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April 26, 2019


Non-profits Join OPTrust Select

OPTrust has enrolled the first non-profit organizations to OPTrust Select, its new defined benefit pension offering. In total, seven employers and 215 members are joining. An additional 70 organizations from across Ontario have applied and are in the process of joining those already enrolled in the plan. Employees from the Ontario Non-profit Network (Toronto, ON), Barry’s Bay and Area Senior Citizens Home Support Services (Barry’s Bay, ON), Community Food Centres Canada (Toronto, ON), Contact Brant (Brantford, ON), LiveWorkPlay (Ottawa, ON), Newcomer Centre of Peel (Peel Region, ON), and People for Education (Toronto, ON) have joined the plan. In September, OPTrust Select was recommended by the Ontario Non-profit Network and its employees are the first to officially join. It is a DB pension at a moderate cost which will provide members with a steady stream of retirement income for life. The plan is targeted to Ontario workplaces in the broader public sector, charitable, and non-profit groups that do not have a workplace DB pension plan but may have a defined contribution plan, a group RRSP, or no retirement savings arrangement at all.

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Interest In RI Increases

Canadians are increasingly interested in responsible investments (RI), says a survey for Desjardins. However, this choice isn’t always available to investors who want to take concrete action that aligns with their values. RI includes investing in funds that contribute to social causes like affordable housing or climate change. It found that between 2016 and 2018, Canadians became more familiar with, and interested in, these types of investments. In 2016, 43 per cent of respondents said this was the first time they had heard of RI; that number was 72 per cent two years earlier. While only 13 per cent of respondents in 2016 said they were familiar with RI, that number was up to 34 per cent two years later. The percentage of Canadians who said they were interested in RI increased from 66 per cent to 72 per cent over the same two-year period. In 2018, 63 per cent of them said they would probably, very likely, or definitely choose RI options, a seven per cent increase.

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Real Estate Shows Positive Momentum

Positive momentum and strong interest in the multi-suite residential, industrial, and office asset classes continued into the first quarter of 2019, says Morguard Corporation’s ‘First Quarter Update of the 2019 Economic Outlook and Market Fundamentals Research Report.’ “The performance of the multi-suite residential, industrial, and office sectors have kept them as favourites of investors,” says Keith Reading, director of research at Morguard. “Uncertainty and volatility in global economic dynamics seem to have had little impact on the Canadian commercial real estate business. A sustained momentum from the end of 2018 has kept the investment community confident that these markets continue to represent a relatively safe investment option.” The movement of retirees from single-family homes to the rental market, combined with international migration patterns, has resulted in significant demand pressure for multi-suite residential rentals. Combined with availability rates across the market projecting to hold at or near record lows, rent rates are expected to be driven beyond the all-time highs. A similar lack of availability will continue to affect the office leasing market as national vacancy came to rest at 11.5 per cent at the end of March of 2019, down 40 bps quarter-over-quarter and 100 bps year-over-year. The downward vacancy trend was most evidenced in the downtown areas of Montreal, QC, and Vancouver, BC, while in Toronto, ON, vacancy rested at an all-time low of 2.6 per cent. As rents continue to stand at the cycle-highs, investment confidence in the market continued with 16 million square feet of new supply in development, representing a high dating back almost three years.

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Government Supports Seniors

Every Canadian should feel good about what the future holds and confident that support will be there when they need it, says federal Minister of Finance Bill Morneau. He told a town hall hosted by the Canadian Association for Retired Persons this includes Canada’s seniors, who deserve a secure and dignified retirement after a lifetime of hard work. The government’s efforts to better support seniors as they retire include boosting benefits for low income seniors, restoring the eligibility age for seniors’ benefits to 65, and moving ahead with expansion of the Canada Pension Plan. Budget 2019 will help seniors keep more of their money, protect their savings, and support their full participation in their communities. It allows seniors who choose to work to keep more of their earnings by enhancing the Guaranteed Income Supplement (GIS) full or partial exemption on up to $15,000 in annual earnings for eligible seniors, including income earned through self-employment. The Canada Pension Plan will also proactively enroll contributors who are 70 years old or older but have not yet applied to receive their retirement benefits. As well it is introducing measures to better protect workplace pensions in the event of corporate insolvency by making insolvency proceedings fairer and setting higher expectations for corporate behaviour. “After a lifetime of working hard, raising families, building strong communities, and growing the economy, we want Canada’s seniors to know that they are valued ‒ not forgotten,” he said.

