Technology Can Help Cure Health System
More and more Canadians believe that connecting data, technology, and innovation can help cure their ailing healthcare system. That is one findings in the Canadian Medical Association (CMA) report ‘The future of connected health care.’ “Today, we’ve become accustomed to doing almost everything online. And Canadians are clear: they want the same when it comes to managing their health and their journey through the healthcare system,” says Dr. Gigi Osler, CMA president. Within the next 10 years, Canadians expect the healthcare system to catch up to other industries in offering an online experience. From tracking appointments online (79 per cent think this is likely to happen) to being able to access and share complete medical history with any doctor or health professional at any time (77 per cent) and booking medical appointments through a robot (72 per cent), Canadians believe that by 2029, healthcare will be more accessible and will have a more positive impact on their lives. However, they remain concerned about Canada’s ability to adopt virtual care, believing that governments, physicians, and patients have been slow to embrace readily available methods. At the same time, 43 per cent would pay a subscription fee to have 24/7 access to a family physician and 34 per cent would pay to have an expanded array of health professionals available at their convenience.
ALDA Poses Some Risks
While the advanced life deferred annuity (ALDA) could help guard against the risk of retirees outliving their savings, it also poses risks, says a DBRS Ltd. report. The annuity product that was proposed in the federal budget would enable investors to buy an annuity for a lump sum at age 65, with payments beginning at age 85 and continuing for the rest of their life. The lengthier deferral period means the guaranteed income payments will be much larger than if they started right away. This reduces the likelihood of an individual outliving their retirement savings or not having adequate income in their later years when expenses generally rise as a result of increasing assisted living needs, healthcare needs, and inflation. Yet, there are potential downsides to the product including inflation, a lack of liquidity, no control over investments, diminishing assets to pass along, and dying before the payments start. “Nonetheless, the concept of the ALDA is an encouraging step towards ensuring enough retirement income for Canada’s growing population of retirees age 85+,” DBRS says.
ZIP Codes Reveal Lifestyle Information
By honing in on each participant’s ZIP+4 code to capture a wealth of lifestyle information, U.S. plan sponsors can make more informed decisions on funding and risk management, says a white paper from Club Vita. ‘Zooming in on ZIP Codes’ explains how integrating ZIP codes and identifying other socioeconomic factors can help pension plan sponsors have a better handle on the life expectancy estimates for their participants. Club Vita teamed up with Mercer to develop a model, VitaCurves, that uses the nine-digit ZIP code or ZIP+4 code. Employing the nine-digit ZIP code, however, offers significantly more detail on geographical differences in life expectancy than other methods. The ZIP+4 code model will also facilitate the development of new products, allowing pension plans to prepare themselves for extreme longevity events, such as medical breakthroughs, while keeping control of plan assets.
Global Growth Signs Short-lived
Signs that global growth was improving a few months ago have proved short-lived, says the ‘HSBC AMG Investment Monthly ‒ August 2019.’ It says U.S. growth continues to outperform that of other economies, but is moderating. Chinese activity data have reversed the gains seen in March/April, which has weighed on the global manufacturing sector. However, it says global growth is in a “cyclical slowdown” rather than the beginning of a more severe recessionary environment. But the flare-up in tensions between the U.S. and China have increased downside risks although a ‘trade truce’ and central banks committed to support economic activity helped risk asset classes to perform well in July. Bonds have rallied too, making their valuations increasingly stretched. They offer poor returns even assuming a ‘lower-for-even-longer’ rate scenario. While a global recession looks unlikely amid policy support, relative valuations remain consistent with a pro-risk stance and corporate profitability needs to be monitored closely.
