AIMCo Reports Net Return
The Alberta Investment Management Corporation (AIMCo) achieved an aggregate return on behalf of its 14 Alberta pension and endowment balanced fund clients of 2.5 per cent net of all costs for the year ended December 31, 2018. In 2018, it achieved a net return premium of 1.1 per cent for its balanced fund clients, over and above the composite benchmark. With the gains achieved in 2018, it has earned its clients investment income in excess of $60 billion, net of all costs, since being established in 2008, of which more than $6.3 billion represents value add investment income above the benchmark returns for the period. Kevin Uebelein, its chief executive officer, says, “We continue to see our long-term investment strategies paying off for Albertans.” AIMCo actively selects the assets it invests in within each class and measures its performance relative to a standard passive benchmark for each class.
Natixis Acquires Stake In Fiera
Natixis Investment Managers will acquire an 11 per cent stake of Fiera Capital. Natixis is acquiring 10.68 million Class A subordinate voting shares of Fiera from National Bank of Canada and DJM Capital. The latter company is controlled by Jean-Guy Desjardins, chairman, president, and CEO of Fiera Capital. The acquisition is part of a long-term strategic distribution agreement through which Fiera Capital will become the preferred distributor in Canada of Paris-based Natixis’ investment strategies. Natixis also will offer Fiera Capital investment strategies through its investment platform. As part of the deal, Fiera will acquire Natixis’ Canadian operations and funds.
Canadian Economy Growing Moderately
Canada’s economy will grow this year, says Craig Wright, senior vice-president and chief economist at RBC, due to a stable environment with stable inflation and a steady interest. In the ‘RBC Economic Update’ at Trez Capital’s ‘Year in Review,’ he said, however, there is lots of uncertainty in the global economy so more moderate growth will continue until this is resolved. U.S. growth was “pleasantly” surprising at 2.5 per cent due, in part, to trade where U.S. President Donald Trump’s view that trade wars are easy to win bore result. As well, the U.S. consumer is doing well which also keeps the economy strong as well. Other positive factors include unemployment at its lowest level since1969, wages are rising, and Americans are ahead of Canada when it comes to delevering their debt. Also contributing to the growth is the about face on interest rates by the U.S. Fed. Concerns about rising interest rates last fall sparked recession fears, but the Fed eased its position on rate hikes. For Canada to grow, on the other hand, exports need to grow especially as consumers pull back on their spending. However, other than oil, it is not happening. Last year it should have seen six per cent growth in exports, but it only had three and Canada has fallen to third among U.S. trading partners, trailing China and Mexico.
Healthcare System On Election Agenda
With growing evidence that the healthcare system is falling way behind, Canadians are putting political parties on notice for the upcoming federal election. An Ipsos report commissioned by the Canadian Medical Association (CMA) shows 53 per cent of Canadians said they’re worried about healthcare. By comparison, 20 per cent are concerned about a carbon tax. Six out of 10 respondents suggested they’d vote for a political party that they think has the best plan for the future of healthcare in Canada. “Every election, healthcare tops the list for Canadians and yet, our federal leaders do little to truly address it”, says Dr. Gigi Osler, CMA president. “This time around, it’s different. Canadians are no longer willing to wait for action or to see services fall victim to budget cuts.” Specific healthcare worries include long wait times (62 per cent), the shortage of health professionals (60 per cent), and crowded hospitals (59 per cent). “We’re hearing more and more devastating stories of Canadians struggling to get the care they need, from younger Canadians looking for mental health support to seniors waiting weeks for a long-term care bed,” says Dr. Osler. “This federal election, we’ll be telling federal political parties that it’s time for leadership on health. Patients and healthcare providers can no longer and will no longer wait.”
U.S. Revenues To Exceed Canadian
Within five to seven years Stephen Liptrap, president and chief executive officer of Morneau Shepell Inc., expects the company’s U.S. revenues to be bigger than in Canada. Speaking at its annual general meeting of shareholders, he said currently about 25 per cent of its revenue from outside Canada. Not long ago, it was five per cent. However, given the fact the U.S. is a much larger market than Canada, the potential is also greater. For the foreseeable future, he expects to see single digit growth in Canada and double digit outside Canada. This is a good example of a Canadian company that competes well internationally. A key element of its growth in the U.S. was the acquisition of LifeWorks. The largest in its history, it “added significant scale to our business in the United States, United Kingdom, and Australia and built on our advantage to be the power brand in employee well-being. As we go forward, we are excited by the opportunities in front of us to make a real difference in the world, by focusing on improving lives and the businesses of our clients, while delivering exceptional results and continually improving our business.”
Investors Believe Emerging Markets Fairly Valued
The proportion of UK investors believing emerging markets equities are fairly valued increased in the first quarter, while more investors believed bonds are overvalued, says CFA UK’s latest quarterly valuations index survey. The index showed 33 per cent believed emerging markets equities are fairly valued, compared to 22 per cent in the fourth quarter of 2018. The perceived value correction comes following a period of underperformance for the asset class in 2018. The outlook for developed markets equities, however, rose from the previous quarter, with 57 per cent believing that asset class is overvalued, down from 61 per cent the previous quarter. More investors, meanwhile, believed bonds are overvalued. Seventy-three per cent of respondents said corporate bonds are overvalued for the first quarter, up from 69 per cent in the previous quarter’s survey. The perception of government bonds fared similarly poorly, with 60 per cent of investors believing such bonds are overvalued.