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Alternatives Investment Grows In India

Alternative investment funds (AIFs) in India have grown significantly in the past few years, driven by regulatory reforms and the increasing number of high-net-worth individuals looking for sophisticated and niche strategies, says a Cerulli Associates survey. The number of AIFs registered with the Securities and Exchange Board of India (SEBI) grew to 541 as of March 2019, from 253 in June 2016. Between December 2015 and June 2018, total commitments made by investors in AIFs surged 485 per cent to INR1.8 trillion and total investments made by AIFs increased 434 per cent to reach INR748.9 billion. Demand is driven by an increasing number of wealthy investors in India. AIFs provide sophisticated investors with diversification benefits and a wider range of investment options in unlisted securities, real estate, and commodities, compared to mutual funds. Regulatory reforms have also boosted this sector. These include the regulation on tax pass-through status in 2015, the online filing system for AIFs introduced in 2017, and the rise in overseas investment limit for AIFs in July 2018.

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Clarke Joins CAAT

Shane Eagle Clarke is a policy analyst at the CAAT Pension Plan. Previously, he held a similar position at HOOPP.

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Environment Requires Pension Strategy Re-thinking

With the world going through unprecedented change, disruption is impacting industries and economic sectors, in the process uprooting the conventional order and changing the corporate landscape. Looking ahead, passive investing will not cut it ‒ an increasing number of index stocks are likely to disappear in the coming years. Recognizing this, Michael Hughes, of Guardian Capital, will consider how long-term forecasting can be adapted to create a ‘future-proof’ portfolio as he and AllianceBernstein’s Christopher Marx and Neil Blundell and Peter Miller, of Invesco, examine how institutional investors should re-think investment strategies in the face of today’s challenging environment and how can they innovate with portfolio construction in order to thrive at the Benefits and Pensions Monitor Meetings & Events ‘Pension Investment Strategies’ session. It takes place May 14 in Toronto, ON. For information, visit Pension Strategies

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April 25, 2019


Common Regulatory Approach Among CAPSA Priorities

The Canadian Association of Pension Supervisory Authorities (CAPSA) will promote a common regulatory approach and consistent standards for pension plan administration in specific areas. This is one of five priorities it has set in its ‘Strategic Plan 2019-2022.’ Every three years, CAPSA develops a number of strategic priorities that provide a framework for its initiatives. To promote a common regulatory approach, it will implement the recommendations of its leverage working group; review and update its pension plan funding policy, including enhancing funding policy guidelines for target benefit plans; review its guideline for capital accumulation plans; and support harmonization of jurisdictional frameworks. Other initiatives include supporting the adoption and continued implementation of the agreement respecting multi-jurisdictional pension plans by finalizing the agreement and facilitating its adoption. It also will proactively identify emerging pension issues, including developing guidelines on the integration (interpretation, role, and use) of environmental, social, and governance (ESG) factors in the supervision of pension fund investment and risk management. Guidelines will also be developed to assist pension stakeholders in developing and building robust cybersecurity plans.

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Smart Beta Losing Traction

Smart beta may be losing traction, says Cerulli Associates. The number of such products launched globally slowed year-on-year in 2018 and exchange-traded funds (ETFs) have failed to grow their market share in Europe over the past 12 months, it says. “If smart beta is supposed to represent a radical disruptive influence on both asset management in general and ETF issuers specifically, the numbers suggest that the revolution may be stalling,” says Fabrizio Zumbo, associate director, European asset management research at Cerulli. It believes it is important to take account of the fact that the smart beta space contains a wide variety of strategies and factors. In addition, changes in investor sentiment are not necessarily reflected in actual market returns. “The recent enthusiasm for low-volatility strategies, for example, seems slightly at odds with returns for the calendar year 2018,” says Zumbo. “S&P’s numbers suggest that in 2018, enhanced-value indices produced the biggest returns within the European universe of strategy indices, with a 9.5 per cent return, whereas low volatility fell by 1.9 per cent.” A 10-year look at returns provides a more nuanced picture. According to S&P, quality and low-volatility strategies produced better-than-benchmark returns with lower risk levels (as measured by annualized volatility). Value (enhanced), emerges as a far more volatile strategy, with lower returns. A study of the five key factors ‒ value, momentum, low volatility, quality, and growth ‒ in the U.S. stock market shows that, although returns generated by smart beta ETF indices are slightly lower than those for the benchmark, their performance is broadly in line with investors’ expectations.

