Slow Rollout Poses Risk To Economy
A slow rollout of COVID-19 vaccines poses a growing downside risk to economic recovery, says a BMO Capital Markets report. It says Canada is lagging countries that granted early approval to COVID-19 vaccines. While Canada has only inoculated 0.32 per cent of its population so far, the U.S. and the UK are already at 1.42 per cent. The global leader is Israel, which has already vaccinated 13.5 per cent of its people. “Some of the sluggish pace may simply reflect teething pains that might get smoothed in the weeks ahead; if not, current robust expectations for activity later this year may soon see some serious scaling back,” it says. At this point, “it looks like governments may have to redouble their efforts to inoculate enough people to reach herd immunity by fall 2021,” the report says. Countries need to get between 60 per cent and 80 per cent of their populations vaccinated to reach herd immunity.
Climate Change Highlighted As ESG Priority
Climate change, governance, and supply chains have been highlighted as the top ESG priorities for institutional investors in 2021, says a survey by Bank of America Global Research. The survey of institutional investors found that over 60 per cent of firms see climate change as a main focus for the year ahead, with 50 per cent saying they would concentrate on renewables and green energy. Social issues, such as diversity and community engagement, saw less than a quarter of respondents viewing it as a key focus. When managing financial risk, over 80 per cent of firms saw governance as the most important factor. The biggest opportunities for improvement within ESG investing were in the oil and gas industry and Asia. However, the majority of respondents say ESG integration is still in its early stages, believing that less than half of global investors are yet to implement it.
TDF Design Construction Considerations Examined
With global crises, a low interest rate environment and increasing life expectancy, plan members face a number of hurdles in their path towards achieving successful retirement outcomes, says Sun Life Global Investments. As the Canadian CAP market grows in size, an evolution in TDF design is now underway. The ‘Target Date Funds for Capital Accumulation Plans: design and portfolio construction considerations for the new decade’ whitepaper has sought to highlight important considerations in evaluating TDFs with the goal of meeting the retirement savings needs of plan members in an ever-changing investment environment. These include how glidepath design indicates a TDF manager’s preference for capturing growth opportunities to generate retirement wealth, balancing risk factors across the life of the TDF including during decumulation from the retirement portfolio; the need to consider a broad opportunity set of asset classes to seek higher risk-adjusted returns; and how flexibility across investment styles can support efficient portfolio implementation. There is considerable scope for a CAP framework to increase plan members’ likelihood of achieving sufficient levels of retirement income, it says. However, much remains beyond the scope of the paper such as the potential for improving savings levels through recordkeeper led initiatives like the periodic re-enrolment of plan members using TDFs as the default investment option. It calls for Canadian plan sponsors and the broader CAP community to do all it can in the effort to promote plan participation, optimize investment results, and ultimately help Canadians achieve successful retirement outcomes.
Bond Markets Rotate To Recovery
Bond markets are beginning to rotate from the bleak COVID winter to a 2021 recovery, says FTSE Russell’s ‘Canada Fixed Income Insight Report for January.’ It says positive vaccine news proved a shot in the arm for some curve steepening in the fourth quarter, led by the U.S. as markets rotated towards a reflation trade, favouring inflation-linked assets versus conventional bonds. Most Canadian asset classes benefited from the reflation trade in the quarter, led by real return bonds and high yield credit. Long Eurozone, TIPS, and domestic real return bonds were the best performers for Canadian investors.
Ontario Teachers’ Acquire TricorBraun Interest
TricorBraun has entered into a definitive stock purchase agreement with funds managed by Ares Management Corporation’s Private Equity Group and Ontario Teachers’ Pension Plan Board. Ares and Ontario Teachers’ will acquire a majority interest in the company. TricorBraun is a North American primary packaging distributor. It serves consumer packaged goods companies and is a packaging provider for personal care and household cleaning, food and beverage, and healthcare/nutraceutical industries.
