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February 15, 2019


CPP Net Assets Grow

The Canada Pension Plan (CPP) Fund ended its third quarter of fiscal 2019 on December 31, 2018, with net assets of $368.5 billion, compared to $368.3 billion at the end of the previous quarter. The increase in assets for the quarter consisted of $4 billion in net income after all CPP Investment Board (CPPIB) costs, less $3.8 billion in net Canada Pension Plan cash outflows. The fund routinely receives more CPP contributions than required to pay benefits during the first part of the calendar year, partially offset by benefit payments exceeding contributions in the final months. On an annual basis, contributions to the fund continue to exceed outflows. The investment portfolio achieved 10-year and five-year annualized net nominal returns of 10 per cent and 11 per cent, respectively, and 1.1 per cent for the quarter. These returns are net of all CPPIB costs. “Broad declines in global public equity markets created a challenging investment environment during the quarter, however our net income increased during the downturn, underscoring the fund’s resiliency and ability to weather difficult conditions,” says Mark Machin, president and chief executive officer of the CPPIB.

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Too Much Focus On Executive Compensation

Shareholders have focused too much on executive compensation and not enough on promoting decent work and fair pay throughout the company, says a report from the Shareholder Association for Research and Education (SHARE). “Investors have promoted the idea that a well-designed compensation structure will help incentivize executives to deliver improved company performance,” says Kevin Thomas, executive director of SHARE. However, “we haven’t come to grips with how to recognize and incentivize the contribution the rest of the workforce makes to company performance. If effective compensation is important to attract, retain, and incentivize performance for top executives, isn’t that also true for the rest of your employees?” “During the decade in which Canadian shareholders have participated in ‘say-on-pay’ votes, executive compensation has reached new heights, while workers’ wages have stagnated. “This growing pay disparity should be a concern for investors,” he says. Its publication, ‘Aligning Compensation: An investor brief on fair pay and income inequality,’ outlines a range of options to bring workforce compensation into the discussion, including limiting the practice of benchmarking pay to inappropriate comparator companies, elevating oversight of workforce compensation to the board level, and adopting ‘fair pay’ principles for companies as a whole.

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Key RI Themes Identified

Five key themes are likely to shape the responsible investment (RI) agenda in 2019, says BMO Global Asset Management. All five themes are material to investors and of critical importance to the SDGs. It says vulnerable workers need to be protected as inadequate wages, weak safety practices, and modern slavery all contribute to poverty and inequality and undermine the achievement of sustainable development. While board-level gender diversity has met with some success, it is just the tip of the iceberg. Based on an identification of best practices in areas such as mentoring, flexible working, and pay, work is needed with companies to identify barriers and encourage the adoption of forward-looking approaches. Climate change has been the subject of intensive investor focus over the past year, but has been particularly concentrated on the oil and gas and mining sectors. However, the impacts of climate change range much more widely. Biodiversity and water has seen a huge rise in public awareness of the impacts of single-use plastics and how plastic waste is impacting on ocean biodiversity. In 2019, it will continue to prioritize engagement with companies in the food and beverage sector to identify more sustainable packaging and commit to phasing out single-use plastics. Finally, antimicrobial resistance (AMR) jeopardizes the effective prevention and treatment of infectious diseases and is widely recognized as an increasingly serious threat to global public health,” it says.

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Illiquid Assets Improve DC Outcomes

UK defined contribution plan participants could see an average 10 per cent higher retirement outcomes if illiquid asset classes were permitted in the default strategy of their plans, says a study by JLT Employee Benefits. It says as DC assets grow in size and participant withdrawals amount to a smaller proportion of those assets, plan executives will see a decrease in the need to maintain high liquidity, creating an opportunity to allocate a bigger proportion of assets to illiquids such as private equity and infrastructure equity. An allocation that consists of 80 per cent public equity, 10 per cent private equity, and 10 per cent infrastructure equity could yield on average 10 per cent more in retirement than if the default strategy invested in public equity only. However, illiquid investments such as private equity, infrastructure, and real estate carry risks for DC plan executives, including valuation in certain market conditions or alternative manager selection. Proper diversification and some smoothing of valuations can make the measured volatility appear relatively low compared to public investments.

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JPMorgan Launches Bitcoin

JPMorgan, whose boss once called bitcoin a fraud, is issuing its own cryptocurrency. The JPM Coin is really about the distributed-ledger technology behind bitcoin rather than digital money. It’s a way to use the blockchain to help clients transfer money to each other instantaneously. It won’t trade publicly like other currency-backed so-called stablecoins and to start it will only be used between clients of the bank.

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Personalized Approach Improves Wellbeing

Employers can improve the wellbeing experience of employees by taking a more personalized approach, says a survey of full-time workers by Welltok. This, in turn, will engage employees and reduce medical costs. It found 56 per cent of employees say the health and wellbeing programs offered by their employers are irrelevant, wasting company time and money. Delivering more personalized programming would motivate 82 per cent of employees to participate more. More than 80 per cent of respondents believe everyone at their company is offered the same resources, regardless of individual needs and goals. “To be truly effective, employers need to gain deeper insights about their employees as individuals by leveraging consumer data. Consumer data can provide valuable insights into a person’s social determinants of health (where a person lives or works, their education level, household composition, etc.), which largely contribute to their overall health status. Leveraging all types of data (healthcare and non-healthcare) and applying advanced analytics and machine learning better predicts who will be most receptive to what programs, and ultimately, how best to drive targeted actions,” says ‘Wellbeing Wake Up Report: What Employees Want.’

