Real Estate Hurts Results
The weighted average return on depositors’ funds with the Caisse de dépôt et placement du Québec (CDPQ) was 7.7 per cent in 2020, which represents $24.8 billion in investment results for the year ended December 31, 2020. The annualized return over five and 10 years was 7.8 per cent and 8.6 per cent, respectively. The returns of its eight main depositors ranged from 6.5 per cent to nine per cent for the year. Their investment policies, which vary based on their return objectives, risk tolerance, and investment horizons, account for this difference. As at December 31, 2020, its net assets totaled $365.5 billion, up $117.5 billion over five years, with investment results of $110.7 billion and net deposits of $6.8 billion. In an atypical year, its return is 1.5 per cent lower than its benchmark, primarily due to the real estate portfolio’s underperformance, which was caused by the pandemic’s impact on shopping centres and office buildings.
COVID Impacts OMERS
The effects of the global COVID-19 pandemic negatively impacted the OMERS portfolio in 2020, particularly its business- and consumer-facing investments. Its 2020 financial report says this contributed to an investment return net of expenses of -2.7 per cent for the year. Widespread lockdowns in investments that included retail properties and the transportation and entertainment sectors explain more than half of the shortfall to its benchmark in 2020. Over the 10-year period leading up to 2020, its investment portfolio averaged an annual return of 8.2 per cent, and in 2019 alone delivered 11.9 per cent. Its funded status on a smoothed basis remains at 97 per cent, with a lower discount rate of 5.85 per cent. “Over the past five years, OMERS has lowered its discount rate by 40 basis points to improve resilience to risks we see on the horizon,” says Jonathan Simmons, its CFO.
Strategy Needed For High Cost Drugs
Drug plan managers have long struggled to address the management of high cost drugs which, on one hand, vastly improve claimants’ health outcomes and provide better quality of life, but, on the other hand, have an ever-expanding place in group health benefits’ budgets. In ‘Specialty Drug Strategy: How To Look Beyond The (High) Cost With A Five-Pillar Approach’ at the Benefits and Pensions Monitor website, Christine Than, a pharmacist and drug solution specialist at Aon, says while the use of specialty drugs accounts for only for about one per cent of all drug claims, they represent approximately 35 per cent on average of total drug plan spend. When addressing specialty drug coverage, an employer’s drug cost containment strategy should be coherent with their total rewards strategy, she says.
Initiative Targets Vaccine Access
Institutional investors have launched an initiative aimed at ensuring equitable global access to COVID-19 vaccines and other tools. So far, 148 asset managers and owners with a collective $14 trillion in assets have signed on to a global investor statement in support of an effective, fair, and equitable global response to COVID-19. It calls on world leaders to finance the Access to COVID-19 Tools Accelerator, or ACT Acclerator, to ensure equitable access to COVID-19 tools. They also pledge to work directly with the healthcare companies in which they invest, urging them to pick up the pace of responding to the pandemic, including cross-industry partnerships for research and development, pricing, and licensing agreements. Their statement cites studies that show while advanced economies can vaccinate all their citizens, failing to stop the spread of COVID-19 in emerging markets is a threat to the global economy.
Canadian ETFs Gather Inflows
Kisielyte Joins Algonquin
Health And Safety Conference Goes Virtual
The Partners in Prevention ‘2021 Health & Safety Virtual Conference’ offers practical solutions and best practice approaches to answer the demands of changing workplaces and promote a healthy and safe workplace culture. Sessions will look at topics such as managing and adapting to evolving obligations and challenges arising from COVID-19 and the workplace and psychologically safe leadership. It takes place April 28. Information is at PartnersinPreventionConference.com
Employers Unable To Mandate COVID Shot
Until provincial governments or their public health officers specifically direct that individuals are vaccinated against COVID-19, there is no specific legal authority to compel an employee or individual to obtain the COVID-19 vaccine, says Richard Press, a partner at DLA Piper. “In other words, you cannot require one of your employees to take the vaccine,” he said at its ‘Vaccines in the Workplace: Rights and Limitations on Requiring Vaccination.’ Absent legislation, employers are unlikely to be able to mandate vaccinations without facing a risk of either human rights or civil claims. It bears mentioning, he said, that across Canada, the health authorities have indicated there is no intention to legislate that employees must be vaccinated. However, not getting vaccinated could have consequences impacting the ability to work in certain settings. For example, employees who travel on business may need to show they have been vaccinated if they want to fly. Employers across Canada have a duty to take every reasonable precaution to ensure that the workplace is safe and most employers will be able to do so without mandating employees get vaccinated, he said. This can be done by allowing employees to continue to work remotely or modifying hours of work so the employees can work in an environment where physical distancing can be maintained. There is also an obligation to protect workers from exposure to COVID-19 through adjusting health and safety plans, screening employees, requiring workers and visitors to wear appropriate PPEs. Vaccines should be considered as well, he said.