Genetic Testing Identifies Right Medication
Finding the right medication to treat certain conditions can be a frustrating trial-and-error process and as many as 50 per cent of medications go unused because of unpleasant adverse effects. Manulife recently piloted a program to explore how a person’s genes can affect their body’s response to medications, specifically those used to treat depression, pain, or anxiety. Preliminary results show 51 per cent of prescriptions were changed (either the dosage or medication), following genetic testing. The pilot continues and will help determine if considering a person’s genetics can support the treatment and recovery process and help people return to health, regular life, and work sooner.
U.S. Job Growth Good For Real Estate
Continued job growth in the U.S. will be good for real estate this year, but difficulty finding skilled workers will slow the pace of growth because employment is almost at full capacity, says Greg Vorwaller, president of Trez Capital. Speaking on its ‘Market Perspectives’ at its ‘Year in Review,’ he said looking forward, the U.S. economy may face blips in 2021 and 2022 because of global uncertainty. In Canada, he said OSFI and provincial regulations have had a more than intended effect on the housing industry although the low interest rates may have mitigated the total impact. And jobs and immigration are fueling demand in Vancouver, BC; Toronto, ON; and Montreal, QC.
PSP Investments Selling Advisor Group
Investment funds affiliated with Lightyear Capital LLC, a private equity firm focused on financial services investing, and PSP Investments (the Public Sector Pension Investment Board) will sell Advisor Group, Inc. to Reverence Capital Partners. Lightyear and PSP Investments acquired Advisor Group from AIG in May 2016. Since that time, client assets under administration have grown from $157 billion at the time of purchase to $268 billion today.
Bai Joins NEI
Panel Examines Benefits Administration
The Canadian Group Insurance Brokers June 2019 seminar will feature a panel discussion on ‘Benefits, Administration, & Communication.’ Panelists are Allison Brown, of Thorpe Benefits; Robin Bailey, of Aria Benefits; Michael Greenwood, of Pelorus; Drew Hubbard, Hubbard Insurance; Justin James, of Harry James Group; and Joe Leger, of Execu-Comp Benefits. It takes place June 5 in Vaughan, ON. For information, visit CGIB Session
Unlocking Variable Benefits Concerns ACPM
The Association of Canadian Pension Management (ACPM) is greatly concerned that the only options contemplated for unlocking variable benefits requires either a payment in cash or a transfer from the plan to a retail retirement savings or income product. In a letter to the pension policy branch of the Ontario ministry of finance, it says this significantly increases the cost to the retiree. A preferred approach would be to establish an unlocked variable benefit account within the plan, in the same way that administrators already establish voluntary accounts during the accumulation phase. This would allow the retiree to continue to benefit from the economies of scale of the plan and oversight by the administrator of the plan’s service providers (investment managers, record-keepers, etc.) As well, members should be allowed to unlock 50 per cent within the defined contribution plan similar to the Alberta legislation. It is also uncertain as to why all of a member’s account must be transferred to the variable benefits account. Prior to full retirement, some members may prefer to access only part of their accounts through variable benefits and allow the remainder of their accounts to continue to be invested in the plan’s regular investment options for active and deferred members. By forcing the entire accumulation account to be allocated to a variable benefit account, the retiree would be forced to draw the Income Tax Act minimum income annually on the entire account rather than only the portion from which the retiree wanted to draw an income. Finally, unless an unlocked variable benefit account is allowed under the act, if the member does not want to commence receipt of benefits immediately, the draft regulation would consign the unlocked portion of the account to presumably more expensive retail products. It is concerned that the variable benefit provisions do not have any incentives for a plan sponsor to include them in a plan design.
Burst May Be Coming For Tech Stocks
Tech stocks may be headed towards bursting, says Kim Shannon, president and co-chief investment officer at Sionna Investment Managers. She told its ‘2019 Financial Market Review’ that there has been significant privatized investment in this winner-take-all businesses which has seen little to no short-term returns. However, unlike in the past when investors expected to start earning their money back, investment has remained in unprofitable tech businesses like Tesla, Uber, Lyft, and WeWork for over a decade. A robust flow of capital is required to sustain this and it is being justified by a belief in eventual excess returns. However, with Google holding 92 per cent of search market share and Yahoo controlling 70 per cent of social media, their monopolistic profits could come to the attention of regulators who have experience dealing with monopolies. And if capital becomes constrained as it did in 2000 and 2008, some tech stocks may seize up from a lack of new funding.
Manulife Changing Benefits Experience
Manulife Vitality will change the experience of benefits programs beginning this July. Using the latest technology, data analytics, and personalized solutions, the program helps customers track healthy activities and earn the potential for rewards and discounts. The company has also signed a pledge with Vitality and other global leaders to help make 100 million people around the world more active by 2025. Through the program, customers track healthy activities using a customized, goal-oriented program which offers rewards as they improve their health and well-being. “Chronic health conditions are on the rise in Canada and, in combination with an aging population, could soon reach economically unsustainable levels,” says Donna Carbell, head of group benefits, Manulife (Canada). “We are on a mission to help people and organizations become healthier, so employees can be their best at work, feel happier, and be more engaged.”