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Bell Has New Role

Jason Bell is area executive vice-president, Calgary, AB, at Gallagher. He has been with the firm as a consultant and sales director since July of 2016. Prior to that he was a partner at HD Recruitment.

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Data Security Examined

‘Privacy and Data Security for Plan Sponsors and Administrators’ will be the focus of an ACPM Atlantic Region session. David Fraser, a privacy lawyer at McInnes Cooper, and Level Chan, a partner at Stewart McKelvey, will discuss privacy regulation, best practices, and common-sense risk management for plan sponsors, administrators, and their service providers as communications with plan members and beneficiaries is increasingly done electronically It takes place April 2 in Halifax, NS. For information, visit Data Security

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February 14, 2019


Non-financial Disclosures Evaluated

Ninety-seven per cent of institutional investors say they conduct an evaluation of target companies’ non-financial disclosures, says the global EY ‘Climate Change and Sustainability Services’ survey. This is an almost 20 per cent increase since 2017. “Investors have a more sophisticated understanding of the positive link between a business’ environmental, social, and governance (ESG) impact and their financial performance,” says Thibaut Millet, EY Canada climate change and sustainability services leader. “Non-financial information is playing a pivotal role in investment decision-making and will increasingly continue to weigh on Canadian investor minds as they take a step back to focus on business’ value creation to sustain long-term growth.” Despite growing reliance on ESG information, more than half of respondents (56 per cent) say that a company’s non-financial disclosures are either not available or inadequate for meaningful comparison with those of other companies. “Many organizations have taken an active role in disclosing what policies and practices are in place, but what’s often missing are measures of accountability,” says Millet. “Investors no longer want to know what the company is doing, but how they’re doing it and how their ESG impact stacks up against others. Better accounting standards for non-financial information are needed to establish standardized data and consistent metrics cross-industry.”

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Trump Likely To Resign

There is an 80 per cent probability that U.S. President Donald Trump will resign this year, says Charles Myers, chairman of Signum Global Advisors. Speaking on ‘Geopolitical Fault Lines’ at the CI Institutional Asset Management: 2019 Annual Symposium,’ he said the numerous investigations of Trump, his family, his cabinet, and his businesses over collusion with Russia, corruption, and financial crimes will start moving into high gear in the next week as the U.S. House of Representative committee investigations are launched. What makes this more significant, he said, is the democratic house has unlimited subpoena power and can investigate any individual or company that does business in U.S. on any issue. So this could be the worst political storm the U.S. has faced since the Civil War. The Watergate scandal in the early ’70s does not compare to the allegations against Trump. Another difference between this situation and Watergate is that President Richard Nixon respected the institutions in the U.S. Trump does not and will fight back anyway he can including using unconstitutional methods. He also wants as many distractions as possible including military intervention and Venezuela is an easy target. Myers believes the Republican party will tell him it has lost confidence in him. He will then step down and likely be pardoned by the new president. However, Myers also said that he thinks Americans want to see him jailed.

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Prevention Best Medicine For Cannabis At Work

When it comes to dealing with cannabis at work, prevention is the best medicine, say Karen Gleeson, a senior consultant in the group benefits practice, and Alyssa Hodder, a senior communications consultant, at Eckler. In an Eckler ‘Insights,’ they say cannabis has been connected to benefits plans for years. Many plan sponsors offer healthcare spending accounts (HCSAs) as part of their benefits program as a tool to allow for some flexibility in plan design. Plan members can claim any health and dental expense under an HCSA as long as it’s listed as an eligible medical expense by the Canada Revenue Agency and since 2015 that has included medical cannabis. However, the plan sponsor can still decide whether or not to include medical cannabis at the health spending account level as most insurance carriers can turn this feature on or off. And while they don’t have to buy into the cannabis craze, they want to have clear documentation and communication with plan members to make sure they’re covered by making sure employees understand the rules and expectations from both an HR and a benefits perspective.

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Fee Compression Not Ending Soon

Asset manager fee compression is not ending anytime soon, says Marcos Tarnowski, a partner at McKinsey & Company. In a panel discussion on the ‘The Evolving Asset Management Industry’ at the CI Institutional Asset Management: 2019 Annual Symposium,’ he said fees have been compressing over last five years but this is less about fee compression and more about value for money. It could, for example, be getting efficient access to asset classes like infrastructure, he said. Gary Howe, managing director and head of financial institutions North America at Lazard, said for institutional investors the continuing trend to OCIO (outsourced chief investment officers) is helping compress fees. OCIO can give sponsors access to scale and products which they normally would not have. However, the session’s moderator, Amanda Tepper, chief executive officer, Chestnut Advisory, said while fees may have shrunk by 4½ per cent in the last five years, margins are still around 30 per cent making asset management one of the most profitable businesses in the world.

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Proactive Approach Pays Off

As companies continue to use technology to speed up the transfer of information, game-changing business opportunities are created as well as increased cyber risk, says a report from Aon plc. Its ‘2019 Cyber Security Risk Report’ shows that in 2018 a proactive approach to cyber preparation and planning paid off for the companies that invested in it. In 2019, it anticipates the need for advanced planning will only further accelerate, says J. Hogg, CEO of cyber solutions at Aon. “Leaders must work to better insulate their companies and their processes, while simultaneously identifying the ways they can benefit from the opportunities offered through technology and digital transformation.” The 2019 report also shows that organizations must recognize the need to share threat intelligence across not only their own network, but with others as well. “While it may seem counterintuitive when thinking about cyber security, collaboration within and across enterprises and industries can keep private data of companies and individuals alike safer,” he says. The report focuses on specific risk areas that companies may face in 2019, including technology, the supply chain, and employees. The risks illustrate how, as organizations transition to a digital-first approach across all transactions, the attack surface of global business expands rapidly and sometimes in unexpected ways.