Canadians Need Flexible Annuity Options
The federal government should find solutions to allow Canadians in and approaching retirement to obtain more secure, guaranteed, lifetime incomes through more flexible annuity options within registered pensions, says the Canadian Life and Health Association (CLHIA). In its submission on the 2021 budget to the department of finance, it says this should include RRSPs (registered retirement savings plans), RRIFs (registered retirement income funds), and TFSAs (tax-free savings accounts) by expanding on the changes introduced in the budget for 2019. As part of this, it recommends that standalone variable payment life annuities (VPLAs) be permitted to pool participants from all registered retirement plans and the liquidity requirements in TFSA rules be waived to allow Canadians to use TFSAs to supplement retirement savings. While Old Age Security (OAS) and the expanding the Canada and Quebec Pension Plans (CPP and QPP) provide some income certainty, the continuing shift away from defined benefit pensions to money purchase plans places a growing onus on individuals to make sure they have sustainable retirement income. It says new measures are needed to help Canadians attain guaranteed retirement income security. One idea is allowing Canadians to further defer the start of OAS and CPP/QPP benefits so they could draw down private savings in the near-term and transition to guaranteed public benefits at later ages. Similarly, allocating a portion of private savings within registered plans to provide life annuities starting at advanced ages would allow Canadians to better manage their assets, rather than over-saving and under-consuming for fear of ‘living too long and running out of funds.’
GDP Forecasts Balance Near-Term Fallout
GDP forecasts continue to balance the near-term fallout from the pandemic with the brighter medium-term prospects once vaccination rollouts and government relief efforts rejuvenate demand, says FTSE Russell’s ‘Equity Market Drivers Report for February 2021.’ Currently subdued, inflation risks have climbed to the top of investors’ worry list, particularly in the U.S., it says. As well, extended COVID-19 restrictions continue to weigh on the global economic outlook, leading to cutbacks in consensus first quarter GDP forecasts across the developed world since December, despite mostly better-than-expected fourth quarter 2020 results. Economists project further GDP weakness for the UK and Japan in the first quarter 2021 and slower growth in Canada and the Eurozone. China is seen posting high-teens year-over-year growth for the period, reflecting comparisons versus its devastating slump a year ago. While still forecasting a strong economic recovery this year, the IMF has reduced its full-year 2021 estimates for the UK, Eurozone, Japan, and Canada since its ‘October 2020 Global Outlook’ report. Notably, the organization raised its estimates for the U.S., likely owing to its shallower 2020 recession and improved prospects for higher fiscal spending under the President Joe Biden administration.
Food Chain ESG Issues Need To Be Managed
The food chain involves major environmental and social issues that need to be closely managed and tracked, says Alquity’s ‘ESG and the Food Supply.’ Protein production, traceability, and healthy eating are the key areas that require investors’ focus and these are areas that require engagement further with investee companies over 2021. As well, global animal agriculture emits three times more greenhouse gases than the entire aviation industry. As well, one of the greatest threats to human health is anti-biotic resistance, which can be traced to over-prescription of drugs in the food supply chain. Responsible investors need to carefully manage their holdings in this sector, to both ensure they are supporting the transition to a net zero economy but to also contribute to better health outcomes for all.
IMCO Launches Global Equity Pool
The Investment Management Corporation of Ontario (IMCO) has launched a global public equity pool, representing approximately $17.3 billion, as its second structured pool of assets. This pool follows the launch of its Canadian equity pool in November 2020. Combined, the pools represent approximately $20 billion of AuM (assets under management) in pools. IMCO offers professional end-to-end investment solutions for clients who may not have the scale to create or efficiently access a full range of asset classes and consolidated risk management and reporting, in a cost-efficient manner. The organization plans to launch an emerging markets public equity pool in the coming months to its clients, with pools for private markets to follow.