Young Boomers Lack Retirement Savings
One-fifth (21 per cent) of Canadian young baby boomers (ages 55 to 64) in pre-retirement have not saved anything for retirement, says Franklin Templeton’s ‘2019 Retirement Income Strategies and Expectations (RISE)’ survey. In the United States, 17 per cent of young boomers are in a similar predicament. This likely feeds into why nearly half of Canadian and American young boomers (46 per cent and 48 per cent, respectively) would consider postponing retirement, with approximately 15 per cent of Canadians and 13 per cent of Americans expecting to work until the end of their life. Yet it doesn’t always work out this way according to retired boomers, whether young or older. Over half of Canadian and American young boomers (54 per cent and 60 per cent, respectively) retired earlier than expected, compared to about one-third of Canadian and American older boomers (32 per cent and 37 per cent, respectively) ages 65 to 73. There were also more Canadian young boomers who retired due to circumstances beyond their control than Canadian older boomers (34 per cent versus 20 per cent, respectively). There was a slightly wider gap amongst Americans, with more American young boomers who retired due to circumstances beyond their control than American older boomers (33 per cent versus 17 per cent, respectively). “In 2009, when equity markets started to recover, many young boomers were moving up the career ladder; whereas older boomers were approaching retirement at the top of their earning years,” says Duane Green, president and CEO, Franklin Templeton Canada. “A decade later, after a long bull market run, young and older boomers are in different life situations once again. We see many older boomers benefitting from the transfer of wealth from their parents, yet the young boomers have had a challenging experience balancing more expensive lives – due to caring for elderly parents and still having financially dependent children – all while saving for that increasingly elusive retirement.”
Industrial Real Estate On Strong Footing
Canada’s industrial market began 2019 on a strong footing, building on the exceptional results achieved in 2018, says Avison Young’s ‘Spring 2019 Global Industrial Market Report.’ While Vancouver, BC, and Toronto, ON, remain key markets for occupiers and investors, scarcity of product was evident in the single-digit vacancy rates posted across the country in the first quarter of 2019. Nationally, the industrial sector remains undersupplied. Demand is outpacing new development and will continue to do so, even though almost twice as much space is under construction compared with spring 2018. This supply-demand imbalance has pushed rental rates higher in almost all markets, attracting investors and resulting in low yields and rising asset values. “eCommerce remains the industrial sector’s catalyst for success as retailers and developers strive to perfect the supply chain,” says Mark Fieder, Avison Young’s COO, Canadian operations. Online giants such as Amazon are impacting market dynamics in terms of scale and location with their demand for large distribution/fulfilment facilities near urban centres, resulting in rising land and development costs amid dwindling supply of developable land.
Flexible Schedules Best Summer Perk
The best summer perks their companies could provide to them are flexible schedules, says an Accountemps survey of Canadian employees. It found 49 per cent would like to see work-from-home opportunities and condensed days and early departure on Fridays (38 per cent). The survey of senior managers shows 55 per cent of said they offer flexible schedules and relaxed dress codes and 36 per cent allowed staff to leave early on Fridays. Another common warm-weather benefit cited by managers was company picnics or potlucks (47 per cent). “Providing greater flexibility to employees during the summer can significantly improve morale and productivity, especially in what can sometimes be slower months in the office,” says Koula Vasilopoulos, a district president for Accountemps in Canada. “Perks like team barbecues or early dismissal are easy to implement and go a long way toward keeping staff satisfied and motivated.”
Hedge Fund Co-investment Demand Rises
Investor demand for hedge fund co-investments rose sharply over the past 10 years with 41 per cent reporting in 2019 that they allocate to these illiquid investments alongside their hedge fund managers, says a survey from Credit Suisse’s prime services-capital services group. In 2016, 33 per cent of those surveyed invested in hedge fund sidecars, compared with 11 per cent in 2013 and just seven per cent in 2010. Larger investors are more likely to invest in co-investments, with 68 per cent of investors with more than $5 billion reporting allocations to the vehicles versus 34 per cent for allocators with less than $5 billion in their asset pools. The survey team attributes the increase in co-investment allocations to investors’ desire for better alignment of interest with their hedge fund managers and the rise of customization within the hedge fund industry.
ESG Grows In Importance To Alternative Assets
Nearly half of investors in alternative asset classes have excluded working with fund managers who were not primed for responsible investments, says an LGT Capital survey. It found 47 per cent had excluded fund managers on the grounds of environmental, social, and governance (ESG) investing criteria and over 50 per cent of respondents said ESG was important to investment decision-making. More than 90 per cent of the investors said the UK Sustainable Development Goals (SDGs) would help the financial industry address urgent environmental and social issues and a quarter of respondents have already integrated SDGs into their investment activities in some way. A further 40 per cent planned to do so in the coming two years. As well, nearly 90 per cent of respondents felt SDGs would create new investment opportunities and over 80 per cent said integration of ESG factors into investment decision-making would either have a neutral or positive effect on risk-adjusted returns. Climate action, as well as affordable and clean energy, came in as the top SDGs for investors when addressing their investment frameworks.