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Investing Through Political Noise Needed

Investing through the noise of the current political situation requires investors to look at their underlying investment principles, says Drummond Brodeur, senior vice-president and global strategist at Signature Global Asset Management. In a panel discussion on ‘Navigating the Waters: What the Public Markets Have in Store for 2019’ at the CI Institutional Asset Management: 2019 Annual Symposium,’ he said in 80 per cent of cases politics don’t matter when it comes to investing. As such, investors should approach the political impact on markets through a lens of what the spillover will be. He said there is a lot of scary stuff happening politically and this will get worse before it gets better so investors have to get used to it. However, it not clear what the investment implications are. The rise of populism, for example, could result in more fiscal spending and governments carrying more debt. At some point, investors need a fundamental underpinning to their investment decisions, said Robert Swanson, principal, portfolio manager, and chief market strategist at Cambridge Global Asset Management. To do so, they need to tune out other noise like the current political situation. In many cases, they are dealing with too much information and most of it is noise. James Dutkiewicz, chief investment officer at Sentry Investments, said investors need to start selling assets as they will need a certain amount of liquidity to take advantage of sell-offs. He said there will likely be a significant pullback as risk is trimmed from portfolios.

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Equity Allocations Decrease

The average asset allocation of pension plans in the seven largest pension markets – Australia, Canada, Japan, the Netherlands, Switzerland, the UK and the U.S. – is equities 40 per cent, bonds 31 per cent, other 26 per cent, and cash three per cent, says Thinking Ahead Institute’s ‘Global Pension Assets Study.’ This marks a decrease of 20 percentage points in equity allocations over the past 20 years, while allocations to other assets, such as real estate and other alternatives, have increased by 19 percentage points. Australia and the U.S. continued to have above average equity allocations, with 47 per cent and 43 per cent respectively. Meanwhile, the Netherlands, UK, and Japan have above average exposure to bonds, while Switzerland has the most even allocations across equities, bonds, and other assets.

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Investors Carry Too Much Liquidity

Most alternatives investors carry too much liquidity because the more illiquid they are, the greater the return potential, says Jay Raffaldini, managing director and head of sales at UBS A&Q. In the ‘Private Assets in 2019’ panel discussion at the ‘CI Institutional Asset Management: 2019 Annual Symposium,’ he said they try to get their hedge fund investors away from near-term liquidity. Demand for hedge funds is strong and there will be a period of time when bonds and equities will have negative returns. The last time this happened was in the mid-’70s and that is when hedge funds were born, he said. John Gray, a partner at Adams Street Partners, said over the past five years, there have been double-digit returns in private equity. And, in a world where everyone ‒ especially pension plans in North America ‒ needs return, the move to private equity makes sense as they can nice yields with portfolios where capital preservation is built in. Bob Perry, managing director at CBRE Global Investment Partners, advised investors to not force real estate into something they don’t want it to be. It is the largest alternative asset class and also the least liquid assets. However, investors do generate revenue so they shouldn’t make it a liquidity vehicle. Dan Kim, director of the global relationship group at IFM, said the infrastructure space is looking at the liquidity issue because of the growth of defined contribution pension plans. As defined benefit pension plans take a smaller piece of the pie, he said, DC could offer an opportunity.

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Adult Learning Needs Scaling Up

Many OECD countries need to urgently scale-up and upgrade their adult learning systems to help people adapt to the future world of work, says an OECD report. ‘Getting Skills Right: Future-Ready Adult Learning Systems’ says that new technologies, globalization, and population ageing are changing the quantity and quality of jobs as well as the skills they require. Providing better skilling and re-skilling opportunities to workers affected by these changes is essential to make sure the future works for all, it says. Today only two in five adults participate in education and training in any given year. The most disadvantaged are least likely to train, with low-skilled adults three times less likely to undertake training than the high-skilled (20 per cent versus 58 per cent). Other groups falling behind include older people, low-wage and temporary workers, and the unemployed.

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Greater Importance Attached To ETF History

Investors are attaching greater importance to past performance when choosing which exchange traded funds (ETFs) to invest in, says Brown Brothers Harriman (BBH). Its global research says this is the first time institutional investors and asset managers have given equal consideration to historic returns and costs and looking beyond the lowest cost products. It also found the proportion of portfolios are invested in ETFs and that ETF investors were becoming more defensive. Almost three quarters (73 per cent) of investors in Europe now have more than 10 per cent of their assets under management in ETFs. This compares to 79 per cent of U.S. investors in the survey with 10 per cent or more in ETFs and 80 per cent in greater China. The defensive nature of ETF investors was reflected partly in the importance given to past performance and also in the increased demand for actively managed, fixed income, and smart beta products.