ROI Impedes Adoption Of Financial Wellness
Measurement of success and return on investment (ROI) for plan sponsors are the most consistently discussed impediments to the adoption and effective implementation of financial wellness programs, says Cerulli Associates. Financial wellness programs emphasize holistic advice beyond an individual’s workplace retirement savings account and address topics such as budgeting, debt management, and healthcare expenses. While improved education on these topics offers employees a better understanding of how to budget and plan for life expenses, plan sponsors are challenged by the costs associated with the programs and proving the benefits. Some plan sponsors are flexible and want to feel comfortable that the financial wellness program is helping employees at a reasonable price. Others, however, maintain strict budget policies that require achieving a specific return on investment to secure program funding. Cerulli recommends that providers operate under the assumption that plan sponsors want hard facts rather than “a feeling of comfort.” To effectively measure the success of a financial wellness program, providers must collaborate with plan sponsors (and their advisors/consultants) to determine specific goals for the program and a reasonable timeframe in which to achieve them. As well, financial wellness programs should be grounded in metrics that impact a company’s bottom line, but acknowledges that many employers have goals such as ‘improve workplace morale’ and ‘retain top employees.’
Sun Life Issues Sustainability Bond
Sun Life Financial Inc. intends to issue its inaugural sustainability bond in Canada. In March 2019, it published its ‘Sustainability Bond Framework,’ outlining its criteria for the bonds. Distinguishing them from green bonds, this framework includes criteria for both green and social assets. Potentially eligible social investments focus on access to essential services, facilities, and equipment that contribute to the long-term health of communities ‒ such as infrastructure investments for hospitals or childcare centres ‒ while delivering excess returns to investors. Other eligible assets include investments in projects related to renewable energy, energy efficiency, green buildings, clean transportation, and sustainable water management projects. The $750 million principal amount of Series 2019-1 Subordinated Unsecured 2.38 per cent Fixed/Floating Debentures due 2029 is expected to close on August 13.
Passive Prompts Reduction In Fees
UK asset managers are reducing their fees for institutional investors as a result of the rise in popularity of passive investing, says investment consultant Lane Clark & Peacock (LCP). Its survey shows the average total manager costs for UK defined benefit plans with assets of at least £500 million ($607.1 million) is 0.36 per cent, down from 0.39 per cent in 2010. This equates to a decrease of approximately £140,000 per year. It estimates of the growth in index-tracking assets under management suggests these types of funds have doubled their share of the listed markets in the past 10 years and now account for 35 per cent of all long-term fund assets. As well, before last year, investment managers could pay for third-party research in equity and bond markets by charging their clients increased commission charges for the brokers executing transactions. Since 2018, investment managers have had to account for these costs in a more transparent way and the vast majority have chosen to pay for third-party research themselves, it says. However, despite the increase in costs this has created, active equity mandates have experienced downward pressure on fees.
Morneau Shepell Closes U.S. Deal
Morneau Shepell Inc. has closed the previously announced acquisition of the stand-alone, large market, health and defined benefit pension plan administration business of Mercer in the United States. Stephen Liptrap, its president and chief executive officer, says, “This acquisition is in line with our strategic plan of which U.S. expansion is a critical component.” It anticipates the acquisition will represent approximately 12 per cent of Morneau Shepell’s annualized revenue. In addition, it will add approximately two million participants, further solidifying Morneau Shepell as a provider of administration of health and DB pension plans across the continent.
Median Plan Return Slips
The median return of the BNY Mellon Canadian Master Trust Universe, a BNY Mellon Global Risk Solutions fund-level tracking service, was 2.34 per cent for the second quarter of 2019, down from higher returns recorded during the first quarter. The one-year median return as of June 30 was 6.14 per cent, while the median 10-year annualized return was 8.95 per cent. “Equity markets around the globe fluctuated during the second quarter, reporting only modest performance as compared to last quarter’s higher returns. Despite market volatility and slowing global growth, all traditional asset classes posted positive results for the quarter and outperformed alternative assets,” says Catherine Thrasher, strategic client solutions and global risk solutions, CIBC Mellon and BNY Mellon. Canadian fixed income delivered the highest asset class performance, with a quarterly median return of 2.92 per cent and with a one-year return of 8.33 per cent. Canadian equity performance was lower this quarter but still positive, with a quarterly median return of 1.95 per cent.