Investment Risk Analytics Held In High Regard
Corporate defined benefit plans have traditionally chosen to derisk liabilities, in part because of volatility concerns. In this context, Cerulli Associates is offering recommendations to asset managers and investment consultants helping derisking plans implement a liability-driven investing solution. After tens of billions of contributions and higher discount rates improving funded status for much of 2018, volatility negatively affected corporate DB plans in the last days of the year. Despite an improvement in conditions in the first months of 2019, mid-sized plans express a greater focus on investment risks and on the fees paid to third-party asset managers. Respondents generally hold investment risk analytics in high regard when choosing among various non-investment-management services provided by managers: more than half (56 per cent) rank strategic asset allocation advice and risk analytics as “very important.” Cerulli suggests managers help corporate plans take a more holistic view of investment performance and risk in their portfolios, particularly in the case of asset liability management.
Plans Fund Radical Ventures
Radical Ventures, a venture capital firm investing in entrepreneurs applying deep tech to transform massive industries, has launched a fund focused primarily on artificial intelligence. Cornerstone limited partners include the Canada Pension Plan Investment Board (CPPIB), the Public Sector Pension Investment Board (PSP Investments), TD Bank Group, and Wittington Investments, Limited. Jordan Jacobs, managing partner of Radical Ventures, says, “Toronto, ON, and Canada have led the world in developing AI that is disrupting industries from healthcare to finance to smart cities and everything in between. We are now seeing an explosion of AI startups in Toronto, across Canada, and globally.”
Hub Acquires Clarity
Marshall Joins Canada Life
Jeff Marshall is senior vice-president, chief digital officer, Canada, for Canada Life, effective May 13. In this newly-created role, he will lead the development and execution of its digital strategy. Most recently, he was chief product and marketing officer at Street Capital Bank of Canada.
The Toronto Chapter of the International Society of Certified Employee Benefit Specialists will present two days of education on the ‘Fundamentals of Group Benefits and Pension Plans.’ Day one will look at topics like health and dental plans, life insurance, and disability. The second day will look at social programs and private retirement plans, setting up and administering a pension plan, and asset management. It takes place May 30 and May 31 in Toronto, ON. For information, visit 2019 Fundamentals
Majority Of Boards Lack Women
Women accounted for 19.4 per cent of directors on Canadian boards in 2016, says a Statistics Canada study. It found 28 per cent of corporations had one woman on their board of directors and15.2 per cent had more than one woman. However, 56.8 per cent of corporate boards of directors were composed entirely of men. Women were more likely to be on corporate boards with three or more directors (55.2 per cent), compared with 31.4 per cent for corporations with two board directors and 14.6 per cent of corporations with one director. Government business enterprises had the highest share (28.8 per cent) of women on corporate boards in 2016, followed by public corporations (20.5 per cent). Previous work has shown that the representation of women on corporate boards for public corporations rose from 2015 to 2017 following new regulations that required publicly traded corporations to disclose information on representation of women on boards. Private corporations had the lowest representation of women on boards of directors at 17.4 per cent. Studies in the United States and in Europe have shown that corporate boards with three or more women, defined as a “critical mass” in the literature, were more likely to perform differently than those with fewer or no women. Having three or more women on a board seems to modify boardroom dynamics with a positive environment for innovative ideas.
Alternatives Broaden Return Horizon
By increasing their alternatives asset classes, institutional investors can broaden their return horizon, says Ted Welter, managing director and chief investment officer, alternative investments, TD Asset Management. Speaking on ‘Alternatives: Diversifying for Long Term Success’ at TD Asset Management’s ‘Sharing of Knowledge Learning Series 2019,’ he said alternatives can include infrastructure, commercial mortgages, and real estate. All have the common themes of preservation of capital, low volatility, low correlation to equities, and predictability of income. And since they are illiquid, streams of long-term income need to be built. The story is adding value by enhancing returns while reducing risk. However, it is also important to manage tail risks, especially in vehicles which ramp up returns by increasing their leverage. He also said real assets serve the economy. Urbanization and technology are the new drivers of economic growth and the trillions of dollar needed for infrastructure projects need to be serviced with capital. Canadian institutions are looking at it, but access to global capital to meet that demand is resulting in competition.
Manulife Unifies Businesses
Marking another milestone in its transformation into a digital, customer-centric global company, Manulife has unified its institutional, retail, and retirement wealth and asset management businesses around the world under a single, new brand: Manulife Investment Management. These businesses formerly operated under multiple brands and as separate units in different markets. Manulife Investment Management now brings its wealth management and investment expertise together across these three complementary business lines and across the Americas, Asia, and Europe to better serve investors worldwide. This unified presence will provide customers and intermediaries with a more consistent, seamless entry into its various investment management businesses, including the launch of manulifeinvestmentmgt.com. Paul Lorentz, president and CEO, global wealth and asset management, says, “Our value proposition is dependent on our commitment to our customers’ success and on our investment and wealth management expertise across both public and private asset classes, coupled with a global model that can be delivered regionally.”