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Buy-side Budgets Grow

Budgets for buy-side trading desks in the U.S. and Europe grew eight per cent last year, fueled by increased spending on compensation, says Greenwich Associates’ ‘The Buy-Side Spending Battle: Compensation vs. Technology.’ A 2018 spike in compensation expenses on buy-side trading desks was by far the biggest driver of the increase, which followed essentially flat trading desk budgets in 2017. The average budget for asset management and hedge fund trading desks is $2.73 million. “Compensation growth last year ended a three-year run in which compensation spending was being crowded out by ever-expanding technology costs,” says Brad Tingley, market structure and technology analyst at Greenwich and author of the report. Technology expenses had been growing as a share of total budgets for both equity and fixed income trading desks since 2015. Last year that trend reversed, with compensation climbing by eight percentage points to 68 per cent of total budgets.

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Flexible Work Effect Positive

Flexible work arrangements could have a positive effect on personal health and well-being, as well as interpersonal relationships, says FlexJobs’ ‘Work-Life-Relationship survey.’ Over 99 per cent reported that a flexible job would make them a happier person in general and benefit their personal health. A ‘flexible job’ is defined as a professional-level job that has a remote, flexible schedule, freelance, or part-time component. More than half of respondents (54 per cent) said their work-life balance either needed improvement, was pretty bad, or terrible, with 69 per cent saying it was the top reason they were seeking a job with flexibility, making work-life balance the number one factor ahead of money or cost savings, time savings, and family. Management also contributes to how employees view work-life balance as 36 per cent say their boss doesn’t model good work-life balance and only nine per cent say their boss’s work habits make work-life balance easy for them. Remote work remains the most popular choice for flexible work (83 per cent), with flexible schedules a second preference (60 per cent), followed by part-time schedules (40 per cent) and freelance work (34 per cent).

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Presence In Paris Strengthened

Ivanhoé Cambridge has strengthened its presence in the Paris, France, office market by partnering with ICAMAP to set up a vehicle aimed at developing €1.6 billion worth of low-carbon assets by 2028. The property investment arm of the Caisse de dépôt et placement du Québec and ICAMAP have launched ICAWOOD. While Ivanhoé Cambridge is the cornerstone investor in the fund, other investors include 12 international institutions and family office investors.

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Valliere Advises On U.S.

Greg Valliere is chief U.S. policy strategist at AGF Investments. In an advisory role, he will provide insights into how U.S. politics are shaping global markets. Most recently, he was the chief global strategist at Horizon Investments, LLC.

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Proposed Legislation Covered

The International Foundation of Employee Benefit Plans’ ‘Canadian Legal and Legislative Update’ covers recently enacted and proposed legislation as well as regulations pertaining to pensions and benefits. The two-day conference will look at critical issues in Canada including ‘ Discrimination in Benefit Plans ‒ What Should Trustees Do?’, ‘Privacy, Data, and Cybersecurity: Evolving Considerations for Group Plan Management,’ and Communications ‒ Manage Risk While Empowering Plan Members.’ It takes place May 15 and 16 in Ottawa, ON. For information, visit Legal Update

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February 13, 2019


Non-employer Plan Models Explored

The Aspen Institute’s Financial Security Program in Washington, D.C., has collaborated with Toronto, ON-based Common Wealth on a report that proposes an approach for expanding retirement plan coverage to meet the needs of today’s rapidly-changing workforce. The report focuses on portable non-employer retirement benefits – retirement arrangements that are workplace-based, but not tied to any single job or employer. It explores six potential models of portable non-employer retirement benefits – associations, sectors, labour unions, new worker organizations, payroll or platform companies, and faith groups – and includes examples of action already being taken around the globe, with hopes of spurring experiments and pilots within the retirement industry. While the report is aimed primarily at a U.S. audience, its topic has relevance to Canada and jurisdictions worldwide. In considering innovative strategies involving the private, public, and not-for-profit sectors, the paper features Canadian efforts, including the Co-operative Superannuation Society (CSS) Pension Plan and the Common Good Retirement Initiative. The expansion of portable non-employer retirement benefits could help supplement and fill in the gaps not covered by the single-employer-based system. Alex Mazer and Jonathan Weisstub, founding partners of Common Wealth, say “Building an occupational retirement system for the 21st century will require innovation, new forms of collaboration, and benefits that are tailored to the unique needs of a diverse range of uncovered workers.” The report is at Portable Plans

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CAPSA Examines Use Of Leverage

The Canadian Association of Pension Supervisory Authorities (CAPSA) has released a communique on its ‘Review of Leverage Use within Pension Plans.’ Leverage in the context of pension plan investments exists in many forms and is not new, it says. In simple terms, leverage can involve borrowing from one asset class to obtain exposure to another asset class or to hedge one or more risks to the investment portfolio or to pension liabilities. What makes it of particular interest to pension regulators now is that it is being used more commonly and more intensively by pension plans, principally as a component of investment strategies aimed at achieving better asset-liability matching (through higher exposures to fixed income assets) while allowing pension plans to retain significant exposure to return-seeking assets. Given the complex relationship between leverage use and investment risk, regulators cannot rely only on regulatory disclosures to identify potential problems. However, they could enhance their risk assessment and oversight of pension plans by also reviewing the processes and procedures in place to manage investment risk, including the risks related to the use of leverage. It is at Pension Leverage

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Due Diligence Consultation Promised

Institutional investors welcome the government of Canada’s commitment to begin consultation on supply chain due diligence legislation in 2019, says the Shareholder Association for Research and Education (SHARE). Such legislation will help the private sector identify and root out modern slavery and child labour in their business activities, it says. The government’s commitment comes in its response to the foreign affairs committee report ‘A Call to Action: Ending the Use of All Forms of Child Labour in Supply Chains.’ Additional commitments include revision of procurement policies and tools and guidance for business. “Investors seek confidence that the companies they invest in are not associated with child labour or modern slavery in any form. Such practices are morally abhorrent to responsible business practice. Their presence in supply chains heightens legal, operational, and reputational risks to investments,” says Kevin Thomas, executive director of SHARE. The UK, France, and Australia already have legislation in place to support this.