Caisse Co-invests In eStruxture
The Caisse de dépôt et placement du Québec (CDPQ) and Fengate Asset Management are making a co-investment in eStruxture Data Centers, a Québec-based data centre operator serving companies and cloud service providers. This capital commitment is in place to support eStruxture’s growth strategy which is focused on acquisitions, the expansion of existing data centres, and the construction of new data centres. It currently operates five data centres; three in Montréal, QC, and two in the Vancouver, BC, area. The co-investment enabled the company to acquire a new data centre from Shaw Communications in Calgary, AB
McCarthy Joins Mercer
Schwartz Speaks At CFA Dinner
The CFA Society Toronto’s ‘2019 Investment Dinner’ will feature a fireside chat with Gerry Schwartz, chairman, founder, and chief executive officer of Onex Corporation. It takes place November 7 in Toronto, ON. For information, visit Investment Dinner
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 August 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.
Inflation Takes Puzzling Path
Inflation went through a puzzling path after the financial crisis of 2008-09 and the reasons why warrant a closer look, says a C.D. Howe Institute report ‘Inflation after the Crisis: What’s the Story?’ Economists have faced two strange puzzles in the inflation rate since the financial crisis: “missing disinflation” during a period of slumping major economies that lasted from 2009 to 2011 and “missing inflation” during much of the economic expansion that has occurred since then. Jeremy Kronick, one of the report’s authors, says, “The missing disinflation puzzle was characterized by constant or even increasing inflation, despite significant economic slack from the global financial crisis. The missing inflation puzzle, which has lasted much of the time since, has the exact opposite description: despite economic rebounds and closing output gaps, headline inflation remains below target for many inflation-targeting central banks.” In Canada’s case, headline inflation, which includes commodities with volatile prices, has averaged 1.56 per cent from January 2012 to the end of May this year, well below the Bank of Canada’s two per cent target. Missing disinflation occurred when economic growth, though low, was spread across many industries. By contrast, missing inflation occurred when growth was higher, but concentrated in a smaller set of industries. One possible explanation for the link between breadth and inflation is different spending by different income quintiles. It is possible that the more widespread, or less concentrated, growth is, the more resources are spread across different income quintiles, rather than concentrated at the top. This matters since lower income households tend to spend a higher percentage of their income, driving up inflation.
Indigenous People Proxy Voting Guidelines Created
Coast Conservation Endowment Fund Foundation, an Indigenous-led conservation finance organization created by First Nations, the governments of British Columbia and Canada, and private foundations as part of the 2006 Great Bear Rainforest agreements, along with its fund manager Fiera Capital Corporation, the Shareholder Association for Research & Education (SHARE), and independent investment advisor George & Bell Consulting, have new shareholder proxy voting guidelines that advocate for the rights of Indigenous Peoples. Fiera will apply these new voting guidelines across all the funds it manages on behalf of Coast Funds. The investment guidelines set a new standard with specific and directive proxy voting guidelines to ensure recognition of Indigenous rights by the boards of publicly traded companies. Huux Percy Crosby, of the Haida Nation and Coast Funds’ board chair, says, “To secure project access and ensure assets realize a return, leading companies must recognize the right to the free, prior, and informed consent of affected Indigenous communities and deliver tangible benefits to them.” Before developing these guidelines with Fiera, Coast Funds first embarked in 2017 upon a review with SHARE of its historical proxy voting activity to assess instances where environmental, social, and governance (ESG) considerations had arisen and determine how the fund had voted on shareholder proposals to corporations. Following this review, it developed new proxy voting guidelines with advice from SHARE and with ongoing advice from George & Bell Consulting, its independent investment advisor.
Court Gives Highway Stake To CPPIB
The Canada Pension Plan Investment Board (CPPIB) is set to become the controlling shareholder in a Toronto, ON, toll road as an Ontario court is allowing it to buy a stake from SNC-Lavalin Group Inc. SNC-Lavalin had agreed to sell a 10.01 per cent stake to the Ontario Municipal Employees’ Retirement System (OMERS). However, CPPIB and Spanish builder Ferrovial SA exercised their rights to match the OMERS offer. The Ontario Superior Court ruled that Ferrovial had waived its right of first refusal through a prior agreement, paving the way for CPPIB to increase its stake to 50.1 per cent from 40 per cent. Ferrovial’s Cintra unit will still own 43 per cent, with SNC’s holding seven per cent following the sale.