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SHARE Voting On Methane Emissions

On behalf of our growing group of Canadian institutional investors, the Shareholder Association for Research and Education (SHARE) will be attending corporate annual meetings this spring calling on Canada’s top natural gas producers to step up and adopt short- and long-term methane reduction targets and to report annually on progress towards these targets. “Reducing methane emissions from the oil and gas sector is a key measure under Canada’s Climate Plan and our ability to meet Canada’s commitment under the Paris Agreement depends on reductions from this sector,” says Laura Gosset, a senior analyst at SHARE. “Moreover, there is a clear business case to reduce methane emissions because it is a marketable commodity and efforts to reduce fugitive emissions increase operational efficiency.” Methane is a particularly potent greenhouse gas that has over 70 times more global warming potential than carbon dioxide in the short term. Almost half of all methane emissions in Canada come from the oil and gas sector’s upstream activities and that figure is likely much higher due to gross inaccuracies in measurement that have been detected in recent peer-reviewed research. While federal and provincial governments have issued targets for industry-wide methane reductions, Gosset says, “these should really be viewed as a backstop. We need greater ambition from industry to get us on track for meeting Canada’s climate goals and to keep global warming within a safe limit.”

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Exchanges Adopting ESG Initiatives

Nearly all exchanges have some form of ESG (environmental, social, and governance) initiative, says the fifth annual ‘Sustainability Survey’ by the World Federation of Exchanges. In 2018, 90 per cent reported having some form of ESG initiative. It found 73 per cent of exchanges reported having the United Nations Sustainable Development Goals(UN SDG) -specific initiatives, most commonly education and information programs for listed companies. However, while two-thirds of responding exchanges encourage or require ESG disclosure, “there is still no consistent global standard for ESG reporting,” the survey says. Sustainability indexes are still the most commonly offered products, but there has been considerable growth in ESG-related bond offerings, with 73 per cent of exchanges with sustainability products offering green bonds in their markets.

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Hedge Fund Withdrawals Surge

Withdrawals from hedge funds surged in March even though investors were seeing returns of up to more than five per cent, says eVestment. Hedge funds had an estimated $13.69 billion of withdrawals in March, representing the lion’s share of redemptions that in total were nearly $15 billion for the first quarter of the year. The first quarter marked the fourth consecutive quarter of redemptions from the industry. It says that investors “once again showed their dissatisfaction with underperforming products.” The majority of outflows came from large macro, long/short equity, and managed futures funds which produced negative results last year. However, despite this aggregate negativity, some funds and segments received new allocations. Emerging market funds had a strong March in asset flows and over the first quarter pulled in $4.49 billion, the bulk of this going into China-focused funds.

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Griffin Joins Beutel Goodman

Erin Griffin is a content and communications specialist at Beutel Goodman Investment Council. She joins the firm from Kaiser Lachance Communications where she was most recently an account manager.

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AIMA Offers Match-making Sessions

One-on-one networking opportunities will again run concurrently at the ‘5th Annual AIMA Canada Investor Forum.’ Participants will be provided with access to 20-minute match-making sessions throughout the day to discuss their companies and services. Conference sessions will be featured on areas such as hedge funds, alternative credit, and ESG and investing for impact. It takes place October 17 to 18 returns in Toronto, ON. For information, AIMA Forum

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April 24, 2019


Ontario Teachers’ Launches TIP

Ontario Teachers’ Pension Plan (Ontario Teachers’) is launching a new investment department, Teachers’ Innovation Platform (TIP). TIP will focus on late-stage venture capital and growth equity investments in companies that use technology to disrupt incumbents and create new sectors. Olivia Steedman will build and lead TIP as its senior managing director. She has been at Ontario Teachers’ since 2002 and is a founding member and senior leader of the infrastructure and natural resources group. “This is a time of unprecedented change in multiple areas including computing, materials science, robotics, and medicine. There are significant opportunities to invest in the new businesses and sectors that are emerging as a result of this change,” she says.

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Opposition To G19 Not About Disclosure

The Canadian Group Insurance Brokers (CGIB) opposition to the Canadian Life and Health Insurance Association (CLHIA) Guideline 19 is not to be confused with opposition to disclosure. This is about opposition to a stakeholder who has no regulatory or legislative mandate to impose an industry standard and it could be argued that the CLHIA is exerting its dominant position in the marketplace in a self-serving way to the detriment of other stakeholders – specifically the consumers, it says. G19 claims to establish industry standards for the disclosure of compensation for group retirement services and group benefits. The guideline would apply to all CLHIA member companies, regardless of the form of compensation paid or provided or the distribution channel used. However, G19 is not intended to apply to insurer direct selling models or captive agents. Calling this “the single most important issue” for all intermediaries in maintaining a healthy balance in the consumer ecosystem, he says in a letter to the CLHIA. Moreover, G19 could lead to less access for consumers and a disruption of independent advice channels. It is not a guideline, but a prescriptive set of rules that oversteps both long-established International Insurance Core Principles (ICPs) and contravenes guidance set by the Competition Bureau specific to the activities of trade associations like CLHIA. The CGIB has asked for a formal response to its letter before taking its next steps of engaging regulatory bodies, the Competition Bureau, governments, and the public.