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Bond Catastrophe Chance Remains High

Seven Investment Management (7IM) is warning investors that the chance of a bond catastrophe remains worryingly high, particularly to cautious investors, as interest rate rises are set to continue. The UK asset manager says rising interest rates will have an impact on portfolios that are heavily weighted to bonds. A one per cent rise in the yield of a 10-year bond results in about a 10 per cent loss of capital. The risk is particularly high for cautious portfolios where allocations to bonds are typically higher in order to smooth out bumps in equity returns. It has protected portfolios by holding fewer bonds in recent years as it would rather give up the 1.1 per cent coupon offered by gilts to save investors from potential five per cent capital losses.

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GM Contributing To Non-U.S. Plans

General Motors Co. plans to contribute about $600 million to its non-U.S. pension plans in 2019, it says in its 10-K filing with the SEC. It also plans to contribute about $70 million to its U.S. plans. In 2018, GM contributed $1.6 billion to its non-U.S. plans and $76 million to its U.S. plans. It will use the proceeds from a bond sale to prefund mandatory contributions to its Canadian and UK pension plans. Over the next five years, it expects no significant mandatory contributions to its U.S. qualified pension plans and mandatory contributions totaling $310 million to its UK and Canada pension plans. As of December 31, its U.S. pension plan assets totaled $56.1 billion, while projected benefit obligations totaled $61.2 billion, for a funding ratio of 91.7 per cent, up from 91.5 per cent a year earlier. Non-U.S. pension plan assets totaled $13.5 billion, while projected benefit obligations totaled $19.9 billion, for a funding ratio of 68 per cent, up from 63.6 per cent a year earlier.

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Templeton Selected For GEI

Franklin Templeton has been selected for the ‘2019 Bloomberg Gender-Equality Index (GEI),’ which distinguishes companies committed to transparency in gender reporting and advancing women’s equality. This is the third consecutive year that Franklin Templeton has been selected for the index. Bloomberg’s standardized reporting framework offers public companies the opportunity to disclose information on how they promote gender equality across four separate areas ‒ company statistics, policies, community engagement, and products and services. Reporting companies that score above a globally-established threshold, based on the extent of disclosures and the achievement of best-in-class statistics and policies, are included in the GEI. Sherry Dondo, vice-president of talent development and diversity and inclusion at Franklin Templeton, says it “has embraced numerous measures to ensure and enhance diversity and equality.” In 2017, it signed the ‘CEO Action for Diversity and Inclusion pledge’ and last year it launched an initiative with the Ellevate Network to advance the professional development of its female employees.

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Allocations To Renewable Energy To Double

Energy price uncertainty and execution costs are challenges for investing in renewable energy – yet they still intend to nearly double their allocations, says research by Octopus Group, a UK-based asset manager. Its survey shows institutional investors from Europe, Asia, and Australia plan the near doubling of their allocations to renewable energy over the next five years. An estimated $210 billion is expected to flow into the asset class over the period, meaning allocations to renewables from these investors will increase from 4.4 per cent to 7.1 per cent. Just over 40 per cent of those already invested in renewables expect to increase allocations by as much as 10 per cent. Current market volatility and the perceived end of the market bull run are the drivers for increased allocations to renewable infrastructure and two-thirds of renewable energy investors surveyed cited diversification as the main driver for investment in the sector.

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Derivatives Market Data Hub Created

The six largest Canadian banks have partnered with CanDeal to create a fixed income and derivatives market data hub. The data-as-a-service (DaaS) business, ‘DataVault Innovations,’ intends to produce best in class pricing and analytics data to address the growing data needs of participants and regulators. It will be a consolidation and distribution point for Canadian over-the-counter (OTC) bond and derivatives data, which will be available directly to end-users as well as third-party distributors. It will also provide evaluated pricing, risk, and analytics services to help comply with regulatory mandates, improve internal risk models, and address other business requirements for market participants.

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Alternative Managers Keeping UK Domiciles

Brexit negotiations will not prompt a large migration of fund managers away from the UK, says SGG Group, which provides services for alternative investment funds such as private capital. Its survey of fund managers and investors and found 72 per cent of fund managers will not consider switching their fund domicile away from the UK as a direct impact of Brexit. Of those that would re-domicile, Luxembourg was the location of choice by all respondents that were considering shifting. Survey respondents predicted difficulties after Brexit in attracting investors to alternative funds, with just over three-quarters of them saying it would be more difficult to attract funding after Brexit via limited partnership arrangements. Only 16 per cent of fund managers said that they expected the outlook for fundraising to improve during 2019.

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Resolver Comes To Canada

Resolver, the complaints platform founded in the UK, has launched in Canada under myresolver.ca. Tom Smith, country manager for Canada, said at the official launch, that Canada was chosen for its first international location because of similarities in regulations. However, there are differences compared to the UK system including the duration for lodging complaints in the financial sectors and the federal and provincial government system. Founded in 2013 in the UK, its purpose is to help consumers improve the way they raise issues, businesses to become better at retaining their customers, improve the government to better understand and deliver the right regulations, and improve entire markets through detailed, aggregated reporting tools, said James Walker, its CEO and founder. It tries to drive better services and outcomes with technology, he said. Peter Wright, a business engagement person in Canada, said it has closed three million files and has 33,000 companies listed on its UK site. In Canada, consumers can now lodge complaints against banks, restaurants, retailers, travel and tourism providers, and telecoms. However, he expects this to grow in the coming months and could include, for example, giving benefit plan members the opportunity make complaints against insurance company benefit providers. It provides a formal mechanism for making complaints and allows companies to assess the escalation level of the complaints. It is free for consumers and businesses. However, businesses can become clients to remove unnecessary complaints, stopping consumer channel hops, and, ultimately, keeping these customers.