IASB Changing Pension Disclosures
The International Accounting Standards Board (IASB) has tentatively approved a series of proposed pensions accounting disclosures to address complaints that existing rules do not meet their needs. Users of financial statements had been reporting that the current disclosures often do not meet their primary objectives and many of those same disclosures are onerous to prepare. They have also questioned whether the disclosures passed the cost-benefit test. The detailed wording of the requirements remain subject to further staff input and drafting.
Faster Global Asset Growth Continues
Global assets under management (AUM) will continue growing for the foreseeable future, but so will pressure on profit margins, says Cerulli Associates’ ‘Global Markets: Bringing Clarity to an Uncertain World.’ Fee pressure will continue as firms around the world seek to add new markets, product offerings, and investment capabilities, it says. Furthermore, the influence of societal change is increasingly being felt within asset management and global players are paying ever more attention to China, India, and Latin America. “Decision-makers in the asset management industry are having to weigh a wide variety of factors, including regulation, fee compression, persistently low yields, and political and economic uncertainty,” says André Schnurrenberger, managing director, Europe, at Cerulli Associates. “In addition, we are increasingly seeing regulators seeking to promote investment, particularly saving for retirement, and several countries have introduced legislation that seeks to make the industry more transparent and user friendly.” Regulators are assisted in their efforts by the fact that the pace of digitalization is quickening. Many managers are making greater use of artificial intelligence, machine learning, and big data to provide services to clients. Advances in robo-advice and passive investing continue to reshape the fund management landscape, widening access to investment services.
DB Plan Return Drops
Canadian defined benefit pension plans returned 2.7 per cent in the second quarter down from first quarter returns of 7.2 per cent, says the RBC Investor & Treasury Services ‘All Plan Universe.’ Quarter-over-quarter, however, the six-month returns sits at 10.2 per cent. Growth in the TSX Composite Index slowed in the quarter, posting a return of 2.6 per cent compared to 13.3 per cent in the first quarter. Canadian equity returns for Canadian pension plans were 2.3 per cent versus 12.4 per cent a quarter earlier. Canadian fixed income returns sat at 3.7 per cent, down from 5.6 per cent in the first quarter. “The first half of 2019 has been positive for Canadian defined benefit pension plans and all indicators show that the Canadian economy is healthy, but small cracks are beginning to appear,” says Ryan Silva, director, head of pension and insurance segments, global client coverage, at RBC Investor & Treasury Services. “Geopolitical and trade unrest as well as slowing global economies continue to persist and Canadian investors are growing increasingly aware of their impact on our markets and economy.”
Ontario Teachers’ In Cruise Line Consortium
The Ontario Teachers’ Pension Plan (Ontario Teachers’), TPG Capital Asia, and TPG Growth will acquire up to a 35 per cent equity interest in Genting Hong Kong’s Dream Cruises. “Dream Cruises is the premium brand for the fast growing Asian-sourced cruise passenger, with the vision that it will be able to cruise globally in all regions of the world,” says Tan Sri KT Lim, chairman and CEO of GHK. The investment will help it to have a young and technologically advanced fleet of German built cruise ships. “The investment is a testament of Ontario Teachers’ positive view on longer term growth in Asia and is part of our continued drive to expand our global footprint by strengthening our local presence in Asia,” says Ben Chan, regional managing director, Asia Pacific, at Ontario Teachers’.
Service Plaza Operator Acquired
TD Greystone Asset Management, on behalf of and as manager for the Greystone Infrastructure Fund (Global Master) LP, along with IST3 Investment Foundation and Applegreen, will acquire the operator of the Connecticut Service Plazas. CT Service Plazas operates 23 on-highway service centres located on the three main interstate routes between New York City and Boston, Massachusetts. Anchored by tenants including McDonalds, Dunkin’ Donuts, Subway, and Alliance Energy, it holds exclusive rights along I-95, I-395, and Route 15.
