans and large multi-employer pension plans. Prior to joining the firm, he worked at a national human resource consulting firm with various levels of responsibilities, including managing client relationships, as well as leading and providing comprehensive support for client teams.

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Session Looks At AI And Governance

January 28, the Industry Relations & Corporate Governance Committee at CFA Society Toronto has organized an event on ‘Artificial Intelligence and Corporate Governance,’ AI in a governance context is an emerging field that will have a significant impact on the financial services industry. Information is at https://www.cvent.com/events/ai-and-corporate-governance/event-summary-327ce9ef0ec042e88dda04b0b6bddde9.aspx

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January 21, 2021


Confidence In Retirement Plans Holds Steady

Canadian confidence in retirement plans has remained relatively steady despite the financial challenges of 2020, says a BMO annual retirement study. In all Canadians believe they will have enough money to retire at their desired age, with findings indicating a four per cent decrease in confidence nationally compared to 2019. Provincially, Canadians in Ontario and the Prairie provinces were the most confident in their existing retirement plans at 58 and 57 per cent, respectively. Confidence levels were lowest among residents in the country’s Atlantic provinces. Amid the pandemic, 64 per cent of Canadians have or still plan to contribute to their registered retirement savings plans (RRSPs) – a number consistent with last year’s findings. Respondents from Ontario and British Columbia had the highest contribution rates, with Quebec and the Atlantic provinces having the lowest rates. The study also shows the average amount Canadians think they need to retire has increased six per cent since 2019 to $1.4 million. However, 53 per cent of respondents do not have a dollar amount estimate for what they need to retire. A third plan to retire between the ages of 60 to 69 years, with an average age of 62.

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VPLA Proposal Limiting

The Canadian Life and Health Insurance Association (CLHIA) is concerned the federal government’s proposed approach of requiring that the variable payment life annuities (VPLA) be within a registered plan will limit the offering to only the largest of DC plans. In its submission to the department of finance on federally regulated private pension plans, it says the proposed VPLA solution of keeping it within a defined contribution plan or PRPP (pooled registered pension plan) would mean only plans with tens of thousands of employees would be able to benefit. This is due to the need for a large enough group within a cohort to achieve the beneficial aspects of risk pooling without significant volatility and prohibitive administrative costs. This reality will effectively prevent millions of members of smaller plans, and other Canadians who save through RRSPs (registered retirement savings plans) and TFSAs (tax-free savings accounts), from accessing the benefits of VPLAs. The requirement for VPLAs to be operational within a pension plan may even further curtail large employers that operate multiple DC/PRPP plans from having the scale to offer VPLAs as currently proposed. It wants the federal government to expand on the proposed tax legislative changes to enable free-standing VPLAs. This would allow a “pool-of-pools” approach where Canadians can transfer their accumulated DC and PRPP balances to a centralized source responsible for the administration of the VPLA, allowing for a larger pool of participants to benefit from lower fees per participant and larger diversification of risks that would be expected to reduce volatility of benefits.

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Investors Embrace Impact

As a sign of a maturing industry, investors are embracing impact investing with a multi-directional approach to their decisions, says a report from the Global Impact Investors Network (GIIN). It says to understand what success looks like, impact investors are looking at how they can most efficiently achieve the best impact and financial performance ‒ the most optimal performance point ‒ for the least amount of capital deployed. More experienced impact investors are considering impact objectives and impact risk alongside traditional factors such as financial returns, financial risk, liquidity constraints, and resource capacity to drive impact and financial performance. The research focuses on the three most common asset classes in impact investing: private equity (70 per cent of investors), private debt (58 per cent), and real assets (17 per cent). It found that private debt impact funds generate stable financial returns on a risk-adjusted basis and financial returns across private debt investments tend to align with investor expectations. Impact debt funds can also play an important role in risk reduction and diversification. Private equity impact investors can generate market rate returns on a risk-adjusted basis, yet financial returns vary significantly, reflecting how different strategies and investors’ objectives can shape financial performance; and smaller funds tend to outperform market and investor expectations.

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Hobday Chairs ACPM Quebec

Tina Hobday, a partner at Langlois Lawyers, is chair of the Québec regional council of the Association of Canadian Pension Management (ACPM). She has been with Langlois since 2001 and practices in the fields of pension plan litigation and governance.