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Allstate Offers Critical Illness Insurance

Allstate Benefits is introducing critical illness with medical care support services protection into Canada. It is designed to help provide financial support for areas not covered by employer-paid insurance plans and provincial health insurance if someone is diagnosed with a covered critical illness. Customers choose the benefits that best protect them and their family members. Then, if diagnosed with a covered critical illness, they receive a cash benefit based on the percentage payable for the condition which can be used for any expenses. For example, it may be used to cover the cost of prescription drugs not covered by health insurance, travel required to receive treatment in another city, or regular daily living expenses. The benefit helps offset revenue shortfalls created while on leave from work which helps protect savings and retirement plans from being depleted.

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Hub Acquires Firstbrook Pointon

Hub International Limited, a global insurance brokerage, has acquired the assets of Firstbrook Pointon Benefits Incorporated. Based in Toronto, ON, Firstbrook Pointon is a full-service employee benefits consulting firm providing a broad spectrum of benefits programs, including health and performance, benefits plan consulting, group retirement services, executive benefits, and disability management.

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Murphy Re-appointed

Wayne Murphy (CEBS, ISCEBS Fellow), senior manager, corporate services, at the PBAS Group, has been appointed for the second consecutive year as chair of the Certified Employee Benefits Specialist (CEBS). A past president of the ISCEBS governing council and member of the ISCEBS strategic planning committee and symposium education committee, he earned his CEBS designation in 2004.

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CPBI Embraces Innovation

‘Embracing Innovation’ is the theme of CPBI Forum 2019. It will feature 20 sessions on benefits, pensions, and investment. Topics include ‘ReDefined Contribution Plans: Engaging Members with Clarity,’ ‘Blockchain and its Applications’, and ‘Post 65 Age Benefits.’ It takes place June 17 to 19 in Vancouver, BC. For information, visit CPBI FORUM

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February 12, 2019


Pension Fund Assets Fall

Global institutional pension fund assets in the 22 major markets fell to $40.1 trillion at year end 2018, says the Thinking Ahead Institute’s ‘Global Pension Assets Study.’ This represents a decrease of 3.3 per cent in the 12-month period. The seven largest markets for pension assets – Australia, Canada, Japan, the Netherlands, Switzerland, the UK and the U.S. – account for 91 per cent of pension assets in the major markets. The study shows that the U.S. continues to be the largest pension market, representing 61.5 per cent of worldwide pension assets, followed by Japan and the UK with 7.7 per cent and 7.1 per cent respectively. It also found that DC assets now account for over 50 per cent of total assets across the seven largest pension markets, for the first time. This continues the trend of DC growing at a faster pace over the last 10 years, with DC assets growing by 8.9 per cent, while defined benefit assets have grown by 4.6 per cent during this time. Australia continued to have the highest proportion of DC to DB pension assets, with 86 per cent of its total pension assets in DC funds. DC pension assets have grown from 30 per cent in 1998 to 50 per cent in 2018 of total pension assets. Japan (95 per cent), Canada (95 per cent), the Netherlands (94 per cent), and the UK (82 per cent) continue to be markets dominated by DB pension assets. It also shows total pensions assets to GDP ratio were 60.4 per cent at the end of 2018 with the Netherlands continuing to have the highest ratio of pension assets to GDP (167 per cent) followed by Australia (131 per cent) and Switzerland (126 per cent).

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CAPSA Supports National Repository

The Canadian Association of Pension Supervisory Authorities (CAPSA) supports the creation of a provincial, regional, or national repository and transferring unclaimed pension balances to it. However, this issue is outside its scope. With ‘Guideline No.9 ‒ Searching for Unlocatable Members of a Pension Plan,’ it addresses the challenge unlocatable members present for pension plan administrators as they try to trace members who have terminated plan membership and deferred their pension benefit. As well, with increased job mobility, there can be a significant period between an employee terminating employment and becoming eligible to receive a pension. This creates an increased likelihood of the member’s contact information becoming out of date. The guideline is designed to outline best practices and options with respect to searching for unlocatable members including roles and responsibilities, records management, and entitlement to plan benefits. CAPSA recommends that all administrators develop and implement a comprehensive records management and retention policy. For information, visit Unlocatable Members

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Asset Managers Dig Deeper On ESG

Asset owners and managers continue to “dig deeper” into how their portfolio companies are dealing with issues such as ESG, executive pay, and activism and away from compliance checklists, says Morrow Sodali’s ‘Institutional Investor Survey.’ The factors that influence their voting decisions are governance policies and practices, followed by long-term business strategy and effective communications. On environmental, social, and governance factors, the survey found it is “increasingly being blended into the discussion about what companies are supposed to be doing and how they are judged.” On board engagement, 87 per cent of respondents indicated that “proactive and regular engagement” with the board of directors helps them evaluate a company’s culture, purpose, and reputational risk. Executive pay also will shift from an investor-specific activity and instead come up more through collective engagement efforts in 2019, the survey found, with 67 per cent of investors ranking compensation as the most important issue in their engagement with other investors.