MacAlpine Leads CI
Global Benefits Explained
The International Foundation of Employee Benefit Plans’ ‘Certificate in Global Benefits Management’ provides the comprehensive knowledge needed to administer and manage a global benefits program. Sessions will look at cross-cultural/diversity, developing a global benefits strategy, and international healthcare systems and wellness trends It takes place September 23 to 27 in San Diego, CA. For information, visit Global Benefits
‘Wealth Economy’ Focus Improves Economic Measurement
Focusing on an alternative measurement framework based on the “wealth economy” rather than just GDP could improve economic measurement in order to guide effective economic policymaking, says a Bennett Institute for Public Policy at the University of Cambridge report. Wealth is determined by the access to a range of economic assets people need to fulfil their economic potential and the long-term capacity of the economy to deliver sustainable growth and improving living standards. The forward-looking element of this new economic framework makes it a better indicator of sustainability in terms of the economy and society as well as the natural environment than annual output or GDP. It requires measurement of access to six types of economic assets that add up to what is known as comprehensive wealth of the nation. They are physical assets and produced capital, including access to infrastructure and to new technologies; net financial capital; natural capital, the resources and services provided by nature; intangible assets such as intellectual property and data; human capital, the accumulated skills and the physical and mental health of individuals; and social and institutional capital. Professor Diane Coyle, who led the report, says, “21st century progress cannot be measured with 20th century statistics. We chose to focus on the wealth economy as a guide to whether or not there is any increase in prosperity because it measures the long-term capacity of an economy to deliver sustained growth and improved living standards. Without measuring changes in these assets, there is little prospect of delivering sustainability, in terms of the economy and society as well as the natural environment.”
Off-the-peg ESG Portfolios Offered
Fund providers are starting to introduce off-the-peg, managed ethical portfolios in low-cost solutions to meet the surge in interest in environmental, social, and governance (ESG) investment. However, Cerulli Associates says one of the biggest issues affecting the rollout of ready-made ESG portfolios relates to passive ESG investment in fixed income. There are few sustainable bond funds and ESG integration in sovereign bonds which make up the bulk of the fixed-income market is limited. Investor approaches also vary. For some, the positive role a government plays in the wider common good compensates for its spending on defence or contentious foreign policy. For others, however, investing in emerging market government bonds requires an ESG rating and in-depth research. “The bond issue goes to the heart of the challenge facing these ready-made portfolios,” says Fabrizio Zumbo, associate director, European asset management research, at Cerulli. “Ethical investing is subjective, but low-cost portfolios designed for those with less to invest are not bespoke and often include products that some ethical investors would not wish to buy.”
Analytics Tools Launched
Northern Trust has launched an investment analytics tool to provide institutional investors across the globe with insights when tracking and analyzing risk and performance across their portfolios. ‘Performance RADAR’ offers a contemporary, intelligent user experience for accessing performance, attribution, contributions, and ex-post risk results online across individual and aggregated portfolios.
ETFs Increase Lead Over Hedge Funds
ETFs and ETPs listed globally extended their lead over assets invested in the global hedge fund industry to US$2.39 trillion at the end of the second quarter, says ETFGI. There was an increase of 7.98 per cent over the gap at the end of the first quarter. Assets invested in the global ETF/ETP industry reached a record US$5.64 trillion and the 4.46 per cent growth in assets invested in ETFs/ETPs outpaces the 2.01 per cent growth in assets in hedge funds.
Ontario Teachers’ Invests In NIIF
AustralianSuper, Australia’s largest superannuation fund, and the Ontario Teachers’ Pension Plan (Ontario Teachers’) will each invest up to US$1 billion with the National Investment and Infrastructure Fund (NIIF) Master Fund. This marks the third close of the fund. AustralianSuper and Ontario Teachers’ join the government of India, Abu Dhabi Investment Authority, Temasek, HDFC Group, ICICI Bank, Kotak Mahindra Life Insurance, and Axis Bank as investors in the fund. AustralianSuper and Ontario Teachers’ will also become shareholders in National Investment and Infrastructure Fund Limited, NIIF’s investment management company. With this, the NIIF Master Fund becomes the largest infrastructure fund in India. It invests in equity capital in core infrastructure sectors in India with a focus on transportation, energy, and urban infrastructure.
Sandhu Leads Marret
Paul Sandhu is president, chief executive officer, and chief investment officer at Marret Asset Management Inc. He has held a senior position at the firm for the past 10 years, serving as vice-president and portfolio manager. His 30 years of experience in fixed income investing also includes positions at BMO Capital Markets, Goldman Sachs, and Citibank in Europe, the U.S., and Canada.