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Basic Insurance Principles Explained

Developing a benefits plan tailored to the needs of a business in Quebec will be discussed February 9 and 10 at a CPBI Quebec session. It is aimed at people who wish to familiarize themselves with the basic principles of insurance and group annuities and establishing a plan tailored to the needs of their business. They will learn how to design and implement a plan based on a company’s culture, budget, and desired impact on its employer brand. Information is at http://www.cpbi-icra.ca/fr/Activit%C3%A9s/D%C3%A9tails/Qu%C3%A9bec/2021/02-09-%C3%89laborer-un-r%C3%A9gime-d-avantages-sociaux

Élaborer un régime d’avantages sociaux adapté aux besoins de votre entreprise au Québec (2943) (cpbi-icra.ca)

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January 20, 2021


LAPP Members Re-Assured

LAPP (Local Authorities Pension Plan) plan members are being re-assured their pension is secure. The LAPP corporation says despite discussion of a government of Alberta Ministerial Order (MO), there are no benefit changes being planned or discussed. The corporation explains the MO is a bridge document, ordered by the government, to put terms in place to govern the ongoing investment relationship between the corporation and the Alberta Investment Management Corporation (AIMCo). It is a temporary document until such time as the two corporations can sign a mutual agreement to define their mandated business relationship in the future. The MO was issued at the end of 2020 because negotiations failed to reach a successful conclusion prior to the legislated deadline. The hope of the LAPP Corporation is that the negotiations with AIMCo will resume in the near future and achieve mutual agreement on an investment management agreement (IMA) soon. The current IMA has to be renegotiated because it was signed based on a different legislated relationship than the one that exists today. In 2019, the government amended legislation to require LAPP and other pensions plans to use AIMCo as their exclusive manager on a permanent basis going forward. Prior to that, LAPP had the legislated ability to pull out of its relationship and hire another investment manager after an initial five-year period, if desired.

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Markets Laser-Focused On Recovery

Although the near-term outlook remains challenging ‒ especially in Europe, where output looks set to contract again in the first quarter ‒ markets are still laser-focused on prospects for recovery once economic restrictions have been lifted, says AllianceBernstein’s ‘Global Economic Outlook January 2021.’ With governments and central banks still providing abundant liquidity and support, the only development likely to challenge this narrative would be the emergence of a more deadly or vaccine-resistant virus mutation. However, reflationary hopes have been boosted by recent developments in the U.S. With the Democrats now in effective control of both houses of Congress, the route towards additional fiscal stimulus has cleared. The outlook for bond yields has become less certain. In Europe and Japan, where monetary and fiscal policy are acting in concert and central banks are committed to implicit or explicit yield-curve control, the risk of higher yields is low. By contrast, the U.S. Federal Reserve (Fed) is not committed to yield-curve control and might see additional fiscal stimulus as a reason to begin winding down its own support for the economy.

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Greater Scrutiny Of Cryptocurrencies Now Priority

Greater regulatory scrutiny of cryptocurrencies such as Bitcoin must become a priority as they continue to play an increasingly normalized role for investors, says Nigel Green, deVere Group’s chief executive and founder. His comments follow the UK’s Financial Conduct Authority (FCA) and the president of the European Central Bank (ECB) calling for more robust regulations for cryptocurrencies. With the price of Bitcoin jumping more than 300 per cent last year and a further 40 per cent earlier this month to reach an all-time high, he says a strong regulatory framework at an international level will help protect investors, tackle cryptocurrency criminality, and reduce the potential possibility of disrupting global financial stability, as well as offering a potential long-term economic boost to those countries which introduce it.

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CPP Investments Partners On Rental Units

Cyrela Brazil Realty, the Canada Pension Plan Investment Board (CPP Investments), and Greystar Real Estate Partners, LLC have formed a partnership with real estate developer SKR to develop, own, and operate a purpose-built rental multifamily project in the Pinheiros/Rebouças district of São Paulo, Brazil. Expected to be delivered in 2023, the asset will be a new and centrally located high-rise optimized for rental operations and a signature community lifestyle. Paying homage to the cosmopolitan life of the neighborhood, the project will feature retail shops, common areas, and resident lounges designed to seamlessly integrate with Greystar’s operations and offer a unique and premier lifestyle experience. Some of the project’s amenity spaces will include a gym, a rooftop pool with a bar and lounge, and a restaurant. The partnership is one of the first institutionally owned and operated multifamily real estate investment platforms in Brazil.

