Emerging Markets Require Proactive Approach

With MSCI defining 24 countries as EM, all of which vary in size, competency and economic potential, it can be difficult to find an allocation that fits each investor’s risk profile, says Rishikesh Patel, a portfolio manager with BMO LGM Investment. In the article Is the “Smart Money” Headed to Emerging Markets?’ in BMO Global Asset Management’s ‘Quarterly Institutional Newsletter,’ he says for a better understanding of why it’s best to be proactive in choosing your spots within EM, the opposing realities of India and China, which together account for one-third of the world’s population and over 40 per cent of the EM investment universe. China has a closed economy loaded with national champions, such as Alibaba, Tencent, and Baidu, while India levers strong democratic institutions, such as multiple political parties and an independent judiciary, into an attractive environment for global corporate brands (e.g., Unilever, Nestle, Colgate and Siemens). A willingness to recognize each country’s differentiator, incorporate them into the investment process, and take an active approach to asset allocation is the “secret sauce for evaluating business and macroeconomic risks in each country,” he says. And while the global economy seemed to be entering a late cycle at the end of 2018, the bull market was extended in January when U.S. Fed Chairman Jerome Powell said interest rates were not on a “pre-set policy path,” and could be “paused” if economic conditions warranted. With expectations of a hike in interest rates reduced to zero for this year, and one for 2020, it is understandable that investors responded with enthusiasm across EM and developed markets alike. Adding to this, the U.S. and China are nearing a bilateral trade resolution, which would reinvigorate both economies by lifting $250 billion worth of tariffs on Chinese imports and, by consequence, helping to delay a transition to later stages of the economic cycle. Some investors may already be acting on this investment thesis, judging by the fact that Canadian and American fund flows to EM increased by $308 million and $24 billion (respectively) since the start of the year

CLHIA Marks 125 Years

The Canadian Life and Health Insurance Association (CLHIA) is marking its 125th anniversary. One of the country’s oldest associations, it was founded on May 5, 1894, by eight executives representing Canadian-based life insurance companies. Their association was created as a forum to share information about a young industry that had previously been dominated by much larger U.S. and British firms. The Canadian Life Managers Association, as it was then called, was the first of its kind in the insurance sector in North America. “Our country and our industry were very different in 1894; average household savings was $12 and very few employers offered health benefits or insurance of any kind,” says Stephen Frank, CLHIA’s president and CEO, says. “But the idea of pooling risk to plan for unexpected illness, premature death, and life beyond one’s working years makes as much sense today as it did then.” Its contribution to the industry and the well-being of Canadians, includes persuading the federal government in 1919 to allow insurers to offer group life insurance, so businesses can provide health and life insurance as a benefit to their employees, leading health promotion initiatives in the 1920s and ’30s including child welfare clinics and funding to combat tuberculosis and other diseases, and creating in 2013 the world’s first private national drug pooling solution to help Canadians continue to afford the medications they need.

Digital Assets Have Place In Portfolios

Almost half of U.S. institutional investors think digital assets have a place within their portfolios, says a Fidelity Investments survey. Conducted by Greenwich Associates, it found that about 22 per cent currently have some exposure to digital assets. Forty per cent said they were open to making crypto investments over the next five years. “We’ve seen a maturation of interest from early adopters, like crypto hedge funds, to traditional institutional investors like family offices and endowments,” says Tom Jessop, the president of Fidelity Digital Assets. Institutional investors’ preferred method of accessing crypto investments in the future will be through their asset managers, with 72 per cent saying that they would like to buy investment products that hold digital assets. As well, 57 per cent would like to buy crypto assets directly and another 57 per cent would buy an investment product that holds digital asset companies. One of the main appeals of digital assets, according to 46 per cent of the survey’s respondents, is their low correlation to other assets. In addition, 47 per cent of respondents believe digital assets were an “innovative technology play.” However, obstacles preventing investments in digital assets include price volatility, the lack of clarity around regulation, digital assets’ limited track record, and the lack of fundamentals.