Macoun Heads Benefits Alliance
Mental Health Care Navigated
‘Navigating Canada’s Mental Health Crisis: a look at trends in Canadians’ wellbeing and the next phase of digital solutions’ is the topic of a Benefits and Pensions Monitor webinar, sponsored by Morneau Shepell. Nigel Branker, its president, health and productivity solutions, and executive vice-president; and Paula Allen, global leader, research and total wellbeing, will discuss the state of Canadians’ mental health, major trends that have contributed to declining mental wellbeing throughout the year, and the importance of clinically effective support in addressing mental health concerns. It takes place February 10. Information is at https://attendee.gotowebinar.com/register/3788672289419900430
Overpayment Recovery After Death Challenges Administrators
The Association of Canadian Pension Management (ACPM) says the recovery of amounts paid to pension plan beneficiaries following their death is a challenging and costly process for plan administrators. It can also delay the settlement of estates, payment of survivor benefits, and, in some cases, even cause relatives to suffer financial hardship. It wants the federal government to put in place measures to reduce these overpayment instances and overpayment recovery amounts. First, it would permit plan administrators to recover tax withheld at source through a credit from CRA to accommodate repayment by the estate of only the net overpayment amount. As well, it wants confirmation of a plan beneficiary’s death to pension plan administrators. Currently, upon the death of a plan beneficiary, there is usually some delay before the plan administrator is notified and can initiate the process to stop the pension and pay any remaining survivor benefits. This results in the overpayment of pension benefits to the individual which the plan will seek to recover, as part of its fiduciary duty, through a repayment from the estate. Recovery is a costly and lengthy process and, where overpayments are not recovered, the pension fund is negatively impacted, it says.
COVID Could Limit Growth
If the COVID-19 pandemic is not brought under control and infections keep rising, global economic growth would be limited to around 1.6 per cent, says a World Bank outlook. It says this means policymakers will need to take bold action to tame the pandemic and implement investment-enhancing reforms to boost global economic recovery. If the pandemic is brought under control, its outlook calls for four per cent growth in this year following the 4.3 per cent contraction last year. However, not only will it be necessary to successfully control the virus and roll out the vaccines; but a re-investment cycle which is less reliant on government debt is also required. “David Malpass, president of the World Bank Group, says, “To overcome the impacts of the pandemic and counter the investment headwind, there needs to be a major push to improve business environments, increase labour and product market flexibility, and strengthen transparency and governance.”
Students Want Fossil Fuel Investment Stopped
Students from across Ontario are appealing to their teachers to demand that the Ontario Teachers’ Pension Plan (Ontario Teachers’) stop investing their retirement savings in oil, gas, coal, and pipeline companies that fuel the climate crisis. In a video, ‘A Message from the Students of Ontario,’ they voice their concerns about the climate crisis and make a plea directly to their teachers to align their pension with a livable climate. The video says the $205 billion pension plan has made only modest progress to better understand the financial risks of climate change and shift its investments into climate solutions like renewable energy, clean technology, and green real estate. Instead, it continues to invest billions of teachers’ retirement savings in fossil fuel infrastructure and companies fueling the climate crisis, including oil sands producers, fracking companies, pipelines, and even the coal industry. Teachers are asked to sign an open letter to Ontario Teachers’ fund managers, calling on the pension plan to stop new investments in oil, gas and coal immediately; phase out all current investments in oil, gas, and coal by 2025; set ambitious targets for increased investments in profitable climate solutions; and invest in infrastructure and companies that help build a zero-carbon economy.
Integrated Health Leverages Programs
Dialogue has launched its ‘Integrated Health Platform,’ leveraging its multidisciplinary virtual health and wellness programs for primary care, stress and mental health, and an employee assistance program (EAP). The platform is now available to all Canadian organizations. The platform solves many of the common pain points for both employees and human resources (HR) professionals when launching, administering, and maintaining health and wellness-related programs. By integrating many programs into one platform, employees get the same, consistent user experience, without multiple passwords or having to remember where to access each benefit. The healthcare experience is also improved, as a multi-disciplinary team shares a common medical record across all programs, eliminating the need for patients to repeat their medical history to different professionals. Meanwhile, HR professionals can now launch and administer one platform for their employees, reducing the administrative overhead of maintaining separate health and wellness programs while gaining consistent, integrated reporting from one place.