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Emerging ESG Standards Examined

‘Emerging ESG Standards & Policies: What Canadian Investors Need to Know’ will be examined February 25 at the Responsible Investment Association’s ‘2021 ESG SYMPOSIUM.’ As well, a transition finance panel will feature leading market participants on why transition financing matters for Canada and how it will work in practice. Information is at https://hopin.com/events/esg-symposium-proxies-policies-taxonomies

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January 19, 2021


Sponsors Need Access To Relief Measures

The consultation on ‘Strengthening Federally Regulated Pension Plans’ articulates well the challenges facing many companies in the current environment. However, the extension of economic curtailment measures into 2021 due to the COVID-19 pandemic means that many industries will experience two consecutive years with a significant shortfall in operating results relative to normalized levels, says the Pension Investment Association of Canada (PIAC). Notwithstanding the recovery in capital markets, operating metrics will take longer to repair and there will be many demands on reduced cash flow for plan sponsors for a number of years to come. Recognizing that companies face a diverse set of challenges, and that individual plan sponsors may have multiple plans with varying funded positions, PIAC recommends that the federal government be open to a variety of relief measures. From a macro perspective, measures which front-end relief into the next three to five years will provide the best alignment between what would simultaneously benefit both plan sponsors and the economic recovery. It calls on the government move quickly, such that plan sponsors have visibility on pension funding early in the year, allowing more accurate budgets, and, if possible, to re-allocate cash flow toward other business needs which may aid in the economic recovery. In terms of the options themselves, any measures which require consent from plan members will be unviable in most situations other than potentially cases where a plan sponsor is in more acute financial distress. It believes that most plan sponsors will not want to go down that road unless they have no other choice. Instead, letters of credit offer an attractive option to reduce up-front cash costs and preserve benefit security. As well, surety bonds, which are currently being used by some sponsors to secure non-registered benefits, should be considered for use in solvency funding requirements. From a plan member perspective, these would provide the same level of protection as a letter of credit while offering the plan sponsor competitive pricing and reduce renewal risk by expanding credit capacity, thereby offering relief during these challenging economic times.

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Decumulation In CAP Plans Evolves

Private sector companies in Canada have shown increasing interest in capital accumulation plans (CAPs) for a number of years and CAP assets under management continue to grow. However, the transition of these savings into decumulation products has not been entirely beneficial for retirees. In ‘CAP To The Future: Decumulation In CAP Plans,’ Michelle Loder and Christie Lambie, vice-presidents, DC solutions, at Morneau Shepell, look at the evolution of the decumulation landscape in Canada as a fundamental step forward in the direction of improved wellbeing for CAP participants at all stages of the journey to retirement.

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Oral Health Roadmap Set Out

FDI World Dental Federation has set out a comprehensive, inter-disciplinary roadmap on how to impact health policies and tackle challenges to improve oral health and reduce oral health inequalities over the next decade. ‘Vision 2030: Delivering Optimal Oral Health for All’  recommends strategies to address the oral disease burden that communities can adapt to their own needs and circumstances, enabling them to implement relevant solutions. It also considers how broad societal shifts, such as aging populations, will require the oral health workforce to adapt and remain equipped to deliver consistent care. Achieving optimal oral health for all requires strong advocates who are ready to tackle this major public health challenge, it says.

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ESG Considerations Increasingly Influential

As financial institutions accelerate the adoption of sustainability into their operations, ESG considerations will become increasingly influential for issuers generally in 2021, says Fitch Ratings. Financial firms are increasingly incorporating sustainability into their lending and investment decisions, their corporate governance frameworks, and other policies and this should “increase the influence of ESG on company strategy, financing and operating environments in 2021,” it says in a report. “The growing interest in sustainability is sparking debate on how corporate governance frameworks should foster long-term responsible corporate behaviour. Combined with more active investor ownership and the formalizing of sustainability targets into remuneration and sustainability-linked instruments, we expect ESG issues to increasingly influence strategic and management decisions.”

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Field Joins Canadian Pacific

Carole Field (FCIA) is managing director, pension plan management, at Canadian Pacific. She joins the organization from Mercer where she was business leader, Calgary wealth.

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Mental Health Technologies Examined

‘Mental health: from technological innovation to human progress’ will be the focus of a CPBI National event January 27. Charmaine Alexander, senior advisor in disability management at Desjardins Insurance will give a behind-the-scenes look at new technologies deep into the heart of organizations where the future of mental health is unfolding. Information is at http://www.cpbi-icra.ca/Events/Details/National/2021/01-27-National-Webinar-Mental-health-from

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