Forum Returns Virtually
‘Forging Ahead’ is the theme of the virtual CPBI Forum 2021. Registration for the event is now open. It takes place June 14 to 18. Information is at http://www.cpbi-icra.ca/Events/Details/National/2021/06-14-CPBI-FORUM-2021
Focus On DEI Accelerates
Protests against racial violence and injustice around the world have put a spotlight on inequality, accelerating the demand for far-reaching social, political, and corporate transformation. As a result, organizations are becoming more focused on the need to address diversity, equity, and inclusion (DEI), says a Mercer white paper. ‘The Power of Change: The what, why and how of creating a diverse private market portfolio’ says as institutional investors turn to private markets, they are seeking to address systemic imbalances by increasing diversity within their organizations and boosting DEI with their investment portfolios. This includes implementing DEI manager programs and expanding due diligence frameworks to include diversity metrics. And evidence supporting the positive impact DEI has on private market performance is mounting with incorporating DEI into private market portfolios resulting in performance that outperforms benchmarks. “The pandemic and growing demand for social change, coupled with market volatility, have made investors realize that change is here. There are many benefits to embracing DEI, as well as risk mitigation considerations. By creating a private markets DEI investment program, institutional investors can send a strong signal to asset managers that diversity is a priority,” says Raelan Lambert, global alternatives leader at Mercer.
Alternatives Can Be Almost Anything
Alternatives are funny because they’re defined as what they aren’t versus what they are, says Gene Podkaminer, head of research at Franklin Templeton Investment Solutions. He told the Franklin Templeton ‘Moving Toward a Vaccinated Economy’ they can be almost anything that an investor imagines, depending on what they can hold. As an example, he considers inflation sensitive assets like real estate commodity futures and even TIPs as viable alternatives against nominal fixed income and equities. As fixed income allocations are reduced, some of this is being redistributed into alternatives. The hard part talking about alternatives is that “you can’t have return enhancement, risk reduction, and greater diversification in a single investment. It’s not possible.” This means investors have to pick one or two out of those three. He called alternatives a “personal choice” as every investor holds them slightly differently. However, their importance in a portfolio is to try to give the investor something different than what they are already getting from the equity or the fixed income markets.
Digital Channels Primary Connection
As Canadians cope with continued lockdown measures and rising cases of variant virus strains, many employers continue to limit in-person workplace interactions. As a result, digital channels have become the primary, if not only, way for many employees to stay connected to one another and to their employers, says Gallagher’s 2021 ‘State of the Sector Survey.’ Its data reveals, however, that Canadian employers can do better at assessing and adjusting their employee experience strategies in 2021 and for years to come as remote working is here to stay. The global survey shows changes to organizational culture tops the list of priorities, with 43 per cent of employers indicating they will revamp their values and behaviours in the coming year. In addition, 40 per cent expect to implement a new way of working, followed by 37 per cent that plan to leverage new information and collaboration tools.
Canada Life Offers Health Coaching
With diabetes, heart disease, and obesity on the rise, Canada Life has introduced a health coaching program, led by the Health Solutions by Shoppers team, to help Canadians prevent and manage chronic conditions. The health coaching program is delivered remotely by pharmacists, nurses, and dietitians to make the program accessible from anywhere. This ease of access is especially important so employers can continue to support their employees during the COVID-19 pandemic. Ryan Weiss, vice-president, product and experience for group customer, at Canada Life, says, “The health coaching program evolved from a successful diabetes management coaching and medication counselling program that we launched together with Shoppers Drug Mart in 2013. By expanding that early program, we aim to build on that earlier success by tackling some known care gaps and empowering plan members to better manage their health.”
Managers Use Persona Client Segmentation
Asset managers are discovering a new tool in the fight for increased profitability in an increasingly competitive institutional market: persona client segmentation. A white paper from Greenwich Associates, ‘Client Segmentation in Asset Management: Cracking the Implementation Conundrum,’ says like companies in many other fields, asset managers have always divided their client base by size, geography, and sales channel. But as investment markets become more complex and the competition for institutional assets more intense, managers need new and more sophisticated methods to engage institutional investors. “Client segmentation based on needs and behaviours has the potential to separate best-in-class managers from the pack,” says Mark Buckley, Greenwich Associates relationship director and author of the report. “However, without a blueprint, implementation can be daunting because complexity increases dramatically as managers move away from a one-size-fits-all approach.” Due to the increased complexity and the firmwide changes associated with a switch to a persona segmentation strategy, asset managers need a detailed plan spanning multiple functions across the organization.