Investors Pile Into Chinese Equities
Investors will “pile into Chinese equities” in 2021 as the country’s economic recovery picks up more momentum, but this should not overshadow the critical need for global diversification, says Nigel Green, the chief executive of deVere Group. China equities have climbed this week, putting them on track for the highest close since 2008. These gains for Chinese equities come after the index added 27 per cent in 2020 and “this trend of piling into Chinese stocks can be expected to continue throughout 2021 as investors seek growth,” he says. ““China’s rebound is quite remarkable, compared to other major economies, many of which are once again rolling out stricter restrictions to stop the spread of COVID amid a tsunami of new cases.” Reports of increased industrial output and retail sales towards the end of 2020, bolstering expectations of further robust growth in 2021, add fuel to the nation’s stock markets and currency as well as those economies that get a boost from domestic spending within China. This will not go unnoticed by investors looking for yield, he says.
MJ Hudson Acquires PERACS
CPP Investments Invests In Housing Developments
The Canada Pension Plan Investment Board (CPP Investments) and Greystar Real Estate Partners, LLC have formed a joint venture to pursue multi-family real estate development opportunities in target markets in the United States. CPP Investments has a 90 per cent stake and Greystar has the remaining 10 per cent. Greystar will manage and operate the portfolio on behalf of the joint venture. The joint venture will develop Class A, mid- and high-rise multi-family properties in urban and inner-ring suburban communities across major U.S. markets, including core coastal markets and other regions with strong population and job growth.
Periard Has New Role
Changing Risk Landscape Examined
The Benefits Breakfast Club will examine ‘The Changing Risk Landscape.’ It will explore addressing changes in the landscape that affect clients and the health, performance, and attendance of their employees. It takes place February 11. Information is at https://connexhc.com/events-and-webinars/.
Government Debt Hits Record Highs
There is a real danger in the recent recommendation of Larry Simmons, the former U.S. treasury secretary; Ben Bernanke, the former U.S. Fed chairperson; and Ken Rogoff and Olivia Blanchard, both former chief economist at the IMF; to just forget about the level of government debt because it doesn’t really matter anymore, says Darren Williams, chief global economist for AllianceBernstein. Speaking at its ‘2021 Economic Outlook,’ he said if their recommendation is followed and they’re wrong. “We’re going to drive ourselves even further into a debt trap and that’s precisely what Japan has spent the last 20 years doing.” Currently, the government debt of the G7 countries ‒ Canada, the U.S., Germany, Italy, France, the UK, and Japan‒ is at record highs, almost 150 per cent of GDP. However, the curious thing is that government debt is normally created during wars and falls during peacetime. Data from as far back as 1690, when the Bank of England was formed, bears this out. During the war periods over this time, debt has risen by a cumulative 420 per cent of GDP and come down by 450 per cent of GDP during peacetime. But, something in the last 40 years or so has changed “the way in which we think about the appropriateness of massive government debt,” he said. And what’s strange about that is the increase in debt is taking place at a time when interest rates have fallen. Typically, if debt went up, interest rates had to rise as investors would demand a higher risk premium for lending to people. “Precisely the opposite has happened,” he said. There are two entirely opposite reasons as to why this has occurred. The secular stagnation thesis is the conventional view. It says a surplus of global savings relative to investment has pushed the equilibrium interest rate lower. From a secular stagnation point of view, rising government debt is not a function of the lower interest rate, it’s a desirable consequence of it. The debt trap view says it’s an increase in debt which is putting increased downward pressure on interest rates. Here, if interest rates don’t fall, the debt servicing costs become “unbearable.” The more likely way to deal with the issue of government debt has been used since after World War II by countries around the world, including Canada. This is a mixture of financial repression and very, very low interest rates.