Benefits Trends Examined
The Benefits and Pensions Monitor Meetings & Events’ ‘Benefits Trends & Insights’ session will examine concerns at the forefront of plan sponsor concerns ‒ drug costs, wellness, and the escalating challenges of chronic disease and their impact on the workplace. It takes place September 12 in Toronto, ON. For information, visit Benefits Trends
Focus On Resilience Helps Caisse
La Caisse de dépôt et placement du Québec (CDPQ) generated an annualized return of 8.3 per cent, representing net investment results of $103.8 billion and total assets of $326.7 billion as at June 30, 2019. Over six months, the average return on depositors’ funds was 6.1 per cent, generating net investment results of $18.4 billion. “From a market perspective, we are living in roller coaster times. In the last six months of 2018, markets performed poorly on the expectation of continued monetary tightening from the U.S. Federal Reserve. In December 2018, the Fed changed its course in favour of more accommodating policies. In reaction, markets embarked on an impressive rally at the beginning of the year. This reflects the growing co-dependency between the U.S. central bank and capital markets – where each focuses on the other and the real economic conditions and profound structural changes occurring in the global economy are sometimes lost from sight,” says Michael Sabia, president and chief executive officer of CDPQ. “In this environment, we continue to focus on resilience. It served us well when markets were crumbling last year and it continues to produce results aligned with our depositors’ needs in the first half of 2019.” Depositors’ net assets totaled $326.7 billion, up $17.2 billion from $309.5 billion as at December 31, 2018. This growth is attributable to net investment results of $18.4 billion and net depositor withdrawals of $1.2 billion.
Private Assets Drive Excess Return
The British Columbia Investment Management Corporation (BCI) had an annual combined pension return, net of costs, of 6.1 per cent for the fiscal year ended March 31, 2019, versus a combined market benchmark of 4.5 per cent. This generated $2 billion in added value for BCI’s pension plan clients. The excess return was largely driven by the outperformance of its private assets, finishing the fiscal year with significant returns from both income generation and capital appreciation. Its managed net assets increased to $153.4 billion from the previous year, reflecting investment gains of $9 billion, partially offset by $1.2 billion of client distributions. “Our results reflect solid performance from all asset classes despite the uncertainty and volatility in the markets,” says Gordon J. Fyfe, CEO/CIO of BCI. “These contributions signal the success of our strategic focus since 2015 of adopting an active, in-house approach that emphasizes private markets.
Demand For Gold Reaches High
Global demand for gold reached a three-year high during the first half of this year, driven by continued central bank buying and sustained growth in gold-backed exchange-traded funds (ETFs), says data from the World Gold Council. Overall gold demand hit 2,181.7 tonnes during the first six months of 2019, an increase of eight per cent compared to the same period last year. Central banks bought a total of 374.1 tonnes of gold during the half – the largest increase for this period – driven largely by purchases made over the second. Holdings in gold-backed ETFs grew to a six-year high of 2,548 tonnes in the second quarter, driven by continued geopolitical instability, expectation of lower interest rates, and the rallying gold price in June. Strong inflows in June of 126.7 tonnes outweighed the rush to sell in April which saw outflows of 57.2 tonnes. Net inflows for the first half reached 107.5 tonnes compared to 60.9 tonnes in the same period last year.
Strategies May Not Work In Future
Given the unrelenting pressure on fees, continued flows to passive strategies and private assets, and a widening gap between technology leaders and laggards, the Boston Consulting Group says strategies that set asset managers up for success in the past, may not suffice in the future. It says there will be two viable business models for asset managers in the decade to come: delivering “consistent, superior performance” as a boutique alpha shop or succeeding through scale as a “distribution powerhouse.” The small managers that thrive will boast top investment and research talent, effective sales and marketing departments, and “a pioneering use of data and analytics for investment purposes.” The largest firms will dominate thanks to their “superior” sales and marketing, advantaged access to intermediaries, “complete and dynamic” product lineup, and scalable technology and operating model. However, asset management firms which fall somewhere between a sub-$100 billion boutique and a trillion-dollar-plus giant will be squeezed and this will prompt mergers and acquisitions among mid-sized asset management firms which will need scale to invest in technology and stave off fee pressure.