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CFO Sees Brexit As Risk

Brexit is the most significant risk to their businesses as firms tighten spending and scale back on recruitment plans, says CFOs at the UK’s largest companies, says Deloitte’s quarterly CFO survey. It found that around 80 per cent of CFOs expect the long-term business environment to be worse as a result of the UK leaving the European Union. It also found a diminished appetite for capital expenditure, M&A, and introducing new products or services with CFOs placing greater focus on cost reduction now than at any time in the last nine years.

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CIT Assets Grow

Collective investment trust (CIT) assets surpassed the $3 trillion mark in 2017, up from $2.8 trillion in 2016, says research from Cerulli Associates. Growth in the vehicle has been relatively consistent, averaging 10 per cent annually since 2011. This is primarily attributed to demand for lower-cost vehicle options. Although the vehicle is seemingly poised for continued success, CIT providers must address certain challenges to sustain the current level of growth. The main advantage is that CITs offer over similar vehicles is cost savings. However, to maintain an advantage over other vehicles, it is vital that CIT providers remain open to negotiating fees with investors. Regulatory advantages are also giving CITs a competitive edge. There are fewer regulatory requirements for CIT providers which enables them to develop new strategies and bring them to market more quickly than they otherwise would through other commingled vehicles.

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CETFA Has Busy Year

CETFA (the Canadian Exchange Traded Fund Association) had a busy and successful year in 2018 and is looking forward to similar activity in 2019 It had two ETF providers join; bringing its total to 14 providers with 96 per cent of the industry assets under management (AUM). It presented at 11 conferences in 2018 on topics such as myth-busting and the value of ETFs in a portfolio. It was also able to get a regulatory exemption for portfolio settlement for those jurisdictions that maintained a T+3 settlement cycle even though Canada and most other countries switched to T+2. While ETFs are becoming a mainstream investment option, they still only represent approximately 10 per cent of the AUM of the mutual fund industry in Canada. However, they have surpassed the hedge fund industry in AUM.

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PERE Has Record Year

The private equity real estate (PERE) deal market experienced a seventh consecutive year of record-breaking deal activity in 2018 as 6,418 deals were completed worth a total of $325 billion. Preqin says this puts 2018 levels slightly above 2017 activity, when 6,406 deals were made worth an aggregate $324 billion. Growth in deal activity was not universal, though. North America was the only region to see an increase in the number of PERE transactions from 2017 – up to 4,467 from 4,343 – as Europe, Asia, and the rest of world all saw slight declines.

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Culbertson Has New Role

Christine Culbertson is a business development manager in the Toronto, ON, with the group savings and retirement team of iA Financial Group. She will focus on growing its IPP, RPP, and retirement compensation arrangement business in Ontario. She previously held various positions in different fields including client relations management, sales management, and training.

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Evolution Of AI Examined

The recent and future evolution of AI (artificial intelligence) in investment management, sustainable finance and climate risk, and the next chapter of Asia’s growth story will be among the areas explored at the CFA Society Toronto’s ‘2019 Annual Spring Pension Conference.’ It takes place March 28 in Toronto, ON. For information, visit CFA Pensions

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February 11, 2019


CAPSA Develops Best Practices For Payout Phase

The Canadian Association of Pension Supervisory Authorities (CAPSA) has developed best practices which focus on the payout phase as DC pension plans continue to mature and plan members begin to retire in greater numbers. ‘Defined Contribution Plans Guideline #8’ is a response to stakeholder suggestions on where the guideline could be improved. An industry working group composed of pension industry experts from several jurisdictions reviewed and revised the guideline with a strong emphasis on communication to members regarding variable benefits, assumptions used in retirement projections, and disclosure of fees. The guideline sets out the responsibilities of DC plan administrators, employers, sponsors, third-party providers, fund holders, and members. It sets out information for members approaching the payout phase including information on retirement products, variable benefits products, and withdrawals. For information, visit Payout Phase

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Workplace Pensions Provide Benefits

Better labour force management, lower job stress, improved worker health, and lower use of government-funded assistance programs such as Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) are some of the broad benefits of workplace pensions, says Dr. Robert L. Brown, a professor emeritus at the University of Waterloo. In ‘The Social Implications of Pensions,’ a report commissioned by the Canadian Public Pension Leadership Council (CPPLC), he says the analysis shows “these plans are not just better for Canadian workers, but for the Canadian economy overall, with cost savings to employers and governments. Canadian pensioners with stable, predictable defined benefit retirement income are less dependent on government assistance and they spend their pension dollars in local businesses.” It says DB plans generate greater retirement saving efficiency with 78 per cent of retirement benefits coming from investment returns. Those participating in large DB plans can get 2.2 times as much retirement income from the same contribution amount because of lower fees, fewer liquid assets, and advantages regarding life expectancy risk. This helps improve retirement readiness among workers as those with workplace DB plans have the highest income replacement rates in retirement. Pension income is spent in local communities with 14 per cent of income in Ontario communities coming from pensions. Over half of employees say a DB plan is a factor in choosing a job and 69 per cent say it is a reason to stay in a job. DB plans increase job tenure by four years over having no plan.