Structural Changes Coming For Markets
Despite the obvious headwinds, “2021 is poised to bring even more positive structural changes to the global capital markets,” says Kevin McPartland, head of research in Greenwich Associates market structure and technology group. Its ‘Top Market Structure Trends for 2021’ report examines some of the biggest market structure changes for the coming year. These include an identity crisis for exchanges: While the term ‘exchange’ maintains its specific regulatory designation, the world of exchange groups is going through a wholesale change. For example, fixed income trading venues once referred to as ‘ECNs,’ now have market capitalizations that rival some of the oldest and largest exchange groups. This transformation is expected to accelerate in 2021. As well, investors have demonstrated an appetite for both new exchanges and new trade types, which should drive only more innovation in the coming months.
Shareholder Activism Growing
Shareholder activism is likely to grow over the next few years, says CoreData. Its survey of institutional investors found that 91 per cent expect more activism in the future, while only 81 per cent saw that in the past three years. Environmental issues, including environmental protection and renewable energy, were perceived as ones they can most influence, with less influence likely on social issues such as gender equity, health and well-being, and education.
Thematic Fund Demand Continues
The surge in demand for thematic funds in Europe last year is set to continue, says research from Cerulli Associates. Net flows into sector-themed equity products during the first 10 months of 2020 amounted to €89 billion (US$108 billion), more than triple the net sales for 2019. Assets under management amounted to €512.4 billion at the close of October 2020. It says demand for funds with themes focused on water, biotechnology, and technology is likely to increase over the next 12 to 24 months. “The consensus of managers operating in Europe is that broad themes relating to technology and sustainability will prevail in the aftermath of COVID-19 and longer term,” says Fabrizio Zumbo, associate director, European asset and wealth management research, at Cerulli.
Letendre Has New Role
Pension Challenges Examined
The ACPM Prairie Regional Council will hold an ‘Investment Leaders’ Virtual Roundtable: Pension Investment Issues and Challenges’ January 26. Brent Godson, investment manager at the, CSS Pension Plan; Graeme Hay, chief investment officer with the Teachers’ Retirement Allowances Fund (TRAF); and Peter Josephson, chief investment officer at the Civil Service Superannuation Board (CSSB); will discuss topics including the changes to their investment strategy and governance process they are considering in the wake of the global pandemic; current investment opportunities and corresponding areas of caution; and how they are dealing with the historic low yields on fixed income. Information is at https://www.acpm.com/ACPM/Events/Regional-Events/Prairie-Council-Event.aspx
Epic Debt Surge Contributes To Recovery
While the Canadian economy has recovered swiftly in recent months, some of this strength is largely because of an epic debt surge, says BMO Global Asset Management’s ‘MAST 2021 Outlook: The Great Normalization.’ This has left Canada with the most aggressive fiscal response compared to other countries when measured as a share of GDP. At nearly $400 billion (or near 20 per cent of GDP) for fiscal-year 2020/21, with the provinces adding about $100 billion, “it’s no wonder” the recession was relatively mild for the broad economy. The mirage of free money in Ottawa means the federal deficit will easily run north of $150 billion for fiscal year 2021/22 as the economy remains on aggressive health support along with substantial wage and income support programs. It expects Canada’s economic performance to lag the U.S. and global rebound due to the longer-term scarring from depressed oil prices. For Canada, investments in traditional energy, which peaked in 2014, will likely fall further. While infrastructure and green-energy projects will accelerate in the years to come as Canada focuses on promoting less carbon-heavy industries, it says this won’t suffice to replace the lost investments from traditional energy as green projects are less likely to attract foreign capital than the oil boom did. A final third concern is the over-reliance on housing investment in the economy. At nine per cent of GDP, housing investment has surpassed business investment (eight per cent of GDP) for the first time. While the housing market will get additional tailwinds when immigration resumes in 2021, the lack of breadth in the drivers of growth poses some challenges to sustained growth going forward.