Hendershot Has New Role
Hedge Fund Start-Ups Examined
A variety of industry professionals will outline key considerations when starting a hedge fund in Canada at AIMA’s ‘Starting a Hedge Fund in Canada.’ Areas covered at the March 8 session include onshore versus offshore fund structures, registration and regulatory overview, legal and compliance obligations, and ongoing reporting requirements. Speakers are Rob Lemon, executive director, prime services, at CIBC Capital Markets; Sarah Gardiner, partner, securities and capital markets at Borden Ladner Gervais LLP; Supriya Kapoor, principal/founder of Aurelius G.R.P. (Canada); Peter Hayes, a partner at KPMG Canada; Raj Vijh, chief operating officer and chief financial officer of Lysander Funds; and Ronald Landry, head of product and Canadian ETF services at CIBC Mellon. Information is at https://www.aima.org/event/starting-a-hedge-fund-in-canada.html?dm_i=2LZ3,1PO3K,6DGDL6,5ULLG,1
Universities Leverage Collective Power
A coalition of Canadian university endowments and pension plans that will leverage their collective power as institutional investors to address climate change risks in their investment portfolios has launched. The University Network for Investor Engagement (UNIE) is the University of Toronto Asset Management, Carleton University, Concordia University, McGill University, McMaster University, Mount Alison University, Université de Montreal, University of St. Michael’s College in the University of Toronto, University of Victoria, and York University. Its co-ordinator is SHARE (Shareholder Association for Research & Education), a non-profit investor advocacy organization. UNIE will engage with companies in the investment portfolios of participating universities, with the goal of reducing greenhouse gas emissions and accelerating the transition to a low-carbon economy. The coalition is open to new members.
Fixed Income Lags In ESG
Fixed income is lagging behind equity when it comes to environmental, social, and governance (ESG) product development. However, the pace of sustainable product launches in the fixed income space in Europe is set to accelerate, with COVID-19 being a key catalyst, says Cerulli Associates. The EU (European Union) has committed almost €550 billion to green projects over the next seven years. Some €225 billion worth of green bonds will be issued to help finance the projects, part of the union’s €750 billion of borrowing earmarked for its coronavirus recovery fund, says Justina Deveikyte, director, European institutional research, at Cerulli. Opinions vary as to the potential speed of EU green bond issuance, but, given that green project financing is being touted as a driver of the economic recovery, it expects issuance to occur sooner rather than later. However, it will be dependent on a pipeline of suitable green infrastructure projects. Green bond issuance in Europe has been rising. Just €19 billion of green bonds were issued in Europe in 2015, compared to €117 billion in 2019.
HSBC Expands Risk Analytics Reporting
HSBC will be extending its contract and expanding its use of the Moody’s Analytics PFaroe DB software, a risk analytics and reporting solution for the defined benefit pensions market. HSBC began using the solution in 2009 to manage and measure its DB pension risk across multiple jurisdictions on a single platform, with a particular focus on the Internal Capital Adequacy Assessment Process and stress testing submissions. Now, HSBC will increase its assets under management on the platform, expanding its use from six to 15 territories located across Asia-Pacific, Europe, the Middle East, Africa, Latin America, and North America. It will also take advantage of the integration of Moody’s Analytics scenario generation capabilities in the PFaroe DB solution.