Canadian Breakthroughs Commercialized Elsewhere
Tomi Poutanen, chief artificial intelligence officer, TD Bank Group, fears artificial intelligence (AI)and machine learning will be like other Canadian innovations. His concern is the academic and scientific research breakthroughs made here will be commercialized elsewhere so an industry never develops, he said in an indepth conversation at the TD Asset Management ‘Sharing of Knowledge Learning Series 2019.’ If it is accepted that AI is going to be a productivity enhancer, talent is needed to build an industry here and that is being solved with the creation of the Vector Institute for Artificial Intelligence. It has quickly grown to become one of the world’s top AI research institutions and is helping to educate the next generation of leaders. The other issue is the need for capital. Silicon Valley in California was built with venture capital which is not in Toronto, ON, although it is in Montreal, QC. That is changing however with major institutions like the Canadian Pension Plan Investment Board, the Public Sector Pension Investment Board, and TD stepping in. He said AI and machine learning are transformative to all lines of business. The promise of AI, for example, is the ability to put the personal advice offered by bank branch mangers 30 years ago into someone’s pocket today. And while there are fears it will replace jobs, he said the only ones in danger are those for mundane tasks where a lot of thinking is not necessary.
Cooke Offers Digital Wellness
Employees at Cooke Aquaculture Inc. have an opportunity to take a major step toward improved all-around wellness with the launch of a digital platform that will facilitate individual and workplace wellbeing. Glenn Cooke, its CEO, says, “This investment is part of our ongoing commitment to creating a culture that empowers our people to grow, connect, and thrive.” It has partnered with Sprout to implement a digital platform that connects the company’s employees, promotes a shared culture across locations, helps facilitate corporate-led wellness challenges, and empowers employee health and wellness with easy-to-use and rewarding programming. Sprout’s web and app-based platform will give Cooke employees access to technology for health risk assessments and the tools they need to take control of their wellbeing. With games, challenges, and other incentives, it will help people realize meaningful health and wellness results. Families of employees will also have access to all of these features and tools.
Median Return Jumps
The median return of the BNY Mellon Canadian Master Trust Universe, a BNY Mellon Global Risk Solutions fund-level tracking service, was up 7.02 per cent for the first quarter of 2019, after ending 2018 with negative global market performance. The one year median return as of March 31 was 6.3 per cent, while the median 10-year annualized return was 9.77 per cent. “Financial markets around the globe experienced a recovery during the first quarter after last quarter’s sharp declines, with positive returns recorded across all equity segments,” says Catherine Thrasher, strategic client solutions and global risk solutions, CIBC Mellon and BNY Mellon. “All equity asset classes posted positive results for the quarter, signifying regained confidence over the 2018 global market volatility.” U.S. equity delivered the highest asset class performance, with a median return of plus 11.08 per cent. Canadian equity performance also rebounded, with a positive quarterly median return of 10.74 per cent. International and non-Canadian equity median returns were behind the North American equities market, but were still positive at 8.66 per cent and 9.95 per cent respectively. The Canadian fixed income median performance was also higher than the previous quarter at 4.63 per cent and with a one-year return of 5.97 per cent.
Risk ‘Always’ A Worry
Carlos Phillips, a vice-president and director at TD Asset Management, says investors in equity markets should “always” worry about risk. He told the ‘Quantitative Equity Investing: Navigating Today’s Uncertain Markets’ session at its ‘Sharing of Knowledge Learning Series 2019’ that equity investing is a risk first discipline. However, no-one wants to talk about risk until it is too late. Last year was reminder to start the conversation on protecting portfolios. In 2018, there were two spikes in volatility. The first was an inflation story fueled by inflation fears which sent equities and fixed income returns tumbling. The second was a growth scare triggered by fears that the U.S. central bank might trigger a recession by hiking interest rates. While both were small events, but they were a reminder that small events can trigger volatility. However, factor investing offers some protection. From 1963 to 2018, every factor had a top quintile performance led by low vol which often offered more returns with less risk, he said. Other factors may return more, but have more risk. However, investors also need to be adaptable. If they know, for example, a style will not perform as well in an inflationary period, they can move to something they believe works, but this adaptability must be core to the way they invest. This continuous adaption is being made possible by technology like artificial intelligence and machine learning which is allowing the creation of more risk models and combining the insights from these. These models are capturing risks never captured before.
Appetite For Blended Impact Investing Grows
There is a well-established and rapidly growing appetite for impact investing with a blended (public/private) approach widely accepted, says ‘Investor views on Public/Private approach,’ KBIGI’s impact investing survey. However, the ability to access appropriate investment opportunities is by far the biggest challenge the industry is facing. In the public equity space, the ability to make impact at scale is the biggest attraction. And while trade-offs exist between the public equity and private equity approaches, investors don’t accept that there is a trade-off between investment performance and impact. However, it says the impact community-at-large needs to do more to connect, educate, and make impact investing more tangible for investors.
Private Equity Prospects Positive
The prospects for private equity in 2019 are positive, says the ‘Preqin Investor Outlook: Alternative Assets H1 2019.’ It finds that nine out of 10 investors are satisfied with the performance of the asset class and 31 per cent intend to invest more in private equity in 2019 than in 2018. This comes despite concerns that headwinds may put pressure on future returns with asset valuations rated as the biggest challenge in the next 12 months by over 70 per cent of investors and many thinking that pricing is higher compared to last year. The majority of investors believe that assets are overvalued and see a correction approaching – including 39 per cent that expect it to come in 2019. In consequence, almost a third of investors expect their private equity portfolios to perform worse in the coming year than in 2018, but the majority are still confident that the asset class can meet their targets.