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Morneau Shepell Focuses On ESG

Morneau Shepell has released its first published CSR report. Its ‘2018 Corporate Social Responsibility (CSR) Report’ focuses on company-wide performance in environmental, social, and governance (ESG) initiatives, the key areas of corporate responsibility that intersect with its business. In 2019, it will continue to strengthen its reporting to evolving CSR standards while updating its management systems and operating practices for compliance with those standards. The company’s long-term focus is to align its CSR strategy to global principles for responsible corporate citizenship, providing new opportunities to contribute to the well-being of people, organizations, and communities. “As a responsible corporate entity, the idea of well-being fully permeates our organization,” says Stephen Liptrap, president and chief executive officer. “Our company is on a continual journey to strengthen the governance of our CSR initiatives and improve our operating practices. This report demonstrates that CSR is fundamental to our business and central to our brand values. It helps define Morneau Shepell’s way of doing business, drives our strategy and sets the standard for our behaviour.”

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Evolution Of Equity Markets Set To Accelerate

The arrival of MiFID II kicked off a new phase in the evolution of global equity markets and that pace is set to accelerate as emerging technologies like ‘algo wheels’ and artificial intelligence (AI) transform the way investors around the world execute equity trades, says Greenwich Associates. Its report, ‘Trends in Global Equity Electronic Execution,’ says in January 2018, European equity markets underwent a tectonic shift, as MiFID II regulations came into force. An unbundling of research from trading and a more stringent best execution requirement changed the way European firms look at the equity trading business and their relationships with equity brokers. However, “relationships matter more in the U.S. and Canada than they do in Europe,” says Richard Johnson, principal in the market structure and technology team at Greenwich and author of the report. “This is a clear result of the MiFID regulations and a sign of how North American markets may evolve going forward.” Over the last year, buy-side traders continued shifting modest, but meaningful, amounts of trading business from traditional ‘high-touch’ trades to algorithmic trading. In Europe, buy-side traders are now using low-touch channels for 35 per cent of their flow, up by four percentage points since 2017. North American markets are up two percentage points to 41 per cent in the same time frame. Alongside MiFID II in Europe, one of the biggest drivers of this shift is continued innovation. An important recent trend is the emergence of algo wheels, or routing technology, embedded into a trader’s execution management system (EMS) that selects the best underlying broker algos and automatically routes the order. Currently, less than a quarter of traders use an algo wheel, but those who do use it for 38 per cent of their algo flow. Going forward, the integration of AI to algos could have an even bigger impact. Brokers are already rolling out machine-learning algorithms that can digest a vast quantity of historical trade data and figure out the most appropriate trading strategy based on a user’s parameters. To date, only 27 per cent of firms have tried AI-powered algos and early reviews are mixed.

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Aon Stops Hedge Fund Monitoring

Aon Hewitt Investment Consulting will no longer offer a hedge fund monitoring service to its institutional investor clients. Vision, which was launched in 2014, monitored the daily holdings for liquid alternatives managed accounts in order to provide clients additional assurances that their hedge fund managers were not taking risks outside of the mandate of their investment policy. It was available to its institutional investors for a fee as a premium service.

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TD Using Azure As Foundation

TD Bank Group (TD) will use Microsoft Azure as the cloud foundation to provide its technology and design teams with tools designed for secure, agile, and flexible access to data and AI resources. This will further enable the bank to adapt and quickly respond to changing customer needs. Bharat Masrani, group president and chief executive officer at TD, says, “Our strategic relationship with Microsoft will help accelerate and fuel new and innovative banking experiences for our customers, clients, and colleagues.” 