TD Future Builder Transitions To Canada Life
The Toronto-Dominion Bank will transition its TD Future Builder customers to the Canada Life Assurance Company Canada Life on March 19. The program, managed by TD Asset Management Inc., is comprised of approximately 1,800 group plans and 24,000 plan members. Plan sponsors and plan members are expected to benefit from Canada Life’s long history of helping Canadian businesses and their employees with their group retirement savings plans.
Plan Funded Ratio Increases
The aggregate funded ratio for Canadian pension plans in the S&P/TSX Composite Index increased from 90.8 per cent to 91.2 per cent during the past 12 months, says the ‘Aon Pension Risk Tracker.’ “Equity markets performed strongly in 2020 and helped funded ratios improve,” says Erwan Pirou, Canada chief investment officer, retirement solutions, at Aon. “However, some pension plans did not realize the full benefit of the equity market rally, as some active equity managers underperformed their benchmark. One possible new year’s resolution: look at the structure of your equity portfolio to make sure it’s balanced across different equity styles and able to perform well in different environments.”
Hedge Fund Launches Exceed Liquidations
Launches of new hedge funds in the third quarter exceeded liquidations for the first time in over two years, says a Hedge Fund Research update. New launches totaled an estimated 151 in the three months ended September 30 while liquidations for the quarter totaled an estimated 137. Launch activity was up from an estimated 129 launches in the second quarter to an estimated 364. The 137 liquidations were down from an estimated 178 in the second quarter. For the year ended September 30, there were an estimated 619 hedge funds liquidated, with 304 of those coming in a first quarter, victims of COVID-19 pandemic-related volatility. It is the first time that launches exceeded liquidations since the second quarter of 2018.
Empower Acquisition Complete
Great-West Lifeco Inc.’s Colorado-based subsidiary, Empower Retirement, has completed the acquisition of the retirement services business of Massachusetts Mutual Life Insurance Company. With completion of the acquisition, Empower’s reach in the U.S. is expanded to more than 12 million retirement plan participants and assets to approximately US$884 billion on behalf of approximately 67,000 workplace savings plans.
CPP Investments Develops Data Centre
The Canada Pension Plan Investment Board (CPP Investments) and logistics real estate specialist LOGOS have established a venture for the development of modern logistics facilities in Greater Jakarta, Indonesia. The joint venture will develop a diversified portfolio of facilities targeted at third party logistics (3PL), data centres, and industrial tenants. This is the second joint venture between them, with the first launched in 2017 in partnership with another international investor to acquire modern logistics properties in this market.
Allen Leads Global Effort
Global Industry Outlooks Brighten
Despite prevailing uncertainty and a fragile recovery, global industry outlooks are starting to brighten, says a report from Moody’s Investors Service. Its analysis of non-financial corporate outlooks finds that the trend in fundamental business conditions for various industries over the next 12 to 18 months has shifted to mildly positive. Seven of 28 industry sectors now have positive outlooks, up from zero in mid-2020, it says. The rapid improvement in sector outlooks in the second half of 2020 “reflects the positive impact on business conditions of the easing of widespread lockdowns,” says the rating agency. However, there remains a high degree of uncertainty about the effects of the pandemic which may inhibit future improvements. “Despite the rapid development of coronavirus vaccines, it will be many months before they are widely available, so the end of the pandemic remains difficult to predict,” it says. As well, in a downside scenario of renewed global lockdowns, business outlooks would likely turn sharply negative once again.