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Risk Of Outflows Spiking Possible

Investors should be wary about the outlook for leveraged loan ETFs as financial conditions begin to tighten, with the risk of a spike in outflows within the asset class, says Mark Benbow, a co-manager of a high yield bond fund at Kames Capital. Investors must be vigilant about the risks, he says, as tighter financial conditions could rapidly impact performance and reverse the vast flows into the sector which were made via ETFs. At the start of 2000, there were only 15 ETFs or mutual funds dedicated to the leveraged loan asset class, but this has ballooned to almost 300 today amid rising interest rate expectations. “The theory goes that rising interest rates will generally hurt (fixed coupon) bond markets, but leveraged loans (as floating rate instruments) will benefit as central banks unwind balance sheets and increase interest rates,” says Benbow. However, while the fundamentals were positive last year, the nature of many of the investments in the leveraged loan market means liquidity is very limited, creating issues for any products which offer instant redemptions. How this scenario unfolds is not yet clear, but Benbow warns in a worst-case event, the outlook for recovering capital from failing loans is downbeat following a deterioration in the type of debt being bought.

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Americans Confident About DC

About 83 per cent of Americans whose households have defined contribution plans are confident that they will help them reach their retirement goals, says a survey by the Investment Company Institute. However, the confidence level about the efficacy of DC plans fell to 62 per cent among survey respondents whose households don’t own DC plans. It also found that among the universe of respondents with household ownership of DC plans, 94 per cent strongly agreed or somewhat agreed that choice and control over investments in their retirement accounts is important. About 91 per cent of respondents said they strongly or somewhat agreed employer-sponsored DC plans help them concentrate on long-term goals and the same percentage said payroll deduction of their contributions to the plan makes it easier to save. The favourable tax treatment of the retirement accounts is also a big incentive to contribute to the plan, according to the 85 per cent of the survey universe who strongly or somewhat agreed with the polling question.

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Traders Want CAT Plug Pulled

Only two per cent of traders would definitely execute electronic orders with a broker who only used SIP data in their algos and nearly one in three want the SEC to pull the plug on the Consolidated Audit Trail (CAT), which could someday shed light on the role that algorithmic trading and other factors are playing in causing market volatility. These are two of the key findings of Greenwich Associates’ ‘Investors’ Take on Market Structure Issues in 2018/2019.’ Its canvass of the institutional trading community found 39 per cent per cent of buy-side traders are supportive of the CAT. However, 27 per cent feel it should be abandoned because costs will outweigh benefits. “The benefits of the CAT may have faded in the minds of market participants,” says Richard Johnson, vice-president of Greenwich Associates market structure and technology and author of the report. “But now, as traders are once again left scratching their heads about the root cause of a recent spike in market volatility and wondering if algorithmic trading could be to blame, an operational CAT might be able to provide answers.” Nearly all institutional traders see direct feeds as a “must-have” resource. However, about one-third of buy-side traders indicated they would trade with electronic brokers if there was regulatory clarity indicating they would still be fulfilling their best execution requirements.

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Collage Offers White Label Platform

Collage Technologies Inc., a developer of HR, payroll, and benefits management software, has launched a white-labeled benefits administration platform for advisors and their clients. Pairing benefits technology with ease-of-use, the ‘Benefits HQ’ platform improves plan management by eliminating paper forms and automating administrative tasks. It enables advisors of all sizes to deliver a digital experience to their clients that consolidates enrolment for benefits, pensions, and alternative benefits and wellness products.

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First-time Fundraising Hits Low

As overall private debt fundraising levels have increased steadily in recent years, first-time fundraising has fallen to a six-year low, says Preqin. In 2018, just 35 first-time private debt funds held a final close, raising a total of $6.8 billion in capital, the third consecutive decline from 2015’s most recent peak. First-time fundraising, therefore, accounts for 21 per cent of the total number of private debt funds closed and just six per cent of capital raised in 2018. Further indication of a challenging market for first-time funds is the decreasing size of the average first-time private debt funds. In 2018, first-time private debt funds raised an average of $194 billion, compared to $814 million for follow-on funds. Although this is just a slight decrease from $231 billion in 2015, average size has consistently been falling over the past five years. However, first-time funds have nonetheless generated strong returns, consistently outperforming non-first-time funds for vintage years 2010 to 2015.

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Caisse Provides Cirque Credit Facility

Cirque du Soleil Entertainment Group has acquired the Works Entertainment using a credit facility made available by the Fonds de solidarité FTQ and the Caisse de dépôt et placement du Québec. This financing namely allows for the acquisition of the U.S-based company that has made its mark in medium-scale theatre production with successful magic shows like ‘The Illusionists’ and ‘Now You See Me Live.’ It will also support the future growth of the company. Its portfolio includes cabaret-style shows and circus art shows such as ‘Circus 1903 – The Golden Age of Circus,’ as well as musicals. Adding these shows to the Cirque du Soleil portfolio will enable it to further diversify its content offering and reinforce its presence in the worldwide theatre venue distribution network.

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Zuliani Moves To Leith Wheeler

Michelle Zuliani (CFA) is a credit analyst with Leith Wheeler Investment Counsel’s fixed income team. She was most recently with HSBC Asset Management in a similar role and prior to that, spent time at RBC Capital Markets in equity research, rates, and FX sales.

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‘Today’s Vision’ Theme Of Conference

‘Today’s Vision: Tomorrow’s Reality’ is the theme of the ‘2019 CPBI Saskatchewan Regional Conference.’ Featured sessions look at the biggest pitfalls in investing, virtual healthcare, and post-traumatic stress disorder. It takes place April 9 to 11 in Saskatoon, SK. For information, visit Today’s Vision

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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 February 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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