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Plan Environment Creates Opportunities

Angela Mazerolle, CAPSA chair and superintendent of pensions and insurance with the Financial and Consumer Services Commission (New Brunswick), shared proposed initiatives from the Canadian Association of Pension Supervisory Authorities (CAPSA) which take into account the changing pension plan environment. In a session at the Joint Forum of Financial Market Regulators’ annual meeting, she said this has created opportunities for new plan designs, products, processes, and requirements. CAPSA has considered the resulting complexities to develop a strategic plan that can assist pension plan administrators in meeting their fiduciary duty while protecting the entitlements of pension plan beneficiaries. The new plan also includes a review and update of the Capital Accumulation Plans Guideline. CAPSA will collaborate with the Canadian Council of Insurance Regulators and the Canadian Securities Administrators as it leads this initiative.

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Danish Fund Sets Green Allocation

Danish pension fund PenSam aims to allocate 10 per cent of its €18 billion of assets under management into green or sustainable investments by 2025. It recently added two renewable energy investments to its portfolio worth €200 million. This includes California solar parks Garland and Tranquillity, which aim to supply solar power to 100,000 American households. Another is a wind farm in Northern Sweden which will provide energy for 220,000 households. It has also decided to exclude investments in fossil fuels with the latest step being exclusion of tar sands companies in December 2018. It will use recommendations from the task force on climate-related financial disclosures to calculate climate impact of its portfolio.

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Coté Joins bfinance

Philip Coté (CFA, FRM) is director, client consulting, in bfinance’s Canada team. Joining the client consulting team at its Montréal, QC, office, he brings over 16 years’ experience in financial services, investment consulting, manager research, and product development globally. Most recently, he was director at Pavilion Alternatives Group where he led the manager research and due diligence function across private markets with a focus on real assets and private debt.

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Benefits And Pensions Examined

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

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April 23, 2019


DC Recordkeepers Should Focus On Wellness

New findings from a SPARK Institute report and conducted by Cerulli Associates indicate that financial wellness programs are an area of strategic focus for many defined contribution recordkeepers. While the term financial wellness can be ambiguous, at its most fundamental level it emphasizes holistic advice and goes beyond a participant’s workplace retirement savings account. It includes financial budgeting, emergency savings accounts, cash flow management, and debt optimization. “There is increased awareness among retirement industry stakeholders that plan participants do not save for retirement in a vacuum,” says Dan Cook, a research analyst at Cerulli Associates. “The average participant has several competing financial priorities, which can be challenging to manage without access to personalized financial advice.” Participants in the mass-market (less than $100,000 in investable assets) and middle-market ($100,000 to $500,000 in investable assets) cohorts are less likely than their more affluent peers to select ‘financial advisor’ as their primary source of retirement advice. They are more likely to rely on their retirement plan provider or indicate they have ‘no source’ for advice. “As such, DC recordkeepers play a key role in providing guidance to this group of underserved individuals,” says Cook, and “Oftentimes, a financial wellness program is the most effective framework through which to deliver this guidance.” However, these programs cannot be solely founded in educational resources. Instead, the programs must be measurable and embrace technology to help participants seamlessly move from ambition to action.

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Canadian Funds Among Most Responsible

The British Columbia Investment Management Corporation (BCI) is one of five Canadian funds on the Responsible Asset Allocator Initiative (RAAI) at New America’s ‘The 2019 Leaders List: The 25 Most Responsible Asset Allocators,” a ranking of the world’s top sovereign wealth funds (SWF) and government pension (GPF) funds. The study, developed in partnership with the Fletcher School at Tufts, analyzed 197 funds comprising $21 trillion in assets to identify 25 institutions that set a global standard for leadership in responsible, sustainable investing. This year’s ranking builds on the groundbreaking first release of the report under the auspices of the Bretton Woods II program at New America in 2017. “The Responsible Asset Allocator Initiative provides a barometer of how the world’s largest financial actors are changing their behaviour to address the planet’s greatest challenges. The intense competition for inclusion on the 2019 list demonstrates that sophisticated investors are embracing a broader definition of fiduciary duty and, increasingly, adopting environmental, social, and governance considerations into their portfolio decision-making,” says Dr. Tomicah Tillemann, chair of the RAAI program at New America. Canada has the greatest number of funds on the list with five leaders, followed by France and the U.S. with three each. The Canadian funds, in addition to BCI, are the Alberta Investment Management Corp. (AIMCo), the Caisse de dépôt et placement du Québec, the Canada Pension Plan Investment Board (CPPIB), and the Ontario Teachers’ Pension Plan (Canada).