Bitcoin Rally Not Over
Monday’s fall in the price of Bitcoin does not signify an end to the rally in the cryptocurrency, says Michael Hall, co-founder and CIO of Nickel Digital Asset Management, because corporates and institutional investors will continue to increase their exposure to the cryptocurrency, this will fuel long-term price appreciation. “Due to the inelastic supply of bitcoin, it can suffer from upside volatility in thin markets, giving rise to spikes which resolve quickly but usually at higher levels, as has happened several times in recent months, most notably around Thanksgiving,” he says. There are several factors that make Bitcoin attractive to institutional and other professional investors which bode well for its long-term prospects. The supply of bitcoin is capped at 21 million and its issuance schedule is hardcoded and completely uncorrelated with changing demand, which makes it a powerful hedge against currency debasement and inflation as governments and central banks roll-out COVID-19 stimulus packages to support economies. As well, its analysis reveals that Bitcoin price movements have exhibited a low correlation to equity market moves over the last 10 years. During major S&P500 drawdown periods, Bitcoin demonstrated an independent behaviour pattern. Whilst in several instances of market liquidity implosions (such as March 2020) the price of Bitcoin corrected in unison with the S&P500, on many other occasions it delivered completely opposite returns. This makes Bitcoin an important diversifier for portfolio allocation purposes. As well, the infrastructure around Bitcoin and other digital assets is improving with established financial institutions now offering bitcoin custody services and several major central banks seriously considering the possibility of developing their own digital currencies. This would provide a strong endorsement for the concept.
Funded Position Continues To Recover
Driven by equities, Canadian pension plans’ funded position continued to recover in the last quarter of 2020, says the ‘Mercer Pension Health Index.’ However, major risks lie ahead due to the economic damage caused by the pandemic. The index increased from 107 per cent at the end of September to 114 per cent at the end of December and is up two per cent from the beginning of 2020. The median solvency ratio of the pension plans of Mercer clients was at 96 per cent on December 31, up from 93 per cent on September 30, but lower than the 98 per cent at the beginning of the year. During the fourth quarter, funded positions of DB plans continued to recoup the losses incurred in the first quarter. The improvement was primarily driven by equity markets, aided by slightly higher bond yields, and the impact of the recent changes to the Canadian Institute of Actuaries’ commuted value standards. “The funded positions of defined benefit plans “endured a gut-wrenching decline” in the first quarter of last year, but most are now back at or close to their pre-pandemic level, says Ben Ukonga, a principal in its financial strategy group. Canadian DB plans remain well-funded by historical standards, even with liabilities measured at today’s ultra-low interest rates, he says. With the recovery in funded positions from the lows of March 2020, the rollout of the COVID-19 vaccine, and the anticipated re-opening of the global economy, there is cause for optimism for 2021 and beyond. However, significant risks will linger, including the pace at which the pandemic subsides, significant increase in debt levels, persistent low interest rates, and geo-political tensions, he says.
Fiera Sells Bel Air
Fiera Capital Corporation will sell Bel Air Investment Advisors, its ultra-high net worth private wealth platform, to Hightower Advisors, a U.S. investment advisor. Concurrently, the company has completed the sale of Wilkinson Global Asset Management, its New York-based private wealth investment manager, to Wilkinson Global Capital Partners LLC. Jean–Philippe Lemay, its global president and chief operating officer, says the transactions allow it to better align its remaining regional platforms for private wealth management and transition them to a globally integrated model.
Brookfield Makes Proposal
Brookfield Asset Management Inc. has proposed acquiring the limited partnership units of Brookfield Property Partners L.P. that it does not currently own. Nick Goodman, CFO of Brookfield Asset Management, says, “The privatization will allow us to have greater flexibility in operating the portfolio and realizing the intrinsic value of Brookfield Property’s high-quality assets.”
Ontario Teachers’ Buys SGI
Macquarie Infrastructure and Real Assets, via Macquarie European Infrastructure Fund 4, will sell its 69.4 per cent interest in Società Gasdotti Italia S.p.A (SGI) to the Ontario Teachers’ Pension Plan Board (Ontario Teachers). SGI is the largest independent gas transmission operator in Italy, with a 1,700-kilometre high pressure pipeline network transporting natural gas to key industrial and urban centres. In October 2020, SGI commissioned energy consultancy DNV GL to assess the feasibility of transitioning its gas network from natural gas to renewable gases. The study will support its ambitions to decarbonize the delivery of energy to Italian homes and businesses through its gas network.
Monteiro Moves To OMERS