Federated Buys Part Of PNC
Federated Investors will buy parts of PNC Financial Services Group’s asset management business, PNC Capital Advisors. Under the deal, $484.9 billion asset manager Federated will acquire nearly $14 billion in assets from PNC. At the close of the deal, PNC Capital Advisors will continue to manage $21 billion in custom liquidity and fixed income solutions for PNC’s corporate and institutional clients as well as $26 billion in OCIO assets through its institutional advisory business.
Perry Joins Empire Life
Michael Perry is senior vice-president, group solutions, at the Empire Life Insurance Company. He joined the company in 2016 as vice-president, group product and marketing. Prior to joining the firm, he spent more than 20 years in the Canadian banking industry in senior marketing, product development, and business effectiveness roles. He also led the creation of new business-to-business insurance product lines, including an employee benefit suite of products for a consulting firm based in Toronto, ON.
Session Links Technology And Investment
‘Artificial Intelligence, Technology, Blockchain & Investment’ will be explained at CPBI Atlantic sessions. Featured speakers are Arijit Das, senior vice-president ‒ automation, architecture, and innovation ‒ shared services, at Northern Trust; and Krista Sacrey, a principal at Eckler. It takes place May 28 in St. John’s, NL, and information is at St. John’s AI. Information on the May 29 session in Halifax, NS, is at Halifax AI. Visit Saint John AI for details on the May 30 session in Saint John, NB
Canadian Workers Confident With CAPs
Canadian workers who participate in capital accumulation plans (CAPs) such as defined contribution pension plans and group registered retirement savings plans (RRSP) are confident about the state of their finances and say they understand money matters, says Aon’s ‘Global DC and Financial Wellbeing Employee Survey.’ However, many find it hard to save for retirement and are worried about having enough money to retire. The survey found fewer than half of employees have a goal for retirement savings and, depending on other sources of income, many might find their current plan contribution levels are inadequate to ensure their total income needs in retirement. “The good news is that the employees in our survey identified saving for retirement as a top priority and participation rates in workplace retirement plans are high, but we also found that workers are having real challenges being able to afford to save more,” says Rosalind Gilbert, an associate partner in the Aon Vancouver, BC, office. “An even more fundamental issue, however, is the lack of planning and knowledge around retirement savings and income – which is a big call to action for employers who need to do more to educate members, provide access to financial services, and equip them with holistic strategies for retirement readiness.” Employees do say they are interested in receiving more support from their employers in a range of financial areas, including saving for retirement, insurance, and planning.
Yield Curve Signal, Not Harbinger
The brevity and weakness of the yield curve inversion, along with more optimistic outlooks for China and the U.S., are reasons to believe that the inverted yield curve is more a symptom of current central bank policy and less a harbinger of an imminent recession, says a GLC Asset Management Group insight piece on the inverted yield curve. It says an inverted yield curve has frequently been heralded as a predictive signal of an economic recession and stock market downturn. However, there are two big differences in today’s marketplace which it sees as game changers: the cause of the overall low interest rate environment and the degree of credit still flowing within the economy and available to individuals and businesses. This makes the inverted yield curve that occurred late in March not flashing a red signal for equity markets. North American yield curves have been on a steep downward trajectory for over two years, culminating in 10-year bond yields falling below three-month bond yields on March 22 thereby inverting the yield curve. Notably, only a small portion of the yield curve inverted and the inversion was brief. However, this did mark the first inversion of this segment of the yield curve since July 2007. Yield curve inversions do merit attention, it says, as they “intuitively tell us something about economic growth expectations” and because they come at the hands of central bankers, the inversion of the yield curve can shed light on future central bank policy motives.
Mercer’s U.S. DB Pension And Health Admin Business Acquired
Morneau Shepell Inc. will acquire the stand-alone, large market, health and defined benefit pension plan administration business of Mercer in the United States. “This planned acquisition is in line with our strategy to grow our business profitably in the U.S. market and further solidify Morneau Shepell as a leading provider of health and DB plan administration across the United States,” says Stephen Liptrap, president and chief executive officer of Morneau Shepell. Mercer will continue to provide large market health and benefits administration as well as mid-market DB pension administration services when they are bundled with the company’s consulting and brokerage services, including Mercer Marketplace 365 and 365+. Through this acquisition, it expects to gain 73 of Mercer’s large market health and defined benefit pension plan administration clients (1.9 million plan participants) in the United States. Included in the acquisition will be the teams that service these clients.
Alternatives Get New Definitions
New category definitions for alternative funds are now in place. They replace the single blanket ‘alternative strategies’ category, which applied to all alternative funds irrespective of investment mandate or strategy. The Canadian Investment Funds Standards Committee (CIFSC) worked with the Alternative Investment Management Association in Canada to develop categories that recognize the diversity of alternative investment products in the market and allow meaningful comparison of performance between investment fund strategies. The categories are alternative equity focused, alternative credit focused, alternative multi-strategy, alternative market neutral, and alternative other. Efforts will continue to expand the categories further as new funds launch to take advantage of a growing regional alternative investment market.