Average Fee For Global Equity Falls
The average fee for an actively managed global equity mandate for a UK institutional investor has fallen by 11 per cent since 2017, says LCP’s ‘Investment Management Fee Survey.’ Increased competition and downward pressure from low-cost index trackers are the main reasons for the fall. It also revealed “notable” fee reductions in a range of other key asset classes, including multi-asset diversified growth funds, multi-asset credit, liability-driven investment strategies, and passive global equity mandates. It estimates that a typical £500 million defined benefit pension fund in the UK had seen a reduction in total investment fees from 39 basis points to 36bps, or £140,000 a year, in the past 10 years. The average annual fee for a £50 million investment mandate was 65bps, down from 73bps in 2017. The largest contributing factor to declining fees was decreasing allocations to active equity mandates. As a result of DB schemes changing their asset allocations since 2010, the average scheme was paying more in fees to credit and liability-driven investment managers than to equity managers.
Advisor Group Sold
Investment funds affiliated with Lightyear Capital LLC, a New York-based private equity firm focused on financial services, and the Public Sector Pension Investment Board have completed the sale of Advisor Group, Inc to Reverence Capital Partners. They acquired Advisor Group from AIG in May 2016. Since that time, client assets under administration have grown more than 73 per cent from $157 billion at the time of purchase to $272 billion today.
Mercier Joins Mercer
Bernard Mercier is partner and wealth business leader for Mercer Canada. He will be responsible for leading the pension and investment team and service offerings within the British Columbia market. Previously, he held various senior roles with a global wealth advisory organization, including retirement business leader and as a member of the Canadian retirement leadership team.
Plan Administration Basics Covered
Designed by CPBI Ontario, the ‘HRPA Canadian Pension Certificate Program’ examines the basics of plan administration and governance. Sessions look at key legal obligations, retirement savings plans and plan governance, and best practices in risk management. Offered in three levels over three consecutive days, those who complete program with receive a pensions program certificate. It takes place September 10 to 12 in Toronto, ON. For information, visit Pension Certificate
Rate Cut Tones Hawkish
Despite the easing of the U.S. interest rate by the Fed, the decision, statement, and accompanying press conference have somewhat hawkish tones, at least relative to the market’s prior expectations, says Eric Lascelles, chief economist at RBC Global Asset Management. While the policy rate was cut, the market had priced in the chance of an even larger 50bps cut and so there was some slight disappointment on that front. Two out of 10 Fed voters dissented against a rate cut, preferring to leave the policy rate unchanged. This is not exactly shocking given that nine out of 17 Fed participants didn’t recommend any rate cuts at all for the entire year as recently as June, but it nevertheless highlights the complexity of attempting to deliver additional rate cuts later this year. The last time the Fed grappled with two dissents was December 2017. It also indicated it is quite data dependent and still thinking deeply about the correct future path for interest rates rather than having a premeditated path of easing planned out. In the press conference, Fed Chair Jerome Powell described the rate cut as a “mid-cycle adjustment to policy,” in contrast to being part of a lengthy cutting cycle. The Fed doesn’t think it’s on its way down to the zero bound, or anywhere near that level. As well, this is a minor decision meaning it is not accompanied by updated forecasts or fresh dot plots. Thus, there is still a fair amount of guess work involved as to the future path, he says.
Guidance Offered On Reporting Climate Risk
A new guidance to help companies report risks from climate change is meant as an educational tool to clarify the legal requirements for disclosing climate change-related risks, says the Canadian Securities Administrators’ (CSA). “Many investors are seeking improved disclosure on the material risks, opportunities, financial impacts, and governance processes related to climate change,” says Louis Morisset, CSA chair and president and CEO of the Autorité des marchés financiers. The guidance “will enable issuers to improve their disclosure of material climate change-related risks affecting their business,” he says. It focuses on disclosure obligations for management discussion and analysis (MD&A) documents and annual information forms (AIF). For those forms, information is likely material if “a reasonable investor’s decision whether to buy, sell, or hold securities in an issuer would likely be influenced or changed if the information in question was omitted or misstated,” the notice says.