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Pension Help Protect Credit Rating

Overseas airports and roads owned by Canadian pension funds are helping to protect the country’s top credit rating, says Fitch Ratings. Foreign assets held by Canadians reached C$4.96 billion at the end of 2018, exceeding foreign liabilities by C$528.6 billion and making the country a net creditor to the rest of the world. That’s helping to support the credit rating, despite its large public sector debt and current account deficits that would typically undermine a nation’s creditworthiness. The current account includes trade in goods and services, as well as net earnings on cross-border investments and transfer payments. Countries that run current account deficits tend to pull their rating down. However, Canada is building more external assets than external liabilities. Pension funds such as the Canada Pension Plan Investment Board and the Caisse de Depot et Placement du Quebec are playing a key role in bolstering Canada’s presence abroad. Pension fund assets rose 53 per cent to C$1.92 trillion at the end of 2018 from C$1.25 trillion in the second quarter of 2011.

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CAAT Members Value Pensions Highly

Findings from CAAT’s annual surveys of active and retired members show that members continue to value their pensions highly and trust in the plan’s expertise and joint governance. More than 3,000 active and 2,800 retired members responded to the surveys. The feedback received through the surveys provides important input to setting the plan’s strategy. Past surveys, for example, helped to identify the need for a new plan design for those who work part-time or on contract which resulted in the creation of DBplus, a defined benefit plan design with features suited to those who work part-time or on contract. When asked to rate the value they are receiving from their pension, compared to the contributions they make, 91 per cent of active members rated the value as excellent (14 per cent), good (38 per cent), or reasonably good (39 per cent). Those already collecting a pension gave even higher ratings, with 98 per cent rating the value as excellent (35 per cent), good (44 per cent), or reasonably good (19 per cent). Respondents who report having an excellent or very good understanding of their pension benefits are more than three times as likely to rate the value of their pension as excellent compared to those who report lower levels of understanding. As well, 95 per cent of active member respondents reported being very-well or satisfactorily represented by the governance structure that gives members and employers an equal say in plan decisions.

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Investors Believe SRI Return Myth

A misperception that socially responsible funds underperform could be holding back some ‒ though not all ‒ investors from entering the space, says a Mackenzie Investments survey. It found that 67 per cent of respondents who engage in socially responsible investing (SRI) think they earn lower returns compared to investing in non-SRI funds. Further, half of investors are resigned to that misperception, with 53 per cent of all respondents saying they’re prepared to sacrifice some percentage of potential return to support companies with values that align with their own. However, Barry McInerney, president and CEO at Mackenzie Investments, says, “Ethical funds have the same opportunity to outperform a benchmark as their more traditional peers and many have done just that.”

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Ambachtsheer Named Senior Fellow

Keith Ambachtsheer, internationally recognized pension expert, is a senior fellow in retirement income security with the National Institute on Ageing (NIA). He is the adjunct professor of finance, Rotman School of Management, at the University of Toronto, and director emeritus of its International Centre for Pension Management. He is also a member of the Melbourne-Mercer Global Pension Index Advisory Council, the CFA Institute’s Future of Finance Advisory Council, the World Economic Forum Long-Term Investing Council, the Georgetown University Center for Retirement Initiatives Scholars Council, and the Advisory Council of the Tobacco-Free Finance initiative.

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CPBI Embraces Innovation

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

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April 22, 2019


Decumulation Nastiest Problem

Decumulation is the nastiest, hardest problem in finance because it is so complicated, says Mark Yamada, president and CEO, PUR Investing. In the session ‘I’m Retired, Now What? … Smart Decumulation’ at the Benefits Alliance Group’s ‘2019 AGM: Powered by the Past ‒ Force for the Future,’ he said it is the hardest problem because personal, actuarial; capital markets, inflation, and social security information all need to be considered. There are two types of investors ‒ the truly wealthy who want for nothing and “the rest of us” who need to plan and save, he said. The objective of the truly wealthy is to grow capital and achieve maximum returns using modern portfolio theory. And most pension plans follow this model even though it is wrong, he said. For everyone else, the objective is income in retirement. However, achieving this is difficult because of the increasing time in retirement and contingent liability ‒ outcomes determined by unusual events. Modern portfolio theory cannot handle time or contingent liability. The solution currently in place, target date funds (TDFs), can’t be used for both accumulation and decumulation as somewhere along the line life gets complicated, he said. In fact, there is a one in four chance a TDF will run out of money before a retiree dies. In fact, they were never designed as pension plans, they were only designed to get people into a more diversified portfolio. He suggested that instead they use a dynamic approach by taking on more risk to achieve returns. This gives a retiree a 90 per cent chance of not outliving their savings. With this, they should also buy an immediate annuity to deal with longevity risk.