Association Kicks Off Celiac Campaign
With Canadians suffering from celiac disease going undetected, on average, for 10 to 12 years before receiving a positive diagnosis, the Canadian Celiac Association (CCA) is kicking off its ‘Could it be Celiac?’ campaign to educate patients on the lesser-known symptoms of celiac disease such as anemia, joint pain, bone disease, skin, and reproductive issues. Celiac disease is an autoimmune disorder triggered by the consumption of foods containing gluten (a protein found in wheat, rye, and barley). It can cause years of poor health for those unknowingly living with the condition and puts a financial strain on provincial healthcare systems, as individuals are subjected to years of unnecessary tests and hospital visits. Currently, it affects one in every 100 Canadians, but only 10 to 20 per cent of patients with the disease have been diagnosed. As part of its ‘Celiac Disease Awareness Month’ efforts in May, the CCA will launch two patient-focused reference tools, designed to educate Canadians on the condition and promote early diagnosis. ‘Symptom Quiz’ is a self-assessment questionnaire to help patients start a dialogue with their doctor about celiac disease. Patients can complete the survey and take the results to their doctor. The ‘Growing Up Celiac Workbook’ is a resource guide designed for parents of young children with celiac disease and offers tips on everything from packing school lunches to navigating social situations at school, birthday parties, and sporting events.
Cost-cutting Takes Imagination
In the face of ongoing fee pressure, asset managers in Europe need to think imaginatively and beyond cost cutting, says Cerulli Associates. André Schnurrenberger, its managing director, Europe, says, “Compensation fee models, a focus on broad value-add services that tap different revenue streams, and product innovation are among the options.” There may be additional benefits. For example, compensation schemes for portfolio managers that entail deferrals and clawbacks also help to show trustees that managers are in alignment. Asset managers are innovating by focusing more on outcome-based solutions and using a broader definition of value for their institutional clients. This could include a bespoke index or an investment strategy tailored to regional investment. Some passive managers are doing less for their clients. This has resulted in a new passive-plus bucket, where managers will add services that offer more oversight and control, although investors need to pay extra for these options.
Commitment To Mental Health Should Be In Writing
To build more mental health supports into their workplace wellness programs, employers need to put their commitment in writing, says Linda Lewis-Daly, GoodLife Fitness workplace wellness consultant. While there is no one-size-fits-all approach when it comes to workplace mental health supports, encouraging open communication and offering customizable supports can go a long way to helping employees find help when they need it. For example, a mental wellness policy can outline the organizational outlook on mental health and how it plans to take action to support employees. Leaders can encourage open dialogue by sharing their personal stories and demonstrating their own commitment to mental and physical wellness. With employees often handling their day-to-day tasks while trying to hide their symptoms, opening up more dialogue around mental health issues is the only way to address stigma and normalize mental health conditions.
Furniture Allows Workers To Move
Canadian wellness and lifestyle brand, ergonofis, aims to improve the lives of office workers by shifting the way they work – one desk at a time. The makers of sit-stand adjustable desks and office accessories offer individualized tools that allow modern workers to move a little more and sit a little less. Users have the freedom and flexibility to alternate between standing or sitting, all at the touch of a button. It has also developed a range of design-forward add-ons for any workspace including anti-fatigue mats, monitor and laptop stands, leather mouse pads, power bar outlets ,and casters.
Holinshead Joins iA
Rick Holinshead is vice-president, distribution, group benefits and retirement solutions, at iA Financial Group. He brings more than 35 years of experience in the financial services industry and extensive knowledge of the market to the position. Over the past 30 years, he has held senior management positions at several actuarial consulting firms.
Succession Planning Discussed
When to begin succession planning will be discussed at the ESOP Builders ‘Business Transitions Forum.’ Topics will include preparing senior management for transition and the shift in leadership roles; ensuring the management team is well and independently advised; and strategies for partner buyouts. It takes place May 28 and 29 in Toronto, ON. For information, visit Succession Planning
Emerging Markets Require Proactive Approach
With MSCI defining 24 countries as EM, all of which vary in size, competency and economic potential, it can be difficult to find an allocation that fits each investor’s risk profile, says Rishikesh Patel, a portfolio manager with BMO LGM Investment. In the article ‘Is the “Smart Money” Headed to Emerging Markets?’ in BMO Global Asset Management’s ‘Quarterly Institutional Newsletter,’ he says for a better understanding of why it’s best to be proactive in choosing your spots within EM, the opposing realities of India and China, which together account for one-third of the world’s population and over 40 per cent of the EM investment universe. China has a closed economy loaded with national champions, such as Alibaba, Tencent, and Baidu, while India levers strong democratic institutions, such as multiple political parties and an independent judiciary, into an attractive environment for global corporate brands (e.g., Unilever, Nestle, Colgate and Siemens). A willingness to recognize each country’s differentiator, incorporate them into the investment process, and take an active approach to asset allocation is the “secret sauce for evaluating business and macroeconomic risks in each country,” he says. And while the global economy seemed to be entering a late cycle at the end of 2018, the bull market was extended in January when U.S. Fed Chairman Jerome Powell said interest rates were not on a “pre-set policy path,” and could be “paused” if economic conditions warranted. With expectations of a hike in interest rates reduced to zero for this year, and one for 2020, it is understandable that investors responded with enthusiasm across EM and developed markets alike. Adding to this, the U.S. and China are nearing a bilateral trade resolution, which would reinvigorate both economies by lifting $250 billion worth of tariffs on Chinese imports and, by consequence, helping to delay a transition to later stages of the economic cycle. Some investors may already be acting on this investment thesis, judging by the fact that Canadian and American fund flows to EM increased by $308 million and $24 billion (respectively) since the start of the year
CLHIA Marks 125 Years
The Canadian Life and Health Insurance Association (CLHIA) is marking its 125th anniversary. One of the country’s oldest associations, it was founded on May 5, 1894, by eight executives representing Canadian-based life insurance companies. Their association was created as a forum to share information about a young industry that had previously been dominated by much larger U.S. and British firms. The Canadian Life Managers Association, as it was then called, was the first of its kind in the insurance sector in North America. “Our country and our industry were very different in 1894; average household savings was $12 and very few employers offered health benefits or insurance of any kind,” says Stephen Frank, CLHIA’s president and CEO, says. “But the idea of pooling risk to plan for unexpected illness, premature death, and life beyond one’s working years makes as much sense today as it did then.” Its contribution to the industry and the well-being of Canadians, includes persuading the federal government in 1919 to allow insurers to offer group life insurance, so businesses can provide health and life insurance as a benefit to their employees, leading health promotion initiatives in the 1920s and ’30s including child welfare clinics and funding to combat tuberculosis and other diseases, and creating in 2013 the world’s first private national drug pooling solution to help Canadians continue to afford the medications they need.