Smaller Firms Have Higher Returns
Institutional investors feel smaller money management firms have advantages in achieving higher returns, says a survey from CoreData Research. It found 90 per cent of chief investment officers at money managers and asset owners say that larger firms are at a disadvantage when it comes to delivering higher returns. The prime factor impeding larger money managers to generate alpha is bureaucracy said 65 per cent of respondents. Another 42 per cent said that larger firms are more risk-averse in their investment selections. Thirty-nine per cent said inefficient personnel structures impeded alpha-generating efforts, while 24 per cent said larger firms have less innovative solutions and 23 per cent said larger firms have more stringent regulation requirements. “But these findings do not signal the death knell for larger investment houses. While smaller managers are more likely to be specialists in particular markets, larger firms can leverage their resources to adopt a multi-boutique structure that takes this more specialist, niche approach to a wider investor audience,” says Craig Phillips, head of CoreData Research International.
Active Ownership Used For ESG Decision-making
Nearly three-quarters (72 per cent) of asset managers exercise active ownership as part of their environmental, social, and governance (ESG) investment decision-making process to minimize risks and maximize returns, says research from Cerulli Associates. This is up from 54 per cent in 2017. It says successful active ownership practices can result in meaningful improvements in corporate policies, practices, and accountability. Active ownership refers to the practice of engaging in a dialogue with companies on ESG issues and exercising both ownership rights and a voice to promote change. It can be expressed through voting activities, dialogue with management, shareholder engagement, and shareholder resolutions. The vast majority (90 per cent) of asset managers surveyed are using proxy voting, and more than three-quarters (78 per cent) engage in dialogue with management. The top issue that remains at the heart of asset managers’ engagement activities is climate change, with nearly all (94 per cent) of survey participants citing climate risk as a key topic. Workforce and board diversity of race, ethnicity, and gender are also a top emphasis of asset managers’ engagement priorities.
Reform Should Cover Whole Working Population
To make the automatic enrollment program for Turkey’s defined contribution pension plans work, says the ‘OECD Business and Finance News ‒ July 2019,’ the target population should cover the whole working population between ages 15 and 64, including the self-employed. Established in 2003, the Turkish private pension system is based on DC plans and targets to promote long-term savings to contribute to the growth of capital markets in the country. However, among the major OECD countries, the Turkish private pension funds sector is still one of the smallest and adds up to only 2.5 per cent of GDP. To encourage retirement savings in DC plans, two policy measures were put into effect by the Turkish government ‒ state matching incentive where the government contributes up to 25 per cent of the amount paid by the employee and automatic enrolment legislation in 2017. While the automatic enrolment system is expected to boost participation rates among first-time savers in Turkey, the opt-out rate from the system is still around 54 per cent. Other measures proposed to make this work include not allowing employees to cease their membership in the automatic enrolment system after the opt-out period; making employer contributions compulsory and the level of state financial incentives should be inversely related to income levels; using life-cycle funds as default options; using tenders to select default fund providers and reduce fees; and offering life-annuity products and mandatory annuitization for the pay-out phase in Turkish DC plans.
CPPIB Consortium Acquires Refinitiv
The London Stock Exchange Group plc with a consortium including investment funds affiliated with Blackstone as well as Thomson Reuters will acquire the Refinitiv business. Blackstone’s consortium includes an affiliate of the Canada Pension Plan Investment Board (CPPIB). The transaction will result in the consortium ultimately holding an approximate 37 per cent economic interest in LSEG and less than 30 per cent of the total voting rights of LSEG. It brings together two highly complementary businesses to create a UK headquartered, global financial markets infrastructure provider with a leading data and analytics business, significant capital markets capabilities across multiple asset classes, and a broad post-trade offering.
Lubecki Has New Role
Relationship Breakdown Examined
Osgoode Professional Development’s ‘Pension and Retirement Assets on Relationship Breakdown: Critical Updates’ brings together family law, pensions, and actuarial experts. Those who practice in family law or work in pensions will be provided with the knowledge and practical strategies to tackle the most challenging issues in pension and benefit entitlements that arise upon separation. Sessions will look at topics such as legislation changes and the new pension regulator, the intersection of the Family Law Act and the Pension Benefits Act, and what family lawyers and pension professionals need to know about pension valuation and division. It takes place September 27 in Toronto, ON. For information, visit Retirement Assets