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CAP Replacement Rate Has Largest Dip

The fourth quarter of 2018 saw the largest decline since 2011 in a retiring member’s ability to create secure retirement income. In fact, it’s reached a new all-time low, says Eckler’s ‘CAPit.’ The close of 2018 saw replacement income for a female fall to 54.8 per cent and 56.3 per cent for a male. Of this, government programs steadily continue to replace about 32 per cent. Decreased income a plan member can generate with their CAP (capital accumulation plan) is behind the drop. In the fourth quarter, equity markets experienced one of their steepest declines in the last 10 years and member outcomes were further impacted by the surprise reduction in interest rates, which lead to lower annuity rates. To help mitigate the impact on CAP member outcomes, regulators have now turned their attention to the decumulation phase and are looking for ways to allow for and encourage plan sponsors to become more engaged in helping their CAP members retire successfully. The most recent federal budget paved the way for new forms of annuities that will provide more flexibility and security for plan members. As well, the recently updated CAPSA Guideline No. 8 encourages sponsors to provide retirement income projections. This will allow members to make more informed decisions and adjust their retirement planning accordingly. The updated guideline also sets out the framework for sponsor responsibilities when allowing members to draw their retirement income directly from the plan, which provides the opportunity for plan members to benefit from plan sponsor oversight and negotiating power.

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Case Grows For Adult Vaccinations

Vaccination creates a lifetime immunity against human papillomavirus (HPV) and there is a growing case for vaccinating adults as well, says Dr. Nancy Durand, department of obstetrics and gynecology, Sunnybrook Health Sciences Centre and assistant professor at the University of Toronto. She told the ‘Preventing HPV-related Cancers: Can it be as Easy as 1, 2, 3’ session at the Benefits Alliance Group’s ‘2019 AGM: Powered by the Past ‒ Force for the Future’ that the HPV virus is the most common sexually transmitted infection worldwide. More than 75 per cent of adults will have at least one genital infection during their lifetime. While some are asymptomatic carriers and show no signs of having the virus, it can, in additional to external genital warts, cause cancers in sexual organs of both and women. The primary prevention approach is practicing safer sex practices through having fewer partners and using condoms. However, since this transmitted through skin contact, condoms are not a reliable method. The best practice is vaccination, she said. Provinces across Canada have had HPV vaccinations for children starting in grade 4. And, the younger the child, the more likely parents allow the vaccination as parents see it as a health measure. As children get older, parents see it instead as permission for promiscuity which explains why Ontario’s grade 7 program is not effective at 53 per cent. PEI, for example, has a vaccination rate of 88 per cent. The Society of Gynecology of Canada recommends vaccination for everyone, she said, as women are at risk of getting HPV infections at any age. The message is that it is effective, safe, recommended, and never too late.

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Additional Proxy Regulations Not Required

While proxy advisory firms play an important role in the U.S. proxy voting system, the Pension Investment Association of Canada (PIAC) does not believe additional regulation is required as it could lead to additional costs borne by pension funds and institutional investors, without any clear benefits. Excessive regulation of proxy research firms could ultimately impair the ability of institutional investors to promote good corporate governance and accountability, it says in its comments on the U.S. Securities and Exchange Commission Roundtable on Proxy Process. It is PIAC’s view that these reforms involve the proxy voting infrastructure and that the SEC should not make changes to current ownership requirements or resubmission thresholds for shareholder proposals or impose additional regulations for proxy advisory firms. Proxy advisory firms provide institutional shareholders with important third-party research and analysis in respect of corporate governance practices of issuers, along with voting recommendations. They also offer voting infrastructure to their clients to efficiently execute votes electronically, based on their client’s proxy voting guidelines or voting instructions. Ultimately, the responsibility for the appropriate use of proxy advisory firms rests with investors, who are the users of their research and services, it says, and PIAC does not believe that using these services constitute an abdication of a fund’s responsibility for its voting decisions, as some have argued. In fact, SEC guidance issued in 2014 reaffirms that investment advisors have an ongoing duty to maintain oversight of proxy research firms and other third-party voting agents. This duty includes ascertaining, among other things, whether the proxy advisory firm has the capacity and competency to adequately analyze proxy issues.