Digital Assets Have Place In Portfolios
Almost half of U.S. institutional investors think digital assets have a place within their portfolios, says a Fidelity Investments survey. Conducted by Greenwich Associates, it found that about 22 per cent currently have some exposure to digital assets. Forty per cent said they were open to making crypto investments over the next five years. “We’ve seen a maturation of interest from early adopters, like crypto hedge funds, to traditional institutional investors like family offices and endowments,” says Tom Jessop, the president of Fidelity Digital Assets. Institutional investors’ preferred method of accessing crypto investments in the future will be through their asset managers, with 72 per cent saying that they would like to buy investment products that hold digital assets. As well, 57 per cent would like to buy crypto assets directly and another 57 per cent would buy an investment product that holds digital asset companies. One of the main appeals of digital assets, according to 46 per cent of the survey’s respondents, is their low correlation to other assets. In addition, 47 per cent of respondents believe digital assets were an “innovative technology play.” However, obstacles preventing investments in digital assets include price volatility, the lack of clarity around regulation, digital assets’ limited track record, and the lack of fundamentals.
Fees Driven Down Consistently
With broad market-cap-weighted index strategy managers driving expense ratios close to, if not down to zero, there seems to be a growing voice in the fee debate that the race to the bottom is slowing. Despite this, the downward trend of investment product fees shows little sign of abating, says Cerulli Associates. Overall, mutual fund and exchange traded fund (ETF) asset-weighted average total net expense ratios declined consistently during the past five years, from 62.3 basis points (bps) in 2014 to only 46 bps in 2018. “Fees are driven downward by investor demand for low-cost index products, which have seen fees compressed to at or near zero,” says Brendan Powers, associate director at Cerulli. While decreased fees have led to decreased revenue, it warns that non-overt revenue compression will also exist. Distributor platform consolidation, product rationalization, and greater advisor use of asset allocation models mean that a higher percentage of assets and flows will move through a smaller number of products. As well, fee compression still has some room to run within index funds, product manufacturers seeing cost as a competitive edge and increasingly using fees as a marketing tool.” As ETF issuers “aggressively jockey to offer the lowest fees, we begin to see them filing for ‒ and now launching ‒ zero- or negative-fee ETFs.”
Hedge Fund Used For Protection
Investors are looking to hedge funds to protect their portfolios in the belief that there is turbulence ahead, says the ‘Preqin Investor Outlook: Alternative Assets H1 2019.’ Sixty-one per cent believe that the current equity market cycle is at a peak, up from 45 per cent a year ago, and 40 per cent are looking to position their hedge fund portfolios more defensively as a result of their outlook. This perception has proved a boon for the industry, with four out of five investors planning to hold or raise their allocation over the longer term – the highest proportion since 2014.
Consortium Sells Acelity
A consortium comprised of funds advised by Apax Partners, together with the Canada Pension Plan Investment Board (CPPIB) and the Public Sector Pension Investment Board (PSP Investments), has entered into a definitive agreement to sell Acelity, Inc. and its KCI subsidiaries worldwide to 3M. KCI markets a broad range of negative pressure wound therapy, specialty surgical, and advanced wound dressing products in approximately 90 countries. Since 2011, Apax, CPPIB, and PSP Investments worked with KCI’s senior leadership team to transform the business into a leading global company focused on advanced wound care and specialty surgical solutions.
Maradei Joins Aegon
Brunno Maradei is global head of ESG at Aegon Asset Management, Based in The Hague, the Netherlands, he was most recently with the European Investment Bank in Luxembourg where he was a senior investment officer leading execution teams for project finance deals outside the European Union, focusing on climate-friendly impact investments in Africa.
Governance Of Plans Examined
l’ICRA Québec will hold a workshop on the governance of pension plans. Louis Robillard, of the Retraite Québec; and Martin Roy, of Stein Monast. The main purpose of this workshop is to summarily explain the legal framework applicable to supplemental pension plans, including governance provisions; to present the principal duties and obligations of the pension committee; to address the responsibility of members of the pension committee; and the means to protect these members. It takes place May 15 in Montreal, QC. For information, visit Plan Governance
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 May 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.