Equities Level Retirement Savings Field

Defined contribution pension plan members can level the retirement savings playing field by continuing to invest a percentage of their funds in equities, says Joseph Nunes, co-founder and executive chairman of Actuarial Solutions Inc. The general theory is that with a possible 30- or 40-year retirement, moving all investments to fixed income investments or an annuity is walking away from the equity market too quickly. “The problem for most retirees is that the possibility of outliving their nest-egg is real,” he says. Roughly speaking, only a quarter of males 65 years old will die within three years of their expected lifetime of 86.5. Assuming a retiree targets their expected lifetime, about 35 per cent of retirees will leave more than three years of money on the table and about 40 per cent will run out of money more than three years before they die.

Uncertainty Shock From Brexit Growing

It is clear that the Brexit vote and the ensuing failure to achieve an agreement has created a powerful, persistent uncertainty shock that is growing, says Kristina Hooper, a global market strategist at Invesco Ltd. The UK has not yet arrived at a customs agreement and there remains the very real possibility that it could “crash out” of the European Union without any trade agreements in place. While the extension granted by the European Union has temporarily averted a “crash out,” it has extended the period of extreme policy uncertainty, which is likely to continue to depress business investment. Research has found that uncertainty not only reduces the level of investment, but it also lowers the sensitivity of businesses to changes in economic policy. In other words, in periods of uncertainty, changes in fiscal or monetary policy do not have as much of an effect on business investment. This is a “chilling effect” that can render policy less effective at achieving its objectives. This year, Brexit has created a seismic level of policy uncertainty and it will likely be used by economists for years to come as a case study in how policy uncertainty impacts economic growth. In earlier surveys, 40 per cent of firms cited Brexit as one of their top sources of uncertainty; in the most recent surveys, 48 per cent of firms cited Brexit as one of their top sources of uncertainty. And companies are not just delaying investment; in some cases, they are ending investment. This makes the disappointing results in terms of UK capital spending understandable.

CAP Replacement Rate Improves

Positive stock and bond markets in the first quarter of 2019 helped to improve gross replacement rates for capital accumulation plans (CAPs) from the all-time lows observed at the end of 2018, says Eckler’s ‘CAPit.’ The income a typical male CAP member could replace from their workplace plan and government benefits rose almost a full percentage point to 57 per cent, while females experienced a similar gain to finish the quarter at a 56 per cent replacement rate. Over time, investment markets and interest rates have impacted a plan member’s ability to generate replacement income. Government benefits (the Canada Pension Plan and Old Age Security) have historically provided about 32 per cent of the replacement income for Canadian workers. The recent enhancements to the CPP (Canada Pension Plan) mean that it will continue to play a growing role in ensuring Canadians have guaranteed income for life. It is important to remember that CPP benefits are based on the number of years a person has been in the Canadian workforce and their earnings. While the goal of CPP is to eventually replace 33 per cent of a worker’s income, currently the average CPP paid is considerably less than the maximum ($7,800 versus $13,800 annually). Given the number of workers nearing retirement, with fewer years to benefit from the enhancement, many Canadians will continue to need to look beyond CPP for additional sources of guaranteed income.

UK Testing ESG Qualification

The UK branch of the CFA Institute has launched a qualification in ESG (environmental, social, and governance) investing. The ‘Certificate in ESG Investing’ is designed to meet increased demand for ESG industry knowledge and skills. Revealed at the CFA Institute Annual Conference in London, UK, the certificate is recognized by the Principles of Responsible Investment (PRI), the UN-sponsored body and proponent of responsible investment. It will be available to investment professionals later this year and could be made available in other countries, once the UK pilot program had been successfully tested.

Companies Engaging On ESG

Last year was a pivotal year for engaging with companies on environmental, social, and governance (ESG) issues, says BMO Global Asset Management’s ‘Responsible Investment Annual Review.’ It says 54 per cent were linked to sustainable development goals, or SDGs, while the rest were related to corporate governance. It was a particularly pivotal year for the development and implementation of climate strategies, says Alice Evans, co-head of responsible investment at BMO Global Asset Management. “We have seen significant improvement following engagement. We have also seen traction in improving working conditions and workers’ rights and addressing corruption.”

Submissions For Research Award Sought

The CFA Society Toronto and Hillsdale Investment Management are seeking submissions for the 11th annual ‘Canadian Investment Research Award.’ The award is open to global researchers conducting research related to Canadian capital markets including both academics (professors and students) and practitioners. Papers with multiple authors are welcome. The winning research paper will be awarded $$10,000, be acknowledged at CFA Society Toronto’s annual awards reception, and on social media channels. The submission deadline is to be determined. For further information and a submission form, contact CFA Society Toronto at awards@cfatoronto.ca.

PERE Hits Record Mark

The private equity real estate (PERE) industry reached a record $900 billion in assets under management as of June 2018, marking a new high for a sector that has grown from strength to strength in recent years. Preqin’s ‘2019 Private Equity Real Estate Market Outlook’ says fundraising has remained strong, deal-making is at record levels, and investor appetite is high. Looking ahead, fund managers are optimistic about the future of the industry and there are a record number of funds seeking capital. But there are serious challenges ahead, it says, including high asset pricing that is putting pressure on future return prospects. Both fund managers and investors foresee a market correction in the coming months. This suggests that the months ahead will be turbulent for PERE fund managers and may help explain why investors are increasingly looking to commit to large, established fund managers over smaller firms. As the fundraising and deals markets continue to bifurcate, the industry is likely to become even more difficult to navigate for both parties.

Teachers’ Adds Renewable Energy

Ownership of BluEarth Renewables LP has been transferred to the Ontario Teachers’ Pension Plan and DIF Infrastructure V. BluEarth Renewables delivers renewable energy to the power grid every day. An independent power producer, it acquires, develops, builds, owns, and operates wind, hydro, and solar facilities across North America.

Rheaume Joins Mercer

Michel Rheaume is director, OCIO services, central Canada, at Mercer. Most recently, he was a vice-president and client portfolio manager at Invesco Canada. He has also held similar positions at Foyston, Gordon & Payne and Phillips, Hager & North Investment Management.

Alternative Data Discussed

AIMA and the CAIA will present ‘Hunting for Data-Driven Alpha.’ Jennifer Tkachuk-Tremblay, head of business development at Delphia; Jesse Richmand, a partner at CoVenture; and Katherine Glass-Hardenbergh, a vice-president at Acadian Asset Management; will discuss how alternative data and technology can create investment opportunities in today’s market environment. It takes place May 30 in Montreal, QC. For information, visit Alternative Data