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Investors Back IFC Impact Principles

Amundi, AXA Investment Managers, and BNP Paribas Asset Management are among 60 investors that have backed a set of principles intended to provide a clear market standard for impact investing. The International Finance Corporation (IFC), the emerging markets-focused private sector arm of the World Bank Group, has developed the ‘Operating Principles for Impact Management’ to “bring greater transparency, credibility, and discipline to the impact investing market” by addressing concerns about “impact washing.” This refers to a perceived inappropriate labelling of investment strategies or products as “impact.” The term has gained currency as impact investing has gained attention in mainstream institutional investment. “Trends in the asset management industry have made it increasingly attractive for managers to use the ‘impact’ brand while marketing their funds to asset owners,” says the IFC. “Given that until now there have not been standards regarding what it means to manage for impact, asset owners will have difficulty assessing which … funds are truly managed for impact, and which are not.”

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Active Fund Performance Improves

Investment funds showed a more consistent performance in the first quarter of 2019 as equity markets rebounded, says BMO Global Asset Management’s ‘Multi-Manager FundWatch’ survey. It shows the percentage of UK funds showing top quartile returns over a three-year period rose to 2.2 per cent, up from 0.54 per cent in the last quarter of 2018, when markets were “tumultuous.” The 2.2 per cent represents 24 funds out of 1,102 and marks a return to “more normal levels” of active management, albeit at the lower end of the scale. The hurdle rate was lowered to above median and 122 of the 1,102 funds (11.1 per cent) delivered above median returns consistently, which is up from 10.8 per cent from the previous quarter.

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Caisse Beats Carbon Target

The Caisse de dépôt et placement du Québec outperformed its target with regard to the fight against climate change with the addition of $10 billion in low-carbon assets in 2018, prompting it to raise the target for 2020, says its second ‘Stewardship Investing Report.’ It sets out its vision and commitment to priority topics including its strategy to address climate change that aims for a transition toward a low-carbon economy, governance, women in business, international taxation, and community involvement. The portfolio’s carbon intensity decreased 10 per cent in 2018, which is on track to achieve the 25 per cent target for 2025.

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HR Function Must Step Up

The HR function must step up to assess capabilities, embed learning, promote mobility, and take full advantage of technology, says Deloitte’s 2019 global human capital trends report, ‘Leading the social enterprise: Reinvent with a human focus.’ Learning emerged as the most important trend this year. In Canada, the speed of learning was revealed as a core challenge: in fact, the number one reason survey respondents cited looking outside the organization for new talent was due to employees’ inability to learn fast enough. This differs from the answers of global respondents who believe the driver for acquiring external talent was about accessing new capabilities proliferating outside the organization. In addition to speed, Canadian respondents cited the need for learning organizations to reinvent the way in which they facilitate employee learning. Sixty-six per cent of respondents rated the ability of their learning function to meet evolving workforce needs as ‘fair’ or ‘inadequate’. This is 16 per cent higher than the global response. A key capability in this area is experiential learning, which 59 per cent of Canadian respondents indicated their organizations have ‘limited’ to ‘no use’.

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Transfer Of Puget Ownership Completed

Following approval by regulatory agencies including the Washington State Utilities and Transportation Commission (UTC) and the Federal Energy Regulatory Commission (FERC), the transfer of a non-controlling 43.99 per cent ownership interest in Puget Sound Energy’s (PSE) parent company, Puget Holdings LLC, is now complete. Two of the purchasers, the Alberta Investment Management Corporation (AIMCo) and the British Columbia Investment Management Corporation (BCI) are increasing interests they have held since 2009. They are joined by two investors also experienced in the energy sector and with regulated utilities: OMERS Administration Corporation and Dutch pension fund manager PGGM. The Canada Pension Plan Investment Board (CPPIB), also an investor since 2009, will continue to hold its interest in the company. With this change in investors, PSE is now fully owned by public- and private-sector pension and retirement fund managers with long-term investment horizons.

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Bonneau Has New Role

Marie-Annick Bonneau is head of investor relations at iA Financial Group. Since 2015, she has been its director of regulatory and operational risk management and chief compliance cfficer of iA Financial Group. In her new role, she will prepare, among other things, the communications necessary to explain the group’s results, ensure relations with credit agencies, financial analysts and institutional investors, and supervise media relations.

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Robo Advisor Use Examined

Robo Advisors & ETFs – The Next Generation for Group Retirement & Savings Plans’ is the focus of a CPBI Southern Alberta event. Brian McClennon, CEO and president of Link Investment Management, will discuss how robo advisors and exchange traded funds (ETFs) are finding their way into the group retirement and savings plan marketplace, providing intuitive solutions for plan sponsors and participants. It takes place April 25 in Calgary, AB. For information, visit Robo Advisors

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