Fees Driven Down Consistently

With broad market-cap-weighted index strategy managers driving expense ratios close to, if not down to zero, there seems to be a growing voice in the fee debate that the race to the bottom is slowing. Despite this, the downward trend of investment product fees shows little sign of abating, says Cerulli Associates. Overall, mutual fund and exchange traded fund (ETF) asset-weighted average total net expense ratios declined consistently during the past five years, from 62.3 basis points (bps) in 2014 to only 46 bps in 2018. “Fees are driven downward by investor demand for low-cost index products, which have seen fees compressed to at or near zero,” says Brendan Powers, associate director at Cerulli. While decreased fees have led to decreased revenue, it warns that non-overt revenue compression will also exist. Distributor platform consolidation, product rationalization, and greater advisor use of asset allocation models mean that a higher percentage of assets and flows will move through a smaller number of products. As well, fee compression still has some room to run within index funds, product manufacturers seeing cost as a competitive edge and increasingly using fees as a marketing tool.” As ETF issuers “aggressively jockey to offer the lowest fees, we begin to see them filing for ‒ and now launching ‒ zero- or negative-fee ETFs.”

Hedge Fund Used For Protection

Investors are looking to hedge funds to protect their portfolios in the belief that there is turbulence ahead, says the ‘Preqin Investor Outlook: Alternative Assets H1 2019.’ Sixty-one per cent believe that the current equity market cycle is at a peak, up from 45 per cent a year ago, and 40 per cent are looking to position their hedge fund portfolios more defensively as a result of their outlook. This perception has proved a boon for the industry, with four out of five investors planning to hold or raise their allocation over the longer term – the highest proportion since 2014.

Consortium Sells Acelity

A consortium comprised of funds advised by Apax Partners, together with the Canada Pension Plan Investment Board (CPPIB) and the Public Sector Pension Investment Board (PSP Investments), has entered into a definitive agreement to sell Acelity, Inc. and its KCI subsidiaries worldwide to 3M. KCI markets a broad range of negative pressure wound therapy, specialty surgical, and advanced wound dressing products in approximately 90 countries. Since 2011, Apax, CPPIB, and PSP Investments worked with KCI’s senior leadership team to transform the business into a leading global company focused on advanced wound care and specialty surgical solutions.

Maradei Joins Aegon

Brunno Maradei is global head of ESG at Aegon Asset Management, Based in The Hague, the Netherlands, he was most recently with the European Investment Bank in Luxembourg where he was a senior investment officer leading execution teams for project finance deals outside the European Union, focusing on climate-friendly impact investments in Africa.

Governance Of Plans Examined

l’ICRA Québec will hold a workshop on the governance of pension plans. Louis Robillard, of the Retraite Québec; and Martin Roy, of Stein Monast. The main purpose of this workshop is to summarily explain the legal framework applicable to supplemental pension plans, including governance provisions; to present the principal duties and obligations of the pension committee; to address the responsibility of members of the pension committee; and the means to protect these members. It takes place May 15 in Montreal, QC. For information, visit Plan Governance

Commuted Value Interest Rate Assumptions

The interest assumptions required to calculate commuted values and marriage breakdown values for an event which occurs in any month up to and including May 2019 are now available at www.an-actual-actuary.com. An Excel spreadsheet on the website contains nine worksheets:
• Commuted Values February 2011 CIA
• Marital Breakdown: CSOP 4300 ‒ January 2012
• Ontario (Bill 133) Prior Rates – Rates for Ontario Marital Breakdown with valuation date prior to January 1, 2012
• Annuity Proxy for Solvency Calculations for Non-Indexed & Fully-Indexed Pensions
• Minimum Interest on Employee Required Contributions
• HISTORICAL Marital Breakdown: CSOP 4300 ‒ May 2009 (Now Frozen)
• HISTORICAL: Commuted Values ‒ 2009 Basis (Now Frozen)
• HISTORICAL: Commuted Values ‒ 2005 Basis (Now Frozen)
• HISTORICAL: Commuted Values ‒ 1993 Basis (Now Frozen)
You can use this spreadsheet to compare the interest rates which you may have calculated and/or you can download the spreadsheet to your own computer. Another actuary has already provided a peer review of the updated rates in this spreadsheet and determined that he/she agrees with the results.