Catechis Joining Franklin Templeton
Pension Developments Examined
‘Key 2020 Pension Developments and What To Expect for 2021’ is the focus of the ACPM advocacy update set for March 4. Speakers are Andrea Boctor, of Osler LLP; Ross Dunlop, of Ellement Consulting; and Glen Oikawa, of Morneau Shepell. They will discuss a range of legal, investment, and actuarial topics, including electronic communications in plan administration, defined contribution decumulation options and challenges, defined benefit funding reforms, and pension plan consolidation trends. Information is at https://www.acpm.com/ACPM/Events/Roundtable-Broadcasts/ACPM-Roundtable-Broadcast-Event-(March-4,-2021).aspx
Employees Feel Mental Health Supported
As the world approaches one year of navigating COVID-19, 68 per cent of employed Canadians have felt supported by their employers throughout the pandemic, says research by Workplace Strategies for Mental Health and Canada Life. Respondents indicated the most helpful mental health supports from their employer were mental health-specific resources, like information on existing or available tools and services (32 per cent); flexible work arrangements, like working from home or working during different hours of the day (31 per cent); and frequent communication and check-ins, including video conferencing, eMails, and other electronic social supports (23 per cent). As well, things like social check-ins, flexible work arrangements, and access to mental health resources were more helpful than financial support. Only nine per cent indicated things like bonuses and pay raises helped support their mental health. “It’s not entirely surprising that financial support was less important to these respondents, since they’re currently employed. They may simply feel fortunate to have work when so many other Canadians don’t,” says Mary Ann Baynton, director of collaboration and strategy at Workplace Strategies for Mental Health. “The good news is research clearly shows there are simple actions employers can take that make a difference, like making well-being part of everyday conversation at work, picking up the phone to ask how someone is doing, or pointing them to available resources that can help.”
BCI Sets Climate Targets
The British Columbia Investment Management Corporation (BCI) has made a commitment to five-year climate-related targets for its public markets program. It will target a cumulative $5 billion investment in sustainability bonds by 2025 (based on initial participation) and reduce the carbon exposure in its global public equities portfolio by 30 per cent by 2025 (using 2019 as a baseline). As a growing number of governments, companies, and institutional investors establish strategies to help achieve the Paris Agreement objective of limiting global warming, BCI believes that it is in its clients’ best financial interests to set carbon-related targets that align with this international treaty. The goals are consistent with the guidance of the Task Force on Climate-related Financial Disclosures (TCFD).
Virtual Program Extended
Unilever Canada and Maple have extended their partnership to a full-time ongoing program, providing direct access to Maple physicians for all Unilever employees and their eligible dependents, 24/7, from wherever they are. Unilever implemented this pilot for its employees with the goals of increasing peace of mind and access to healthcare from the safety of home. The pilot program, which began as the COVID-19 pandemic spread across Canada, saw a 35 per cent sign-up rate in its first months, with over 40 per cent of consultations taking place outside of working hours. The program has also seen high utilization from family members and dependents, who represented 35 per cent of visits in the program’s first months. The utilization was complemented by an average wait time of under four minutes for all consults done during the pilot.
Approach To Wealth Rethought
Canadians are rethinking their approach to retirement planning as a result of the COVID-19 pandemic, says an IG Wealth Management (IG) study. Almost half of Canadians who are not currently retired say the pandemic has made them rethink what their retirement will look like and how they will get there. Further, 63 per cent report that they would now prefer to spend their retirement in their own home, rather than a retirement facility; half say the pandemic has made them prioritize being closer to family and remaining in Canada, rather than living abroad; and one-third of Canadians who are not retired feel the pandemic will cause them to delay their retirement.
ESG-Aligned Investment Emphasized
ESG-aligned investments that outperformed in 2020 laid the groundwork for increased uptake this year, as recovering from the global COVID-19 pandemic will be emphasized, says ISS ESG’s annual global outlook report. ‘Volatile Transitions – Navigating ESG in 2021’ also found that labour and human rights risks linked to supply chain stoppages are a high priority for global investors.
Private Equity Assets Increase
Global private equity and venture capital AuM (assets under management) increased last year, up 6.1 per cent to $4.74 trillion, says Preqin. The growth rate was lower than the 9.9 per cent average of the past decade, but it believes this slowdown will be temporary, with growth accelerating toward its forecast of $9.11 trillion in 2025. Fundraising, although down 14 per cent from last year, surpassed $600 billion. Venture capital was the best performing primary strategy for the 10th consecutive year, with 2017 vintage funds showing a median net IRR of 18 per cent. In 2020, venture capital deal value hit almost $300 billion, surpassing 2018’s high of $289 billion and the end-of-year exit value of $365 billion was more than double the previous record of $179 billion. Private equity’s expansion is set to accelerate, with investors expecting to increase commitments in 2021.
Mikitka Joins Ellement
Danny Mikitka is executive vice-president of operations, at Ellement Consulting Group and Funds Administrative Services (FAS). Most recently, he was director, people and culture/labour relations, at Bird Construction. He has also been a member of the board of trustees for the Alberta Carpenters and Allied Workers since 2011.